August 2008 Archive
Money and politics go together like cookies and milk, unless you’re apolitical or lactose intolerant. As the Democratic National Convention winds up in Denver and the scene moves on to the Republican National Convention in St. Paul, technology titans are making their presence felt on the national political scene.
The most obvious manifestation of the phenomenon is the Big Tent, which actually is a big tent (8,000 sq. ft.) put up for the use of bloggers and others at the two conventions. The amenity-packed facility is sponsored by Google and YouTube, along with Digg. Bloggers were first credentialed at the national conventions four years ago, and now they’re ubiquitous at the political confabs, with many of them deliberately choosing to stay out of the convention halls (where the speeches and activities are meant for the consumption of TV cameras) and to follow the action everywhere else in the vicinity.
The high-tech industry steered clear of the Beltway for decades, feeling it didn’t need to indulge in grubby lobbying with Congress and the federal bureaucracy. A number of issues, however, have forced industry figures to get down and dirty with the likes of AARP, the National Association of Manufacturers, the National Rifle Association, and the US Chamber of Commerce in making sure their interests are represented on Capitol Hill and elsewhere in the District of Columbia. Intel, for example, spent $500,000 in Q2 for lobbying the Department of Commerce, the Federal Trade Commission, and other agencies.
One hot-button topic is Net neutrality. Online content providers, such as Yahoo! and YouTube, are vitally interested in making sure their users are unfettered by any restrictions on access and downloading, while Internet service providers, such as Comcast and Verizon, see some customers of theirs engaging in high-volume swapping of files and want government regulators to let them limit those customers or even to charge them more.
The R&D tax credit is another issue that raises the blood pressure of executives in technology, especially those in the semiconductor industry. Chip makers typically spend about 20% of their annual sales on R&D expenditures. Any hint that Congress is or isn’t going to revive the R&D tax credit brings this corporate pocketbook issue to the fore.
The conventional wisdom is that techies tend to vote Democratic. It ain’t necessarily so. There is a very strong libertarian bent to the industry. Electronics engineers and executives may not vote in large numbers for candidates of the Libertarian Party, but their limited-government philosophy attracts them to candidates like Representative Ron Paul, who was running for president among the Republican field this year and was the Libertarian nominee for president in 1988.
Tech CEOs, in their personal economic interest, are often closest to the Republican Party. Meg Whitman, the former CEO of eBay, is reportedly considering running as a Republican for governor of California in 2010. Carly Fiorina, the controversial ex-CEO of Hewlett-Packard, is a business and economic adviser to Senator John McCain and is rumored to be on the inside track for a top post in a McCain Administration, perhaps even as vice president.
Whitman and other high-tech execs hedge their political bets by giving to both Democratic and Republican politicians, pragmatically recognizing that one party isn’t going to control the White House or the Congress forever. Regardless of who wins the election in November, the technology industry will be pressing its case with donations and lobbying in 2009 and beyond.
The Office of Thrift Supervision (OTS) announced on Wednesday that thrifts — consisting of some 830 savings and loan associations (S&Ls), savings banks, and cooperative banks — lost approximately $5.4 billion in the second quarter. It was one of the largest losses ever, second only to the $8.8 billion that thrifts lost in the fourth quarter of last year. The institutions lost a comparatively paltry $627 million in Q1.
On Tuesday, the FDIC released a report, entailing all banks and thrifts, revealing that Q2 deposits and earnings are down, and charged-off and noncurrent (more than 90 days past due) loans are at their highest levels in some 15 years. A total of 117 institutions are on its “Problem List.” The OTS said in its report that 17 of those are thrifts. (The main difference between thrifts and banks is that thrifts are mandated by law to have at least 65% of their loan portfolios invested in mortgages and consumer loans, making them more vulnerable to the vicissitudes of the housing and consumer markets.)
Of course, not all those banks and thrifts are ready to implode, and it’s still a far cry from the S&L crisis of the late eighties and early nineties, when more than 700 institutions failed. But last week, small Kansas-based Columbian Bank and Trust became the ninth bank this year to be closed by federal regulators. Of course, the most spectacular collapse so far in 2008 was that of one of the largest thrifts, IndyMac Bancorp, which was also one of the largest bank failures in US history.
Like the S&L Crisis, the current mess faced by thrifts has been fueled by risky real estate loans. In addition to the bottom-line losses they have endured, thrifts set aside $14 billion in the second quarter (more than 3.7% of average assets) to cover anticipated losses from bad mortgages and other loan-related investments.
Consolidation is a practical solution when the competitive squeeze gets put on an industry, and large pharmaceutical companies are predictably falling into the acquisitive suitor role in an effort to solve their woes, despite their quarry’s occasional reluctance to fall into line.
