Friday, June 8, 2007

Qualcomm presses Bush to overturn phone import ban (Bloomberg)


Qualcomm Inc., the world's second- largest maker of chips for mobile phones, is pressing the Bush administration to overturn yesterday's unfavorable ruling by a trade agency that will ban its newest chips from the U.S.

A presidential decision is "the only way we're going to eliminate the uncertainty around the continuing ability of manufacturers and carriers to supply wireless broadband to the American public and to public safety organizations,'' Qualcomm General Counsel Lou Lupin said today.

The U.S. International Trade Commission yesterday ruled mobile phones with Qualcomm's newest chips won't be allowed into the country if they violate a patent held by smaller rival Broadcom Corp. The ruling, by a 4-2 vote, permits handset models already on the market as of June 7 with Qualcomm's chips to continue entering the U.S.

President George W. Bush and U.S. Trade Representative Susan Schwab have
60 days to make a decision. They can review the trade commission ruling only on public policy grounds. USTR spokeswoman Gretchen Hamel said the office will be "engaging in our normal internal and interagency procedures governing policy review.''

Qualcomm has open support from members of Congress and within the
administration. Officials of the Federal Communications Commission and the
Federal Emergency Management Agency testified on Qualcomm's behalf before
the ITC in March, saying the newest mobile-phones are necessary for disaster planning and consumer choice.

Two Congressmen from California, Republican Darrell Issa and Democrat Adam Schiff, testified at the hearing and others, including Republican Senator Orrin Hatch of Utah, Democratic Congresswoman Loretta Sanchez of California and Republican Congressman James McCrery of Louisiana, sent letters urging the agency to not issue any ban.

"The FCC's mandate last week to improve wireless E9-1-1 accuracy will be undermined by this ill-conceived ITC order,'' said David Aylward, director of Comcare Emergency Response Alliance, a Washington trade group that represents emergency agencies.

San Diego-based Qualcomm, as well as phone-service providers, also have
been lobbying the administration to overturn any ban.

"We've certainly been laying the groundwork to ensure that the White House is well informed on this issue,'' Lupin said. "We, including the carriers and manufacturers, have done as good a job as we possibly can.''

Broadcom, based in Irvine, California, said it's trying to protect its rights as a patent owner, and is open to talks about licensing its technology. Analyst Mark McKechnie of American Technology Research said Broadcom has "gained negotiating power'' because of this ruling and a jury verdict in California that Qualcomm infringed three other patents.

Lupin said the two sides have been in talks for two years and have "irreconcilable differences.''

Lawyers who handle patent cases before the ITC said presidents have overturned only five decisions issued by the agency since 1974, and the last time was in the mid 1980s, by President Ronald Reagan.

"Just looking at the odds, it's unlikely'' Bush will disapprove of the ban, said lawyer Jim Adduci of Adduci, Mastriani & Schaumberg in Washington. "But given the attention this case has received, I'm certain that the USTR will give this considerable attention.''

The chances of Bush overturning the decision are "more likely than in the typical case, but still an uphill battle,'' said lawyer Smith Brittingham of Finnegan Henderson in Washington.

"The big question is: Is this case extreme or unusual or just a typical case that happens to involve a large volume of commerce?'' Brittingham said.

Qualcomm says the new phones, with features like faster Internet access and better graphics, are necessary to public safety agencies. The Broadcom patent is for a battery-saving feature.

"To deny that access to the public safety community is very problematic, as well as denying to consumers the latest advances in wireless,'' Lupin said.

Qualcomm, and companies like Verizon Wireless, also are asking the U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in patent law, to defer imposition of the decision until an appeal can be heard on the underlying patent case.

Verizon Wireless also is asking the ITC to delay enforcement of any ban until the appeals court can review the case. The request was made May 31, before the ITC made public its decision.

Analyst Michael Burton of ThinkEquity Partners said Qualcomm is likely to prevail, either with the president or the court.

"We do not expect this decision to make it beyond Qualcomm's appeal and
potential presidential veto,'' Burton said in a note to clients.

Shares of Qualcomm rose $1.02 to $42.04 at 1:29 p.m. in Nasdaq Stock Market composite trading. Broadcom shares climbed 43 cents to $30.54.

