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Hewlett-Packard Profit Forecast Falls Short of Estimates
Feb. 23 (Bloomberg) -- Hewlett-Packard Co. dropped the most in six months after the company’s fiscal second-quarter profit forecast fell short of analysts’ estimates as consumers curtailed personal-computer purchases.
The shares declined 6.5 percent to $27.05 at the close in New York, the biggest decrease since Aug. 19. Before today, the shares had jumped 12 percent this year, while the Standard & Poor’s 500 Index increased 8 percent.Profit before some items in the three months through April will be 88 cents to 91 cents a share, Hewlett-Packard said yesterday. That was less than the 95-cent average analyst estimate, according to data compiled by Bloomberg.Sales in the personal-computer group dropped 15 percent to $8.87 billion in the three months ended in January as consumers held off on buying new machines in the first full quarter under Chief Executive Officer Meg Whitman. Revenue from servers, printers and storage gear also declined, suggesting Whitman’s attempts to reverse a sales slump aren’t yet taking hold.“Headwinds will likely continue through the second quarter,” Abhey Lamba, an analyst at Mizuho Securities USA Inc., said in a research note yesterday. “The company is again being conservative for the second quarter and remains cautious.” The New York-based analyst began coverage of Hewlett-Packard on Feb. 8 with a “neutral” rating.‘Underinvested in Innovation’On a conference call after the report, Whitman said the company’s PCs, printers and information-technology services haven’t been compelling enough to attract customers’ spending.“For years, we’ve been basically running our business in silos,” she said. “We underinvested in innovation.”First-quarter sales of home computers fell 25 percent and business-PC revenue was down 7 percent, the Palo Alto, California-based company said. Consumers may wait to buy new PCs until Microsoft Corp. releases its Windows 8 software later this year. Rival Dell Inc. earlier this week forecast lower sales for the current period amid tepid demand from consumers and governments.Hewlett-Packard’s printer group also has too many unsold products sitting in dealers’ inventory, Lamba said in an interview. Sales in the printer group declined 7 percent to $6.26 billion.Profit MarginsInformation-technology services revenue rose 1.1 percent to $8.63 billion, though the profit margin narrowed. Shifting to more profitable types of services will take time, Lamba said.“It’s not going to be a one-year turnaround,” he said.Sales of servers, storage and networking equipment declined 10 percent to $5.02 billion, Hewlett-Packard said. Software revenue climbed 30 percent to $946 million.In the first quarter, which ended Jan. 31, profit excluding some items declined to 92 cents a share, compared with analysts’ average estimate of 87 cents.Net income fell 44 percent to $1.47 billion, or 73 cents a share, from $2.61 billion, or $1.17 a share, a year earlier, Hewlett-Packard said. Sales fell 7 percent to $30 billion. Analysts had projected $30.8 billion.Whitman said she’s attacking inefficient product-design and sales processes and investing in research and development to try to make the company more competitive. In an interview, she said she’s paring the number of PCs and printers Hewlett-Packard sells and making it easier for salespeople to adjust price quotes to book an order. She’s also been holding roundtables in Houston and other cities with chief information officers of big customers to suss out their needs.Annual Forecast“We’ve got everyone we can get calling on customers,” Whitman said. “I’ve got board members calling on customers.”When the company reported fourth-quarter results Nov. 21, it forecast profit for fiscal 2012, which began Nov. 1, of at least $4 a share; analysts had previously expected $4.58. The manufacturer said yesterday that there has been no change to its annual forecast.Since she took the helm, Whitman has been seeking to halt the missed sales forecasts and strategy shifts that marked the tenure of her predecessor, Leo Apotheker, who resigned Sept. 22. She has also said she’ll eschew big acquisitions. Apotheker left after a year and a half of management turmoil, falling computer demand and reduced growth forecasts. Whitman told analysts a complete turnaround of results could take two years or more.Whitman has also said she will attempt to rebuild Hewlett- Packard’s balance sheet and spend more on research and development. R&D in the first quarter was 2.6 percent of sales, compared with 2.5 percent a year earlier.PC Business PlansWhitman reversed a proposal, floated under Apotheker, to jettison Hewlett-Packard’s $39.6 billion PC business. She’s also opted to turn the WebOS operating system into an open-source project, letting outside programmers tinker with the code and use it in their own electronics devices.U.S. PC shipments declined last year for the first time in a decade, and the industry is wrestling with a shortage of hard drives after flooding crippled factories in Thailand last year. Meanwhile, Apple Inc.’s iPad is cutting into PC sales, and Lenovo Group Inc. is gaining market share.Hewlett-Packard, Dell and other PC makers are counting on a new crop of thin-and-light laptops called ultrabooks to spur sales. In addition, Hewlett-Packard is readying a lineup of PCs that would run Windows 8 and go on sale in time for the holidays.Whitman likened her push to streamline the company’s operations to the efficiencies implemented by former CEO Mark Hurd in his tenure from 2005 to 2010. Hurd departed after a company investigation found he had violated its business conduct standards.“Mark Hurd did a lot of good for this company,” she said in the interview. “Had he stayed, he might have gone after some of the things I’m going after,” she said. “I’m standing on his shoulders in some ways.”--Editors: Tom Giles, Tom Lavell
To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
Facebook Insiders Limit IPO by Pushing $100 Billion Value
Feb. 23 (Bloomberg) -- Facebook Inc. is already trading like a public company as insiders and wealthy investors use private marketplaces to buy and sell stock in the social- networking company ahead of its initial offering.
The shareholder base has grown to more than 1,000, compared with the 50 to 100 investors most companies have when they go public, according to an estimate by Sam Hamadeh, head of research firm PrivCo. Private purchases pushed Facebook’s valuation past $100 billion this month, possibly limiting immediate gains for IPO investors, given that Facebook may seek a $75 billion to $100 billion value.“Facebook is a blue-chip stock and it’s not even public yet,” said Kevin Landis, portfolio manager for the Firsthand Technology Value Fund in San Jose, California. Facebook jumped as high as $44 this month in private trading, valuing the company at $103 billion and leaving it higher than when Landis bought stock at about $30 to $31 in October. He said he aims to add to his holdings.While demand for the biggest Internet IPO on record may push the stock even higher when Facebook goes public, private trades through channels such as SecondMarket Inc. and SharesPost Inc. are already making it possible for employees and venture capitalists to cash out. That may have lessened pressure on Chief Executive Officer Mark Zuckerberg to hold an IPO before this year.Secondary OfferingFacebook, which filed for an initial share sale this month, has yet to set its price range for the IPO. People with knowledge of the matter said earlier this year that Zuckerberg was weighing a valuation of as much as $100 billion.Larry Yu, a spokesman for Menlo Park, California-based Facebook, declined to comment.The private trading may make Facebook’s debut more like a secondary offering, where holders sell stock in an already public company, said Barry Ritholtz, CEO of FusionIQ, an equities research firm.“The people buying now at the IPO price are presuming there’s lots of upside -- I’m skeptical,” said Ritholtz, whose firm is based in New York. “There’s a lot of smart money agitating for the highest possible valuation, and they don’t necessarily have the investing public’s best interest at heart.”Insiders and investors with $1 million of net worth and a salary of more than $200,000 can qualify to buy stock on private marketplaces, according to U.S. Securities and Exchange Commission rules. In an auction this week on SharesPost, Facebook stock had a clearing price of $42, valuing the company at $98 billion.Higher Value?Widely traded private companies that held IPOs in 2011 traded at about 25 percent to 30 percent less than their eventual IPO price in the two months prior to going public, according to Ori Bash, a vice president at Pluris Valuation Advisors. Facebook may see a smaller gain because it has been traded more, owned by larger investors and researched more thoroughly than other private companies, Bash said. It’s also possible the shares will continue to surge, he said.“If these private-market trades are truly reflective of Facebook’s valuation, there’s a possibility that demand for the IPO shares could drive it even higher than its anticipated $100 billion valuation,” Bash said.LinkedIn Corp., which had 560 shareholders of record as of April 15, 2011, was valued at $35 a share in private trading in March of that year, two months before the IPO. The company’s initial public offering priced 29 percent higher in May at $45, giving it a valuation of $4.25 billion. Shares more than doubled to close at $94.25 on the first day of trading.Early Investors WinThe shareholders who got into Facebook earliest --including the hundreds of employees who received restricted stock units as part of their compensation packages -- will see the most gains, said Larry Albukerk, a broker of private securities.Based on private-market trading, Facebook is “realizing full value at the IPO, which is the goal of all companies,” he said. “They don’t want to leave money on the table. Do the RSU holders and current shareholders benefit? Absolutely.”Private markets have emerged since the tech boom of the late 1990s and Google Inc.’s IPO in 2004. SharesPost, based in San Bruno, California, began in 2009, and SecondMarket predates SharesPost, offering private share transactions since 2008. Since the start of the service, New York-based SecondMarket’s private-market stock trades have topped $1 billion. Facebook is planning to raise $5 billion with its IPO.Pricier Than LinkedInWhile the private markets are giving investors a better idea of where the public market prices shares, they don’t completely replicate the Nasdaq Stock Market or New York Stock Exchange, said Landis, the portfolio manager.“The idea that it should give you the perfect indication on price -- i.e. there would be zero bounce because it’s perfectly priced in -- I’m not sure I’d buy that,” he said.Facebook’s sales surged 88 percent to $3.71 billion in 2011, according to the IPO filing, and may climb to $6.1 billion this year, EMarketer Inc. estimates show.At $100 billion, the company would be valued at about 27 times last year’s sales, almost double the 14.5 times trailing 12-month sales at which professional-networking service LinkedIn Corp. went public in May. It’s almost triple the multiple of 9.8 times implied by online coupon-company Groupon Inc.’s IPO price in November, and four times social-gaming provider Zynga Inc.’s multiple of 6.8 times at its December IPO, Bloomberg data show.Facebook has 1,070 Class B shareholders based on its latest filing, almost double the tally for LinkedIn ahead of its IPO, according to regulatory filings.“Arguably, given the number of investors that are already in Facebook, that IPO has already occurred,” Mark Mahaney, an analyst at Citigroup Inc., said in an interview on Bloomberg Radio this month.--With assistance from Ari Levy in San Francisco and Douglas Macmillan in New York. Editors: Julie Alnwick, Tom Giles
To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net
To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Tom Giles at tgiles5@bloomberg.net
Garmin Finds a New Direction
In the pantheon of seemingly obsolete technologies, automobile navigation devices might seem ready to join laser discs and pagers. The auto gadgets that tell you how to get from A to B are being pushed out as cars increasingly have in-dash navigation systems and people use smart phone apps such as Google Maps. Garmin (GRMN) is trying to counter the trend by reinventing itself and moving beyond gadgets that sit on your dashboard.