Prescription drugmaker King Pharmaceuticals has made public its $1.4 billion offer to purchase rival pain medication maker Alpharma. Though Alpharma has apparently rejected King’s proposal several times this summer, King is relentlessly bringing its offer into the limelight in an attempt to rally shareholder support for the deal.
Two other hostile takeover attempts have surfaced this summer — Roche’s bid for Genentech and BMS’ bid for ImClone. All three target companies — Alpharma, Genentech, and ImClone — have taken the role of the coy maiden, rejecting their suitors’ initial proposals but hinting that they may be available if the wooing is increased.
Despite Genentech’s initial rejection of Roche’s bid, the company is obviously looking for a higher offer and has outlined a new retention plan for its employees to ease tensions over the merger speculation. ImClone has stated that BMS’ offer is undervalued and is hemming over its pursual of other options. In the most recent case, Alpharma has stated that King’s offer is not in its best interest but that it would look at a higher proposal.
The synergies in this case are clear — King Pharmaceuticals and Alpharma have similar abuse-resistant pain medications up for FDA approval, as well as other compatible substances on the market and under development. King is likely hoping to head off future competition, in addition to solidifying its current operations, by buying Alpharma outright.
Alpharma has taken the tone of refusal over the deal, but with the Genentech and ImClone deals still up in the air, one has to wonder if Alpharma is also playing hard-to-get. In all three cases, there is a real possibility that the suitors could become more agressive in their takeover attempts, despite the receiving companies’ wishes. There is also the possibility that new acquisitive gents will step onto the scene.
When the mercury dips below 95 degrees here in Central Texas it can only mean one thing: The back-to-school shopping season is upon us. Actually, yesterday was the first day of school for my daughters, while parents in the Northeast and other parts of the country still have a week or so before the first bell rings in a new school year.
With an estimated $51 billion in back-to-school spending on the line, retailers are competing fiercely to capture as many of those dollars as possible. Given the hobbled state of the US economy, it comes as no surprise to learn that back-to-school (grades K-12) spending is expected to rise only modestly this year vs. last, while back-to-college spending will actually drop an estimated seven percent, from an average of $641.56 per student in 2007 to about $599 this year, according to the National Retail Federation’s 2008 Back to School Consumer Intentions and Actions Survey.
With the turmoil in the student loan industry and sky-high tuition bills it’s no wonder that parents of college bound students are spooked. But they’re not alone. Parents of younger kids are searching for bargains like never before to outfit their children for school. Indeed, about a fifth of thrifty parents nationwide report having set aside a portion of their tax rebate checks to cover back-to-school purchases, says the NRF.
One bright spot in the back-to-school outlook is electronics spending. While purchases of apparel, shoes, and school supplies are expected to rise only modestly this year over last, spending on computers and (gasp!) cell phones for kids are expected to enjoy double digit increases. That’s good news for chains like Best Buy, which was already outperforming its competitors and retailers in other categories prior to the back-to-school rush. (Wal-Mart is also aggressively courting the electronics shoppers with deals on lap tops, etc.)
Speaking of the back-to-school rush, while the NRF study reports that about 45% of parents will begin shopping at least three weeks before school starts, the majority of shoppers will opt for a more last-minute approach. My family could be found a mere 48 hours before school began combing the aisles of Target, OfficeMax, and The Gap frantically checking items off our school supply lists. Both by procrastinating and visiting discount and office supply chains we were fairly typical back-to-school shoppers: 73 percent of consumers will visit discount stores, such as Target and Wal-Mart, for back-to-school supplies while more than 40 percent will shop at office supply stores.
For those who’ve yet to begin their back-to-school shopping, you’ve got company. Nearly 4% of us begin shopping the week school starts, while about 2% wait until after the first bell has rung.
ER docs and vampires take note: Scientists have figured out how to turn embryonic stem cells into human blood.
In a study published in the (aptly named) journal Blood last week, researchers at a company called Advanced Cell Technology tell how exposing developing stem cells to a combination of proteins coaxed them into becoming red blood cells. The process is not ready for prime time: It’s way too expensive for mass production, for one thing, and it’s also not clear that the blood produced with the current process would be transfusable. But the breakthrough — which could potentially eliminate the prospect of blood shortages (not to mention the unpleasantness of donating blood) — nevertheless represents a significant technical success in the beleaguered field of US stem cell research.
US researchers have largely been denied federal funding for embryonic stem cell research since President Bush’s 2001 executive order limited funding to existing stem cell lines. And though state and private funding have taken up some of the slack by bankrolling laboratory and animal research in the field, very few are willing to take the next risky step of funding clinical research (that is, research in human subjects).
Nobody knows that trouble better than Advanced Cell Technology, which despite its recent success with the blood study and others in the area of age-related macular degeneration, is just about broke. Its first-quarter report for 2008 included a financial warning indicating it would require additional cash from somewhere to keep operating. Perhaps the company will find it, or at least be able to hold on until a new president lifts the ban that is impeding medical advancement in the field.