Thursday, May 17, 2007

Immigration curbs hurting U.S., Greenspan says (AP)

ATLANTA (AP) — The lack of enough skilled workers to build up U.S. infrastructure could be solved if the government eased restrictions on immigration, former Federal Reserve chairman Alan Greenspan said Thursday.
"We used to be a melting pot but now seem to have some trouble with that," Greenspan said. "I think that's sad."

Greenspan said he believes the issue could be solved with a "stroke of the pen," an apparent reference to action by Congress and the president.
He said the immigration issue is "restricting the supply of a skill or all sorts of skills."

He made the comments during a question-and-answer session at an event honoring Georgia business leaders.

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He dodged the two biggest questions of the day: What he thinks the economy will look like by next year's presidential election and does he think the stock market has been too exuberant, given corporate earnings that have been less than strong at some major companies.

"I can't say at this stage I know how it's going to come out, so I want to pass on a short-term forecast," Greenspan said.

On the stock market question, he also took a pass.

"We're dealing with extremely efficient markets, so to second-guess them is not easy," he said.

Greenspan, who worked as a consultant for more than 30 years before leading the Fed for 18 years, started the Washington-based consulting firm Greenspan Associates when he stepped down as Fed chairman in 2006.

Even in semiretirement, the 81-year-old has the power to rattle investors; in late February, his comment that the U.S. economy has a one-third chance of slipping into recession was one factor behind a brief global stock sell-off.

Some investors wish Greenspan would just stop talking, but other people keep paying to listen.

He was recently hired as a consultant by Pacific Investment Management, a unit of Allianz. Greenspan will participate in Pimco's quarterly economic forums and speak privately with the bond manager about Fed interest rate policy.

Greenspan's speech on Thursday was to a gathering over breakfast at the Georgia Aquarium. The Georgia 100 event, hosted by The Atlanta Journal-Constitution, honors the state's top 100 companies.

Economy May Contract in Coming Months (AP)

NEW YORK - A closely watched gauge of future U.S. economic activity fell in April, nearly reversing the previous month's gain and easing concerns about whether the Federal Reserve would raise interest rates.

The Conference Board said Thursday its index of leading economic indicators dropped 0.5 percent, higher than the 0.1 decline analysts were expecting. The drop follows a revised 0.6 percent climb in March, which came after two months of declines.

The reading is designed to forecast economic activity over the next three to six months. The reading tracks 10 economic indicators. Two of those readings were positive in April: stock prices and real money supply. The negative contributors, beginning with the largest, were building permits, weekly unemployment claims, manufacturers' new orders for non-defense capital goods, consumer expectations, vendor performance, average weekly manufacturing hours and interest rate spread. The 0.5 drop means the cumulative change in the index over the past six months has turned negative.

HP revenue beats forecasts (Mercury News)

By Therese Poletti

Sales of personal computers, notebooks and commodity servers fueled strong fiscal second-quarter revenue growth at Hewlett-Packard, and the tech giant said Wednesday it is now on target to reach $100 billion in annual revenue this year, sooner than analysts had expected.

Part of that revenue forecast was fueled by the quarter's 13 percent jump in revenue - 10 percent if accounting for currency effects - to $25.5 billion, up from $22.6 billion a year ago. Revenue and earnings for the quarter ended April 30 were on target with HP's upside surprise that it announced last week.

Net income was down 7 percent to $1.8 billion, or 65 cents a share, from $1.9 billion, or 66 cents a share, due to restructuring charges.

"HP delivered a strong second quarter," Chairman and Chief Executive Mark Hurd told analysts on a conference call. "This represents our highest growth rates since 2000."

But Hurd also continued his mantra that the work at the Palo Alto computer and printer company is still not done and HP has room to cut more costs.

"HP is still transforming," Hurd told reporters on another call. "Our overhead costs still are too high and need to be reduced. In that respect, we are not even close to being done."