The case is In the Matter of Certain Baseband Processor Chips and Chipsets, 337-543, U.S. International Trade Commission.

Bush, at G-8 summit, catches 'some sort of bug'


But talks continue, and the nations agree on a $60-billion aid package to fight disease in Africa.

By James Gerstenzang (LA Times)

ROSTOCK, Germany -- President Bush returned to the Group of Eight summit this morning after missing the group photo and the final morning session because of what the White House called "some sort of bug."

"After having an opportunity to rest, he feels rejuvenated," said White House counselor Dan Bartlett, who said the illness was "probably more viral in nature and highly unlikely to be anything related to food or anything he ate."

During the morning session, the leading industrial nations discussed Africa, agreeing on a $60-billion package to fight disease there. Bush also missed a meeting with heads of state from other developing nations such as China, India, Brazil, Mexico and South Africa.

During the summit, the global leaders agreed to address climate change, and to push for new trade talks in Doha, Qatar. They also called on Sudan to stop the humanitarian crisis in Darfur. And during a bilateral meeting with Bush, Russian President Vladimir V. Putin made a surprise offer to join with the United States and some of its European allies in operating a missile shield to thwart threats from terrorist nations.

Bush also met with the new French president, Nicholas Sarkozy, in Bush's private quarters at the hotel where the leaders of the major industrialized nations have been meeting since Monday in the resort town of Heiligendamm on Germany's Baltic coast. The two discussed U.S.-French relations, the Middle East, the crisis in Lebanon and Iraq, among other topics, Bartlett said.

Bush's White House physician, Brig. Gen. Richard J. Tubb, was with the president.

"He's not 100%, but he felt well enough to return to the talks," Bartlett said.

Referring to the time when his father, President George H.W. Bush, became ill during an official dinner in Japan in 1992, Bartlett said, "I guess he didn't want to follow in the footsteps of his father in Asia."

Bush set out on the trip Monday, flying that day to Prague in Czech Republic. On Tuesday evening, he headed to Germany, and on Wednesday he managed to go for a bike ride. He regularly exercises on a mountain bike at home and on the road.

Bartlett said Bush had gotten dressed this morning, but about half an hour before his meeting with Sarkozy, which was scheduled to take place elsewhere in the hotel, he decided to "dial it back a bit."

Deputy White House Press Secretary Dana Perino said Bush also taped the weekly radio address that he delivers each Saturday. It is regularly recorded on Friday.

His place at the summit was taken by David McCormick, a White House aide who was the top U.S. official making preparations for the meeting.

As the president returned to summit activities, Bartlett said, "He's not 100% but he felt well enough to return to the talks and looks forward to completing the session currently underway."

US trade gap falls in April

Reuters

The US trade deficit shrank much more than expected in April to $58.5 billion (€43.29 billion), a US Commerce Department report showed today.

The trade gap narrowed 6.2 per cent from a downwardly revised estimate for March. The April tally fell below the $60 billion (€44.40 billion) to $66.9 billion range of estimates made by analysts surveyed before the report.

The Commerce Department also revised its estimate of the 2006 trade deficit to $758.5 billion (€561.31 billion) , from a previously reported $765.3 billion (€566.34 billion).

US exports rose slightly to a record $129.5 billion. The 0.2 per cent increase partly reflected a $3 billion upward revision in March exports to $129.2 billion.

Exports of both goods and services set records, and several categories such as foods, feeds and beverages, industrial supplies and materials and consumer goods also hit all-time highs.

A 1.9 per cent drop in overall imports also helped rein in the trade deficit, despite a jump in the average price of imported oil to $57.28 per barrel that boosted the dollar value of oil imports to the highest since September.

Imports of consumer goods dropped $1.5 billion in April, while cars and car parts fell by $1 billion. Other categories, such as capital goods and foods, feeds and beverages, also showed a decline.

US trade gap falls sharply on weak dollar

Rhys Blakely

Greenback weakness helps to lift US exports to record levels as Americans cut back on purchasing imported goods
The problematic US trade deficit posted a steeper-than-expected fall in April, as a weak dollar helped to lift exports to a record level and Americans sharply cut spending on imports, the Commerce Department said.