Now, more than a third of the company’s revenue comes from GPS products that have nothing to do with cars. The largest segment is devices for outdoor enthusiasts, such as handheld devices with topographic maps for hikers and tools for hunters to train and track their dogs. That’s followed by portable GPS gadgets and watches for athletes, particularly cyclists, runners, and golfers. Garmin also sells GPS products that are built into the dashboards of helicopters, airplanes, and ships.
Garmin’s evolution is paying off. Although navigation devices for drivers shrunk 5 percent during 2011, on Feb. 22 the company beat expectations as it announced $910 million in sales in the fourth quarter, up 9 percent from a year earlier. Garmin’s quarterly profit increased 25 percent during the quarter, too, and it proposed paying out dividends of $1.80 per share over four quarters. Investors cheered the news, pushing the stock up 9.3 percent to close at $48.86.
Chief Operating Officer Clifton Pemble told analysts on Garmin’s earnings call that the company sees more growth in these new lines of business. In the fitness products, for example, people often get the idea of using GPS in their hobbies by trying out apps on their smartphones and later buying a dedicated device as they continue to get more serious about the pursuit. Chief Financial Officer Kevin S. Rauckman said the company is also “investing pretty heavily” in getting carmakers to use Garmin products in their built-in navigation systems. By selling directly to carmakers, Garmin wants to regain a piece of the navigation trend it helped build.
Many analysts, including Goldman Sachs (GS) and JPMorgan Chase (JPM), responded to the earnings news by raising their target prices for Garmin. Some on Wall Street now see the stock trading as high as $60. For shareholders, that’s a step in the right direction.
Google Agrees to Join ‘Do-No-Track’ Button Industry Agreement
(Updates with initiative detail in second paragraph.)
Feb. 23 (Bloomberg) -- Google Inc. will allow a “do-not- track” button to be embedded in its Web browser, letting users restrict the amount of data that can be collected about them.The world’s most popular search engine will join with other Web companies to support the anti-tracking initiative, which prevents an individual’s browsing history from being used to tailor ads, according to an e-mailed statement today.“We’re pleased to join a broad industry agreement to respect the ‘do-not-track’ header in a consistent and meaningful way that offers users choice and clearly explained browser controls,” Google Senior Vice President of Advertising Susan Wojcicki said in the statement.Google, based in Mountain View, California, joined the initiative as the Obama administration unveiled plans to give consumers more control over their personal information online. Congress should enact a privacy bill of rights for Web users, the administration said in a report released today.Revelations about potential privacy vulnerabilities during the past year have spurred calls from regulators and lawmakers in Washington for stronger protections of personal data online and on Internet-connected mobile devices.Google announced plans on Jan. 24 to unify privacy policies for products including YouTube videos and Android software for mobile phones, saying it will simplify conditions that users agree to.Consumer DataGoogle and Facebook, the world’s largest social network, are among Web companies facing scrutiny over their handling of consumer data used to power an online ad market projected to reach $39.5 billion in the U.S. this year, according to eMarketer Inc., a New York-based research firm.The White House report sets broad principles for the use of personal information that include giving consumers control over what data is collected on them and how it is used; providing understandable privacy policies; and handling consumer data securely. The Commerce Department will meet with companies and privacy advocates to develop voluntary standards for businesses based on the principles.--Editors: Simon Thiel, Robert Valpuesta.
To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
Freeing Up Spectrum for Rural Broadband
On Jan. 26, Wilmington, N.C., rolled out a wireless network that links security cameras and offers Internet access in public parks. No biggie. Networked cameras and free Internet are common. What’s different in Wilmington is the radio bands the network runs on: unused television channels known as “white spaces” that separate stations.
The Wilmington experiment shows the potential benefit of a measure tucked into the payroll tax cut law signed by President Barack Obama on Feb. 22. The Federal Communications Commission created the white spaces between channels decades ago to prevent stations from interfering with each other, ensuring that, say, The Cosby Show in Washington wasn’t compromised by The Simpsons on the same frequency in Baltimore. The new law opens up the white space channels for “unlicensed” use.
Unlike the spectrum controlled by carriers such as AT&T (T) and Verizon Wireless, which is reserved for specified companies, unlicensed bandwidth is open to any user with an approved device. Wi-Fi, microwave ovens, baby monitors, and cordless phones all use frequencies that the industry calls the “junk band.” These radio waves can’t easily penetrate walls and are hard to maintain over long distances. The TV frequencies where the white space is located, by contrast, carry long distances and remain strong even inside buildings.
Since rural areas have fewer TV stations, opening up white space could prove a boon to rural wireless Internet providers, which have struggled to provide service using a more robust version of Wi-Fi. An FCC spokesman says several companies are developing devices that carriers could use to deliver broadband data using white space (Wilmington has one). The new spectrum makes it easier for rural carriers to provide service because “the unlicensed frequencies available today can be stopped by a single leaf,” says Forbes Mercy, vice president of the Wireless Internet Service Providers Association, an industry group.
While that could foster a new class of challengers for wireless giants, the payroll tax law also gives the likes of AT&T and Verizon something they’ve long sought: access to other parts of the regular TV spectrum. This will be divvied up via auctions in which stations will receive a share of the money wireless carriers pay for licenses, a move aimed at persuading broadcasters to give up frequencies.
The FCC has indicated it’s concerned about the dominant role AT&T and Verizon play. The two giants control two-thirds of similar frequencies that were auctioned in 2008. In various statements, FCC officials have said they may seek to limit how much spectrum the biggest carriers can buy in the new auctions. AT&T and Verizon say additional spectrum is key to their plans for providing service. In an e-mailed statement, AT&T’s external affairs chief, James Ciccone, raised the possibility of a court challenge to any FCC effort to limit his company’s participation.
The wireless carriers say only companies with exclusive spectrum licenses would spend the kind of money needed to create robust wireless data networks. Especially in sparsely populated areas, big carriers say it doesn’t pay to build infrastructure without some guarantee of exclusivity. The new auctions will lead to “faster, more ubiquitous wireless broadband service,” CTIA–The Wireless Association, an industry group, said after the House passed the payroll tax bill on Feb. 16.
Yochai Benkler of the Berkman Center for Internet & Society at Harvard counters that it would be more efficient to open up spectrum to any use, which could lead to more innovations like the development of Wi-Fi in the junk band. The carriers often cite data from Cisco (CSCO) predicting 78 percent annual growth in data traffic to tablets and smartphones through 2016. Benkler, though, points to ComScore (SCOR) research showing that Wi-Fi is responsible for much of that growth: iPhone users get 47 percent of their data via Wi-Fi and iPad users get 91 percent. With the new legislation, Congress has made it possible for something similar to happen with the higher-quality frequencies reserved for TV today. “There’s this deep-seated idea that spectrum is like pipe,” Benkler says. “It was a decent idea 70 years ago, but it’s no longer correct.”
The bottom line: The payroll tax law will open up so-called white spaces—empty channels that separate TV stations—to wireless data providers.
How the Experts Would Fix Health Care
People are living longer. Life-threatening diseases have been eliminated. What were once considered medical miracles are now commonplace procedures. Yet there’s a near-universal sense that the U.S. health-care system is a heaving mess, rife with errors and injustices. It’s expensive, too. By 2020 related costs will reach an estimated $4.6 trillion, nearly 20 percent of gross domestic product. So how do we fix health care? That’s the question Bloomberg Businessweek Chairman Norman Pearlstine put to our esteemed panel: Dr. Ralph de la Torre, chairman and chief executive officer of Steward Health Care System; Dr. Gregory Curfman, executive editor of the New England Journal of Medicine; Gail Wilensky, economist and senior fellow at Project HOPE; Ronald Williams, former chairman and CEO of Aetna; and Jonathan Bush, CEO, president, and chairman of Athenahealth. Their conversation has been condensed and edited.
Pearlstine: Is it possible, given the culture of the U.S., to change the way we implement health care and impose some things that have worked well overseas?
Williams: In Europe, there’s a notion of solidarity. If you’re 80 years old and you do not qualify for a hip replacement, it’s OK as long as your neighbor does not qualify for a hip replacement. In the U.S., [it's] “I’m going to get mine or you’re going to hear from my attorney.” We have to have a thoughtful, mature debate recognizing there are limits to the country’s resources and care should be delivered based on the physician’s judgment.
Photographs by Henry LeutwylerFix This/Health Care panelists
Wilensky: The horse has left the barn when it comes to using what other countries have done. A lot of what they do is not only to have a [central] budget, where there is a decision by the national government how much should be allocated for the national program of health care, but they have direct controls on all the stuff that costs money. We have a plethora of everything that costs money—specialists, freestanding MRI centers, many freestanding ambulatory centers. That’s going to be very hard to rein in. God help the politician who tries.
De la Torre: At this point it’s hard to tell whether the culture created the structure or the structure enabled the culture. But we do have a problem in both. What we’ve done is create a system that has 2,600 physicians intertwined with our 12 community hospitals who completely share risk upside and downside and share quality upside and downside. And so we begin to align incentives to provide the appropriate care.
Wilensky: The problem in health care that you don’t have in other industries is that you’re mostly using somebody else’s money. It’s not that you can’t have market-based incentives, but it makes it much more difficult. Even if you have high-deductible plans, anybody who has any serious medical problem, i.e., enters a hospital for any reason, is going to blow through any threshold you set up. Which means you’re either using third-party payment in the private sector or you’re using government parties. And that’s why the notion of trying to have people with aligned incentives is so important.
Williams: I do believe this is where the private sector will move much faster than the federal government. We don’t need Congress. We can enter into a relationship with a hospital system, and before I left Aetna we had signed up with 12 different systems to collaborate and share data with the notion that the hospital can do well by moving people down the spectrum of care and improve the quality with reduced costs. The problem we have is in alignment. If a hospital has a CAT scanner, and it can reduce the use of that CAT scanner but not generate enough revenue, it’s a self-defeating activity.
Bush: What we’re good at—better than Norway—is we like situations where there are many buyers, many sellers. We love that stuff. We love Groupon (GRPN). We love to shop for an edge. But in health care we don’t get to. If you look at the claims in AthenaNet—all of these tests and all of these encounters—if the patient could take home $20, what percentage would they be more than happy to handle over the phone? What percentage would they have happily done not downtown but on Route 9 at the mini-mall? It’s a big percentage.
Where can technology help?
Curfman: I think what you’re referring to is health information technology and whether there is money to be saved by putting electronic medical records in place and transferring medical information among caregivers more efficiently. Some doctors are rather resistant to this.
Wilensky: You’re not rewarded for doing it.
De la Torre: The biggest cost of pulling AthenaNet or any other electronic record into a doctor’s office is not the cost of the record. It’s an incredible productivity hit to the physicians who are already strained by decreasing reimbursement. All of a sudden in the first six months, they plummet. We see productivity drop 30 percent across the board while we first deploy it.
Are there things on the horizon that simplify that process?
