Wednesday, January 30, 2013

Philippine Fourth-Quarter GDP Growth Holds Above 6% on Spending

Philippine growth increased more than economists estimated last quarter as government spending, consumption and investment rose.
Gross domestic product increased 6.8 percent in the three months through December from a year earlier, compared with a 7.2 percent gain in the previous quarter, the National Statistical Coordination Board said in Manila today. The median estimate of 19 economists surveyed by Bloomberg News was 6.3 percent. The economy grew 6.6 percent in 2012.
President Benigno Aquino’s efforts in transforming the Philippines into one of the region’s fastest-growing economies have led to Google Inc. opening an office this month and Ayala Land Inc. unveiling plans to build more hotels. Bangko Sentral ng Pilipinas last week refrained from cutting its benchmark rate after four cuts in 2012 and as capital inflows boost the peso.
“While the economy’s been very reliant on private consumption before, growth is now starting to generate investment from the private sector,” Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said before the report. “It’s going to improve the mix of growth drivers, and if the reform momentum continues, there will still be room for peso-denominated assets to do quite well this year.”
The Philippine peso has risen about 6 percent in the past 12 months, the best performer among 25 emerging-market currencies tracked by Bloomberg. The Philippine Stock Exchange Index (PCOMP) climbed to a record this month.

Inflation Target

Bangko Sentral last week cut interest rates on its special deposit accounts to 3 percent and kept borrowing costs at a record-low 3.5 percent. The monetary authority targets inflation to average 3 percent to 5 percent until 2014.
Export growth eased to 5.5 percent in November from a 6.1 percent pace the previous month as an uneven global recovery hurt demand. Shipments made up about 20 percent of GDP in 2011.
Since he took office in 2010, Aquino has increased spending, curbed the budget deficit and reduced corruption in an effort to boost economic growth to as much as 8.5 percent by 2016. A peace agreement with Muslim guerrillas in the mineral-rich Mindanao island in October is forecast to bring about $1 billion in investment commitments.
(Source: Bloomberg)

Ambani Lowers Capital Cost With Reliance Perpetual

Billionaire Mukesh Ambani’s Reliance Industries Ltd. (RIL) is cutting its cost of capital after selling dollar-denominated bonds with no maturity, the second such issuance by an Indian non-bank entity.
The nation’s biggest company by market value sold $800 million of undated notes at 5.875 percent, the energy explorer said in a Jan. 29 statement. Reliance’s approximate weighted average cost of debt and equity is 9.7 percent, data compiled by Bloomberg show. Hong Kong-based Cheung Kong Holdings Ltd. (1), controlled by Asia’s richest man Li Ka-Shing, sold $500 million of perpetual debt at 5.375 percent on Jan. 16, the data show.
Reliance, which reported its first quarterly profit increase in two years on Jan. 18, sold the eternal bonds after yields on Indian dollar notes slumped to a record low this month. It plans to sell more debt in the U.S. currency with maturity exceeding 30 years and cut bank loans to 50 percent of total liabilities in five years from 80 percent, said a company official who asked not to be identified citing internal rules.
“Reliance is being opportunistic and making the most of the current market with cheaper rates,” Hemant Dharnidharka, head of credit research at SJS Markets Ltd. in Bangalore, said by telephone yesterday. “This way they will succeed in bringing down their cost of capital. Cheung Kong Holdings got a better rate because they have more diversified business interests.”

Net-Debt Free

The Mumbai-based company holds more cash than debt and is the third Asian borrower to issue perpetual bonds this year, bringing the total to $2 billion, or 54 percent of 2012 sales, according to data compiled by Bloomberg. It last sold 10-year dollar bonds in February through its unit Reliance Holdings USA Inc. with a 5.4 percent coupon, the data show.
The 5.875 percent coupon on Reliance’s eternal debt, which can be bought back after five years, will be fixed for life, according to the data. The company wants to extend the average duration of its existing debt, which is about 5 years at present, said the official who can’t be identified.
The explorer and oil refiner received around $3 billion in orders for its note, according to the company’s statement. Investors in Asia bought 53 percent of the offering, Europe’s fund managers 27 percent with U.S. investors taking up the remaining 20 percent. Private banks bought 53 percent of the securities and institutional investors 47 percent.

‘Fantastic Deal’

“This is a fantastic deal for the company to be able to secure lifetime funding at sub-6 percent,” said Mark Reade, a Hong Kong-based credit desk analyst at Credit Agricole SA. “The borrower was able to lock-in funding at a time when Treasuries are close to all-time lows.”
The yield on U.S. 10-year Treasuries is at 1.98 percent, compared with the 2.90 percent average for the past five years, data compiled by Bloomberg show. Yields on India’s dollar bonds fell by 40 basis points this year to an all-time low of 3.9 percent on Jan. 25, HSBC Holdings Plc indexes show, while the average for Asia rose three basis points in the same period.
Cheung Kong’s undated bond was trading at 91.5 cents on the dollar, while Reliance’s note was at 95.3 cents at 11:09 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. Both were sold at par and are similar in structure. The Hong Kong- based conglomerate’s investments include ports, power, real estate and telecommunications.
Agile Property Holdings Ltd. (3383), a Chinese developer, sold perpetual notes at a 8.25 percent coupon on Jan. 11, data compiled by Bloomberg show. Petron Corp., the Philippines’ largest oil company, sold $500 million of bonds with no maturity date at a 7.5 percent yield yesterday, the data show.

Ballarpur Industries

Ballarpur Industries Ltd., a paper manufacturer, sold $200 million of undated notes at 9.75 percent in August 2011, the data show, the first such sale by an Indian non-bank company.
Indian companies sold a record $9.8 billion of notes overseas in 2012 as the Federal Reserve’s asset purchases to revive growth in the world’s largest economy and monetary easing by global central banks boosted flows into emerging-market bond funds to a record last year, according to EPFR Global.
Issuers sought cheaper alternatives to rupee-denominated debt as the worst inflation among the largest emerging markets forced the Reserve Bank of India to keep benchmark borrowing costs at the highest level among major Asian economies.
Governor Duvvuri Subbarao cut the repurchase rate to 7.75 percent from 8 percent on Jan. 29, the first reduction since April as he seeks to jump-start an economy growing at the slowest pace in a decade.

