Chat “interoperate” between Yahoo and Msn

I wonder if the decision made in these last days by Microsoft and Yahoo! to allow their respective chat clients to talk to one another has more to do with:
a) The success of Trillian
b) How much MSFT and Yahoo! fear the connection of AOL and Google Talk.
After all, Google owns 5% of AOL and could one day own it all, making their instant messaging tool the market leader.

Yahoo Inc. and Microsoft Corp. said they have begun a limited public test to allow users of the companies' respective instant messaging programs to trade messages with one another. The agreement to work together, first announced last October, marks a long-awaited breakthrough among major instant messaging services, which include AOL's pioneering AIM service, Microsoft and Yahoo, along with more recent upstarts including eBay Inc.'s Skype and Google's Google Talk.

Specifically, users of an upgraded version of MSN Messenger, recently rebranded "Windows Live," can trade messages with Yahoo Messenger, creating the world's largest instant messaging community, with 350 million accounts.

These instant messaging, or IM, systems allow users to type messages to others on their "buddy list" via computers and in some cases over mobile phones. Historically, each provider sought to create "walled gardens" that prevented users of one IM system from talking to users of rival systems.

AOL agreed in December to make its U.S.-market-leading AIM eventually work with, or to use the technical terminology, "interoperate," with Google Talk, but no date has been set to do so. AIM users can already chat with users of Apple Computer iChat system for Macintosh computers. Google and AIM work with various other independent IM projects too.

With the Yahoo and Windows deal, icons will allows users to distinguish which program their IM contacts are using. Yahoo and Microsoft plan to make interoperability between their services broadly available in the coming months.

Consumers have pretty much settled in and defined their preferred IM systems and buddy lists, It does make it easier for many consumers who will need to keep one less instant messaging system up and running now.

U.S. Internet traffic measurement firm Nielsen//NetRatings data shows AIM with 47.2 million users in June, compared with 28.0 million MSN/Windows Live users and 22.5 million Yahoo Messenger users. The unduplicated audience of Microsoft and Yahoo was 43.5 million U.S. users, the survey showed.

Yahoo and Microsoft took issue with these numbers, citing comScore Networks's global figures which showed that Microsoft IM had 204 million users and Yahoo IM had 78 million users worldwide. AIM had 34 million users, the comScore data showed.

Keeping in perspective the inflation risk

In both the United States and the euro zone, headline inflation has risen above target rates (4% and 2.5%, respectively). Although core inflation tends to remain under better control, it is accelerating in the United States, and is poised to rise in the euro zone as well.

In response, the Fed raised its key target rate to 5.25%, and the ECB will surely follow suit, raising the refinancing rate to 3.50% before the end of the year. This tightening movement is likely to be followed by a pause, at least according to the signals suggested by economic fundamentals, especially if monetary policy is to be considered “forward looking”.

It is important to keep in mind the following factors:
1) Inflation - and core inflation in particular - is a lagging indicator.
2) The moderating impact of past rate hikes has not materialised yet.
3) The American and European economies are heading for a slowdown next year, which means that growth rates are likely to fall below their long-term potential. This should buffer the impact of inflationary pressures, and current fears should gradually ease.

Yet, more is at play. In increasingly open economies, inflation rates no longer depend solely on internal conditions. Imports, particularly those from emerging market countries with low wage costs, are making a greater contribution to domestic demand. The risks of imported inflation are reduced by the enormous surplus production capacity worldwide. This is true in terms of physical plant (China’s high investment rate is very telling) and in the scope of under-employed labour in the countryside – the steady stream of labour toward urban areas and non-farm sectors is accompanied by greater productivity gains as well as by a moderating impact on wages. Moreover, the opening of markets to the exterior strains wage formation in the developed countries.

Real wages, in both the United States and the Eurozone, are not rising as fast as one would expect at this stage of the cycle: traditional Phillips curves no longer reflect the relationship between unemployment and wages. Several factors have curbed wage momentum: globalisation and the fear that production will be relocated abroad; restructuring and the impact of legal and illegal immigration on protected sectors like construction and services, which cannot be relocated abroad. In an environment marked by the internationalisation of all markets – financial, goods & services and labour – monetary policy decisions can no longer be based solely on internal conditions like unemployment or, to a broader extent, production capacity utilisation rates.

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United Kingdom widening current account poses no serious risk

The UK current account has been in deficit since 1984. In 2005, the deficit stood at 2.2% of GDP. In 2006 Q1, the deficit rose to 2.6% of GDP. These data imply that the UK has been a net seller of assets to non-residents for more than 20 years. One could question if such a long period of deficits could continue unabated.

The structure of the current account
Looking at the current account, one is struck by several aspects. Since 1946, imports of goods have exceeded exports in almost every year. Moreover, in recent years, the trade deficit has been widening. It stood at around 1.6% of GDP in the middle of the 1990s and reached 5.5% in 2005. This is due to the continuing decline of the British manufacturing sector. The deficit of the trade balance has been compensated by surpluses on the services and income balances. Services exports are now about 50% of goods exports, confirming that the British economy is becoming more and more a services-oriented economy.

In particular, the UK wholesale financial services sector ("the City") has established itself as one of the major international financial centres in terms of liquidity and product diversification. In recent year, the surplus on the services balance has been fluctuating in a narrow band between 1.5-2.5% of GDP. The most remarkable fact is the strengthening of the incombe account.

Its surplus rose from close to balance in the mid 1990s to 2.4% by 2005, thus limiting the deterioration of the current account. This development was remarkable, as one would have expected that the continuing sale of assets to non-residents
would have led to weakening of the income account.