Bush: We don’t do anything over the Internet. Aetna was a huge early mover—how you got it going, I don’t know, Ron—but I’d say literally 25 percent of all of the federal standard transactions that have been created by fabulous committees over the generations are actually doable today electronically. [Yet] none are Internet-based. AthenaNet’s been doing very well, so we’re growing quickly, and other companies are starting cloud-based medical records. The nice thing about these is we’ve got everybody—30,000 doctors, 25 million patients—all in one database and we can reconcile. When we build one connection into one of Ralph’s laboratories, every doctor in Massachusetts who might want to use that lab can now go in with their accession electronically, see when the test is done, and find out when it gets back.
Williams: Technology adoption is not a technology problem—it’s a human behavior problem. And part of it will change as the new generation of physicians enters practice. They’ve grown up with technology. They think paper is strange.
Curfman: There’s no question that medical information needs to be made electronic. It’s going to improve care. I’m very doubtful whether we’re going to save a whole lot of money there.
Wilensky: Outside of health care, if you come up with a new technology, you don’t get any extra brownie points. If it does it better, you’re in. If it does it better and it’s more expensive, you’ve got to be able to convince the buyer it’s worth the additional cost. In health care we need to understand who exactly benefits and how much they benefit.
De la Torre: Our experience has been that health information technologies are probably not useful in 60 percent to 70 percent of patients. The patient who comes to see a doctor once a year doesn’t benefit tremendously. The 20 percent to 30 percent who utilize 80 percent of the resources, as Medicare data have shown, those are the people who need a lot of integration. Now, when you’re talking $30,000 to $40,000 to deploy an electronic medical record to a physician, another $15,000 for the IT hookup—those numbers applied to 70 percent of the patients who don’t actually benefit is what makes it hard to justify that expenditure. That said, people always tell me, “Isn’t part of the problem that all of this expense comes in the last six months of life?” And I say, “No. The real problem is that you never know when the last six months are.”
Bush: If you knew, you’d go have a scotch.
Curfman: The numbers are very clear. Ten percent of the population consumes 63 percent of the total health-care dollars in the country. One percent consumes 20 percent of the health-care dollars. Fifty percent of them consume nothing at all. So this is the issue, and we have to get a better handle on those 10 percent.
How much of that could be addressed through prevention?
De la Torre: You have to think of it as a spectrum. It begins with obesity, so you prevent obesity. You prevent obesity [in] a kid, and that prevents diabetes. Then diabetes begets peripheral vascular disease. Peripheral vascular disease and coronary disease beget congestive heart failure. Everyone agrees that investing in the beginning of the spectrum is going to yield tremendous benefit. But because we didn’t do that 10 or 15 years ago, we’re going to be paying for those ramifications now and we need to make an investment on top of that for the future. So for a while we’re going to be double-paying systems.
Do we overtest, or does testing actually lead to better diagnosis?
Curfman: The U.S. Preventive Services Task Force recently came out with a D rating for PSA testing for prostate cancer. They don’t recommend it for routine screening. And that recommendation has had zero impact. PSA testing continues, and we spend $3 billion a year only for the tests. But then there are all of the biopsies and the surgery that may follow, the cascade that’s initiated by the testing. We’re facing another issue just like this using CT scanning for lung cancer screening. We recently published in the New England Journal that routine regular CT scanning in smokers can reduce mortality from lung cancer by 20 percent. But how many of these scans do you have to do and at what cost? Uh, you have to do 1,000 scans to prevent one lung cancer death. These scans are quite expensive. Many will bring up false positive results, which brings more expense.
Wilensky: But you have to protect the hospitals and the physicians.
So health care won’t be fixed without tort reform?
Wilensky: Institutions and physicians who follow evidence-based medicine and have patient safety measures in place shouldn’t be liable unless they’ve engaged in criminally negligent behavior.
Williams: There needs to be some safe harbor for people who are following clinical guidelines, applying their own clinical judgment, not [doing] cookbook medicine.
De la Torre: You don’t actually believe that’s a solution to health-care reform? The core of the problem is at the foundation. The very way we deliver care in America is flawed. And until we tackle that foundation, we can talk about the fringe of whether we’re going to paint the walls white or green or whether we’re going to have nice terraces. It doesn’t matter. Our foundation is flawed.
If we’re going to look out a decade from now, what will make health care better than it is today?
De la Torre: We cannot stay in a revenue-driven system. We have to get to a system that tackles the cost side of the equation also. A necessary driver needs to be in place to get America to grapple with changing the way it consumes health care. The U.S. is about to insure everyone with the Affordable Care Act. The best thing about health-care reform as it’s currently passed is that it’s going to bring America near bankruptcy. It’s going to finally force us as a society to act. The bad side is, boy, if we don’t act we’re in trouble.
Bush: I’m bullish. There’s a future of cost reduction primarily driven by the fact that we’ve recessed our economy a little so we’re paying more attention to it.
Wilensky: Two things for me are reforming the payment system so you change incentives and reorganizing delivery systems so you can better achieve coordination.
Williams: We need more and better physician leadership. I think the work that people like Ralph are doing is critical, but you can probably count the institutions on both hands that have the demonstrated level of leadership to produce the type of care we would aspire to in terms of aligning incentives and reengineering the system.
Curfman: We have too much health care. Our health-care system needs to be smaller, and we need to be able to make wiser choices about the use of new technologies. And at the same time we have to place much more emphasis and align incentives on preventative health care.
For more video and conversation on Fix This/Health Care, visit: http://www.businessweek.com/fix-this/health-care.html.
Meg Whitman's Challenge
Sept. 21 (Bloomberg) -- Montblanc North America CEO Jan-Patrick Schmitz talks about the demand for luxury products. He speaks with Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)
Pow! Wham! Shazam! Health-Care Reform Explained!
Jonathan Gruber doesn’t have a secret identify. He neither possesses X-ray vision nor can he turn into a human torch. His unique gift is the ability to explain in plain language the complexities of health-care reform and what it means to the average citizen and business owner. Gruber, who advised the Obama administration on the Affordable Care Act and was a key architect of Massachusetts’s health-care reform, has done just that with his book, Health Care Reform: What It Is, Why It’s Necessary, How It Works, and an illustrated video on the benefits of reform.
In an e-mail exchange with Bloomberg Businessweek editor Ira Sager, professor Gruber discusses why he took to the comic book format, what could happen if Obamacare is revoked, and what super power he wishes he did possess.
How did you get the idea to tackle such a complex topic in comic book form?
The publisher approached me and I was initially skeptical. But he pointed out that on an airplane, when they want to teach you something important in a hurry, they hand you a comic. I was sold.
Why is health-care reform important?
Because we have twin crises of a high and rising uninsurance rate and an unsustainable growth rate in health-care costs. The former has huge costs in terms of health and financial bankruptcy. The latter will eventually bankrupt our society.
Why do you believe the Affordable Care Act (ACA) will solve our health-care issues?
Because it fixes broken insurance markets to guarantee fairly priced coverage—leading to 32 million more insured Americans—and because it starts us down the path toward cost control through a number of innovative approaches.
What consequences would we face if this legislation is repealed?
Millions more uninsured Americans, a continued discriminatory insurance market, and no start on controlling health-care costs
Critics of the Affordable Care Act say it doesn’t address health-care costs. Is that perception correct?
It is important to recognize how hard this issue is—there is both enormous scientific uncertainty and a lack of political will to change. Given those constraints, the ACA goes as far as was possible at this time (and perhaps even farther).
What’s the most common misperception of the legislation?
That it is “socialized medicine.” In fact, this approach builds on—and greatly expands—the private health insurance system.
Is Mitt Romney making a mistake by distancing himself from what he did in Massachusetts?
We’ll find out in November, if not sooner. I think he was in a very tough position. He could have denied any credit for the only major accomplishment he had as a policy maker, or he could have embraced his achievement—which would have cost him the nomination—or he could try this bizarre dance of taking credit for the accomplishment but denying it will work for Obama. It’s not clear what was best in the end, given the constraints he faced.
As a child, did you read comic books?
Yes, way too many.
Who was your favorite comic book hero—or is there one you most associate with?
I don’t associate with any, but my favorite was Daredevil, the blind, costumed avenger. I have always enjoyed rooting for the underdog.
If you could have one super power, what would it be?
The ability to control time—to stop it or speed it up at will.
Billabong Low Value Prompts Wonder What TPG Bid Knows: Real M&A
Feb. 24 (Bloomberg) -- Billabong International Ltd. is so beaten down that potential buyers could top TPG Capital’s offer for the Australian surf-wear company and still pay the lowest valuation for an apparel deal on record.