RBI Forecasts

The RBI cut its economic growth forecast for the year through March 31 to 5.5 percent from 5.8 percent and lowered the inflation projection to 6.8 percent from 7.5 percent. Gains in benchmark wholesale prices moderated to a three-year low of 7.18 percent in December, official data show.
Rupee-denominated sovereign bonds returned 11.3 percent in the past year, the most among Asia’s 10 biggest local-currency debt markets tracked by HSBC Holdings Plc.
The yield on the benchmark 10-year government debt has slid 16 basis points, or 0.16 percentage point this month, narrowing the difference over similar-maturity U.S. Treasuries to 591, data compiled by Bloomberg show. The yield on the 8.15 percent note due June 2022 was little changed at 7.89 percent today, while the rupee rose 0.4 percent to 53.07 per dollar.
Reliance, which owns the world’s largest oil refining complex, reported a profit increase last quarter, reversing four consecutive quarters on lower net income. The company had cash and equivalents of 809.62 billion rupees ($15 billion) and 722.66 billion rupees of debt outstanding as of Dec. 31, according to the earnings statement.

Default Risk

The cost of insuring Reliance’s debt for five years against non-payment using credit-default swaps, fell to a 17-month low of 186 on Jan. 10 and was at 199 on Jan. 30, according to data provider CMA, which is owned by McGraw-Hill Cos. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Bond risk in India has fallen every month since September, when Prime Minister Manmohan Singh’s government unveiled its biggest growth push in a decade, which included opening industries such as retail and aviation to foreign investment and measures to curb subsidies.
Five-year credit-default swaps on State Bank of India’s debt, considered a proxy for the sovereign by some investors slid 144 basis points in the second half of 2012 to 226, and was at 204 on Jan. 30, CMA data show.

‘Aggressive Pricing’

“The aggressive pricing of Reliance will be an encouragement for Indian borrowers,” Raj Kothari, fixed-income trader at Sun Global Investment Ltd. in London, said in a Jan. 29 telephone interview. “The opening up of the economy and strong government decisions are improving investor confidence.”
Reliance is spending $8 billion to boost petrochemical capacity and $4 billion on a plant to make combustible gas to power its refineries, according to a presentation on the company’s website. Reliance said Jan. 18 it earned $9.6 for every barrel of crude it processed last quarter, compared with $6.8 a year earlier.
“The combination of liquidity and demand for fundamentally strong papers is driving spreads and yields down alike, and that helped Reliance to tap the market at an aggressive price,” Cornel Bruhin, who helps manage $3.9 billion at MainFirst Schweiz AG in Zurich, said in a Jan. 29 telephone interview. “We believe the demand is strong and is going to drive yields down, providing an opportunity for other borrowers.”
(Source: Bloomberg)

Beggar Thy Currency or Thy Self? - Mohd. El-Erian

Not many countries nowadays seek a strong exchange rate; a few, including systemically important ones, are already actively weakening their currencies. Yet, because an exchange rate is a relative price, all currencies cannot weaken simultaneously. How the world resolves this basic inconsistency over the next few years will have a major impact on prospects for growth, employment, income distribution, and the functioning of the global economy.
Japan is the latest country to say enough is enough. Having seen its currency appreciate dramatically in recent years, Prime Minister Shinzo Abe’s new government is taking steps to alter the country’s exchange-rate dynamic – and is succeeding. In just over two months, the yen has weakened by more than 10% against the dollar and close to 20% against the euro.
European leaders have already expressed reservations about Japan’s moves. The US auto industry is up in arms. And, a few days ago, Jens Weidmann, the president of the Bundesbank, publicly warned that the world risks a harmful and ultimately futile round of competitive exchange-rate depreciations – or, more bluntly, a “currency war” (a term used previously by Brazil to express similar concerns).
Of course, Japan is not the first country to go down this path. Several advanced and emerging economies preceded it, and I suspect that quite a few will follow it.
It is just over a year since Switzerland surprised many when it announced, and strictly implemented, a threshold beyond which its currency would not be allowed to appreciate against the euro. And, remember, the country’s operating model for centuries has been to provide a safe haven for foreign capital.
One need not be an economist to figure out that, while all currencies can (and do) depreciate against something else (like gold, land, and other real assets), by definition they cannot all weaken against each other. In order for some currencies to depreciate, others must appreciate. Here is where things get interesting, complex, and potentially dangerous.
In today’s world, no significant group of countries is looking for currency strength. Some resist appreciation actively and openly; others do so in a less visible manner. Only the eurozone seems to accept being on the receiving end of other countries’ actions.
None of this is unprecedented, and there is a lot of scholarship demonstrating why such beggar-thy-neighbor approaches result in bad collective outcomes. Indeed, multilateral agreements are in place to minimize this risk, including at the International Monetary Fund and the World Trade Organization.
Yet, when push comes to shove, country after country is being dragged into abetting a potentially harmful outcome for the global economy as a whole. Worse, this process has not yet registered seriously on the multilateral policy agenda.
There are many reasons for this, ranging from the rather debilitated state of multilateral governance to the urgency of domestic issues currently commanding national policymakers’ attention. But there is also something else at work: The causes of today’s predicament are difficult to comprehend and counter effectively.
Unlike the old days, the threat of currency wars is not directly related to trade imbalances and balance-of-payments crises. Rather, an important driver is major central banks’ pursuit of experimental measures in order to compensate for policy inadequacies and political dysfunction elsewhere.
If the world is to avoid serious harm, it is important to understand the dynamics at work. A simplified description runs as follows: Facing low growth and high unemployment, and with other policymakers stuck on the sideline, a central bank like the US Federal Reserve feels that it has no choice but to adopt a highly accommodating monetary policy. As policy interest rates are already floored at zero, it is compelled to venture ever deeper into the uncharted realm of “unconventional policies.”
The aim, as Fed Chairman Ben Bernanke said again in December, is to “push” investors to take more risk. Specifically, it is hoped that an artificial surge in asset prices will make people feel richer and more optimistic, thus triggering “wealth effects” and “animal spirits” that stimulate consumption and investment spending, bolster job creation, and, in the process, “validate” the artificial asset pricing.
In practice, the strategy has proved not to be so straightforward. Moreover, part of the liquidity that the Fed injects finds its way into other countries’ financial markets. Witness the surge in capital flows to emerging markets as investors chase higher financial returns. Complicating matters even more, these inflows have become less and less connected to the recipient countries’ economic and financial fundamentals.
Many investors also feel the need to balance increasingly speculative investments (“satellite positioning”) with much safer investments (“core positioning”). To meet the latter objective, they turn to prudently managed countries, placing upward pressure on their currencies, too – and, again, beyond what would be warranted by domestic fundamentals.
It is no wonder that more and more governments are worried about exchange-rate appreciation. In addition to short-term policy headaches, stronger currencies carry potentially significant costs in terms of hollowing out industrial and service sectors. So, after a varying mix of tolerance and “heterodox” responses, officials are pulled into loosening their own monetary policy in order to weaken their countries’ currencies or, at a minimum, limit the pace of appreciation.
This period of expanding policy inconsistencies could prove to be temporary and reversible if central banks succeed in jolting economies out of their malaise, and if countries come to recognize that greater cross-border policy coordination is urgently needed.
The risk is that the phenomenon leads to widespread disruptions, as increasingly difficult national policy challenges stoke regional tensions and the multilateral system proves unable to reconcile imbalances safely. If policymakers are not careful – and lucky – the magnitude of this risk will increase significantly in the years ahead.
(Source: Project Syndicate)