Economists said that the deficit decline, to $58.5 billion (£30 billion) in April from, $62.4 in the previous month, should boost the US economy in the second quarter and lessen the chance of a cut in US rates.

The 6.2 per cent fall in the trade gap, to its lowest level since February, was the most pronounced since October and wrong-footed analysts, who had forecast an April figure of about $63.5 billion.

The fall was caused by a record level of exports, at $129.5 billion, up 0.2 per cent from a month earlier, coupled with a strong 1.9 per cent drop in imports, to $188 billion dollars.

For some time analysts have predicted that the weak dollar eventually would reduce the US trade deficit by making American exports more competitive and imports more expensive for the consumer.

The March deficit was revised lower to $62.4 billion from an initial estimate of $63.9 billion.

10 years after first hybrid, Toyota hits 1 million mark


By Yuri Kageyama (The Associated Press)

TOKYO — When Toyota unveiled its Prius hybrid to the automotive press in 1997, there was some sneering about the new technology. It was too complicated, some said, and it relied too much on a complex system of switching between a gas engine and electric motor. Ten years later, the skeptics have been hushed. On Thursday, Toyota marked a milestone: More than 1 million worldwide sales of its hybrid vehicles, an achievement that underlines the Japanese automaker's 10-year lead in the "green" technology that has changed the face of the global auto industry.

Toyota's cumulative sales of gas-and-electric-powered vehicles totaled 1.047 million as of the end of May. Of those, nearly 345,000 hybrids were sold in Japan, while 702,000 were sold abroad, the company said in a statement Thursday. Sales of Toyota hybrids have climbed from just 18,000 in 1998 to 312,500 last year, the company said. Last week, Toyota said it sold just over 24,000 Priuses in the U.S. during May, boosting the car into ninth place among all U.S. vehicle sales for the month and cracking the list of 10 top for the first time.

Demand for hybrids, which deliver superior mileage by switching between a gasoline engine and electric motor, has soared amid higher fuel prices and greater consumer concern about pollution and global warming. The Prius, which gets 55 miles per gallon in combined city and highway driving conditions, has been enormously popular as a midsize sedan, a best-selling vehicle category. Although most automakers are working on hybrids, Toyota has the advantage of almost 10 years of experience in selling the technology, and in using feedback from drivers to make improvements, rather than relying on information from labs. Toyota has placed a large emphasis on hybrid technology: It offers several other hybrid models, including the hybrid Camry and hybrid Lexus models. The company also started domestic sales of its most expensive hybrid, the $124,000 Lexus LS 600h. It will be exported over the summer, according to Toyota.

Not all hybrids sell well. Earlier this week, Honda said it will discontinue the hybrid version of its Accord sedan, which sold poorly because it didn't fit the customer-demand profile of the smallest, least expensive hybrids with the highest gas mileage.

The Prius, by contrast, has sold 478,800 units since the start of 2005. Among American automakers, Ford has the hybrid Escape sport-utility vehicle and General Motors sells the hybrid Saturn Vue Green Line sport-utility vehicle and hybrid trucks. GM has also promised four new hybrids this year, the Chevrolet Tahoe and GMC Yukon sport-utility vehicles, and the Saturn Aura and new Chevrolet Malibu sedans.

Yasuaki Iwamoto, auto analyst with Okasan Securities, said that rivals will have a hard time catching up to Toyota in hybrids — and that the technology will play a key role in defining Toyota in the years ahead. "Ecological features are going to be very important for building Toyota's brand image amid intensifying competition, and Toyota will continue to push the hybrid to the forefront," Iwamoto said.

The next innovation in hybrids is expected to come from a new type of battery, called the lithium-ion battery, which will be smaller and lighter than the nickel-metal hydride batteries Toyota now uses for its hybrids.

A major breakthrough is needed to switch to lithium-ion batteries, now widely used in laptops, to make them power cars. Mitsuo Kinoshita, a senior Toyota executive, recently denied Japanese media reports that Toyota had given up on having a lithium-ion battery system for the next-generation Prius. "We're still working on it," he told reporters.