TPG, the buyout firm run by David Bonderman, has offered A$765 million ($819 million) for Billabong, valuing the Gold Coast, Australia-based company at 12 times projected fiscal 2012 net income, according to data compiled by Bloomberg. That’s half the median 24 times paid in takeovers of apparel makers in developed markets worth more than $500 million, the data show.Even after Billabong rose 54 percent in a week, TPG or a rival suitor could offer A$3.85 a share, 39 percent more than yesterday’s close, and still pay the lowest multiple relative to earnings since at least 1998, data compiled by Bloomberg show. While Billabong is selling control of accessory-maker Nixon, considered its most lucrative unit, buyout firms may still seek to revive the company as it cuts jobs and shuts stores, according to Tribeca Investment Partners and UBS AG.“Private equity sees the opportunity to turn Billabong around,” said Sean Fenton, who manages about A$900 million at Tribeca Investment in Sydney. TPG’s bid will “flush out anyone who is interested to run the numbers and have a look,” he said.Billabong announced the TPG approach on Feb. 17, the same day it disclosed the planned sale of a majority stake in Nixon. The offer, which was conditional on Billabong not selling any brands including Nixon, was revised three days later to allow for the sale without a change to the price.Surf ShortsBillabong, which rose as much as 7.6 percent today, ended trading in Sydney at A$2.91, its highest price in ten weeks.A spokeswoman for TPG declined to comment on its bid. John Mossop, a spokesman for Billabong, said he couldn’t immediately comment on when Billabong would respond to TPG’s bid.Formed in 1973 when Gordon Merchant, who is still the largest shareholder with a 13 percent stake, stitched together surf shorts in his apartment on Australia’s Gold Coast, Billabong’s market value reached A$3.84 billion in May 2007, according to data compiled by Bloomberg.Billabong’s shares then slid 90 percent before TPG’s approach was disclosed, the biggest drop for any consumer discretionary stock in Australia’s benchmark S&P/ASX 200 Index during that period. Profits tumbled as consumer spending slumped in the U.S., Europe and Australia and major stores introduced their own brands to compete with independent surf labels.“Billabong has a strong portfolio of brands and a wide retail distribution network,” said Michael Simotas, an analyst at Deutsche Bank AG in Sydney. “The thing to do is to manage that retail business better.”Acquisition SpreeWith a rise in the Australian dollar pressuring the 65 percent of revenue the company generates from the Americas and Europe, Billabong last week reported a 72 percent slump in profit to A$16 million for the six months ended Dec. 31. That was the lowest for any half year since its August 2000 initial public offering, according to data compiled by Bloomberg.Billabong said last week that it will close as many as 150 of its 677 stores worldwide by June 2013, and cut about 400 jobs. It also agreed to sell 51.5 percent of its Nixon accessory and clothing business to buyout firm Trilantic Capital Partners and management to raise $285 million and reduce borrowings by more than one-third.The company’s debt load increased after a series of acquisitions made as it sought to reduce reliance on its namesake brand, which generated almost all of Billabong’s sales at the time of its IPO. Billabong has closed 18 purchases since 1999, acquiring labels such as Nixon and retailers including Canadian chain West 49 Inc., data compiled by Bloomberg show.Squeezed by RetailersThe Billabong label now accounts for 48 percent of wholesale revenue, compared with 15 percent for Element, and 14 percent for Nixon, according to Citigroup Inc.Over the past decade, larger retailers have squeezed Billabong by establishing their own lower-priced, surf-themed brands such as Abercrombie & Fitch Co.’s Hollister. Since 2004, the Australian company has tried to compete by setting up its own store network to push its brands to customers.That approach often causes problems for apparel companies, and undoing it may improve Billabong’s prospects, said George Svinos, lead retail partner at KPMG in Melbourne.“You can probably count on one hand how many people are successful in both retail and wholesale,” he said. “There are many examples of people that have struggled with that model and many who’ve absolutely improved their business by either deleting one or the other.”‘Management Have Failed’Excluding extraordinary items, analysts now estimate Billabong will earn A$64.5 million in the year ending June 2012, according to data compiled by Bloomberg. TPG’s offer is worth almost 12 times that forecast, compared with the median bid of 24 times profit for takeovers of apparel makers greater than $500 million in the U.S., western Europe, and developed markets in the Asia-Pacific region, the data show.Private equity firm Permira Advisers LP, paid the lowest multiple so far when it acquired Valentino Fashion Group SpA for 15.3 times net income before extraordinary and one-time items in 2007. A rival could top TPG’s offer for Billabong by 28 percent and still pay a lower multiple, data compiled by Bloomberg show.“What we’ve seen in the last two years is that management have failed to maximize the value of these assets,” said Andrew McLennan, an analyst at Commonwealth Bank of Australia in Sydney who recommends investors sell the stock. “Clearly the assets are worth more in the hands of a private equity player now.”Higher MarginsAs much as 20 percent of Billabong’s stores are “underperformers,” while those that are profitable had average earnings before interest, taxes, depreciation and amortization margins of 18 percent in the six months through December, Chief Executive Officer Derek O’Neill said on Feb. 17.That’s higher than the median Ebitda margin of 13 percent among a group of 17 apparel designers that includes Coach Inc. and Asics Corp., data compiled by Bloomberg show. Billabong’s rival Quiksilver Inc. generated an Ebitda margin of 9.4 percent in the twelve months through October, the data show.If Billabong meets projections for an Ebitda margin of 9 percent this year, a buyer paying A$3.50 a share will generate an internal rate of return of 12 percent, according to Citigroup’s Craig Woolford. Restoring the company’s profitability to the 11 percent Ebitda margin Billabong reported in the financial year ended in June raises the return closer to 23 percent, Woolford’s analysis showed.“Any buyer needs to have conviction that they can turn around those margins,” said Sydney-based Woolford, who has a “neutral” rating on Billabong. “They know what it has earned historically, so the potential to earn profits remains quite strong.”Private Equity ReturnsAustralian private equity and venture capital funds formed in 2002 generated a median internal rate of return of 6.7 percent through September, the best performance among funds created between that year and 2008, according to an analysis by Cambridge Associates LLC. Funds formed since 2008 are too young to have produced meaningful results, Cambridge Associates said.Private equity buyers will be drawn by the chance to shrink the business and trim costs, according to Tribeca’s Fenton.Reviving past profits will be harder to do without the full contribution from Nixon, which sells sports watches, women’s handbags and casual clothing. The unit contributed about one- third of Billabong’s Ebitda in the year through June and is growing at 20 percent a year, Nomura Holdings Inc. said in a Feb. 18 report. That compares with three years of Ebitda declines at the group.‘An Excellent Purchase’The proposed transaction values Nixon at approximately $464 million, representing about 9.2 times the last 12 months’ Ebitda, Billabong said. TPG’s offer for the rest of the company values it at almost 6 times Ebitda, excluding Nixon.Still, the sale of Nixon won’t necessarily turn private equity buyers off given that Billabong “remains undervalued,” UBS analysts wrote in a Feb. 17 note. The Zurich-based firm has a ’’buy’’ rating on Billabong.“TPG came back pretty quickly and dropped the Nixon condition,” said John Maysles, event-driven senior analyst at Los Angeles-based Elevation LLC. “That tells you they must be pretty happy about the deal. If you can turn the thing around, it would be an excellent purchase for a private equity guy.”--With assistance from Anjelica Tan and Sarah Rabil in New York and Brett Foley in Melbourne. Editors: Robert Fenner, Mohammed Hadi
To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; David Fickling in Sydney at dfickling@bloomberg.net.
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net.
The Social Return on Data
You don’t normally find serial entrepreneurs working for the U.S. government. But Todd Park, who co-founded three companies by the time he was 36, believes he can help make Americans healthier.
Park, now 39, is the first chief technology officer hired by the Department of Health and Human Services, the U.S. agency that administers Medicare and Medicaid and oversees the Food and Drug Administration and the National Institutes of Health, among other agencies. He is the “entrepreneur-in-residence,” nudging the agency to open its vast stores of data to spur innovative ideas.
Park is teaching the normally plodding government agency how to think and act like a Silicon Valley startup: Get new products to market quickly, study customer reaction, and then make adjustments to find the best solution for that need. It’s right out of the entrepreneur’s handbook, except that Park has 313 million customers—the population of the U.S.
“He is not a Washington guy,” says O’Reilly Media founder Tim O’Rilley, who calls Park one of the most powerful data scientists around. “He’s a technology guy who is trying to figure out how to make the health-care system work.”
And work fast. Ninety days after the passage of the Affordable Care Act, Park and a team launched healthcare.gov, a website that helps consumers find health coverage plans from a database of all public and private plans by Zip Code (other sites are not comprehensive).
“It is possible to be entrepreneurial in the U.S. government,” says Park, who has been at HHS for two and a half years. “It’s possible for government to execute major projects at Silicon Valley speed.”
Bloomberg Businessweek’s Venessa Wong spoke by phone with Park about his role in transforming the way the government uses health technology. This interview has been condensed and edited.
What is the role of a chief technology officer at Health and Human Services?
The role was created two-and-a-half years ago. Its purpose is to be a tech entrepreneur-in-residence. I help conceive and lead projects that harness the power of data, technology, and innovation to improve the health of the American public. HHS wanted someone with entrepreneurial DNA to work with our best innovators here to dream up and launch new initiatives.
How can technology make people healthier?
Technology is never a panacea, but it can be an enabler of significantly improved health care and health-care systems. For example, there are key features of the Affordable Care Act that change how Medicare and Medicaid pay to reward keeping people healthy. Doctors will be funded and [provided incentives] to take actions that help avoid preventable complications, ER visits, and hospital admissions. Mobile technology and data analytics to help doctors identify care gaps, engage patients outside the medical office and at home through e-mails, follow-up through mobile apps, and to communicate with other doctors, are critical enablers for this kind of coordinated care.
Why did you decide to work for the Obama Administration?
I was [contacted] by Bill Corr, the deputy secretary of HHS, in the summer of 2009. He said HHS would like to talk about this position called “chief technology officer.” I was living in Los Altos Hills. I had retired from Athenahealth [a health IT and services company] and co-founded a couple of other companies, but I wasn’t running them. I had promised my wife I would be a functional husband. Bill said we have a lot of data and want to open it to catalyze change. The question was how to maximize social return on data. The job sounded incredibly interesting.
Amy, my wife, was incredibly angry, but after four days she said. “If they are creating an entrepreneur-in-residence position, then it’s your national duty to accept.” In a couple of months, we moved to D.C. with our baby, who had just turned one.
When you look back at your government service, what do you want your legacy to be?
I was talking to Bill Corr about lean startups. He asked, is this just something that you and your team can do, or can we scale it across HHS? It’s very scalable. I think it would be wonderful to make it easier for others to start lean startups and make change happen very quickly. I want to unlock the inner mojo of our workforce, to unlock the talents of the many innovators at HHS, and empower them to start their own lean startups at HHS. [The lean startup concept uses rapid prototypes to test assumptions and then incorporate customer feedback to improve the service or product. It’s much faster than traditional product development methods.]
What’s the biggest roadblock to getting this done?
The key challenge is having enough time in a day. We’re in execution mode. The will is there.
Caffeine Zone, an App for Coffee Drinkers
I am an irregular coffee drinker. I don’t need it to get up in the morning, but I do need it after a rough night or a heavy lunch. I am also, though, an irregular sleeper. Some nights I find myself wide awake at 3 a.m. Could it have been that last cup of coffee? Should I have had tea instead? Would that have been enough to get me through the afternoon?
Well, now, as they say, there’s an app for that: Caffeine Zone, based on research on the “pharmacokinetics of caffeine.” You enter how much coffee or tea you’ve had, when you had it, and how quickly you drank it, and the app sends you an alert when you might need another cup to keep you sharp. It also warns you when the coffee you’re about to have might keep you up at night. On a graph, it maps the amount of caffeine in your body against color-coded zones corresponding to the compound’s metabolic effects.
Caffeine Zone alerts users when they're over- or under-caffeinated
What are those effects? Frank Ritter, the Penn State cognitive scientist who thought up the app, concedes that the scientific literature on the cognitive impact of coffee is thin; the numbers that undergird Caffeine Zone’s real-time graphs are averages and estimates. Still, there is evidence that the compound improves memory and mental processing speed a bit. And it certainly makes people feel more alert.
One of the lessons Caffeine Zone teaches is that the first coffee of the day should be the biggest, and drunk the fastest for a big bump. The rest of the day’s doses should be smaller and ingested more slowly to stay in that optimum range. It’s trajectory management: Launch rocket, achieve desired altitude, maintain orbit with tweaks.
According to my Caffeine Zone app, as I write these words 35 minutes after my first sip of Starbucks (SBUX), I have just entered the forest-green band of optimum cognition. If I don’t recaffeinate within the hour, I will leave the zone. I tell Caffeine Zone 45 minutes later that I am about to redose with a 16 oz. coffee. The app warns me this will propel me past the “Max Optimal” boundary—the point of diminishing cognitive returns (200 mg of caffeine in my bloodstream). It will also keep me wired past 11:30 p.m., which I entered as my bedtime.