The UK net asset position
Both UK gross foreign assets and liabilities have dramatically risen during the past 40 years, from around 40% of GDP in 1966 to close to four times GDP by the end of 2005. However, due to accumulation of deficits on the current account, liabilities have risen more rapidly than assets, and since 1995, the net asset position has been negative. What stands out in this development is the improvement in the direct investment balance. It implies that UK residents have been buying foreign firms, sometimes in exchange of equities. For example, in 2000, direct investment was dominated by the purchase of Mannessman by Vodaphone. As this was financed by an exchange of shares, it appeared in the accounts as a large direct investment inflow balanced by an equity outflow in portfolio investment.

Direct investments tend to be underestimated in the accounts as they are measured at book value. Only non-repatriated profits are added to the stock of direct investment (and also on the current account as income from abroad). By collecting data on the difference between the valuation against book value and market value of 167 companies, Pratten suggests book value ratios of 1.75% for outward investment and 1.50 for inward investment.
- 1 Using these estimates, Nickell calculates that the overall net asset position has remained positive, and is virtually unchanged compared with 1990.
- 2 In addition, the returns on different assets vary widely. The implied return on direct investment is generally higher than on other assets. This is even the case after the market value correction. According to Nickell (op. cit.), the substantial improvement in the income balance can be attributed to the sharp rise in the return on direct investment.

The sustainability of the current account largely depends on the development of the trade deficit, and the possibility of the income account to continue to provide a substantial positive contribution. The deficit on trade balance is related to the strong appreciation of sterling and the ensuing losses in competitiveness. We do not project a reversal of this trend. For 2006-2007, the trade balance is projected remain virtually at the same size. The UK’s net portfolio position is strongly positive in equity type instruments (direct investment, equity investment) and strongly negative in debt type investments (debt securities, bank loans,…).

The capital gains on the former are likely to be higher than those on the latter, suggesting that the revaluation of the asset portfolio could continue to offset the current account deficit.

The major risk to this scenario is that the return that foreigners earn on their UK assets would increase substantially compared to the return of UK residents on foreign assets. This could happen if returns on equity investment would come down relative to returns on debt-type instruments.

Although this possibility cannot be excluded in the short-term, it is unlikely to persist in the medium and long term, due to a positive risk premium on equity investment.

A second possibility is that the portfolio composition of non-residents will converge to that of UK residents by foreigners buying more UK equities. An increased appetite for UK assets by non-UK residents is indeed a possibility, but such a development will only be very gradual. Finally, a permanent real appreciation of sterling may lead to a significant fall in UK assets relative to liabilities. As sterling is already overvalued, such a scenario seems rather unlikely. All in all, we expect the financing of the UK current account deficit does not those a serious problem in the medium term.

Italy: Consumer confidence down in March

Italy: Consumer confidence down in March

- Italian consumer confidence fell back in March, following its jump last month when it reached a 3-year peak.
- This fall was due to a deterioration in households’ assessment about the overall economic situation (current and future prospects) which was not offset by the improvement in the national economic climate index.
- All in all, fundamentals, amongst which the generous wage deals decided in the latest round, support the view of an acceleration in household consumption this year.

Italian consumer confidence fell back in March, following its jump last month when it reached a 3-year peak. The ISAE composite index lost 0.8 point at 109.2, remaining thus far above its cyclical lows.

This fall was due to a deterioration in households’ assessment about the overall economic situation (current and future prospects). This drop contrasts with growing optimism in Italy’s neighbour countries, France and Germany. Furthermore it was not offset by the improvement in the national economic climate index.

The national economic climate index was up by 0.9 point, at 94.3, its highest level since October 2004. Both assessments of the current situation and expectations improved. Expectations (almost constantly in negative territory since the beginning of the survey) increased the most, up from -21.0 to -13.0, reaching its highest level since June 2002. Nonetheless, a higher proportion of households expected an increase in unemployment in the next 12 months, despite the fact that unemployment rate had remained stable at a 10-year low in Q4 last year for three quarters in a row (7.7%), thanks to the registering of illegal workers and the addition of temporary and part-time jobs to the workforce.

Conversely, the personal economic climate index deteriorated, down from 118.0 to 115.9, as the approach of the general elections probably cast doubt on future economic developments in Italy. Nonetheless, households said they were more prone to buy durables (up from -99.0 to -94.0) as their sentiment about their current financial situation remained stable over March.

All in all, the March fall is probably a correction following the peak reached in February. Indeed, fundamentals, amongst which the generous wage deals decided in the latest round, support the view of an acceleration in household consumption this year.

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US: Rebound in industrial production in February, despite a pause in the manufacturing sector

Industrial production recovered by 0.7% m/m in February (after -0.3% m/m in the previous month). This rebound was exclusively due to the (partial) catching up in the utilities sector (+7.9% m/m). By contrast, output declined slightly in the mining sector and remained stable in the manufacturing sector.

- The rate of capacity utilisation bounced back to 81.2% from 80.8% in January.
- Recent surveys conducted in the manufacturing sector have remained very favourable.

Rebound in industrial production in February, despite a pause in the manufacturing sector
+0.7% m/m, thanks to the upward correction in the utilities sector.

Industrial production recovered by 0.7% m/m in February (after -0.3% m/m in the previous month). In both q/q (annualised) and year-on-year terms, healthy growth rates underline the current robustness of the industrial sector (+8.3% and +3.3% respectively).
This monthly rebound was exclusively due to the (partial) catching up in the utilities sector, following a huge temporary fall in January, resulting from exceptionally mild weather conditions (+7.9% after -11.5% m/m).

By contrast, output declined slightly in the mining sector (-0.5% m/m) and remained stable in the manufacturing sector (following four consecutive sharp increases).
The rate of capacity utilisation back on the way up (81.2%).