Publishing stocks: Why Wall Street loves Rupert Murdoch

By Conrad de Aenlle (International Herald Tribune)

Depending on whom you talk to in the publishing industry, Rupert Murdoch is a visionary who understands where the news business is headed and has a plan to lead the way there. Others view him with an unconcealed disdain that suggests that his native Australia is not the place Down Under where they think he belongs.

Investment professionals tend to be among those holding the first opinion, although lately their admiration for Murdoch has not extended to a desire to own shares in his company, News Corp. The second camp is populated with, among others, Murdoch's rivals in the media business, including the Bancroft family, which controls Dow Jones and its marquee property, The Wall Street Journal.

The Bancrofts announced as soon as News Corp. offered to buy Dow Jones on May 1 that they would not sell, fearing for the journalistic integrity of their flagship paper. Nevertheless, some family members finally sat down with him this past week to discuss the proposal.

No deal had been announced as of press time for this article, but with News Corp. offering $60 a share for a company that was trading in the $30s immediately before the bid, it is easy to see what would be in it for shareholders.

As for what's in it for Murdoch, analysts say he wants The Journal to be able to supply content to the financial television network that he is believed to be eager to develop.

Many in the newspaper business share the family's low opinion of Murdoch. His detractors contend that he has dumbed down some of the titles he has acquired, like The Times of London and The New York Post.

He did not endear himself, either, to newspaper employees when he moved The Times to far cheaper quarters in the East End of London in the 1980s and stripped the paper's unions of much of their considerable power. But his actions allowed The Times and the other British papers that followed his lead to continue to make money, and it might have ensured their survival.

Establishing a new and more commercially viable order by jettisoning the existing one was typical of Murdoch. Such gutsy displays of business sense have helped him to establish a worldwide media empire, encompassing television, film production and book publishing, along with his newspapers. His ability to achieve so much while many of his rivals have been forced to retrench is why he is admired on Wall Street, though not on Fleet Street.

"News Corp. is the one media group that really gets it," said David Winters, chief executive of Wintergreen Advisers, a fund management firm. Murdoch "has built the only global media company that not only encompasses traditional media but such things as satellite TV, and he seems to have made a successful foray into the Internet."

The "it" that Murdoch's company gets is the future of media. Twenty years ago he foresaw the much more competitive environment that might have rendered the featherbedded London papers obsolete without significant change.

A generation later, through its purchase last year of the social networking Web site MySpace.com and other Internet properties, News Corp. is preparing for the day when news and advertising are just as likely to be transmitted online as in print or on television.

What Murdoch does not get, at least not for the moment, is any of Winters's money. He owned News Corp. but sold it recently when he decided that the stock had become too expensive.

He is not alone in cutting the shares loose. News Corp. fell more than 4 percent on heavy volume on the day that the bid for Dow Jones was announced. Investors were evidently spooked by the huge premium over the target company's price before the bid.

Shareholders in companies on the receiving end of a takeover offer often argue that the amount is not enough. For one Dow Jones shareholder, Thyra Zerhusen, manager of the Aston/Optimum Mid Cap Fund, the price was more than enough, however. She bought the stock in March and, after recovering from the shock when News Corp. offered so much, sold half of her stake.

"I never would have expected a price like that," she said, adding that investors should "definitely not" buy Dow Jones at current prices.

Zerhusen, like Winters, is a fan of Murdoch and is also avoiding News Corp. stock. "I respect him - he's very sharp," she said. "I'm impressed with that guy financially."

But she agrees that the stock has become overpriced, and she is not impressed with the byzantine structure into which Murdoch has entangled News Corp. and its affiliates. The company tends to have stakes in subsidiaries that have stakes in smaller subsidiaries and so on, which makes it difficult to fathom just what News Corp. controls and what the pieces are worth.

"There's not enough transparency for my taste," Zerhusen said.

The corporate convolution is a deal breaker for other fund managers, too.

"Murdoch certainly has achieved great things, although for us he fails the initial, all-important governance/transparency tests," said Hugh Young, head of equities for Aberdeen Asset Management in Singapore. Young prefers smaller, simpler "cash-generative businesses" like Singapore Press and the Malaysian publisher Star.

Jason Bazinet, who follows News Corp. for Citigroup, would rather focus on the company's growth prospects, which he thinks are strong enough to warrant a buy recommendation on the stock. He anticipates increases in earnings per share of 30 percent this year and again in 2008, sufficient to make its valuation "compelling," in his opinion.