I opt instead for a Cherry Coke with lunch. There is no button for caffeinated soda (there is, strangely, one for caffeinated gum), but there is a custom feature that allows me to enter Cherry Coke’s dose information and my intake speed (usually the time it takes me to walk from the upstairs soda machine to my desk, which I round up to five minutes). My Coke’s measly 34 mg of caffeine, it turns out, will barely keep me above the 150 mg lower bound of the optimum zone. So I add a medium cup of tea after lunch, which keeps me in the zone for much of the afternoon but will, Caffeine Zone predicts, keep me up for an extra half-hour tonight. That’s all right, 11:30 was sort of an aspirational bedtime anyway.
Ritter says he hasn’t received any money from Starbucks, Coca-Cola (KO), or any other corporate caffeine peddlers, though he’d take it if offered. He understands that this might compromise the perceived objectivity of the app, but the money would allow him to add new features: People have been asking for a soda button and a menu that allows users to input their smoking habits—nicotine makes the body process caffeine faster.
Of course, the next step might be just to connect the iPhone to a caffeine drip and have it pump a few dozen milligrams directly into a vein when I begin to flag. Or maybe I could rig the app to sync with my workstation and track my typing speed, dosing me when I slow. Where do these strange, idle thoughts come from? My iPhone chimes as Caffeine Zone warns me that I have dropped out of the optimum zone. Time for that cup of tea.
Editor’s Note: This story has been changed because of a programming error in the version of Caffeine Zone that it described. The app’s main graph calculated caffeine dosages in milligrams, but labeled the graph in milligrams per kilogram of body weight (mg/kg).
The error did not affect any of the app’s calculations or caffeine intake recommendations. However, as an alert reader pointed out, it meant that the dosage estimates given by the app were off by orders of magnitude: 150 mg, the lower bound of the app’s “optimal” caffeination zone, is the amount of caffeine in one cup of coffee. 150 mg/kg, on the other hand, is a fatal dose of caffeine equivalent to drinking around 100 cups of coffee in quick succession.
The error has now been corrected in the free version of the app, and according to Caffeine Zone’s creator, Frank Ritter, should be fixed in the pay version within 10 days.
EZchip Jumps to Record as Competitors Acquired: Israel Overnight
Feb. 24 (Bloomberg) -- EZchip Semiconductor Ltd. soared to a record high in New York yesterday on speculation the Israeli chipmaker will be bought after competitors were acquired over the past two months.
The Yokneam, Israel-based company, whose biggest customers include Juniper Networks Inc. and Cisco Systems Inc., advanced 2.5 percent to $40.26, sending valuations to 30.6 times estimated earnings, nearly twice the average level for companies on the Nasdaq Composite Index. The Bloomberg Israel-US 25 Index of the largest Israeli companies listed in New York climbed 0.5 percent to 86.50, led by SodaStream International Ltd.EZchip may become a buyout target even after forecasting that first-quarter revenue will remain steady from the fourth quarter, according to Chardan Capital Markets LLC. Marvell Technology Group Ltd., maker of the BlackBerry smartphone processor, bought Xelerated AB last month, and Broadcom Corp., which makes chips that help mobile devices connect to the Internet, acquired NetLogic Microsystems Inc. on Feb. 17.“The reason the stock has had such a run up is that people are expecting that the company is going to be acquired,” Jay Srivatsa at Chardan, which has a “neutral” rating on EZchip’s U.S.-listed shares, said by phone in New York yesterday. “EZchip guided a very weak first quarter and it’s still very expensive. Still, it seems like investors don’t want to miss out on an opportunity.”EZchip Chief Executive Officer Eli Fruchter declined to comment on a possible buyout when contacted by e-mail yesterday.Smartphone TechnologyEZchip, whose products allow for quicker data delivery, added 3.3 percent to 146 shekels in Tel Aviv yesterday, or the equivalent of $38.97.The chipmaker has surged 40 percent in New York over the past year, outperforming the Nasdaq benchmark, which climbed 8.6 percent, after demand for its processors rose as an increasing number of consumers use smartphones and handsets to surf the Web, play games and download music and videos.“This network processor company is poised to grow revenue and earnings rapidly as its next-generation product ramps up,” Andrew Uerkwitz, an analyst at Oppenheimer & Co. in New York said by phone. “There has always been acquisition pressure that has lifted EZchip due to the growth potential.”Uerkwitz rated the shares “perform” saying the company is “fully valued” after the rally.‘Flat’ RevenueEZchip reported a fourth-quarter net loss of $5.95 million on Feb. 8, compared with net income of $4.03 million in the same period last year. The company incurred a one-time charge for repaying $9.9 million to the Israeli Office of the Chief Scientist, a government unit that support local companies’ research and development.“With regards to guidance for the coming quarter, we expect revenues to be flat to slightly down,” CEO Fruchter told analysts on a call after reporting earnings.Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.Gazit-Globe Ltd., the Israeli real estate company that listed shares on the New York Stock Exchange on Dec. 13, declined 3.9 percent to $9.99 after its shares in Tel Aviv retreated 2.6 percent to 37.81 shekels, or the equivalent of $10.09. Equity One Inc., the U.S. unit of Gazit-Globe, reported a net loss of 4 cents per diluted share during the fourth quarter, after posting a profit of 9 cents for the same period last year.Convertible BondsSodaStream, an Airport City, Israel-based homemade soda machine maker, climbed 7.1 percent to $41.79, the most in more than a month.Tower Semiconductor Ltd., a chipmaker, dropped 3.8 percent to 77 cents, declining 12 percent in the week. Shares in Tel Aviv retreated 4.2 percent to 2.91 shekels, or the equivalent of 78 cents.The Migdal Haemek, Israel-based company raised $64 million from Israeli institutional investors in a convertible bond offering, according to a Feb. 20 statement.--Editors: Marie-France Han, Emma O’Brien
To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net
To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net
Shanghai Court Rejects Proview Request to Halt Apple IPad Sales
Feb. 24 (Bloomberg) -- A court in Shanghai rejected a request by the Shenzhen unit of Proview International Holdings Ltd. to halt sales of Apple Inc.’s iPad tablet in the city, the lawyer for the Chinese company said.
The Pudong District Court’s decision is “wrong” and Proview’s Shenzhen-based unit will appeal the ruling, Roger Xie, an attorney for the company, said in an interview yesterday. Apple spokeswoman Carolyn Wu, based in Beijing, said she didn’t immediately have information available on the issue.Proview’s Shenzhen unit had asked the Shanghai court on Feb. 22 to stop sales of the iPad in the city because it infringes on a trademark the company received in 2001. The Shanghai court suspended the case to allow another court time to deliver a ruling on who owns the trademark.“I don’t agree with their reason,” Xie said of yesterday’s ruling in Shanghai. “They should protect the interest of the trademark holder in compliance with China law. We will appeal.”Apple says it purchased Proview’s iPad trademark in China in 2009 and sued Proview over the rights in 2010 in the Shenzhen Intermediate People’s Court.The Shenzhen court rejected Apple’s claim in November and said its contract with Proview’s Taipei-based unit failed to prove the transfer was authorized by the owner in Shenzhen. Apple appealed the loss and a hearing of that case is scheduled for Feb. 29 before the Higher People’s Court of Guangdong.--Edmond Lococo. Editors: Linus Chua, Joshua Fellman
To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net
To contact the editor responsible for this story: John Liu at jliu42@bloomberg.net
Prime Time for Telecom Takeovers
Silver Lake, the largest private-equity company focused on the technology industry, expects buyout firms to zero in on makers of telecommunications and mobile-phone gear this year, spurring a new round of dealmaking.
Private-equity firms will ramp up investments in suppliers of phone equipment and wireless handsets, said Charles Giancarlo, a managing director at Menlo Park, Calif.-based Silver Lake. While he declined to say which companies might be targeted, analysts have named Research In Motion Ltd. (RIMM), Alcatel-Lucent (ALU) and Nokia Siemens Networks Oy as potential takeovers or investment opportunities.
“It’s definitely an area that’s in great transition right now,” Giancarlo, a former Cisco Systems Inc. (CSCO) executive, said in an interview. “There’ll be more private-equity activity.”
Private-equity firms typically swoop into areas where market values of companies have dropped. That lets them snap up businesses—often through a leveraged buyout, which relies on borrowed funds—and try to engineer a turnaround. Networking-equipment makers and related companies worth at least $1 billion have an average price-to-earnings ratio of about 28. That’s less than half the ratio for software and computer-service stocks of the same size, according to data compiled by Bloomberg.
Silver Lake has backed telecommunications companies before, including Avaya Holdings Corp. and Skype Technologies SA. After a turnaround effort at Avaya, that company has filed to raise as much as $1 billion in an initial public offering. The IPO will happen as soon as April, people with knowledge of the matter said this month. Skype, meanwhile, was acquired by Microsoft Corp. (MSFT) for $8.5 billion last year.
It’s becoming harder for smaller manufacturers of phones and related equipment to compete, making them cheaper potential takeovers. Smartphones using Google Inc. (GOOG) or Apple Inc. (AAPL) software accounted for 77 percent of U.S. sales during the fourth quarter, according to ComScore Inc. (SCOR). Their dominance has sidelined RIM, the maker of the BlackBerry, which has lost more than three-quarters of its market value over the past year.
RIM’s market share dropped to 16 percent in the fourth quarter, from 18.9 percent in the previous three months, Reston, Va.-based ComScore found.
“It made it very difficult for niche vendors to have a viable business model,” Giancarlo said.
An acquisition by a rival handset or mobile-software supplier is unlikely, as Google, Apple and Microsoft already have the technology they need, said Charlie Wolf, an analyst at Needham & Co. in New York. That leaves a private-equity firm as a more likely suitor.
“The stock is so low that the private-equity firms may go for it,” Wolf said.
Makers of equipment for telecommunications networks face their own challenges. Carriers have consolidated, leaving fewer potential customers. And networking companies are getting squeezed by Chinese companies, such as Huawei Technologies Co. and ZTE Corp. That’s led to stiffer price competition and weighed on stock prices.
“The threat from Huawei should not be underestimated,” said John Byrne, an analyst at Framingham, Mass.-based research firm IDC.
Alcatel, France’s largest telecommunications-equipment supplier, has lost money in five of the past six years and plans to cut as many as 1,800 jobs. The Paris-based company also has been shopping around some of its business units.
Its shares have dropped almost 50 percent in the past year, making it a steal for a potential acquirer, said Michael Mahoney, managing director at Falcon Point Capital LLC, an investment-advisory firm in San Francisco.
“The big story to me is the incredible undervaluation of Alcatel,” he said in an interview. “This stock is a screaming buy. Private equity should be all over this.”
Nokia Siemens Networks, an unprofitable venture backed by Nokia Oyj (NOK) and Siemens AG (SI), also may be a target. It said in November it would eliminate 17,000 jobs, or about 23 percent of its workforce. The company aims to divest some business units as well.
Private-equity firms may try to earn a return on their investments by breaking up companies, making more dramatic cuts or focusing on new markets.
There are many potential opportunities, Giancarlo said.