The rate of capacity utilisation bounced back to 81.2% from 80.8% in January. It thus came back to its December level. Within the manufacturing sector, it remained broadly unchanged (80.1% following 80.2%).
The upward trend in capacity utilisation in past months contributes, along with stronger labour market tensions (i.e. unemployment rate below 5%), to explain why the FOMC remains cautious with regard to inflationary pressures

Surveys point to strong activity ahead.
Recent surveys conducted in the manufacturing sector have remained very favourable. In particular, the February ISM survey and our March NEM index (which is derived from the New York and the Philadelphia Fed surveys) pointed to more dynamic output and new orders .

BizzBlog Focus for September 23, 2005

ECONOMY – EUROPE

Equity strategy some themes for the next five years
If you want to know my next week's favourite short you should stop reading now. This is about some themes I believe in for the next 4 to 5 years.

Equities and commodities to beat bonds. No large liquid asset class is likely to beat equities, apart perhaps from commodities. Equities are the only large, liquid asset class to benefit from economic growth. For equities I expect 3.5% dividend yield plus 1.5% real GDP growth, for a 5% real return. This compares with nominal German bond yields of just over 3%, and real rates of close to 1%, which I believe will rise. Commodities may do as well as equities or even better, as Asian (China and India) demand and lack of supply provide a favourable backdrop for another 5 to 10 years.

I prefer play European equities over U.S. equities. European equities in a global context are still catching up. Europe is still an exciting equity market that is catching up through issuance, privatisation and hopefully more entrepreneurship, the latter in part driven by favourable macro reform. In Continental Europe, market cap to GDP ratios were 4 times lower than in the U.S. in 1994, and still 2 times lower in 2004. European valuations are at a 28% discount to the U.S., versus a 20% historical average discount.

Buy European investment banks and consolidating industries like Telcos – new Tech - and Continental European banks. I think the corporate spending boom has much further to go. M&A as a percentage of market cap troughed in 2003 at 6% and is currently annualising at 10%. The peak was in 1999 at 14%. Another sign that I are early in the corporate spending boom is that bidders are outperforming the market and outperforming the targets if measured after the announcement. Corporate balance sheets are strong. Furthermore, private equity and LBO activity is rampant, as this is one of the most effective ways to benefit from low rates and low equity multiples.

The big risk is a consumer-, debt- and property-led recession around the world. This would be triggered by higher rates in the U.S., driven by the large current account deficit and the lack of household savings. The big surprise would be that Germany and Japan take over as drivers of global growth by sorting out their problems, and by their consumers spending more and saving less. My personal recommendation: Buy German and Japanese equities, avoid U.S. consumer exposure.

My model portfolio changes today I am buying Ciba Specialty Chemicals, WPP and ICAP, and selling Atlas Copco and BASF. The main theme is we are buying cyclical laggards on low/trough margins, and selling cyclical out performers on high/peak margins.

Materials remain my biggest overweight, with a heavy focus on cyclical laggards on low/trough margins, such as Paper and Specialty Chemicals. Media becomes my personal 3rd biggest overweight. Capital Goods become my biggest underweight.
- Ciba Specialty Chemicals (SFr 78.70) is expected to have an operating margin of 8.2% this year, just off last year's cycle-trough at 7.4%. Historical peak margins were 12.5% in 2001. The stock trades on an EV/sales of 1.1, at the bottom end of its historical range of 1 to 2.5. I view it as a classical cyclical laggard. Any move up in the dollar would help, as would moderation in the rise in raw materials input costs, which are currently at record highs.
- WPP Group (570p) has accelerating organic revenue growth, on my personal forecasts, together with rising margins. Global agencies are benefiting from strong Asian growth and recovering spirits within the corporate sector as the spending recession of the last few years ends. On 8.2x 2006 EV/EBITDA it is at a discount to its peers.
- ICAP (price 349p) trades at a 15% discount to other inter-dealer brokers and a 26% discount to other exchanges on estimated 2006 P/E of 16.3. Electronic trading now accounts for just 10% of revenue but is growing fast and is higher-margin business. Derivatives are a structural growth area.
- Atlas Copco (SKr 140). This stock has done very well. The analyst now expects 2006 EBIT margins of 18%, versus a previous peak of 15.1%. Average EBIT margins between 1999 and 2004 have been 12.9%. I do think the good news is in the price though. Its 2006 P/E is 13.3x, but its normalized P/E could be 20% higher if not more, we estimate. 2006 IBES P/E for MSCI Europe is 12.7 times.
- BASF (€60.10). Close to peak margins. Only 2% 2006 dividend yield versus market on 3.3%, I estimate. Has been a great stock but is now close to price target.


ECONOMICS - JAPAN

Koizumi Victory To Speed Reform
Prime Minister Koizumi's coalition won 327 seats in the Lower House. This exceeds the 2/3 majority needed to override rejection of bills by the Upper House. As a result, the postal reform bills will likely pass easily. Momentum for other reforms will rise, and the anti-reform forces are splintered, giving PM Koizumi a freer hand. The next areas are expected to include medical reform, civil service reform, public sector outsourcing, and government financial institution reform.

Market overview implications.
1 - Prospects for faster, more thorough reform should support the equity market.
2 - Bond markets will like the better prospects for fiscal reform, but fear the implied stronger economy.
3 - The yen will gain from more foreign money flowing into Japan, but lose from the lower risk aversion of domestic investors, who will send more funds out of Japan.

Two major risks. (1) The LDP could succumb to infighting. (2) Facing a fractured opposition, the LDP could become complacent.


FINANCE - JAPAN

Japan equity strategy vision
The Koizumi victory suggests a major shift to policies based on voter approval. The Koizumi government is establishing a new order in Japan's politics. This election moves Japan toward policy-driven politics, led by the prime minister. It also redefines elections to be tests of the popular will about policies, rather than money- and organization-driven tests.