If, as others suggest, News Corp. has become too expensive, shareholders in rival media companies can only wish they had the same problem. News Corp.'s dollar-denominated stock has risen about 40 percent in the last two years, belying the dismal fortunes of most of the sector.

Pearson, which owns The Financial Times and The Economist, has risen about the same amount. But The Washington Post Co. is down about 10 percent over two years; The New York Times Co., which owns the International Herald Tribune, has fallen about 20 percent, as has Gannett, which publishes USA Today; and McClatchy, which bought the Knight Ridder chain last year, has sunk more than 50 percent.

What may be especially disturbing for shareholders of those companies is that the cascades have occurred despite efforts to restructure their operations. Newspapers used to be cash cows, then the Internet came along and stole many of their readers, especially younger ones, and advertisers soon followed. Publishers took plenty of time to recognize and respond to the changes confronting them. Finally they began expanding and improving online access to their content, although they have been slower to lure advertisers to their Web sites.

"The Internet is a fairly small part of their businesses now," said Brian Lund, who follows media stocks for Legg Mason Capital Management.

Online is profitable because newspapers are building their Web sites around content that is already bought and paid for, he said, but the earnings are "too small to make up for declines in other areas."

Legg Mason's portfolios are free of newspaper publishers and are likely to remain so until the companies show concrete signs of a turnaround or until investors begin to abandon hope that one will ever come.

"When market expectations are low enough, we'll buy them," Lund said, "but I have a hard time seeing how things won't get worse before they get better."

Zerhusen has an easier time making a case for investing in the sector. She contends that commentators have been underestimating the marketability of news gathered by major publishers like those of The Wall Street Journal, The New York Times, The Washington Post and The Financial Times.

They are in a better position than the big chains to make money from their content online, she said. She holds The New York Times Co., The Washington Post Co. and Pearson, and she recently bought Gannett, which signaled its intention to make significant inroads online through its purchase of the PointRoll Internet advertising service.

But it is News Corp., which has invested $1.5 billion or so in the last couple of years on the Internet, including $580 million on MySpace.com, that appears to be moving most wholeheartedly into online news. It is unclear just what the intentions are in establishing what has come to be known in jest as Murdoch.com or where MySpace fits in, but it is fair to say that no one ever went broke pandering to the narcissism of teenagers.

"I'm not sure exactly how he's going to monetize this whole thing," Winters said. "But what he has certainly been able to do is capture the interest and enthusiasm of younger people. Murdoch has been far more creative and adventurous in how to address the secular and demographic problems that newspapers have."

He declined to say whether the fall in News Corp.'s share price had brought it close to a level at which he might wish to buy it again. But "as the price comes down, the stock becomes more interesting," he said. "I don't think you want to bet against News Corp."

Wall Street shrugs off Qualcomm ruling

Analysts stay bullish; Qualcomm seeking presidential veto
By Dan Gallagher & John Letzing, MarketWatch

NEW YORK (MarketWatch) -- Shares of Qualcomm Inc. actually gained ground Friday morning despite the fact that the wireless technology company lost a significant ruling before the U.S. International Trade Commission. The gains came following reports from Wall Street analysts that the ruling would not have a major impact on the company's near-term business. Late Thursday, the ITC issued a statement saying that it has decided to ban from import all wireless devices that contain chips made or designed by Qualcomm Inc. However, the ban is limited to device models produced after June 7. The ruling stems from a patent dispute battle between the company and rival chipmaker Broadcom Corp., which has accused Qualcomm of illegally using its wireless technology in its chip designs. Broadcom cheered the move and said it holds out hope to negotiate a licensing deal with its rival. Qualcomm, on the other hand, is pursuing efforts to have the Bush administration overturn the ruling and is seeking a stay on the order from the U.S. Court of Appeals for the Federal Circuit. "We will ask the White House to veto this decision and avoid turning back the clock on the tremendous gains that have been achieved in mobile broadband communications, disaster preparedness and emergency response," Qualcomm CEO Paul Jacobs said in a statement Thursday night.