Monday, January 28, 2013

Tin Beating All Metals on Fourth Year of Shortages

Indonesia, the biggest tin supplier, is poised to ship the least metal in a decade, extending shortages into a fourth year at a time when surpluses are emerging for most other industrial metals.
Sales will drop 24 percent to 75,000 metric tons because most smelters won’t meet a higher purity standard that starts in July and ore reserves are diminishing, according to the median of 13 exporter and analyst estimates compiled by Bloomberg. Prices will rise 17 percent to $28,750 a ton on the London Metal Exchange this year, the median of 14 forecasts shows.
Tin climbed 22 percent in 2012, more than any other LME metal, after supply contracted the most since at least 2005. Morgan Stanley raised its estimate for this year’s shortage fourfold since October and RK Capital Management LLP, which manages $3 billion of assets, says tin is its top pick among base metals. Indonesia is raising purity standards so it can sell directly to electronics companies rather than refiners outside the country.
“Most of the smelters are not ready to comply with the new limit,” said Hidayat Arsani, president of the Indonesian Tin Mining Association, which has 30 members. “It’s unlikely that all of them will upgrade on time. It won’t be easy to get the technology installed and to find the people to operate it.”
The metal is leading gains this year, rising 4.7 percent to $24,500 as the LMEX index of six industrial metals advanced 1.2 percent. Tin gained 0.4 percent today, rebounding from the lowest close in two weeks. The Standard & Poor’s GSCI gauge of 24 raw materials has added 3 percent this year and the MSCI All- Country World Index of equities jumped 4.5 percent. Treasuries lost 1 percent, a Bank of America Corp. index shows.

Consumer Electronics

Global demand for the metal used in solder and packaging will reach about 361,000 tons in 2013, compared with supply of around 357,000 tons, Morgan Stanley estimates. The projected 3,500-ton shortfall compares with an October estimate of about 800 tons, according to bank data. Orders for stockpiles in LME- tracked warehouses are 47 percent higher than a year ago, bourse data show. The tin market was valued at $7.2 billion last year based on consumption and the average LME three-month price.
Sales of consumer electronics will rise 4 percent to $1.1 trillion this year, according to GfK Digital World and the Arlington, Virginia-based Consumer Electronics Association. A mobile phone contains about 0.7 gram of tin and a tablet computer as much as 3 grams, data from St. Albans, England-based ITRI and Henkel AG (HEN3), a Dusseldorf-based solder producer, show.

Digging Deeper

The rally is boosting profit for PT Timah, Indonesia’s largest producer, which has said it is preparing for the new rule raising export purity standards to 99.9 percent from 99.85 percent. The Pangkalpinang-based company will report a 29 percent gain in net income to 677.7 billion rupiah ($70.2 million) this year, according to the mean of 12 estimates compiled by Bloomberg.
Supply from mines in Indonesia, accounting for 40 percent of global trade, declined 10 percent to 94,000 tons last year, BNP Paribas SA estimates. Workers are digging 12 meters (39 feet) down to find ore, compared with about 3 meters five years ago, Arsani said. Demand will outpace supply by 5,000 tons this year, equal to 38 percent of LME-tracked stockpiles, based on the median of 10 analyst estimates.
Sales of consumer electronics fell 1 percent last year as Japan and the 17-nation euro area tumbled back into recessions, weakening demand for tin. The International Monetary Fund cut its estimate for 2013 global growth to 3.5 percent from 3.6 percent on Jan. 23.

Refined Metal

Output in China, the largest tin refiner and user, will gain 6.8 percent to 156,000 tons in 2013, the fastest growth in at least five years, Credit Suisse Group AG estimates. Chinese consumption fell 1.7 percent last year, according to the Zurich- based bank. Prices fell 3.8 percent to 153,250 yuan ($24,614) a ton in Shanghai in 2012, and imports of refined metal fell to a seven-month low in December, data compiled by Bloomberg show.
“You really have the Chinese market oversupplied,” said Nicholas Snowdon, an analyst at Barclays Plc in New York. “You only have to look at the weakness in the Chinese prices versus LME to see that fundamental conditions in China aren’t supporting an improvement in prices there.”
Chinese stockpiles may diminish after the nation ended seven consecutive quarters of slowing growth in the final three months of 2012. Its economy will keep accelerating until at least the third quarter, according to the median of estimates from as many as 32 economists compiled by Bloomberg.

Supply Surplus

The shortages in tin contrast with surplus supply predicted by Barclays for aluminum, copper, lead, nickel and zinc this year. Mine output is expanding “solidly” across all base metals other than tin, Michael Jansen, the head of research at London-based RK Capital Management, said in an interview in Shanghai on Jan. 13. Its Red Kite Metals Fund, with about $240 million of assets, returned 12 percent in 2012 after gaining 29 percent a year earlier.
While inventories tracked by the LME are 40 percent higher than a year ago, they have slumped 51 percent since the start of 2010. Canceled warrants, or orders to withdraw metal, stand at 20 percent of stockpiles, data show.
The percentage may rise because the 75,000 tons of Indonesian exports anticipated in the Bloomberg survey this year would be the smallest since 2003, according to data from the country’s Central Statistics Agency.
Output at PT Timah (TINS) fell 18 percent in the first nine months of 2012, company data show. Malaysia Smelting Corp. (SMELT), the second- biggest producer, said in November it suspended work at its PT Koba Tin unit pending the renewal of its permit. The company is still waiting, spokesmanJoni Abdul Rahman said Jan. 18.