“This sector, in the consumer and carrier-equipment side, is going to be busier this year,” he said.
lunes, 17 de septiembre de 2012
sábado, 15 de septiembre de 2012
jueves, 13 de septiembre de 2012
miércoles, 12 de septiembre de 2012
martes, 11 de septiembre de 2012
lunes, 10 de septiembre de 2012
sábado, 8 de septiembre de 2012
Sprint, a Distant No. 3, Limps Into the Future
Shed a tear for the late, great unlimited wireless data plan. Neither AT&T (T) nor Verizon Wireless offers it to new customers. AT&T, which ended its deal in 2010, grandfathered in users who had unlimited plans. Verizon stopped offering the plans a year ago. But in March, AT&T began putting speed limits on its heaviest data users. And in June, Verizon announced that upgrading customers would not be eligible for subsidized phones if they stayed on unlimited plans.
That leaves Sprint Nextel (S) as the last refuge for data obsessives. The provider, with 56 million customers, now uses the tag line “Truly Unlimited” in ads and vows to stick to that deal as the industry migrates to speedy next-generation networks based on a technology called 4G LTE. It’s either savvy marketing or a sign of desperation from the perennial No. 3, which has posted five straight years of losses. “They need the subscribers,” says John Butler, a telecom analyst with Bloomberg Industries. “Unlimited is their only hook.”
For Sprint, it’s a make-or-break proposition. To win Apple’s (AAPL) permission to sell the iPhone, the company in September signed a four-year deal to buy at least $15.5 billion worth of the devices. That’s roughly 30.5 million phones, according to news reports. In the first quarter of 2012, Sprint activated 1.5 million iPhones, a pace that would put it dramatically short of its goal. Sprint itself says that it does not expect to profit from the iPhone until 2015. And according to research firm Gimme Credit, the high subsidy that Sprint pays to sign up iPhone customers is the primary reason for a slide of 2 percentage points in its operating profit margin. Sprint spokesman Scott Sloat says the company’s iPhone sales are on track and that it expects the higher up-front costs to be offset by greater customer loyalty and long-term profitability.
The financial hit makes it harder for the company to keep up with its competitors’ network upgrades. Sprint has announced that Atlanta, Dallas, Houston, Kansas City, Mo., and San Antonio will get 4G and “upgraded 3G service” on July 15. Verizon and AT&T, by comparison, have already rolled out 4G to markets covering 200 million and 75 million people, respectively. Sprint says it plans to cover approximately 120 million people with its 4G network by the end of this year, and that its national rollout should be complete by the end of 2013. As of its April earnings report, Sprint had upgraded 600 of the 12,000 sites it is targeting this year—although not all, it says, with 4G LTE.
Craig Moffett of Bernstein Research (AB) says Sprint’s ability to invest in upgrades is hamstrung by its “punishing” contract with Apple. “Sprint doesn’t have enough free-and-clear spectrum to launch a competitive LTE network,” he says, referring to the slices of radiowaves that carriers purchase and use to transmit data. “And it doesn’t have the money to [free up] spectrum that’s already in use.” The result: Sprint’s 4G customers will communicate over a weaker network. The next-generation spectrum Verizon and AT&T are using provide much better service than Sprint’s in buildings, says Moffett. “The first quarter was a quarter in which we were ramping up the pipeline, and we got a huge amount done in terms of zoning, leasing, and launching construction that gives us confidence that we’ll achieve our goals,” counters Sprint’s Sloat.
The company’s network expansion also involves a troubled investment in Clearwire (CLWR). Sprint has a nearly 50 percent stake in the Bellevue (Wash.) company, which is building a next-generation network based on WiMax, a technology that competes with 4G LTE but Sprint believes it can use alongside it. “WiMax,” says Butler, “will turn out to be Betamax. It never really caught on with the phone makers.” In February, Sprint cited as a risk factor “Clearwire’s ability to successfully obtain additional financing.”
The result is that, while Sprint is counting on being able to woo iPhone data hogs with unlimited data plans, it might not be able to provide the speeds and coverage they demand. “Unlimited is Sprint’s only differentiator,” says Jonathan Geller, the tech blogger who goes by Boy Genius. “But if they allow themselves to be known for worse coverage and slower speeds, people won’t make the switch to them for just unlimited.”
The bottom line: Sprint may be stuck between its commitment to sell 30.5 million iPhones by 2015 and its rollout of a competitive next-generation network.
Five Products Apple Should Stop Making
Let’s all agree that Apple (AAPL) makes some rip-roaringly good products. The iPhone, the iPad, and the MacBook Air are all massive successes. And there are ceaseless rumors about the forthcoming iPhone 5. But Apple makes many things, and it stands to reason that some of their products are better than others. The problem for Apple (and it’s a problem many companies would like to have, no doubt) is that when the bar is set so high for the good stuff, the merely adequate starts to look unacceptable.
That’s why Apple should consider the Jack Welch approach to product management: Just as the former General Electric (GE) chief executive officer would close or sell business units that did not place first or second in their industry, Apple should look at some of the laggards in its product portfolio and ask some hard questions about whether they have a future at the company. Here’s where it could start:
Safari. It’s a perfectly fine Web browser, but it’s not essential. Many people use Chrome, Firefox, and Internet Explorer already—Safari has never cracked 10 percent of browsers in use. Chrome’s now even available as a free app for the iPhone (it’s really quite good—you should check it out). With few compelling reasons why anyone should use Safari, there are few convincing reasons why Apple should continue to spend time and money on it.
Game Center. I’m sorry, but what is this? I just know it as the annoying thing that pops up before I want to play Angry Birds. Apple’s toe-dipping strategy in regard to social networks has never been terribly illustrious—remember Ping, Apple’s social music feature? Didn’t think so. The iPhone and iPod touch are great gaming devices; there’s no reason to muck up the experience with some riverboat-casino-looking app that’s just getting in the way.
Pages. This is Apple’s word processing application, but it’s the third player in a two-player contest. For most people, there’s Microsoft (MSFT) Word, and there’s Google (GOOG) Docs. One’s bloated and powerful, the other’s limited but streamlined. Nobody needs another word processing program. Apple likes to talk about how great Pages is for interesting layouts, but really—how many family newsletters have you made recently?
Numbers. Another Apple version of software that doesn’t need to be. Numbers is Apple’s challenge to Microsoft’s Excel, but for better or worse, Excel is the standard here. Maybe even Apple’s aware of this—the most recent version of Numbers (and Pages, for that matter) came out in 2009—that’s three years ago, an eternity for software.
Mission Control/Launchpad/Dashboard. Apple keeps pushing these different “views” of your desktop. Most people know them as the weird screens that pop up when you accidentally move your cursor into a corner of the screen and then have to figure out how to get back to what you were working on. And really? There have to be three different apps for all this?
So there are five things that Apple could probably shut down and no one would really notice. And they shouldn’t do it just to be more efficient: Every hour that Apple employees spend on these products is an hour they could spend on something that really deserves their attention. I even have a suggestion: iTunes. What started as a simple computer jukebox program has ballooned to now handle movies, TV shows, apps, syncing, account management … it’s gotten so bloated that it’s starting to look like a Microsoft product. Fix that, and you can make all the weird spreadsheet programs you want.
Why Yes, It Is Time for Homemade Satellites
Here’s a fun fact: Over the next year a dozen or so tiny, homemade satellites will be launched into space. They will travel in low Earth orbit—140 to 600 miles up, roughly as high as the International Space Station—conducting a variety of experiments. With time they will drift toward earth until they reenter the atmosphere and incinerate into memories.
Sandy Antunes, a former NASA employee-turned professor, has documented the rise of these so-called pico satellites in a pair of books: DIY Satellite Platforms and Surviving Orbit the DIY Way. Antunes also runs a website called Project Calliope, which follows his quest to build a satellite. Antunes has paid $10,000 for a spot on a rocket that will carry his homemade satellite to space next year.
“The mission I am doing revolves around sensors to measure the electric and magnetic fields of low earth orbit,” Antunes says. “It is the area called the Ionosphere, where the aurora are generated. You have this beautiful glow, but I am going to gather the data as a MIDI sound file so anyone can hear the sounds and rhythm of space.”
Whatever makes you happy, brah.
The rise of private space companies such as SpaceX and Interorbital Systems, which will blast Antunes’s hardware into space, has made satellites affordable for the DIY set. Interorbital Systems, for example, sells an $8,000 TubeSat kit, which is literally a satellite in a can. This little device comes with enough hardware to capture videos, send e-mail from space, and conduct experiments around temperature, pressure, and radiation.
Antunes has built a CubeSat, which is basically a few motherboards arranged in a cube. He’s spent about $15,000 on the computing hardware and sensors. “I’ve made a few mistakes along the way that have raised the budget,” says Antunes, who by the way was the Maryland Science Center’s Science Person of the Month in May 2007. “Some things have melted apart and other things had to get remade.”
While Antunes will focus on capturing the sound of space, other pico satellite enthusiasts tend to work on projects that let amateur radio operators relay their signals through space repeaters and on projects using sensors to gather more data about space.
There are now a handful of Kickstarter projects tied to pico satellites. KickSat plans to send an army of postage stamp-sized satellites into space. “It’s a growing movement,” says Antunes. “Three years from now, any small college or technical school could do one. Students that want to be engineers will build small test rigs that go into space.”
What could possibly go wrong?
Enter Goophone I5, Looking a Lot Like Apple’s iPhone 5
Want to get an iPhone 5 but can’t handle the wait for the Apple (AAPL) release later this month? You might consider buying a knockoff from Goophone. This little-known Chinese company has just announced the launch of its own iPhone 5 look-alike, the Goophone I5, and says it has already patented it in China, according to Gizchina.com. It may even consider suing Apple when the Cupertino (Calif.) company starts selling its sixth-generation iPhone in China, reports the tech and gadgets website.
Goophone’s Apple clone (viewable on its website) is believed to be a close copy of the iPhone 5. Like Apple’s upcoming smartphone, it reportedly has a larger 4-inch screen. It also has a smaller dock connector. Apart from a small honeybee logo on the back (and, at $300, a likely cheaper price—Apple hasn’t announced what it will charge for its next phone in China), it looks remarkably like the much-anticipated next-generation iPhone. But it runs on Google’s (GOOG) Android system and is believed to have much more limited functions internally.
Goophone apparently is the smartphone business of Shenzhen Shenma Lianzhong e-Commerce. The company was founded in 2011 and has more than 500 employees, according to its website. It also sells a clone of a Samsung (005930) Galaxy smartphone. An employee who refused to identify himself hung up the phone when I asked about the Apple patent issue.
This is hardly the first time Apple or other global electronics brands, such as Sony (SNE), Philips Electronics (PHG), and Dell (DELL), have faced copycats or been sued in China. Most big electronics companies are dealing with at least a few patent or trademark suits at any one time, says He Jing, an intellectual property rights lawyer at Beijing-based ZY Partners. And Apple, for its part, in July paid $60 million to settle a trademark infringement suit involving its iPad, brought by Shenzhen-based Proview. Also in July, a Chinese chemical company said Apple’s Snow Leopard operating system violates its trademark (the company’s Chinese name translates as “snow leopard”). And Apple recently has been sued by another Chinese company for allegedly infringing its voice-recognition software. Calls and an e-mail to the China spokesman for Apple were not answered.