The market implications in a short-term neutral, long-term positive. Although the ruling coalition won more than expected, I expect only modest impact in the short term because investors will quickly turn attention to the economic outlook and corporate profits. I maintain a view that the Nikkei should move toward settling in above 13,000 by year-end. In the longer term, I see a positive impact due to renewed hopes for fiscal, social security, and local government reforms.

Some risks are limited to populism. The real test of the Koizumi reforms will come after he leaves office. His successors may tilt toward mere populism.


AUTOMOTIVE - CHINA

China-Built Chrysler 300C
Chrysler Group president and CEO Tom LaSorda announced some major developments in Chinese and Taiwan markets that sure give to automaker a huge boost in both countries.
Today’s big blast is the announcement of a new joint venture to build the Chrysler 300C in China. Teaming up with long time partner Beijing Automotive Industry Corp., Chrysler we’ve created Beijing Benz-DaimlerChrysler Automotive Ltd., with the intention of building the car model. In fact, construction’s already started on a new plant where intend to build the 300C. By the moment the company reported just how popular the 300C is in China, Chrysler is gunning to expand its brands in the world’s fastest growing market.
















TECHNOLOGY - TAIWAN

Cautious but not pessimistic
The Taiwan stock market corrected 4.4% in August. Heavily index-weighted tech shares declined 5.7% and financial shares dropped 5.3%, whereas steel, plastic, and cement shares outperformed.

In my view, the tech sector's correction in August was caused by three factors.
a) Fear of slow demand after Dell's warning of PC inventory in the channel;
b) Worry that hiking oil prices and interest rate could dampen U.S. consumption prospects;
c) Potentially disappointing 2Q05 results.

I agree that sustained high oil prices at U.S.$70+ could create demand shortfall for tech products in 2006. In a high oil price environment, it is also understandable that technology shares are not a safe haven, as investors would be more cautious in their investment strategy. However, we still think that tech shares could lead a market rebound in the next few months due to the following reasons:
1) Tech end demand is still looking fine. Post Dell's inventory comments, ATI was the only major tech company to announce a performance warning, and it was more related to market share loss rather than slow market demand.
2) Taiwan tech companies' 2Q05 results were better than estimates.
3) I also believe seasonal momentum remains on track for the tech sector and we still expect to see 50% sequential profit growth for the sector in 3Q05 and another 23% QoQ growth in 4Q05.


MOBILE ENTERTEINMENT - UK

Sky confirms TV to mobile plan
Richard Freudenstein, chief operating officer at BSkyB, used the occasion of his speech to the UK’s Royal Television Society conference in Cambridge to confirm earlier suggestions that the pay-TV operator was to launch a service offering access to the live content of entire channels through mobile phones. Sky is now in talks with 3G mobile phone operators to agree revenue-sharing deals, as well as suppliers of content to its existing digital platform line-up. Services offered would include Sky channels and third party channels that are carried by Sky on its subscription television service. It would include channels streamed to handsets and programmes made for viewing on mobiles. Sky has also revealed that its next generation of Sky + boxes would have a broadband capability, with consumers needing to go via Sky to use the function to download ‘on demand’ content.


MULTIMEDIA – INDIA

India’s MTNL reveals triple-play strategy
State-owned Indian telco Mahanagar Telephone Nigam (MTNL) is launching a triple-play service, offering voice, broadband and cable TV on a single line. MTNL's the operator already procured equipment and that installation was under way, with service launch planned for November. MTNL has already secured deals with some 25 TV channels and the company is in negotiations with other channels for similar agreements. MTNL is planning to offer at least 200 channels in all.


TELEVISION – SPAIN

RTVE's losses set to widen
State-owned broadcasting group RTVE - which operates La Primera and La 2 - plans to lose E801.7 million in 2006, 10 per cent more than the forecast debt for this year. In 2005, its accumulated debt will reach up to E7.56 billion. The group will see its ad revenues cut by nine per cent, from E801.7 million this year to E720 million in 2006, as a result of its planned audience decline following the entry of new TV operators in the market; Sogecable-owned Cuatro and a new analogue channel with a 70 per cent coverage. RTVE's budget in 2006 will amount to E1.54 billion, similar to that of this year with operating costs growing by 2.8 per cent up to E1.30 billion as a result of investments in digital terrestrial television.


SAT TELEVISION – ITALY

Samsung STB for Sky Italia
Samsung Electronics announced a set top box contract with Sky Italia, the Italian satellite broadcaster owned by News Corporation. Deliveries are planned to commence in early 2006 to support the Sky Italia Digital TV service.


INTERNET - DOMAINS

Online smut still homeless as .xxx is delayed again
ICANN has delayed again the approval of the .xxx top level domain (TLD) until an unspecified "future date".
The establishment of the domain was originally agreed by ICANN in June, but has been mired in political debate after conservative groups in the US raised concerns about having a TLD specifically for porn. President Bush stepping into the fray with his own worries about a virtual red-light district last month (http://www.theregister.co.uk/2005/08/16/smut_tld_delayed/) has only slowed the process even further. At a meeting on Thursday, ICANN's board of directors told staff that ICM Registry, the company that will operate the .xxx domain, will have to agree to further contractual provisions before the adult-entertainment TLD gets the green light. However, the hordes of feline lovers that surf the web - and what else could explain why "pussy" is such a popular search term? - need not despair. The .cat domain, intended to promote the Catalan language and culture, has been given the go ahead, and is expected to go live next year.
Source: The Register


RAIL TRASPORT – EUROPE

Eurotunnel reports improved results in H1 2005
Eurotunnel has reported revenue growth of 2%, with an operating margin up 7% and net loss reduced by 18% to £87 million.
Shuttle services revenues were up 6% to £146 million, mainly due to higher truck shuttle volumes and yields. Railways revenue remained stable at £117 million, and remains protected until the end of November 2006 by payments under the provisions of the Minimum Usage Charge (MUC) in the Railway Usage Contract, which amounted to £36 million in the first half of 2005.