Wall Street remains bullish

Shares of Qualcomm picked up were up 1.7% at $41.72 in morning trading. Broadcom also made gains, picking up 1.4% to trade at $30.52.
Analysts are staying largely bullish on Qualcomm in light of the ruling, which was better than other worst-case scenarios.
Calling the ruling "better than we feared, worse than we expected," Avi Silver of Bear Stearns kept his outperform rating on Qualcomm, saying he expects "strong fundamentals" to drive higher earnings for the company.
A less bullish view came from Brian Modoff of Deutsche Bank, saying he is "concerned" that Qualcomm is in a defensive position, waiting for an appeal or veto. "While there is no way to predict the eventual outcome, it is important to note that Qualcomm has more to lose at this stage," wrote Modoff, who also maintained his buy rating. Lawrence Harris of Oppenheimer trimmed his price target on Qualcomm to $49 from $52 but maintained his buy rating, citing the uncertainties remaining over the stock. The ruling strengthens Broadcom's hand, both in negations with Qualcomm as well as with potential customers in the wireless handset market.
Krishna Shankar of JMP Securities upgraded the chipmaker to market outperform from market underperform on Friday, citing the benefits from the ruling as well as the belief that the company's products are being used in the soon-to-be-launched iPhone.
"The recent court wins by Broadcom against Qualcomm are also positive and will clear the decks and remove any lingering hesitation among cell phone OEMs seeking advanced multiple sources for their 3G chips," Shankar wrote in a report.

Ruling limited to newer models

The agency limited its injunction to wireless device models produced after June 7, which means all models already on the market can be sold.
"The commission found that an order excluding all downstream products would impose great burdens on third parties, given the limited availability of alternative downstream products not containing the infringing chips," the ITC's statement read.
Qualcomm's technology is widely used in phones made by companies including Motorola Inc. and LG Electronics Inc., and then sold directly to customers by carriers including AT&T Inc and Sprint Nextel Corp.

In its ruling, the FTC said a blanket order barring all wireless devices containing Qualcomm chips "could adversely affect the public interest, particularly the public health and welfare, competitive conditions in the U.S. economy, and U.S. consumers."
By contrast, the agency said limiting the rule just to chips excluding the phones that contain them "would afford little or no relief to the patent holder, Broadcom."
Qualcomm's Jacobs said a veto is in order because the ruling could "jeopardize America's disaster preparedness," due to its potential to shut off the supply of the many wireless communication devices containing Qualcomm chips.
Broadcom indicated a willingness to negotiate a licensing agreement with Qualcomm, which it accused of "seeking unfair compensation for its own patent portfolio" of wireless technology.
"We simply want to be adequately compensated for the use of our intellectual property. To that end, we have made it clear to Qualcomm that we are open to discussions regarding the potential for licensing of our patent," read a statement by the company on Thursday. "The ball is in Qualcomm's court."
Negotiations dismissed by Qualcomm
But Qualcomm sounded a defiant note in a conference call with analysts late Thursday.

Negotiations with Broadcom are impossible

Qualcomm general counsel Louis Lupin said, because "it has been the case since day one of our discussions that what they are seeking are terms that would be destructive to our business model."
Lupin acknowledged that White House vetoes of ITC orders are relatively rare, adding that there have been "slightly more than a handful over a decade." Lupin said the White House has 60 days from Thursday to act on the request for a veto. He said that he expects action from the Court of Appeals within "a time frame on the order of days or weeks, as opposed to months."
In a note to clients, Blair Levin of Stifel Nicolaus called the ITC ruling "bad news for Qualcomm and its wireless carrier customers, because they revise and turn over their handset models rapidly."
Jacobs said it is difficult to assess the full impact of the ITC's action on Qualcomm's business, because he has not yet seen the full ruling. But he said there should be "no short term disruption to the business."
Qualcomm chief operating officer Sanjay Jha said that while a technology solution to avoid infringing on Broadcom's intellectual property has been discussed, such an action would require a great deal of time to gain acceptance from wireless carriers and phone manufacturers.
Jha said that, "I'd imagine for Christmas all the carriers have set out their plans to launch large number of models," which could now be impacted by the ITC ruling.
Jha said the best way to avoid an impact on those carriers "is for all of us to implore the President to veto this order."