Annual Demand

About 70,000 tons of extra mine supply is needed from 2012 to 2016 to meet annual demand growth of 2 percent and compensate for lower Indonesian output, according to Greenfields Research Ltd. in Australia and ITRI. That may require investment of about $2.5 billion, they estimate.
Shares of Timah rose 5.2 percent to 1,620 rupiah in Jakarta trading this year, outpacing the 1.3 percent decline in the 117- member Bloomberg World Mining Index. (BWMING) About 60 percent of the company’s production has been at a minimum 99.9 percent purity since 2011, said Corporate Secretary Agung Nugroho.
“I see another deficit this year, probably a deeper deficit than last year,” said Duncan Hobbs, an analyst at Macquarie Group Ltd. in London. “You’ve got to be pretty optimistic to think that Indonesia is going to do a lot more on the supply side.”
(Source: Bloomberg)

Mahindra USA is now a Tuck Executive Education case study

 Mahindra USA Inc, a wholly owned subsidiary of Mahindra & Mahindra Ltd, is now a Tuck Executive Education case study on Reverse Innovation.

Commenting on Mahindra USA being a case study at Tuck, Prof. Govindrajan said, "The Mahindra USA case study understands the challenges as well as the frustrations they will face on the road to innovation. The tapestry of geographies and cultures in which executives pursue efforts in reverse innovation are likely to demand considerable adaptation and sometimes even improvisation. The Mahindra USA story can show executives that in the pursuit of reverse innovation's rewards, one can be both disciplined and flexible."

Mahindra USA which entered the US tractor market in 1994 and proceeded to establish itself as a successful niche player using innovative marketing and sales strategies.

Rather than trying to develop a product that could compete with bigger brands like John Deere, MUSA targeted a smaller agricultural niche - hobby farmers, landscapers, and building contractors - and coupled this strategy with personalized service, building close relationships with dealers, customers and the community at large.

"Reverse Innovation is any innovation that is adopted first in the developing world." This is contrary to the dominant innovation pattern which dictates that innovations typically originate in rich and developed countries and later flow downhill to the developing world. Prof. Govindrajan also describes Mahindra as one of several " emerging giants, the rising generation of multinationals headquartered in the developing world.

This approach proved highly effective with MUSA's sales growing an average of 40 per cent per year, from 1999 to 2006, prompting David C. Everitt, president of Deere's agricultural division, to remark that Mahindra "could someday pass Deere in global unit sales. Today, Mahindra has become the number-one tractor maker worldwide, in volume terms."
(Source: Economic Times)

Facebook's search team includes linguists, psychologists and statisticians

Human behavior is Facebook's business.

Its success is based on understanding how people are wired: how they present themselves, what they remember, whom they trust, and now, how they seek information.

Facebook this month introduced a search tool to enable users to find answers to many kinds of questions. But before it did, it assembled an eclectic team, to scrutinize what users were searching for on the site - and how. The team included two linguists, a Ph.D. in psychology and statisticians, along with the usual cadre of programmers. Their mission was ambitious but clear: teach Facebook's computers how to communicate better with people.

Kathryn Hymes, 25, who left a master's program in linguistics at Stanford to join the team in late 2011, said the goal was to create "this natural, intuitive language." She was joined last March by Amy Campbell, who earned a doctorate in linguistics from the University of California, Berkeley.

When the team began its work, Facebook's largely ineffective search engine understood only "robospeak," as Hymes put it, and not how people actually talk. The machine had to be taught the building blocks of questions, a bit like how schoolchildren are taught to diagram a sentence. The code had to be restructured altogether.

Loren Cheng, 39, who led what is known as the natural language processing part of the project, said the search engine had to adjust to the demands of users, a great variety of them, considering Facebook's mass appeal.

"It used to be you had to go to the computer on the computer's terms," Cheng said. "Now it's the user."

The heart of the research took place in a lab at the Facebook offices here. Hidden behind one-way glass, team members watched users playing with different versions of a search engine and filled notebooks with observations. On occasion, the engineers tore out their hair.

They consulted dictionaries, newspapers and parliamentary proceedings to grasp the almost infinite variety of ways people posed questions. Then they trained the algorithms to understand what was meant. They tested tweaks to the search tool, as they do with every product, and measured how certain groups of people responded.

The project resembles how Facebook builds products. It studies human behavior. It tests its ideas. Its goal is to draw more and more people to the site and keep them there longer.

What it builds is not exactly a replica of how people interact offline, said Clifford I. Nass, a professor of communication at Stanford University who specializes in human-computer interaction. Rather, it reflects an "idealized view of how people communicate."

"The psychology they are drawing on is not pure psychology of how humans communicate," Nass said, "but the psychology of what makes people stay around, spend time on site and secondarily, what makes people click the advertisements."

It explains why there is a "like" button but not a "dislike" button; negative emotions turn people away, he said. The very principle of the "like" button is based on a psychological concept known as homophily: the notion that people like similar kinds of people and things. The reason profile pictures pop up every time a Facebook "friend" is used in a Sponsored Story advertisement is that people remember faces better than words.

Facebook constantly tests and tweaks its features for its diverse, global audience, paying close attention to the responses.

The search tool, in its first iteration, answers queries by mining some of the data at the company's disposal, including photos, interests, and "likes." It will eventually mine status updates and other activities, from what users eat to where they hike.

The introduction is especially slow, Facebook executives have said, so they can better test what works and what does not.

In the past, Facebook's rudimentary search engine responded to very specific queries. Say a user was trying to find Stanford students. The user had to type into the search bar: "people who attended Stanford." The search engine did not understand "people who went to Stanford" or "studied at Stanford."

Likewise, if someone were looking for friends, that person could type in "friends of me" or that person could look for vacations he or she had taken, by typing in "places visited by me."