Operating revenue for the first half of 2005 was £268 million, a 2% improvement compared to the first half of 2004 at constant exchange rates. Operating profit improved by £12 million (19%) to £74 million for the period due to increased revenues (£5 million), reduced operating costs (£4 million) and reduced depreciation and provision charges (£6 million) despite the increase in non-trading charges (£3 million).

In 2006 the Group will no longer benefit from the Stabilisation Advances, rendering the cash flow position more vulnerable particularly at the end of July and October 2006 because of the interest payments due under the current Credit Agreements. Furthermore, Railways revenue will no longer be protected after November 2006; payments under the provisions of the Minimum Usage Charge (MUC) in the Railway Usage Contract for the first 11 months of 2006 will have an estimated effect on cash flow amounting to approximately £65 million.

From the first half of 2007 Eurotunnel will not be able to meet its contractual debt repayments.
Eurotunnel has obtained a waiver from its Lenders, valid up to 31 January 2006, which defines the conditions under which the Group can undertake debt restructuring negotiations with its creditors.

The Group is subject to two uncertainties: the ability to continue as a going concern and the carrying value at which the Group’s assets are recorded in the accounts. The Group is currently working on a refinancing plan, in which the level of indebtedness may differ from the underlying assumptions used at 31 December 2004. The Group has not revised its financial projections, which is normally carried out during the second half of the year as a part of the preparation of its medium term plan.

Disputes:
- Under the Railways Usage Contract dated 29 July 1987 between the Railways (SNCF and BRB) and Eurotunnel, the Railways are required to pay a contribution to the operating costs of Eurotunnel in each year. In November 2001, the Railways initiated arbitration proceedings aimed at reducing the amount of the contribution for the years 1997 to 2002. The amount claimed by the Railways for all of these years together is estimated to be a maximum of £100 million.
The Arbitration Tribunal rejected the Railways’ claims in respect of 1997, 1998 and 2000 on the basis that they were time barred. The Tribunal also rejected the Railway’s claim on allegations of breach of contract by Eurotunnel. The Tribunal ordered the Railways to pay to Eurotunnel the full amount of the provisional contribution to its 2002 operating costs.
- While the Tribunal’s decision regarding the final amount of the operating costs contribution for non-time barred years 1999, 2001 and 2002 has yet to be pronounced, Eurotunnel remains confident in the outcome of these proceedings and has therefore made no provision in the Group’s financial projections.

The termination of the contract between Eurotunnel and Transferry has resulted in a contractual dispute. Eurotunnel has accelerated improvements in its operational performance. Increased revenue in our core shuttle business has been achieved within the framework of a new marketing strategy based on our key benefits: frequency, speed, and reliability. In accordance with Eurotunnel’s timetable for the planned financial restructuring, a business plan was presented to its creditors in advance of the June 30th deadline. Negotiations with the Ad-hoc Committee and two other creditor committees remain confidential, although a progress report is expected to be released by the end of October.


LOGISTICS – CORPORATION

Oracle to acquire G-Log
Oracle has entered into a definitive agreement to acquire G-Log, in a move that will enable Oracle to offer customers the first complete, information-driven logistics management platform for any industry with global supply chains.
Oracle and G-Log have complementary products with a shared focus that information and adaptive business processes are key to achieving corporate supply chain goals. According to Oracle’s, partners and customers will have access to proven best-in-class transportation and logistics capabilities combined with comprehensive, world-class capabilities in ERP applications and technology infrastructure – all from the same vendor. This is expected to significantly reduce total cost of ownership while increasing customers' ability to operate an integrated, information driven enterprise. By combining the talents of both organisations, we will be better able to address evolving partner and customer needs and effectively respond to industry trends that are driving the demand for complex logistics solutions. Oracle integrated solutions for logistics and transportation will address customers’ critical logistics requirements more comprehensively and will facilitate transformation of customers' logistics operations to leading-edge infrastructure that improves competitive advantage.


TECHNOLOGY – SEMICONDUCTOR

Intel's Manufacturing Strength Still Preeminent
Intel continues to lead the semiconductor market in manufacturing process development and in fab capacity,. Intel currently has three 90nm fabs, and will have four 65 nm fabs, including one retro fit and one 90nm conversion, ramping in 2006, the high-tech market research firm says.

But future process technologies will pose challenges as Intel and the rest of the industry struggle with rising leakage current and limitations with current process technology. As other semiconductor manufacturers turn towards partnerships for developing new process technologies and manufacturing capacity, Intel is one of the few vendors that can continue to push ahead alone and uses its technology and capacity as a competitive strength. For example, in 2004, with a strong transition to the 90nm process node and 300mm wafers, Intel realized an estimated savings of $1 billion in manufacturing costs.
A recent market analysis report found the following:
- Despite the rising cost of fabs, mask sets, and in some cases, the die size, Intel's average manufacturing cost per die will remain relatively constant at approximately $40 during 2003-2005.
- Intel's continuous goal to shrink die sizes has resulted in the ability to double on-chip cache sizes with every process generation. In the future, however, Intel will be balancing the use of this transistor budget for more memory and additional cores as a way to increase performance.
- With the transition to 65nm, Intel is planning to begin moving its entire product portfolio, including logic and memory, to a single process.