Hurd declined to be more specific on how much in costs he believes can be cut or saved, but he added that HP's overhead costs will decline more in the next two fiscal years than they did from fiscal 2005 to fiscal 2006. In July 2005, he unveiled a big restructuring that included 14,500 job cuts, but Hurd said job cuts are only a part of the strategy.
"It would be a misinterpretation to extrapolate to pure head count," Hurd told the Mercury News in a brief phone interview. He said those overhead costs include HP's information technology systems, real estate and corporate support functions. HP is involved in an ongoing project to consolidate and reduce its total number of data centers and real estate facilities.

Chief Financial Officer Cathie Lesjak said HP just completed one early retirement program, and that 3,000 employees took the package. Those workers will leave HP by May 31. HP did not disclose how many of those workers are in the Bay Area.

HP also froze its U.S. pension plan, a growing trend among many U.S. companies. The freezing of the company's pension plan resulted in a $500 million gain. HP had a $400 million restructuring charge in the quarter because of its early retirement plan.

In after-hours trading, HP shares rose slightly, even though Wall Street was already anticipating much of the news. HP shares were up 46 cents to $45.21, or 1.03 percent. A year ago, HP shares were trading around $31 to $32.

"With steadily improving earnings power ... we expect the shares to outperform the peer group," Bill Shope, an analyst with JP Morgan, wrote in a note to clients.

Bright spots in the quarter included total sales in the PC business of $8.7 billion, up 24 percent, while notebooks soared 45 percent and desktops grew 9 percent.

Imaging and printing revenue was up 7 percent to $7.2 billion, with HP's most profitable business, supplies, up 10 percent.

Computer servers were mixed but, overall, enterprise storage and servers grew 8 percent to $4.6 billion, with servers based on chips from Intel and Advanced Micro Devices climbing 17 percent, and blades for server racks jumping 58 percent.

Software revenue grew 58 percent to $523 million, including sales from Mercury Interactive, which HP acquired last year.

Last week, HP discovered that an internal e-mail was sent to someone outside the company. The e-mail contained enough data about HP's upcoming financial report to make executives nervous about full-disclosure laws. HP then decided to pre-release the better-than-expected second-quarter results.

"We sure wish that hadn't happened," Hurd told reporters. "We had an employee who made an inadvertent mistake. The good news is that the employee told us right away. It was a simple mistake."

On Wednesday, HP forecast fiscal third-quarter revenue in the range of $23.7 billion to $23.9 billion and earnings per share of 64 cents to 65 cents. Fiscal 2007 revenue will range from $100.5 billion to $100.9 billion. Analysts had been projecting HP to surpass $100 billion in revenue in fiscal 2008.

Yuan Climbs; China May Allow Faster Gains to Narrow Trade Gap (Bloomberg)

By Christina Soon

May 17 (Bloomberg) -- The yuan had its highest close since the central bank ended a dollar link in July 2005 on speculation the central bank will allow faster appreciation to help narrow China's record trade surplus.

Chinese Premier Wen Jiabao yesterday said his country will gradually boost exchange-rate flexibility and take measures to balance trade flows. A stronger yuan increases export prices and cuts import costs. Vice Premier Wu Yi will meet U.S. Treasury Henry Paulson on May 22-24 in Washington.

``We've seen pretty strong numbers all these months and we're approaching the next strategic dialogue,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``The risks of overheating, over-investment and too much surplus and liquidity all point in one direction. The currency definitely needs to go stronger.''

The yuan rose 0.15 percent to 7.6707 against the dollar at 5:30 p.m. in Shanghai, its highest close since the end of the fixed exchange rate, according to the China Foreign Exchange Trade System. The central bank has allowed the currency to rise 7.9 percent since China dropped the link in 2005.

China's trade surplus ballooned 63 percent in April from a year ago to $16.9 billion, the General Administration of Customs said on May 11. Foreign-exchange reserves rose by a record $136 billion in the first quarter to $1.2 trillion.