For Cheng, the turning point came during a test session with users. They sat in pairs in a small room with laptops in front of them. Members of Facebook's user experience team coached users through an early version of the search engine. They asked users to search for a high school classmate.

The guinea pigs first typed in keywords, as they had been accustomed to doing on conventional search engines. That did not work. They typed in short sentences, then longer sentences. That did not work either.

One user was asked to find friends who liked baseball, but the most passionate baseball aficionados in his network did not appear because they had liked "Major League Baseball," rather than "baseball."

The engineers who were watching these users from behind the one-way glass were frazzled, said Cheng, an engineer educated at Stanford.

"If their code is not being used, not connecting with people, it drives them crazy," he said. "The engineers from that day got it. We need to restructure code."

Today, the search engine can understand 25 close synonyms for the word "student," including "freshmen" and "pupils," and another 25 slightly more distant words that suggest the same thing, including "academics." That can be combined with a time reference - current students - or more detailed descriptions - psychology majors - and all told, the search engine can recognize at least 275,000 ways to ask about "students."

The search tool has already come under scrutiny. A recent blog post on Tumblr detailed how it could ferret out several uneasy personal details, including a list of people who "like" Falun Gong and whose relatives live in China, where Falun Gong is an illegal organization.

How aggressively the new search engine will compete with Google, which dominates the search market, is unclear, as is how quickly it can spin money for Facebook. The company went public last May, in one of the costliest public offerings, and has been on something of a roller-coaster ride since. Its fourth quarter results will be announced Wednesday.

Much work remains for the researchers. The search engine, for example, still has difficulty understanding many kinds of sentences - for example, "photos John likes and that he commented on." Nor can it grasp sentences that are ambiguous when written but perfectly understandable when spoken, face to face. Note how different it is to read - and hear - the sentence: "Sports fans of Lady Gaga play."

"Computers are bad at context," Campbell, the linguist, said. "They're bad at real world knowledge."

Even without context, Facebook is also trying to approximate real world trust. Its search engine ranks answers to every query by an awkward construct that Facebook calls "social distance." Its algorithms vet who among a user's Facebook "friends" the user is closest to and whose answers the user would like to see at the top of search results.

The company is betting on the principle of homophily: If it is from someone the user likes, the user may be more likely to pay attention to it - and click on the link.

"Psychology," Nass said, "is cheap tricks to meet your goals,"
(Source: Economic Times)

MBA’s salary-enhancing power slashed

The MBA degree, often seen as the quickest route to a fat salary, no longer delivers the purchasing power it once did.
Students on the top US MBA programmes in the mid-1990s saw their salaries triple in five years, but those who graduated from the same schools in 2008 and 2009 saw that increase halved, according to data collected for the FT’s annual Global MBA rankings.
At the same time, MBA fees have risen by 7 per cent a year. MBA students who enrolled in 2012 paid 62 per cent more in fees – up 44 per cent in real terms – than those who began their programmes in 2005, even though the increases in post-MBA salaries remained in line with inflation.
The average fees for the 51 two-year US degrees ranked in the FT table were $106,000 for those who enrolled in 2012. MBA students must also fund their living expenses and forgo two years of salary. Harvard Business School had the highest fees – $126,000 in total. However its graduates enjoy some of the highest salaries three years after graduation, an average of $190,000.
This is one reason why the Boston-based business school regained the number one slot in the rankings for the first time in eight years, ousting its biggest rival, California’s Stanford Graduate School of Business. Harvard was also top for research and increased the number of international students on its programme, both of which are measured as part of the rankings.
The data also reveal some good news for women who study for a business degree. The salaries for women MBAs three years after graduation has traditionally trailed those of their male counterparts by about $20,000, but this year the salary gap narrowed for the first time. In 2012 women from the top 100 schools earned an average $110,000, compared to an average $132,000 for men; this year those average salaries were $126,000 and $136,000, respectively.
Business schools in the US continue to dominate the rankings, with 51 of the top 100 schools located there, including six of the top 10. There are 26 European MBA programmes, with London Business School ranked number one in the region and four in the world.
Hong Kong University of Science and Technology is the top Asian school, ranked eight.The number of Asia-Pacific business schools in the rankings grew from 12 in 2012 to 14 in 2013.
The FT has published its MBA rankings annually since 1999. In that time, just four schools have taken the top slot: Harvard, Stanford, the Wharton school at the University of Pennsylvania and London Business School.

Upswing in interest for food groups

The number of British and Irish food and beverage companies snapped up by foreign buyers doubled last year, fuelled by emerging markets’ appetite for western brands perceived as trustworthy.
Foreign acquisitions of UK and Irish food and beverage businesses accounted for 14 per cent of total purchases, up from 7 per cent in 2011, as the overall number of mergers and acquisitions rose 17 per cent year-on-year to 171 deals, according to a report by Grant Thornton.
Trefor Griffith, head of Food and Beverage at Grant Thornton UK, said the upswing in foreign buyers was partially attributable to Bric-based groups’ interest.
“This activity was driven partly by the opportunity to access UK and European markets and partly by the huge continuing growth of emerging market middle classes,” he said. “That has also contributed to changing tastes, demand for better food hygiene and interest in high-quality western brands such as Weetabix.”
Last May, China’s state-backed Bright Food acquired a controlling stake in Weetabix in a £1.2bn deal that was the largest overseas transaction by a Chinese company in the food and beverage sector.
Bright Food, one of China’s largest food groups, bought a 60 per cent stake from private equity group Lion Capital, which retains 40 per cent of Weetabix shares.
Wang Zongnan, chairman of Bright Food, justified the purchase by saying there was “massive room” for growth in China’s healthy eating market and adding that the growing middle-class would pay a premium for a western brand.
Part of the reason for the rise in M&A activity – whose value rose by 64 per cent year on- year to £7.9bn, according to Grant Thornton – is the high levels of debt some companies had going into the consumer downturn.
“What you have is huge pressure on food and beverage companies from both sides – costs have been going up because of shortages of raw materials and consumers have less money,” said Mr Griffith.
“That situation makes for some distressed sellers and foreign buyers will think about buying them and the value then can add by opening up new markets.”
That allowed the Japanese food company Mizkan to buy Hayward’s pickles, the Branston pickle brand and Sarson’s vinegar from Premier Foods, the food manufacturer that was forced to make disposals last year after a refinancing agreement. Premier also offloaded its canning business to Princes, part of Japan’s Mitsubishi Corp, for £182m.
In December, Germany snacks maker Intersnack agreed to buy the British maker of Hula Hoops crisps and KP nuts in a deal valued at about £500m.
Grant Thornton said the trend in foreign buyers would continue as UK food and beverage brands were trusted yet their products were not widely exported. Mr Griffith said there was “an interest in importing the organisational structures and knowhow of UK companies and applying them to local markets”.