BizzBlog TechAlert for September 16, 2005

Microsoft and future - Bill Gates, the Microsoft chairman, made a major push on Tuesday to get software developers to build programs for the next versions of the company's Windows operating system and its Office productivity software, saying new features could drive a fresh wave of personal computer sales.
Microsoft has promised to introduce Windows Vista - formerly known by its code name, Longhorn - in the second half of 2006. The next version of Office is expected around the same time. Windows and Office combined account for more than $33 billion of Microsoft's annual revenue, which last year totaled $36.8 billion. At a developers' conference in Los Angeles, Gates said that Windows Vista would be designed to better connect and exchange data with corporate databases, find information buried in hard drives, and offer better graphics.
In a demonstration of Vista, semitransparent windows on the computer desktop allowed users to see objects underneath, including moving video, while search results were displayed in real time as queries were typed in. Microsoft also unveiled a new interface for Microsoft Office, a collection of programs that includes word-processing, spreadsheet and e-mail applications. Microsoft has been trying to turn Office into a platform for custom-designed applications that can handle business tasks like accounting, customer service and business planning.

Patents and trademarks in China - China must deliver on its promises for better protection for patents, trademarks and other intellectual property, Washington's newly appointed official in charge of combating commercial piracy said Wednesday.
Chris Israel, a former Time Warner executive who in July was named U.S. coordinator of intellectual property enforcement, described Beijing's antipiracy penalties as "fairly minuscule punishments."

"My honest assessment is that we need to focus on results. We need real deterrents that provide lasting and meaningful punishments," Israel said.

China risks facing trade sanctions or other measures if it does not follow through with real action, Israel said, noting that the U.S. Congress and the U.S. Trade Representative's office were watching closely.

Yahoo hopes sleek is chic - Yahoo is testing a sleeker version of its free e-mail service, shifting to a more dynamic design that mimics the look and feel of a desktop application like Microsoft's Outlook. The company plans to invite a "sizable" portion of its current e-mail users to experiment with the retooled service, said Karen Mahon, a Yahoo spokeswoman. Yahoo imported most of the changes from Oddpost, an e-mail startup the company bought for an undisclosed amount last year. For the past two years, Yahoo and its main Internet rivals - Google, AOL and Microsoft's MSN.com - have been introducing upgrades aimed at attracting and retaining their Web audiences so they remain appealing outlets for advertisers.

Microsoft targets graphics - Microsoft introduced three products for designing graphics and layout in software programs and Web pages to compete with Adobe Systems and Macromedia.
Microsoft Expression will be released beginning in 2006, said Forest Key, group product manager. The company has been stepping up competition with Adobe and in April announced a technology that would rival Adobe's PDF format for sharing digital documents.

Smart cards pay off - Oberthur Card Systems, a French maker of smart cards for mobile phones and bank cards, said its first-half net profit rose 39.4 percent to €16.1 million, or $19.8 million, driven by new business in telecommunications and finance and a onetime gain of €4.9 million. Oberthur said it expected growth in the second half of the year to be powered in part by contracts with telecommunications companies in the United States and Europe.

High-class calling - Bang & Olufsen, the Danish up-market electronics maker, is joining forces with Samsung Electronics to introduce a mobile phone this year. The phone will have basic communications features and little in the way of high-tech extras, the companies said, adding that they would target the high end of the market in terms of price and quality.
Torben Ballegaard Sorensen, chief executive of B&O, said only one model was being introduced but that others might follow.

Cisco calling - Tandberg, a Norwegian maker of video conferencing equipment, said its U.S. partner, Cisco Systems, had begun shipping a co-branded telephone with Tandberg video technology. The new product is a Cisco Internet protocol phone, which will be sold as a Cisco product through Cisco marketing channels but will also bear the words "video technology by Tandberg."

High tech mug shots - Viisage Technology, a maker of fingerprint- and facial-recognition systems, said that it was sharing technology with Motorola to create better identification equipment for law-enforcement agencies. The system stores mug shots and fingerprints for use in databases. Law enforcement officials can sort, search and manage the data for use in border control, identity fraud and other investigations. Facial-recognition technology also is used to verify the authenticity of drivers' licenses.

Katrina costs tallied - Sprint Nextel said Hurricane Katrina would cost it between $150 million and $200 million after insurance payments. It also said portions of its wireless network in the U.S. Gulf Coast remained out of service. The telecommunications company said it had restored wireless service to all regions in Alabama affected by the storm; over 90 percent of its network in Mississippi and more than 70 percent in Louisiana.

Vimpelcom deal approved - Shareholders of the Russian mobile phone company VimpelCom approved a plan to buy Ukrainian Radio Systems. The vote marked a victory for Alfa Telecom, VimpelCom's largest shareholder, over the Norwegian company Telenor, VimpelCom's No. 2 investor.

Partial victory for Google - Google won a court ruling that allows a former Microsoft executive to recruit staff at the company's research center in Beijing. But a Washington state judge, Steven Gonzalez, said the executive, Kai-Fu Lee, could not perform other tasks at Google's planned facility in China, including setting budgets and compensation levels or work on research and development projects at the facility. Microsoft had asked for a preliminary injunction, saying that Lee should not be allowed to work at Google while he is still bound by a noncompete contract that he signed with Microsoft. The contract is binding until next July, but Microsoft filed a motion for a preliminary injunction ahead of the trial, scheduled for January.

Misys shares skid - Shares of Misys, a British provider of software for large financial institutions, dropped 17.4 percent after the company said first-half earnings would decline "significantly" because of delayed payments from banks. Misys hired Lexicon Partners in June to advise on the sale of its Sesame unit, whose sales to financial advisers are falling. The shares fell to 197.25 pence, or $3.59, down 41.5 pence, the steepest drop since December 2003 and the lowest level since last September.

Playstation part recalled - Sony Computer Entertainment will recall certain AC adapters sold worldwide with the slim version of its PlayStation 2 following cases of overheating and melting. About 3.6 million adapters manufactured between August 2004 and December 2004 are subject to the recall. They include about 960,000 units sold in North America, 2.3 million units in Europe and 60,000 units in Japan.

Squeezing sound - Victor Co. of Japan, or JVC, said it had developed music compression technology that retains a sound quality similar to that of a compact disc. JVC's technology, called "Net K2," is compatible with formats like Apple Computer's AAC and Sony's ATRAC, according to the company. The company is a unit of Matsushita Electric Industrial.