Faster Appreciation

Export revenue is flooding the financial market with cash and making it difficult for the government to cool economic growth, which exceeded 10 percent for the fifth quarter in the first three months.

``China will gradually increase the flexibility of its currency regime,'' Wen said at the African Development Bank's annual general meeting in Shanghai, without being more specific. The economy still faces the risk of excessive liquidity, he said.

Some U.S. lawmakers say China keeps an undervalued yuan to benefit Chinese exporters, causing a widening trade gap between the two nations. The U.S. Commerce Department on March 30 levied duties on imports of coated paper to compensate for the Asian nation's subsidies to its exporters.

The yuan may rise 7.5 percent this year, Huang said. The forecast compares with the 3.5 percent gain to 7.41 by the end of this year, according to the median of 25 contributors in a Bloomberg survey.

``The central bank has allowed faster appreciation and they'll probably continue to do that,'' Huang said.

Bonds Decline

Government bonds fell after a report showed investment growth expanded more than expected. The yield on the benchmark five-year bond rose 7 basis points, or 0.07 percentage point, to close at 3.33 percent in Shanghai, according to the China interbank bond market. The price of the 3.18 percent security due April 2012 fell 0.33, or 3.3 yuan per 1,000 yuan face amount, to 99.33. Bond yields move inversely to prices.

China's spending on factories and real estate grew 25.5 percent in the first four months of the year from a year earlier, a government report showed today, beating the 25.3 percent median estimate of 19 economists surveyed by Bloomberg News.

``It was strong growth and may support the case for the central bank to keep raising interest rates,'' which will hurt bonds, said Li Huiyong, an economist at Shenyin Wanguo Research and Consulting Co. in Shanghai.

The central bank on March 18 raised rates for the third time in 11 months, increasing the one-year lending rate by 0.27 percentage point to 6.39 percent. The deposit rate was raised by the same amount to 2.79 percent.

Lord Black bonus 'fairly earned' (BBC News)

Defence lawyers in the trial of media baron Lord Black have tried to show that millions of dollars of alleged illegal payments were honestly earned. Lord Black has been accused of stealing $60m (£30m) from Hollinger International while he was chief executive of the newspaper publisher.

Prosecutors claim that Lord Black and his co-defendants used complicated agreements to siphon off the cash. Lord Black has vehemently denied the allegations, saying he acted properly. A Canadian who became a British citizen, Lord Black built up a media empire from a single loss-making newspaper in Quebec. At its peak, the group included some of the world's best-known newspapers including Britain's Daily Telegraph and the Jerusalem Post.

Monies owed

Prosecutors have been trying to prove that Lord Black illegally used non-competition agreements as a way of defrauding shareholders. The agreements relate to the sale of newspaper assets and were put in place to ensure that Lord Black and his companies did not start up rival operations once the deals were concluded. Prosecutors allege that the "non-compete" payments made between 1998 and 2001 were improper bonuses to firm directors. Chief prosecution witness David Radler - once Lord Black's closest ally - confirmed that some of the payments to management were approved. Mr Radler told the Chicago court in his seventh day of cross-examination that Lord Black and other Hollinger executives were owed $5.5m. He added that this money for corporate management services undertaken by himself, his boss Lord Black, and two other defendants, ex-finance chief Jack Boultbee and former vice president Peter Atkinson, was approved by the board.

Mr Radler's testimony is seen as crucial to the prosecution's case, but defence lawyers have tried to portray him as a liar who will do anything to save himself. He pleaded guilty in 2005 to one count of fraud in return for a reduced 29-month jail term and agreeing to take the stand against Lord Black.