China’s brokerages turn shadow banks

Chinese securities brokerages have emerged as a crucial new link in the country’s shadow banking industry, a development that underscores how financial risks are spreading more widely in China.
People familiar with brokerages say they got started in shadow financing around the middle of last year, taking control of funds that banks wanted to remove from their balance sheets.
New industry data confirm this development and reveal a dramatic increase in such activity in the fourth quarter. For 2012 as a whole, shadow financing via brokerages appears to have increased almost 600 per cent.
Western rating agencies have warned that a rapid rise in off-balance-sheet banking activity is a threat to China’s financial stability. But Chinese regulators have countered by saying the risks are manageable. With the country’s financial system long dominated by state-run banks, they also view shadow lending as a byproduct of their attempts to unleash more market forces in the allocation of capital in China.
“In August we were told to start allocating more funds to securities companies because that channel was fully open,” said a manager with a midsized bank who has been directly involved in shifting assets off his bank’s balance sheet.
The Chinese securities association said last week that brokerages now manage almost Rmb2tn ($320bn) of so-called entrusted funds – funds that banks have transferred to brokerages so they are off their balance sheets – seven times more than at the start of 2012.
Brokerages received Rmb1tn of entrusted funds in the fourth quarter alone, according to the industry figures.
Every year or so, China’s shadow banking morphs into a slightly different form as new players get involved and new products are launched. Regulators largely permit the experimentation to take place but clamp down when the risks are deemed excessive.
The emergence of brokerages as key conduits of shadow banking in China is a sign of how quickly the country’s financial institutions are evolving in response to regulatory changes.
Conventional bank loans account for a decreasing portion of Chinese financing, from 95 per cent in 2002 to just 58 per cent last year, according to the central bank. Total financing increased almost eightfold during that time.
For the past two years China’s shadow financing had centred on co-operation between banks and trust companies, which are loosely regulated fund management vehicles.
Banks had funnelled cash to trusts, and the trusts in turn made high-yield loans to companies such as property developers that were barred from borrowing from banks because they were perceived as too risky.
Late last year the Chinese banking regulator grew concerned at the surge in trust lending and forced greater disclosure of such financing arrangements.
“The Chinese Banking Regulatory Commission was becoming more restrictive on bank-trust co-operation and that opened the door to bank-brokerage co-operation,” said Howhow Zhang, head of research at Z-Ben Advisors, a Shanghai-based fund consultancy.
Banks have been competing more aggressively for customers by issuing “wealth management products”, which effectively function like deposits but offer slightly higher rates. To generate the higher returns, banks must transfer the cash to non-bank entities which are less encumbered by lending restrictions. That is where the brokerages come in.
The brokerages play a passive role in managing the entrusted funds, according to people with knowledge of the matter. Banks give the brokerages strict investment instructions and pay them a tiny fee, as low as one basis point, in return.
People with knowledge of brokerages say they have used the entrusted funds for two main kinds of investments. First, they have bought undiscounted bills from banks, a move that gives the banks more on-balance-sheet room for lending. Second, they have invested in trust products, serving as an intermediary between banks and trusts.
There are clear risks in this enterprise. The undiscounted bills are backed by accounts receivable from companies, so the brokerages are potentially being used as a backdoor channel to fund companies that cannot collect their own debts. Moreover, the question of who bears the ultimate responsibility for defaults is only complicated by lengthening the chain of financing between banks and trusts to include brokerages.
The rise of brokerages as shadow banks has been remarkably fast, which is also a worry. Nevertheless, looked at in absolute terms, the entrusted funds at brokerages are still just 1.6 per cent of overall bank assets.
“If you want a more comprehensive capital market in which the market share of banks drops, you have to allow things to happen outside the banking sector,” said an analyst who covers brokerages, speaking on the condition of anonymity. “It’s something that people should pay attention to. But it’s not alarming yet.”

Chinese industrials set for profit surge

Profits at Chinese industrial companies are expected to surge in the coming months after a rebound in the fourth quarter of last year amid a broader recovery in the world’s second-largest economy.
Total profits earned by major Chinese industrial enterprises rose 17.3 per cent from a year earlier in December to Rmb895.2bn ($144bn), according to figures released by the Chinese government on Sunday.
That marked the third month of double-digit profit growth after profits had contracted for eight consecutive months, spooking investors and prompting the government to loosen monetary policy and step up infrastructure investment to boost growth last year.
“We expect industrial profits to rise 30 per cent in 2013 on average,” said Stephen Green, head of research for Greater China at Standard Chartered bank. “We expect year-on-year profit growth to peak in the third quarter.”
Mr Green said surging investment in infrastructure and real estate, a mild rebound in export demand from China, cheaper raw materials, looser monetary conditions and a lower base in 2012 will all support faster profit growth this year.
A 30 per cent industrial profit rise this year would mark a spectacular rebound from last year, when overall profits increased just 5.3 per cent for the whole year.
China’s economy grew 7.8 per cent last year, its slowest rate in 13 years, but the fourth quarter saw a pronounced rebound following seven consecutive quarters of slowing growth and that lifted industrial profits out of negative territory.
The economic rebound is expected to continue for at least the first half of 2013 and profitability of industrial companies should follow suit.
While overall profits are recovering, some industries are still struggling thanks to overcapacity and a continued slowdown in their sectors.
Among the 41 sectors surveyed by China’s National Bureau of Statistics, 29 reported a rise in profits but profits at steel producers fell 37 per cent last year from a year earlier and earnings for chemical companies dropped 6 per cent.
Power generation companies reported a 69 per cent surge in profits while food processing companies saw a nearly 21 per cent increase and electrical equipment makers’ profits rose 8 per cent.
On Sunday, Huaneng Power International, China’s largest independent power producer, said in a filing to the Hong Kong Stock Exchange that it expects 2012 net profit to have increased more than 340 per cent from a year earlier, thanks at least partly to a fall in coal prices last year.
The private sector benefited disproportionately from the profit rebound last year, with total realised profits rising 20 per cent from a year earlier to Rmb1.82tn.
Meanwhile, profits for industrial companies owned or controlled by the state actually fell for the full year by 5.1 per cent to total Rmb1.42tn for the year, the government said Sunday.
China’s economy is not expected to return to the double-digit growth rates it racked up over much of the last decade but most forecasts are for a mildly stronger performance in 2013.
On Saturday, the head of China’s main sovereign wealth fund, Lou Jiwei, told a forum that growth was likely to exceed 8 per cent this year and would be a key support for global demand amid a “mild, tortuous and slow recovery” in the world economy.
Even at its slowest pace in 13 years, China’s growth generated roughly a third of global economic growth of 3.2 per cent last year.