Indeed, the business of being what is called a “patent troll,” or filing for a technology, design, or trademark before global brands get around to it in hopes of getting paid off by the brand, has become big business in China, according to He. The recent Apple settlement “definitely stimulated more cases. That showed some people in China another way to get rich fast,” he says. “Chinese companies learn this quickly.”
Chinese authorities like to tout the surging growth of patents filed in China, but that fast expansion is proving to be part of the problem. While China this year is expected to eclipse the U.S. in total number of patents filed, many of those are considered low-quality, “junk” patents. Indeed, of the 530,000 patents granted in China during the first half of this year—up 26.8 percent from a year earlier—only 107,000 were invention patents; out of 857,000 patent applications, just 258,000 were for invention patents. The remainder were either design or “utility model” patents (those related to the shape or structure of a product—not part of the U.S. patent regime), neither of which require any kind of rigorous examination process before being approved, says He.
For its part, China continues to push the rapid growth of new patents by providing cheap credit and other preferential policies to facilitate new patent registration by companies and individuals. And that’s likely to continue, as Beijing has set a goal of receiving 2 million patent applications per year by 2015. “Behind the patents are millions of inventors involved in technology research,” said State Intellectual Property Office Commissioner Tian Lipu at a July 16 ceremony in Beijing commemorating the awarding of China’s 1 millionth invention patent. They “contribute to improving China’s innovation capacity and the country’s change to an innovation-driven country.”
The European Union Chamber of Commerce in China, which represents more than 1,700 European companies operating in the country, pointed to the downside of that growth in its paper released on Sept. 6:
Trademark squatting is becoming big business in China as Chinese companies and individuals understand the “first to file” system. They target foreign trademarks that are not yet registered in China but have the potential to be, and pre-emptively file those trademarks in their own name, thus blocking the possible entry of the original trademark owner in the Chinese market.
These filers hope that when the foreign rights holder realizes that they are unable to register and exploit their trademark in China they will approach them to negotiate a possible purchase.
The Talented M. Despallières
Rock stars loved Peter Ikin. P.I., as everyone in the music business knew him, was as close as it gets to an Australian Clive Davis. A gregarious, world-traveling executive for Warner Music, he brought major acts like Fleetwood Mac, Elton John, Billy Joel, and Rod Stewart to Australia. In 1983 he co-founded Australia’s annual music awards show, the ARIA Awards, and got Elton John to emcee. Billboard called him one of the “chief architects” of Warner Music’s Australia business.
On Nov. 12, 2008, at age 62, eight years into his retirement, Ikin was found dead in a Paris hotel room. His many friends around the world were stunned. He’d seemed in fine health and, just a month earlier, had gotten married in a civil ceremony in London, to a much younger Frenchman.
Ikin’s body was cremated two days after his death. A small, quiet ceremony was held a week later on an overcast day at Pere Lachaise, the Paris cemetery where Jim Morrison is buried. Only a few of Ikin’s entertainment industry friends were able to attend, including John Reid, Elton John’s former manager, and the Australian actor Simon Burke. Among the mourners was Ikin’s spouse, Alexandre Despallieres, who sat on one of the fold-out chairs in the dank ceremonial chamber and wept.
A French coroner recorded the cause of death as heart failure and hepatitis. For a while, that explanation stuck, and Ikin’s death seemed just another premature passing in the rock ’n’ roll family. Then his friends grew suspicious. Ikin’s remains were not returned to his native Australia, as he’d once requested, and donations to his favorite Australian charities, specified in a previous will, were not made. And the widower, whom the rest of Ikin’s inner circle barely knew, appeared to quit mourning rather quickly and in luxurious fashion.
When Ikin first encountered Despallieres in 1987, the Australian was at the height of his influence, splitting his time between homes in Sydney and London. Despallieres, born in 1968 and raised in Bois-Colombes, a middle-class suburb north of Paris, had been determined to make it in show business since he was a teenager. He recorded a French single, L’Amour a Mort (Love Unto Death), and landed a bit part in a TV series.
The two met at a music conference in San Francisco and began an affair. They took cruises, traveled the world, and partied with pop royalty. After a few months, according to Ikin’s friends, the couple broke up, and Despallieres disappeared. Brian Flaherty, a friend of Ikin’s in Australia, says he didn’t hear Ikin utter Despallieres’s name for almost 20 years.
Despallieres’s subsequent travels have since been scrutinized by the Australian and European media. According to a variety of news accounts, he lived in Bois-Colombes with his parents, who both died within a span of 12 months, in the early 2000s. Soon after, he moved to the U.S. with friends and spent time in Los Angeles, working for an Internet company. Everywhere he went, people seemed to gravitate toward Despallieres, and afterward, they had interesting stories to tell. They say Despallieres characterized himself as extraordinarily wealthy, a member of the moneyed European Rothschild clan. Some say he claimed to have a fatal illness. None of it, it seems, was true. Peter Ikin wasn’t the only person enchanted by Alex Despallieres. Over the years he duped executives, lawyers, police, an heiress, and at least one journalist: me.
The U.S. Bank Tower in Los Angeles is the tallest building west of the Mississippi. From its top floor, the view stretches from the Pacific Ocean to the San Gabriel Mountains and all the way south to Long Beach. In July 2007, a year before Despallieres moved to Australia and allegedly reestablished contact with Ikin, he brought me there to prove a sensational claim: that his employer, a then-popular social networking site for teenagers called Stickam, was secretly owned and operated by a Japanese pornography company.
At the time, I was a reporter for the New York Times, and Despallieres’s tip, in an out-of-the-blue e-mail I received that summer, sounded intriguing enough to warrant a visit. Despallieres’s friend Jeremy Bilien, young, shy, and speaking with a thick French accent, was waiting for me at the baggage claim at LAX. We exchanged a few awkward words as he drove to the Versailles condominiums in L.A.’s Mid-Wilshire district, where we met Despallieres and the woman he introduced to me as his wife, Letty Nail.
Despallieres was charming. He could easily pass for a male model, and there’s nothing like a French accent to give one an air of worldly sophistication. On that day he wore an expensive-looking suit with an open-collar shirt and a gold Piaget watch. He said that several months earlier, at the Beverly Hills Hilton, he was introduced to the executive running Stickam. Recognizing the site’s potential, he went to work for the company, taking an unpaid consulting role as he negotiated his formal position. He said the site’s owner, a six-and-a-half-foot-tall Japanese Internet tycoon named Wataru Takahashi, known as “Mr. T” inside the company, began cultivating him to run the site as president. In these conversations, Despallieres said, he learned about the company’s links to Japanese pornography.
Stickam, a precursor to video chat sites such as Chatroulette and Airtime, allowed members to talk to each other face to face online. Since there is high potential for abuse during live online conversations, Despallieres said that Stickam’s pornographic connections undermined its ability to protect its young users.
Photograph by Newspix/Rex/Rex USA
He offered to take me to the heavily guarded office building so I could see the situation for myself. Despallieres greeted the guards by name and even exchanged hugs with some of them. On the 72nd floor, he showed me the section of the office devoted to Stickam, and around the corner, a similar space for DTI Services, the operator of the Japanese porn sites. A whiteboard specified that one of the sites was bringing in $220,000 a month.
Then we went one flight up to the top floor, which was decorated in blond wood paneling left over from the previous tenant, a law firm. These offices were some of the priciest commercial real estate in all of L.A.—clearly not the natural digs of an unprofitable Web startup—and they were mostly empty. Despallieres, Bilien, and Nail worked there with a small group of young Stickam employees; they told me they were working on a mobile service they were calling Flivor. We walked around the offices, taking in the views.
“I’m actually scared for myself and people I brought to the company,” Despallieres said later, back at his condo. Nail chimed in, saying she found Stickam’s connection to pornography “disgusting,” adding, “I am actually kind of ashamed to be involved in it.” They dropped me off at the airport that afternoon.
It had been a bizarre day, and their story was full of complications. With Flivor, Despallieres seemed to have an interest in breaking away from Stickam and competing with it, so perhaps he was deliberately sabotaging the competition. Oddly, he also requested to be identified in the article as “Alex Becker,” using the surname of a local woman who had adopted him.
Despallieres’s central assertion checked out, though. Stickam’s top executive in those days, Scott Flacks, later confirmed that Stickam was owned by DTI, the adult-site operator. The article, “Accuser Says Web Site for Teenagers Has X-Rated Link,” was published on July 11, 2007, with a photo of Despallieres standing proudly in front of the U.S. Bank Tower. After the story ran, Flacks and several of his former colleagues say now, they never saw Despallieres again.
In 2008, Despallieres resurfaced in Australia and rekindled his romance with Ikin. This time, Despallieres was no longer the striving wannabe pop star—now he was an Internet entrepreneur and had a New York Times article to prove it. “Alex kept it on his resume,” says Ikin’s old friend Flaherty. “He was showing everyone, saying, ‘Look at how exciting I am.’” Despallieres said he was rich and that he had sold a startup to Mexican billionaire Carlos Slim. He also said he was dying, specifically from two inoperable brain tumors, and that he would not live to see his 40th birthday. According to Ikin’s friends, Despallieres declared that he didn’t want his family to be his heirs. He wanted Ikin to have his fortune—and persuaded his older lover to enter into a civil partnership that fall.
Ikin had doubts about the sudden turn in his romantic prospects. In an e-mail to Flaherty that year, obtained by British newspaper the Daily Mail, Ikin said Despallieres wanted him to replace his long-standing will with a new one that named Despallieres as sole beneficiary. “His existing will,” Ikin wrote, “has been destroyed and he wants me to cancel my will which doesn’t mention him and do a new one here (I am not sure about all this).” Flaherty recalls that Ikin was growing annoyed by the constant presence and nocturnal habits of Despallieres’s entourage, which included two people he called his personal assistants—Jeremy Bilien and Letty Nail.
In November, Despallieres, Ikin, and Bilien vacationed in Paris, staying at the Abba Montparnasse Hotel, where Ikin was found dead. The precise circumstances of Ikin’s death remain murky. Earlier that week, according to press reports, Despallieres texted Ikin’s former assistant to say that the former music executive had fallen down a flight of stairs but was refusing medical treatment. To Ikin’s friends back in Australia, that seemed odd—Ikin tended to seek medical attention at the slightest sign of illness.
Soon after the funeral, Despallieres’s lawyer submitted a will that named him sole beneficiary of Ikin’s $15 million fortune. The document was a single-page photocopy witnessed not by an attorney but by Bilien and another friend, Vincent Bray. Despallieres then moved with his pals into Ikin’s Victorian home in London’s swanky Cheyne Place, threw lavish dinner parties, and bought three Porsches—one each for himself and his new housemates.