'No knowledge'

Mr Radler was also questioned about his role in payments to former Hollinger in-house lawyer Mark Kipnis. Questioned over Mr Kipnis' part in the alleged embezzlement, Mr Radler denied that the lawyer had played any part. Mr Kipnis received bonuses totalling $150,000, but Mr Radler said these were for helping to save the company money on legal fees. Mr Radler also confirmed that Mr Kipnis had no knowledge that a $2m cheque he signed to Hollinger Inc, the Toronto-based parent of Hollinger International, following the sale of American Trucker magazine was not proper. Mr Radler is due to take the stand at the Chicago court for the eighth day on Thursday when defence lawyers say they will conclude their questioning. Prosecutors will then have another chance to question him. The trial could be dragged out for another month, analysts said.

Blackstone to Acquire Alliance Data (AP)

DALLAS — Private-label credit card services provider Alliance Data Systems Corp. said Thursday it agreed to a $6.43 billion takeover by private equity firm Blackstone Group.

Blackstone Capital Partners V LP will pay $81.75 per share in cash for Alliance Data, representing a 30 percent premium to the stock's Wednesday closing price of $62.96. Based on Alliance Data's 78.7 million outstanding shares as of May 1, the deal is valued at $6.43 billion.

Including assumed debt, the total transaction is worth about $7.8 billion.

Alliance Data' board unanimously approved the agreement and recommended that shareholders agree to the transaction, which is expected to close by year-end, subject to antitrust and other regulatory approvals.

Banc of America Securities LLC and Lehman Brothers served as financial advisers to Alliance Data. Credit Suisse Securities (USA) LLC and Blackstone Corporate Advisory Services served as financial advisers to Blackstone Group.

Last month, Alliance Data reported its first-quarter earnings grew 1 percent year-over-year, as sharply higher sales in its marketing services unit helped offset increased costs. The company also raised guidance for the full year.

Bernanke Says Subprime Lending Curbs Will `Restrain' Housing (Bloomberg)

By Craig Torres and Alison Vekshin

May 17 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the housing market is likely to remain restrained in coming quarters as tighter lending standards limit mortgage financing to subprime borrowers and foreclosures rise.

``Curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters,'' Bernanke said at the Chicago Fed Bank's annual conference on bank structure and competition. ``We are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets.''

The Fed chairman maintained his forecast that troubles in housing would not spillover into the economy. ``We do not expect significant spillovers from the subprime market to the rest of the economy or financial system,'' Bernanke said.

Lawmakers and consumer advocates have blamed the Fed and other regulators for lax enforcement during the record $2.8 trillion mortgage boom between 2004 and 2006. The Fed didn't publicly rebuke any bank for failing to follow up on guidance on lending practices in the period. Regulators could have ``done more sooner,'' Roger Cole, the Fed's chief bank supervisor told legislators in March.

The housing slump has constrained the Fed's interest-rate policy, keeping the benchmark lending rate on hold at 5.25 percent for seven consecutive meetings even as inflation has been at or above the top of a range preferred by at least a half-dozen policy makers. Bernanke didn't discuss monetary policy in his remarks. His forecast of a continuing rise in delinquencies and foreclosures suggests the Fed doesn't yet see stability in housing markets.

``Although a leveling-off of sales late last year suggested some stabilization of housing demand, the latest readings indicate a further stepdown in the first quarter,'' Bernanke said.

Subprime mortgages are extended at rates at least 2 or 3 percentage points above prime loans. Borrowers typically have poor or limited credit histories or high debt relative to income. About 14 percent of all first-lien mortgages were subprime loans last year, Bernanke said.

AirTran Extends Hostile Takeover Bid for Midwest Air (Bloomberg)

By Emmet Oliver and Mary Schlangenstein

May 17 (Bloomberg) -- AirTran Holdings Inc., a low-fare carrier, said it won the support of 57 percent of Midwest Air Group Inc. shareholders in a hostile takeover bid for the airline, enough to extend its tender offer to June 8.

More than 13.9 million shares were tendered as of late yesterday, AirTran said in a statement today. The previous tender deadline expired at midnight.