Saturday, January 26, 2013

Jaguar profit warning dents Tata Motors

Shares in Tata Motors tumbled in Mumbai following an unexpected profit warning from its highly profitable UK-based luxury division Jaguar Land Rover.
JLR accounts for nearly all of the profits at the otherwise struggling diversified Indian carmaker, whose domestic passenger car division in particular has performed poorly over the past year.
The UK group has been a bright spot in the British car industry and in 2012 sold 350,000 vehicles, an increase of 30 per cent on 2011 and almost double the growth it achieved that year.
All but a handful of the vehicles were made in three UK plants in which the company employs about 23,000 people – a third of them taken on in the past two years to cope with the recent growth.
In Tata’s statement, the company warned that earnings before interest, tax, depreciation and amortisation at JLR in the three months to the end of December 2012 would be flat compared with the two previous quarters, implying about £500m.
The detailed figures will be published on February 7 in its formal third-quarter results statement.
In recent years, profits at JLR have been growing strongly on the back of high demand globally for its upmarket cars, led by the company’s new Range Rover Evoque.
The latest announcement indicates that the run of big year-on-year increases in profits is unlikely to be sustained.
A heavy investment programme has eaten into earnings. There are also fears of a moderation in demand for new models, especially in China and the US.
A motor industry analyst, who asked not to be named, said: “The stock market reaction [to the profit announcement] has been perhaps a bit overdone because it was always hard to imagine the big year-on-year rises in profits was likely to last for ever.”
JLR has been spending £2bn a year on investments for the past three years, and is recruiting 800 people for its UK operations. The investment spending is to rise to £2.75bn in 2014 as it seeks to update products and keep pace with larger German competitors such as BMW and Audi.
In the first and second quarters of 2012, ebitda at JLR rose on a year-on-year basis by 45 per cent and 16 per cent respectively.
JLR said: “We plan to continue to increase and accelerate capital spending to develop new products in new and existing segments . . . and to grow our manufacturing footprint in China and explore manufacturing opportunities in other markets.”
Deepesh Rathore, managing director for IHS Automotive in India, said: “The make-or-break for profitability at Tata is JLR, so any warning like this will be taken very seriously by the market.”
Tata Motors shares, having fallen almost 10 per cent, closed down more than 6 per cent on Thursday at Rs293.45.
The decline comes after a strong year for India’s largest carmaker by revenues, whose stock rose more than 75 per cent in 2012 following impressive growth in emerging markets.
Tata Motors has been one of the brightest performers for the wider Tata conglomerate over the past two years, seemingly justifying the group’s decision to buy JLR from Ford in 2008.
However, the latest announcement comes at a time of once in a generation transition within the parent company, whose longtime head Ratan Tata handed over to successor Cyrus Mistry in January.

How a Blue Ocean strategy helped the Murugappa group

Given a choice, where would you rather be — swimming in shark-infested waters or in a serene blue ocean?
That is the choice companies have to make. The idea here is surviving competition or identifying a niche in which to thrive in and where competition becomes irrelevant.
The Rs 22,000-crore Murugappa Group made its choice a few years ago: To swim in peace and grow.
Whether it is making fertilisers or cycles, it has formulated a business strategy that beats the competition not by outdoing them but by making them irrelevant.
Group’s Executive Vice-Chairman A. Vellayan shared some of these insights at a meeting on the concept of Blue Ocean Strategy organised by the Southern India Chamber of Commerce and Industry on Wednesday. A chance reading of a book on the topic caught his imagination, he said, and as the head of strategy for the group then, he decided to put some of these concepts into practice.
“Create a blue ocean for the Murugappa Group,” he said.

Tough business

The fertiliser business is a tough one — subsidy-driven, no reward for innovation and no incentive to invest in technology. He decided to implement the concept in Coromandel International after discussions with the business heads concerned, Vellayan said.
The company
* Created a retail chain of 500 full-service centres that sell products and services to farmers;
* Diversified its product base to include production of 250,000 tonnes of compost from municipal waste; and
* Set up two soluble fertiliser units, a non-subsidy source of revenue.
In the process, the company has grown closer to the farmers.
It has also expanded globally, with a phosphoric acid business and consultancy.
At the time the concept was kicked off within the Group, the fertiliser company’s shares of Rs 10 were trading at Rs 40; today its Re 1 shares are traded at Rs 240, and that too in a slow market, he pointed out. Over the next three years it aims to get less than half its revenue, about 40 per cent, from fertilisers, while the new areas will contribute over 60 per cent, says Vellayan. A significant target, considering that in 2011-12 fertiliser sales accounted for 90 per cent of Coromandel International’s revenue of over Rs 9,800 crore.

New biz to contribute more

By 2015, the company plans to step up its compost production to one million tonnes. The soluble fertiliser business is a 60,000-tonne market with 90 per cent being imported.
The company is set to tap this segment with production facilities in Visakhapatnam and Kakinada. Every tonne of soluble fertiliser can replace seven tonnes of chemical fertilisers, Vellayan said.
A similar thought process has gone into the cycle business which, traditionally, was a fragmented sector
. The Group’s BSA Go Stores have changed the cycle-buying experience with their modern ambience. The diversification into sports goods and the fitness segment has also helped, Vellayan said.
In financial services, Chola Asset Finance has targeted speed of service as a differentiator. It has nearly 1,000 full-service branches in Tier III and IV towns to be close to its customers, he said.
(Source: Business Line)

Rs 500-cr missed call biz in India: Banks, FMCG cos, political parties use this tool for customer feedback

That next-door-boy character who gives a missed call to the police to report his stolen car — as popularised by primetime spots — is no more the epitome of miserliness.