Photographs by Newspix/Rex/Rex USA(3)
Despallieres’s flamboyant arrival on the London scene immediately angered Ikin’s family and friends. Over the years, Ikin had meticulously revised several wills that divided his wealth between charities and his extended family. His family in Australia challenged the will in British court. The ensuing legal confrontation received ample attention from the tabloids. (“Young gay husband Alexandre Despallieres gets Peter Ikin millions in will” read one headline in the Telegraph, a Sydney paper.)
In late 2009 the British court ruled that the will was a forgery and restored bequests to Ikin’s family and to Australian charities. Around the same time, Reid, Elton John’s former manager, paid for a toxicology report on tissue samples preserved by the hospital before Ikin’s cremation. The results indicated there were potentially lethal levels of an over-the-counter painkiller called paracetamol in Ikin’s system when he died.
In the spring of 2010, Despallieres was arrested by the French police and charged with murder and forgery. The police also arrested Bilien, Nail, and Bray, though it’s not clear whether they were ever formally charged. According to press reports, Bilien admitted to helping forge the will two months before Ikin’s death. Bilien’s lawyer, Solenn Le Tutour, says her client acted on Alex’s instructions. Attempts to locate Bray were unsuccessful.
French prosecutors, who seem to work on geologic time, are still investigating, according to Despallieres’s attorney, Laure Heinich-Luijer. Ikin’s family and friends allege that Despallieres is a gifted confidence man: Like the talented Mr. Ripley in the Patricia Highsmith novel, he insinuated himself into Ikin’s life and then slowly and meticulously poisoned him. There have been other allegations. Petra Campbell, the former domestic partner of Despallieres’s older brother Marc, believes Ikin was not Despallieres’s only victim. In 2008 she wrote to the police to voice suspicions that Despallieres had not only murdered Ikin but may have been responsible for the death of his own parents and grandmother, who died in the “same mysterious way” and were similarly cremated almost immediately. Chris Hutchins, a British author working on a book about the case, calls Despallieres “the most dangerous, duplicitous man I think I’ve ever come across.”
Late last year, unaware of the drama unfolding in France, I sought Despallieres’s help with another article. When my e-mails weren’t returned, I googled him and was stunned to see a flurry of lurid overseas headlines about the charming Internet executive I’d interviewed in 2007.
Retracing the steps on my earlier story, I spoke to some of the executives of Stickam, which is still operating. It turns out they had their own unusual experience with Despallieres. They laughed at the suggestion that Takahashi was recruiting the Frenchman to take over the company. Despallieres told them he was a Rothschild and was interested in buying the site or licensing its technology. On the day I visited, he told the company I was his banker. Scott Flacks, the former Stickam exec who’s now the head of operations for a healthcare technology startup, says that by the time of the article, the company was already beginning to suspect Despallieres and his two associates weren’t who they said they were. “I almost want to call them grifters,” says Flacks. “They are bright and found a way to ingratiate themselves. Alex is a handsome, charming guy.”
The more I looked into Despallieres’s history, the more bizarre it became. I called Marcelle Becker, an elderly widow in Beverly Hills whom Despallieres had befriended, and who had formally adopted him in 2005. The French TV news show Sept a Huit reported in 2010 that she annulled the adoption after suspecting he’d tried to poison her. “He’s so dangerous,” she told me over the phone. “I was lucky to get out of it. I don’t want to get involved.” Out of curiosity, I did a YouTube (GOOG) search for “Alex Despallieres” and L’Amour a Mort, his pop single from the ’80s. There were no music videos, though several clips popped up—promotional segments on Flivor.com in its impressive-looking L.A. offices. I was caught completely off guard by one of these videos: Suddenly, there I was back in 2007, following Despallieres through the familiar blond-wood decor, taking a glass of water from Letty Nail, laughing at something Despallieres was saying, shaking hands in a conference room. The video was shot upward, from a hidden camera. Despallieres had secretly taped the whole thing.
After his arrest in 2010, Despallieres spent two years in and out of jail. In February, he was released from La Sante Prison in Paris on procedural grounds: An appeals court ruled he had not been sufficiently advised of his rights when taken into custody. We had exchanged some letters while he was behind bars and he agreed to meet to discuss his case. In March he sat down for an interview in a conference room at Bloomberg News’ Paris bureau. He was wearing a blue suit and, at 43, still looked improbably boyish, his hair covering his ears and forehead. On his left ring finger was a plain wedding band. He regarded it with disinterest when asked about it.
“Alex, what happened to Peter?”
“He died because, there were two reasons,” Despallieres said. His English had deteriorated, and he kept switching to French. A Bloomberg colleague translated. “For a long time, he used too much stuff like cocaine. And he had an infection, something he caught in the hotel because of the air conditioning. Something very bad.”
Despallieres claimed he took Ikin to the hospital three times, and each time he was released. “He knew he was going to die. I don’t know what happens in the brain. It was very painful to me. And then all those accusations.” He said he had Ikin cremated in France with the full knowledge of Ikin’s friends because logistical challenges made it too difficult to transport his body to Australia.
Despallieres wove a convoluted tale that was hard to believe, though perhaps impossible to disprove. He said he contracted HIV in 1985, when he was 16, and was given six months to live: “I thought, if I have six months, they have to be the most beautiful six months in my entire life.” He traveled, took his medications, and waited for the end to come. It never did.
When his relationship with Ikin began in the 1980s, Despallieres said, it was mostly one-way declarations of love from the older man. The romance lasted for years, and never dropped off, as Ikin’s friends had suggested. They lived in London together in the early ’90s, and only stopped seeing each other for one year in 2002, when Despallieres’s parents died and he was depressed. (Ikin’s friends say Despallieres had no significant contact with Ikin in those intervening years.)
He denied killing Ikin. They’d had a joint account at Barclays Wealth and Investment Management, so why would he kill for money he already had? Plus, he said, he didn’t care about money. After Ikin died, Despallieres got sick with an unknown illness—and while he was hospitalized and on morphine, Bilien concocted the forged will because he stood to inherit money from Alex. “Jeremy is a pain in the ass,” said Despallieres. “He had a very sad childhood. His father beat him. You want to help him, but the more you help him, the less it helps.” (Bilien’s lawyer Le Tutour, disputes this account. “It’s clearly Alexandre Despallieres who initiated it, to get the money,” she says. Letty Nail could not be reached for comment.)
“Ah,” I said, “so Bilien was the criminal mastermind?”
Despallieres bristled at this. “Jeremy was not a mastermind. He did stuff, but not properly. If he wanted to make a will he could have at least made a proper will. This will looked like nothing. It did not look professional. He’s not a mastermind. What he’s doing, it’s bad. It’s very bad to take advantage of someone sick or someone with no money.”
Despallieres said he sank into a depression after Ikin’s death. “I had nothing left in my life. My life was broken. When Peter passed away, and 10 years ago I had lost my parents, that was too much for me.” Then, he said, he “did something stupid.” Bilien and Bray, the other witness to the forged will, asked Despallieres to buy them Porsches, and Despallieres claimed he was too disheartened to resist. So he bought three. “My state of mind was, ‘Who cares?’ I wanted to die.”
Of Marcelle Becker, the L.A. widow who adopted him: “She’s a little bit nuts. Unfortunately for me, I met a lot of beautiful people who were also crazy.” Despallieres denied ever trying to poison Ms. Becker. He also rejected Petra Campbell’s accusation that he killed his parents and grandmother, pointing as proof to the fact that his own brothers never leveled that accusation.
Despallieres’s stories and explanations spilled forth for an hour and a half. He married Letty Nail twice in Las Vegas, the first time for a green card so he could work in the U.S., the second time “because it made her happy.” He claimed he was a close friend of Bertrand Delanoe, Paris’s longtime mayor, who is openly gay. He spoke of entering another affair, with a high-profile Paris attorney even as he carried on with Ikin. “They both knew about each other,” Despallieres said. “They both loved me to death.” Improbably, he positioned himself as a helpless pawn in high-stakes battles between powerful lawyers, politicians, and corporate interests.
The conspiracies were almost impossible to follow. “There are two possibilities here,” I finally told Despallieres. “One is that all these people—Peter’s friends, his family, your family, all these famous people—are manipulating the truth. The other possibility is that you are manipulating the truth, particularly about Peter’s death. Frankly, that is easier to believe.”
“So I manipulated Peter for 20 years? That’s so silly and stupid,” Despallieres said. “They are all connected together. They are all going to Sydney at the same time, and they are talking about the same s–t. They were all trying to get attention from Peter, and Peter and I were very discreet. We were living our life; we were not allowing anybody to get inside.”
Why, I asked, had he secretly recorded my visit to the Stickam offices in 2007 and put the video on YouTube?
He seemed taken aback, his eyes darting back and forth. Finally a string of excuses tumbled out. He insinuated that Bilien might have done it, then claimed ignorance, and then said “we were recording everything.” Finally, he settled on a plea to help him get YouTube to take those videos down. I noted that the videos had been uploaded from a YouTube account bearing his name. He claimed not to be able to access it.
Within a few minutes he was gathering his suit jacket and walking off into the Paris afternoon, saying that a friend was waiting nearby to pick him up.
Several weeks later, I received an e-mail from Francois Davoust, a financial adviser who lives in Calvados, a region of Normandy famous for its apple brandy. His English was rudimentary, but good enough to communicate his intention: He wanted to talk about Alex.
Davoust said Despallieres had been living in and around the Normandy town of Lisieux, and had already come to the attention of the local authorities. After getting out of prison, he stayed briefly at a small hotel downtown, whose owner complained to police that he hadn’t paid his bill. Then he spent 10 days at the home of a factory worker who says Despallieres declared himself a top executive of Facebook (FB)—and stole some clothes.
Most recently, Despallieres had been living on a horse farm where he shared a cottage with a Malaysian-born friend from prison and a 59-year-old cleaning woman. The woman had allowed Despallieres into a customer’s mansion, with stunning views of the Normandy coast, where he filmed a YouTube video and gave another interview to the news show Sept a Huit. The mansion’s owner, a Paris businessman who spoke on condition of anonymity, saw the program, fired the cleaning lady, and called the police.
Despallieres claimed he was going to be the subject of a Hollywood film and asked Davoust to be his agent. They signed a contract, and Despallieres asked to be driven to Paris for a meeting with the movie producer: me.
Davoust dropped Despallieres at the Bloomberg offices and waited in the lobby of a hotel across the street. Afterwards, Despallieres said the project was on track and promised to fly Davoust and his family to California, where he had arranged a meeting with Lady Gaga. Soon after, Davoust discovered that the SIM cards had been removed from two of his cellphones, and that someone had used them to make calls to Malaysia. Davoust tried to reach Despallieres but his calls weren’t returned. He, too, has filed a complaint with the police. He has yet to meet Lady Gaga.