``It looks more probable that the deal might be done,'' Ray Neidl, a Calyon Securities analyst in New York, said in an interview today. ``Fifty-seven percent is a big percentage of the stock to have tendered.''

AirTran is offering $9 in cash and 0.5842 of an AirTran share, or about $15.88 at yesterday's closing price, for each share of Oak Creek, Wisconsin-based Midwest. AirTran, based in Orlando, Florida, wants to diversify beyond its Atlanta hub and has boosted its bid twice from the $11.25 a share it first offered on Dec. 13.

Midwest shares rose 22 cents to $15.32 at 10:04 a.m. in American Stock Exchange composite trading. Shares of AirTran rose 13 cents to $11.92 in New York Stock Exchange composite trading.

The tender results prompted two of Midwest's biggest shareholders to urge the airline to begin talks with AirTran and avoid a confrontation at Midwest's June 14 shareholder meeting, where AirTran is offering a slate of three directors.

`The Time Has Come'

``We do not believe going through a proxy contest at the annual meeting -- a contest that Midwest appears likely to lose -- is the best way to combine these two great airlines,'' Richard Hurowitz, chief executive officer of New York-based Octavian Advisors LLC, said in a statement. ``The time has come for this transaction.''

Octavian is the largest Midwest shareholder, with a 6.6 percent stake. Jamie Zimmerman, the head of New York-based Litespeed Management LLC, Midwest's third-largest shareholder, at 5.5 percent as of March, also urged that talks begin.

AirTran, which is about three times larger than Midwest, called the number of shares tendered a ``vote of no confidence'' in Midwest's management, while Midwest dismissed the results as relatively meaningless.

`Changes Nothing'

``We don't find these results to be overwhelming,'' Midwest spokeswoman Carol Skornicka said in an interview today. ``The tender offer changes nothing and these results change nothing. At the end of the day, the board remains in total control over whether a transaction occurs.''

Midwest, which flies chiefly from Milwaukee and Kansas City, Missouri, has spurned AirTran's takeover bid, citing a Goldman, Sachs & Co. fairness opinion calling AirTran's latest offer of $389 million on April 2 ``inadequate.''

Wisconsin law allows Midwest directors to consider the interests of employees, suppliers, customers and communities, not just those of investors, when they review the bid, Skornicka said last month.

``The main factor that could intervene now is the Wisconsin law,'' Calyon's Neidl said. ``The board is behind Midwest management's desire to remain independent. It looks like the stockholders are moving more and more toward an AirTran combination.''

Midwest's board yesterday again urged rejection of AirTran's offer, saying ``shareholders would be left with shares of a consistently underperforming stock in a commodity carrier that provides inferior service.''

The comments came in a proxy statement in advance of the annual meeting and the board challenge by the AirTran slate.

That vote could have more impact than the tender offer because a successful AirTran slate would affect board discussions, Skornicka said yesterday.

International coalition to make buildings energy-efficient (Herald Tribute)

By Andrew C. Revkin and Patrick Healy

A coalition of 16 of the world's biggest cities, five banks, one former U.S. president and companies and groups that modernize aging buildings has pledged to invest billions of dollars to cut urban energy use and releases of greenhouse gases linked to global warming.

Under a plan developed through the William J. Clinton Foundation, participating banks would provide up to $1 billion each in loans that cities or private landlords would use to upgrade energy-hungry heating, cooling and lighting systems in older buildings.

The loans and interest would be paid back with savings accrued through reduced energy costs, organizers of the initiative said at a news conference in New York on Wednesday. Typically, such upgrades can cut energy use and costs from 20 percent to 50 percent, they said.

Making more efficient use of energy is considered by many scientists to be the best starting point for addressing global warming, particularly because there is a potential immediate financial payoff in addition to the long-term environmental benefit.