Speeding up data - France Télécom is testing a technology called VDSL2 that lets data be sent five times faster that the speediest technology now used for Internet hook-ups via traditional phone lines. The company said the technology would allow users to download 90 minutes of video in three minutes.
Separately, France Télécom said that its Viaccess unit and Musiwave, a French company that specializes in providing music over mobile phones, would join forces to provide a variety of mobile music services to customers across Europe that are served by its Orange mobile unit and Wanadoo, its Internet unit.

Ticket takers - Thales, the leading European defense-electronics maker, and the consulting firm Accenture won a €200 million, or $245 million, contract from Denmark to provide an electronic ticketing system that would let passengers pay for public transport, like rail and bus, with one card. TDC, the Danish phone company, is also involved.
Separately, Hewlett-Packard and Philips Electronics said they would work together on a new standard of radio frequency identification technology that helps consumer-goods makers and retailers manage their inventory.

Euro Economic Bulletin, 9 September

Germany: Economic upswing in July
Industrial production rose for the third month in four in July, posting a 1.8% rise in 3-month average terms, its biggest increase since the beginning of the year. Meanwhile, manufacturing orders recorded their fourth increase in five month, surging by 3.7%, their biggest increase since the beginning of the year. It sounds like the confirmation that the expected upswing in activity is currently occurring.

Actually, manufacturing orders rose thanks to a sharp increase in foreign orders (+7.7% m/m). In particular, foreign orders for machinery and equipment jumped by 10.1% m/m, posting their third straight increase, like those for intermediate goods (+5.9%). These results confirm that exports remain a strong engine of growth in Germany.

The matter comes from domestic orders, which slightly declined in July (-0.1% m/m). Admittedly, they had risen the previous two months, but their July decrease raises concerns about the recovery of the domestic demand. In Q2, the latter stagnated as the rise in public consumption and business spending was offset by a further contraction of private consumption.

In July, domestic orders for capital goods fell by a large 4.1% m/m. However, this drop looks more like a correction of June 7.7% rebound and does not indicate that firm are cutting their investments in Q3. Actually, thanks to supportive exports, business spending is expected to keep on growing, in line with the improvement in leading indicators since June. This outlook seems confirmed by the 0.8% m/m increase in production for capital goods in July.

Besides, after two quarters of contraction, household spending is expected to pickup in Q3. This is probably what firms expect, as they increased their orders for consumer goods by 4.2% m/m in July, their biggest increase in five and a half years.

Nevertheless, the rebound in private consumption will remain erratic and fragile. Admittedly, unemployment has declined since April and consumer confidence started to pickup according to the GfK Institute Survey. Nevertheless, the labour market situation hardly improved and oil prices continued to increase. Therefore household could remain cautious in the coming months.


Italy: Whereas business confidence rose further in August (index up at 87.5), consumer confidence is still lagging behind (index down at 100.8)

Business confidence increased further in August, going up to 87.5, from 86.4 in July, reaching its highest level since last January.

The improvement of business confidence can be explained by the catching up in the assessment of total orders, both from the domestic or the foreign market. Besides, expectations of production rose markedly (from –16 in July to –10 in August).
The rise in business confidence occurred in all sectors, especially in intermediate goods (84.1 in August versus 82 in July) and in investment goods (from 88.3 in July to 89.5 in August). Moreover, the same goes with consumer goods but to a lower extent (from 90.9 in July to 91.2 in August).

This survey contrasts with that on consumer confidence released yesterday in August. Consumer confidence index dropped once again, although slightly down to 100.8 from 100.9 in July for the fifth consecutive month. The main concern for Italian households is their current and expected personal situation. Indeed, the assessment of personal economic situation has worsened markedly (from 114.4 to 112.2).
On balance, prospects about Italian economic situation are still uncertain. Higher oil prices, if they have already affected household confidence, haven’t yet hampered business confidence. Yet, OECD revised upward growth expectations for 2005 at 0.2%, but economic activity remains fragile.

- Business confidence rose in August
For the third month running, business confidence rose in August. The ISAE confidence index, based on a survey among 4,000 manufacturers carried out between August 1st and August 26th, enhanced from 86.0 in July to 87.5, its highest level since last January. This rise is in line with other European surveys (IFO in Germany) procuring little hope for improvement soon.

- A general improvement
The improvement of business confidence can be explained by the catching up in the assessment of total orders, both from the domestic or the foreign market. Besides, expectations of production rose markedly (from –16 in July to –10 in August). The euro’s 8 %-decline against the dollar this year favoured Italian products making them cheaper and offsetting high oil prices. The rise in business confidence was visible in all sectors, especially in intermediate goods (84.1 in August versus 82 in July) and in investment goods (from 88.3 in July to 89.5 in August). Moreover the same goes with consumer goods but to a lower extent (from 90.9 in July to 91.2 in August).

- By contrast, pessimism of Italian households
This survey contrasts with that of consumer confidence released yesterday. In August, the consumer confidence index, based on a poll of 2000 households by the Rome-based ISAE Institute carried out between August 1st and August, 12th, dropped once again, although slightly down to 100.8 from 100.9 in July, for the fifth consecutive month. The main concern for Italian households is their current and expected personal situation. Indeed, the assessment of personal economic situation has worsened markedly (from 114.4 to 112.2). Thus, higher oil prices weighed on both Italian household confidence and their assessment on their current and expected savings, but they are more and more optimistic about the medium-term national economic situation.

- To the beginning of a real rebound
On balance, prospects about Italian economic situation are still uncertain. Higher oil prices, if they have already affected household confidence, haven’t yet hampered business confidence. Indeed, expectations of Italian companies for next three months are good as regards employment (from –7 in July to –2 in August) and the level of production (from 11 in July to 12 in August). Yet, OECD revised upward growth expectations for 2005 at 0.2%, but economic activity remains fragile.