At the news conference, Michael Bloomberg, mayor of New York, said that investing in retrofitting existing buildings was vital because they would make up 85 percent of all buildings in the city in 2030.

He said banks and corporations appeared to be grasping the importance of considering long-term environmental risks when making investments. "Major business and financial institutions increasingly understand that shrinking the world's carbon footprint is a pro-growth strategy, indeed the only pro-growth strategy for the long term," Bloomberg said.

Energy use in buildings accounts for about a third of global releases of heat-trapping greenhouse gases. In densely populated older cities like New York and London, buildings are the dominant source of greenhouse gases.

The first targets under the initiative, organizers said, would be municipal buildings in the participating cities, which are: Bangkok; Berlin; Chicago; Houston; Johannesburg; Karachi, Pakistan; London; Melbourne; Mexico City; Mumbai; New York; Rome; São Paulo; Seoul; Tokyo and Toronto.

The project is aimed at propelling energy-saving investments that otherwise tend not to happen even when long-term financial benefits are clear - because cities or property owners lack access to capital, organizers said.

Also on Wednesday, the scientific academies of 13 countries issued a joint statement calling on world leaders to address global warming by boosting energy efficiency, promoting a shift to less-polluting energy sources, and intensifying research into new energy technologies that produce no emissions.

"Increasing energy efficiency is a first crucial step toward solving the climate-energy problem," the statement said. It stressed the importance of developing financial mechanisms for encouraging such investments and on sharing technology and information that could spur such changes.

The plan was announced at the end of a three-day meeting of mayors, business leaders and environmental experts organized by the foundation of former President Bill Clinton and other partners as part of a two-year-old initiative aimed at advancing local actions that could blunt global warming.

"Climate change is a global problem that requires local action," Clinton said.

"The businesses, banks and cities partnering with my foundation are addressing the issue of global warming because it's the right thing to do, but also because it's good for their bottom line. They're going to save money, make money, create jobs and have a tremendous collective impact on climate change all at once."

Clinton's remarks on climate change have been a talking point this spring for his wife, Senator Hillary Rodham Clinton, as she pursues the Democratic nomination for president.

Because Hillary Clinton has yet to give a major speech on climate change, Bill Clinton's highly visible work on the matter is seen as a political plus in her campaign.

As president, Bill Clinton drew some criticism for not seeking Senate ratification of the Kyoto Protocol, the climate treaty that requires industrialized countries to cut emissions.

The Bush administration has rejected the treaty.

On Wednesday, Bill Clinton said the strength of the new initiative was that it would quickly produce concrete change on the ground, demonstrating that a transition away from fossil fuels need not be a burden on economies of rich or developing countries.

"We all know that this is a global problem that requires a successor to Kyoto and national legislation, but we also know that as you reduce greenhouse gas emissions you must do it place by place, specifically company by company, building by building," he said.

"The mayors are in a remarkable position to do this."

Several experts not involved with the new Clinton Foundation project said it appeared to be a valuable initial step in limiting the human impact on climate.

But one challenge, said Thomas Wilbanks, an expert on energy and climate at the Oak Ridge National Laboratory in Tennessee, is that the accelerating building boom in fast-growing developing countries means that investing in making new buildings energy efficient will be far more important in the long run than tightening up old ones.

"Potentials for energy-saving retrofits are significant in industrialized countries," Wilbanks said, "but the real challenge in rapidly growing developing countries is increasing the efficiency of new building construction."

Wilbanks, who is also a co-author of one of the recent climate reports released by the United Nations, said that the greatest value of this initiative was "that it jump-starts an inevitable global process of making buildings more energy-efficient."

The first step under the foundation's retrofitting project will be energy audits of older municipal buildings, identifying systems or structures that could be replaced, organizers said.

The financial instruments for paying for the upgrades are being designed by the Clinton Climate Initiative, set up by the foundation and Hannon Armstrong, a company specializing in arranging such investments, along with the participating banks: Citigroup, UBS, Deutsche Bank, ABN AMRO and JPMorgan Chase.

The upgrades would be done by four international energy-services companies that are already seeing strong growth in these types of conversions. They would guarantee a certain level of energy and monetary savings for particular projects under the plan.

The influx of capital from the new project could potentially double global business in such energy upgrades, which is now several billion dollars a year, bankers and business representatives said.

"I've been involved in a couple billion dollars worth of projects in the last several years," said Bob Dixon, senior vice president of Siemens Building Technologies, one of the energy-services companies.

"They've all paid for themselves in energy savings."

J.C. Penney Net Rises 13% on Lingerie, Liz Claiborne (Bloomberg)

By Lauren Coleman-Lochner

May 17 (Bloomberg) -- J.C. Penney Co., the third-largest U.S. department-store chain, said first-quarter profit climbed 13 percent and raised its annual earnings forecast on sales of exclusive clothing by Liz Claiborne and its new lingerie line.

Net income increased to $238 million, or $1.04 a share, from $210 million, or 89 cents, a year earlier. Sales rose 3.1 percent to $4.35 billion, the company said today in a statement.

Shoppers bought designer labels at discount prices, such as a Liz & Co. campshirt that J.C. Penney sells for $30, less than half what a similar shirt costs on Liz Claiborne's Web site. The chain is trying to upgrade its image with exclusive lines, such as Ambrielle underwear meant to lure customers from Limited Brands Inc.'s Victoria's Secret.

``Their initiatives seem to be working,'' Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, said yesterday. The firm manages $54 billion, including J.C. Penney shares.

J.C. Penney, based in Plano, Texas, raised its full-year earnings forecast by 5 cents to $5.49 a share, matching analysts' estimates. Second-quarter profit will be 77 cents a share, it said.

Shares of the company, which operates 1,039 stores, rose $2.84, or 3.8 percent, to $78.56 at 9:44 a.m. in New York Stock Exchange composite trading. The shares have gained 25 percent over the past 12 months, compared with a 27 percent increase at rival Kohl's Corp., which reports earnings later today.

Exclusive Items

Sales at stores open at least a year, considered an important gauge of retail performance because it measures only established locations, rose 2.2 percent. First-quarter earnings exceeded the $1.03-a-share average estimate of 14 analysts surveyed by Bloomberg.

During the quarter, the company added Ambrielle bras and panties and exclusive men's and women's clothing by Liz Claiborne. It also said it will sell American Living apparel and home goods by Polo Ralph Lauren Corp. starting next year.

The chain is working to get fashions from designers to stores faster to keep up with trends, and is also opening more locations outside of malls and closer Kohl's locations.

J.C. Penney has taken customers from Federated Department Stores Inc.'s Macy's by offering trendy goods such as a new sportswear and denim collection by California designers Chip & Pepper, said Eric Beder, an analyst at Brean Murray Carret & Co. in New York.

Chip & Pepper's jeans, scheduled to debut in stores for back-to-school season, will sell for as little as $35, compared with more than $100 at specialty stores.

Designer Names

Both J.C. Penney and Kohl's have capitalized on a hunger for well-known names, said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich.

``We can get a watered-down Chaps for a price that is astoundingly low,'' said Edwards, whose firm manages $9.6 billion in assets. ``Why buy the generic brand?''

Private brands, such as a.n.a., outperformed the rest of the store in the first quarter, President Ken Hicks said during the company's earnings call today.

J.C. Penney plans to open 250 stores in the next five years, most of them outside of malls, where it will more directly compete with Kohl's. Sears Holdings Corp. is the biggest U.S. department-store chain. Federated Department Stores Inc., the operator of Macy's and Bloomingdale's, is No. 2.