United Kingdom: As expected, the Bank of England keeps its repo rate at 4.5%

As expected, the Bank of England's Monetary Policy Committee has decided to keep its repo rate at 4.5%.
Given the uncertainties, domestic as well as international, rates are expected to remain on hold in the coming months.
A further rate cut should not be excluded if economic growth is losing momentum as a result of higher energy prices and the cooling down of the housing market.

At the end of its two-day meeting, the Bank of England's Monetary Policy Committee decided to keep the repo rate at 4.5% As usual, the Bank did not release a press statement, and we have to wait for the publication of the Minutes on 21 September to know exactly the reasons for the decision. However, as the decision was widely anticipated, the reasons are not difficult to guess.

The latest data show that the economy is picking up after hitting a trough in Q2. This is in line with the Bank's growth scenario. Moreover, inflation has surprised on the upside. In July, it reached 2.3%, an eight-year high. This is partly due to temporary factors, such as the hike in energy prices. More worrying is the impression that the forces that kept inflation down in the past, are gradually fading. In particular, the weak retail sales have not been translated into heavy discounting. The news coming from the housing market is also not quite reassuring for the Bank.

The growth in household borrowing, although easing, remains very high. In July, net lending to individuals rose by 10.7 % y/y. The RICS reported in its latest survey that house prices were falling in July at the slowest pace in five months. The mood in the housing market was probably bolstered by the expectation of an August rate cut (now confirmed). Yesterday, the Halifax reported that house prices gained 1.6% in August (2.6% on an annual basis), the fastest increase since September 2004. However, this is likely a statistical blip. As the ratio of house prices to average earnings is relatively high, we do not expect house prices to surge again. The impact of the housing market on private consumption is very difficult to assess, and is likely to be underestimated by the Bank. International economic developments are dominated by the renewed hike in oil prices caused by Hurricane Katrina. However, it is still to early to gauge its full impact on the global economy.

Given these uncertainties, the MPC took the right decision to put interest rates on hold. In the August Minutes it signalled to the financial market, that further rate cuts should not be expected. This stands in sharp contrast to the opinion of OECD chief economist Jean-Philippe Cotis, who argued that the Bank of England could lower rates as long as inflationary expectations remain well anchored. We share his opinion. The Bank of England might overestimate the growth momentum in the economy. In the coming months, more evidence is likely to surface that the economy is slowing under the impact of higher energy prices and the cooling-off of the housing market. This could necessitate a further cut in the repo rate.


Write: by Luis Batista, September 2005

The hurricane Katrina economic impact on US economy

It is always delicate to write about economic consequences of catastrophes without being seen as cynical. The aftermath of a terrorist attack or a hurricane is much more about human lives than about economics. All my thoughts are going to Americans in Alabama, Louisiana and Mississippi.

There are always several possible economic consequences. Immediate as well as medium term effects are both direct and indirect. Every year, at the end of the summer and in early fall, the south east region of the US is hit by tropical storms and hurricanes. Last year is considered to have been already harsh, with four major episodes. But this year started with the strongest hurricanes in decades. President Bush declared this was the worst natural disaster in the US history. For the time being, more than hundred fatalities have been confirmed, but officials declared the final number will be in thousands.

The direct immediate effect is related to the interrupted daily economic activity. During few days, or longer for some areas, no one is working the way he or she used to. Ocean-side counties of Alabama, Louisiana and Mississippi (1) represents a very small part of the US. The total population of these counties is 2.5 millions people, versus almost 300 millions for the US as a whole. They represent 0.9% of the total US population. In terms of personal income, they account for even less, with 0.7%. This means than less than 1% of the US economic activity was shut down during few days. In short, this should not be noticeable in national accounts data. Additionally, this downside effect will be offset by the following positive effect related to the reconstruction effort. It is possible to expect a temporary rise in the saving ratio when victims receive their insurance payments (estimates of the losses range from USD 9 bn to USD 25 bn, compared with USD 21 bn for hurricane Andrew in 1992), but this will be transparent in macroeconomic terms, since higher households revenues will be offset by lower earnings from the insurance industry.

If the Gulf of Mexico was not the US oil centre, there will be not more to add. But it is, for extraction of crude oil, pipeline infrastructure, and refineries. Almost half of the US oil production comes from refineries in the states along the gulf's shore. And here is the reason why financial markets focus that much on Katrina. Since the hurricane was expected, oil prices began rising few days before Katrina actually hit the coast. Even if this left the West Texas Intermediate above USD 70 per barrel, the effect is quite limited: at yesterday close, the WTI was just up USD 2.3 from a week earlier. The announcement by President Bush that strategic reserves would be used brought some relief. Additionally, for the time being, there is a lack of information about when refineries will resume production. Should this happen later than expected by the market, oil prices will rise.

There is thus a lot of uncertainties about oil prices in coming weeks. Since the US is highly dependent on oil – The Economist recently called the US and China oiloholics – further rise in the already incredibly expensive oil could disrupt economic growth. This is the reason why markets now expect the Fed to remain on hold in September, resulting in lower bond yield as well as in a cheaper dollar. It is quite impossible to be sure about what the Fed will decide in three weeks from now. On the one hand, direct economic impact does not justify a change of its current policy of removing the excess accommodation. On the other hand, the final impact highly depends on oil prices.

(1) Alabama: Baldwin, Covington, Escambia, Geneva, Houston and Mobile.
Louisiana: Cameron, Iberia, Jefferson, Lafourche, Orleans, Plaquemines, St Bernard, St. Mary, Terrebonne and Vermilion.
Mississippi: Hancock, Harrison, Jackson and Pearl River.

Write: by LuisB. 09.2005