Microsoft running scared from Linux (IT Wire)

By Stan Beer

Speak to anyone outside of Microsoft who knows anything about Microsoft's claim that Linux software violates 42 of its patents and most of them agree - Microsoft is running scared. Many believe that Microsoft's public announcement smacks of desperation and is a risky move by a company that has run out of ideas.
This is not the first time that Linux has been under attack for alleged patent infringements.

"We've heard all this before with the SCO (Unix) case," says Steven D'Aprano, operations manager for Windows-Linux integration consultant Cybersource. "We know that Microsoft had been funding SCO, tossing them a few million here and there to keep the case alive.

"SCO did their best to show that there was supposed patent and copyright violations in the Linux kernel. While the case hasn't completely finished yet, it has lost steam because SCO has got no evidence to support their claims.

"Until Microsoft start to actually point at particular bits that they claim are in patent violation then talk is cheap."

According to D'Aprano, an open source advocate, if Microsoft actually does put on the gloves against Linux, it will have a tough time deciding who to go after.

"Microsoft has been dropping hints that they're going to use patents as a weapon against the open source community but it's a very nebulous target for them to hit," says D'Aprano. "There's no company for them to go after. That's what SCO found. The reality is that even if they did hypothetically find that there are patent infringements the open source community would simply remove the offending code - it would be gone in the next release of Linux. People will still be able to go ahead and continue using Linux because the so-called infringing code would be gone.

"In addition there's no one to sue. Microsoft could probably make a few lead developers' lives miserable but these aren't multinational companies with deep pockets that they're going after. The worst case is that they might bankrupt a couple of individuals."

However, all of that is assuming that there are patents being violated and are actually valid.

D'Aprano says: "One of the things that may come out of this is that making a patent case is actually quite dangerous. The US Patent Office is notorious for handing over very weak patents and if it actually goes to court often the patent can be overturned.

"Even if hypothetically there are patent infringements in the Linux kernel, then the open source community would do the right thing and remove the offending code and, because open source development moves so rapidly, that means Linux would no longer be infringing before it even got to court. So even if Microsoft did have a case, by the time it got to court the case would be gone and whatever damages that they were able to ask for would be very minimal."

So what patents could Microsoft possibly believe it holds that Linux violates?

"The sort of things that Microsoft might hold patents for which concern the Linux kernel could be like techniques for managing memory," says D'Aprano. "A lot of the software patents that have been granted are extremely general and obvious to anyone that's been working in the industry. The patent system works well for specific innovations but they've been granted for things that are very general and not innovations at all which is very worrying," says D'Aprano.

However, D'Aprano, like many others, believes Microsoft is simply trying to employ bullying tactics in a desperate attempt to shore up growing leaks in its client base.

"I don't believe Microsoft genuinely believes that its technology has been ripped off," he says. "If that was the case it would have done something about it years ago. The Linux kernel and all the source code is open. Anybody can download it and read it. You can't tell me that Microsoft hasn't had its people going through every line of the Linux kernel for last 10 years. Of course they have.

"The fact is this is not about preventing Linux from ripping off Microsoft technology. This is about scaring off potential Linux customers. They don't know how to compete with Linux directly.

"An awful lot of customers are going to Microsoft and saying 'we need you to interoperate more easily with our Linux server.' They're thinking if they've got one Linux server, then how long is Microsoft going to keep the Windows servers there."

The problem, according to D'Aprano, has been exacerbated with the muted reaction in the business world to the release of Vista.

"People are thinking about paying thousands of dollars to migrate to Vista with the costs of retraining, software licenses, hardware updates being incredibly significant. This explains why there's been so little interest in upgrading to Vista. When XP came out people were saying they couldn't wait to jump on board. With Vista they're bored because there's nothing in Vista that people really want. A lot of people are saying that Vista is like XP with some nice graphical themes added.

"Companies are thinking that if they've got spend tens of thousands of dollars to migrate away from XP, what's the advantage of migrating to Vista and why don't they look at migrating to Linux. That's what's got to be scaring Microsoft more than anything else."