For, the Great Indian Missed Call — the weapon of choice for perpetually broke pre-paid users like students and migrant labourers — is turning out to be a Rs500-crore business opportunity for banks, FMCG majors, even political parties.

While individual consumers, especially of the pre-paid variety — 96% of India's 900 million mobile user base — give a missed call to pass on mundane information like 'Have reached destination', or 'Call me back,' companies use this as a kind of Morse Code for customer feedback, saving millions of rupees in call-centre charges and telephone bills.

For instance, banks have adopted the missed call to find solutions to most common query of their customers — account balance. ICICI BankBSE 0.76 % customers can give missed call to a particular number and get their account balance status as a text message, instantly. Dial another number, you'll get mini-statements delivered to your inbox.

Punjab National BankBSE 2.54 %, Axis BankBSE -0.59 % and Bank of India are a few other banks who are availing the missed call opportunity. The Missed Call Bandwagon include around a 100 large companies including HULBSE 1.37 % and Microsoft besides small businesses, restaurants, e-commerce portals, television channels and even political parties.

Rs 500-cr missed call biz in IndiaRs 500-cr missed call biz in India
In rural India, the missed call model is being put to some innovative uses. For instance, a Marathi daily has started a campaign asking its readers to give a missed call to a particular number to renew their subscriptions.

Similarly, BMG Cinemas, the first multiplex in Rewari, Haryana, has tied up with IMImobile to use the 'missed call' tool. Rewari residents now give a missed call to a BMG Cinema number and get an instant SMS on the movies that are currently being played across its four screens. IMImobile's founder and CEO Vishwanath Alluri tells ET that the company is putting in place a similar setup for Chennai's largest cinema complex —Satyam Cinemas — where customer would even be able find the seat availability on that day across its six theatres.

Veerchand Bothra, the chief stratteregy officer of Netcore Solutions, that executed a popular missed-call project for HUL, says that it can also be used as a mobile verification tool and can be a substitute for physical presence or signature.

He should know, for Netcore implemented the 'Missed Call Solution for Anna Hazare's Campaign'. In a first for the country, the India Against Corruption campaign used the 'missed call' route to garner the support of 250 lakh people within 180 days.

When Anna Hazare kicked off his campaign in April 2011, Indian Against Corruption asked citizens to give a missed call to register their support. The movement, led by Anna Hazare, even used this data to counter government's argument that public support to their initiative was limited.

"Dialing is the simplest action that can be executed on the mobile. It is device-agnostic — one does not need a smartphone for dialing a number," points out Sanjay Swamy, who cofounded ZipDial mobile solutions in 2010, the largest player in the missed call business. The company has grown by 600% in last year, charging Rs10 lakh to Rs1,000 to customers such as Procter & Gamble, Forever Diamonds, GilletteBSE 0.97 % and others, for surveys or sales leads. And all that cash has come in from some very personal experience.
Valerie Wagoner, chief executive officer of Zipdial, used to give a missed call to her mother, to inform that she had reached college, while studying in the US. She says it's a misconception that missed call is being used only by the prepaid users.

"A person booking a flight from a MakeMyTrip or those buying diamonds is often not prepaid users. It's popular just because it's simple." Wagoner says Zipdial is expanding to all emerging markets such as Africa, Middle East and Latin America, where people give each other missed calls, the largest one being India.

"Brands love it because they don't have to develop a full blown IVR and customers love it because they are not paying anything to engage with the brand," says Vijay Shekhar Sharma, chief executive officer of One97 Communications, which works with brands like Coke and NestleBSE 1.84 %.

Now, what's wrong in giving a missed call to the cops when your car's stolen? The day is not far when that call will invite a text message with the complaint number as ordained by the local SHO. 

Silicon Valley plant named as Apple manufacturer

Apple has listed a Silicon Valley facility as a location where the California company's Macintosh computers are assembled. The addition to Apple's list of final assembly plants came less than two months after chief executive Tim Cook vowed to shift some computer manufacturing from China to the United States to catalyze domestic high-tech production.

A Quanta Computer Inc. operation in Fremont, California, not far from where Apple got its start, joined a roster of "final assembly facilities" heavily weighted with plants in China.

Taiwan-based Quanta was listed as operating Macintosh computer and iPod MP3 player assembly plants in China.

Cook, in a pair of interviews given in December, said one line of Mac computers will be made exclusively in the United States, but did not say which one.

Asked why Apple would not move out of China entirely and manufacture everything in the United States, Cook told NBC, "It's not so much about price, it's about the skills."

Cook also told the broadcaster that he hopes the new project will help spur other US firms to bring manufacturing back home.

"The consumer electronics world was really never here," he said. "It's a matter of starting it here."
(Source: Economic Times)

Maruti Suzuki’s product mix, exports to further fuel growth momentum

Maruti Suzuki's strong rebound from a low sales volume base in the quarter to December took the Street completely by surprise. The company's stock price, which is already amongst the most expensive in the automobile industry with a trailing price-to-earnings (or P/E) of close to 30, gained over 4% in value after the results.

With its recently-launched utility vehicle, Ertiga, hitting the right chord with customers and the company growing strength in the passenger car segment, MarutiBSE 4.15 % Suzuki's net realisations improved smartly by 16% year-on-year and 4% sequentially to Rs 3.63 lakh per vehicle. This is by far the best quarterly realisation by the company in the past two years.

While the topline y-o-y growth of 45% was in line with Street expectations as the company sold 26% more vehicles this quarter compared to the previous year due to a production halt at its Manesar plant in October last year, a significant improvement in its earnings before interest, depreciation and tax or EBITDA took the Street by surprise. A better product mix led by strong sales of Ertiga and Swift Dzire, improved export realisations with the yen weakening against the dollar and frequent price hikes undertaken by the company helped to offset the impact of rising input costs. Input costs for the quarter were also lower in relation to sales given the company's continuous cost-reduction efforts.

Raw material cost, as a percentage to sales, for the quarter, was lower by 136 bps to 75% compared to a year ago. Cost reduction was also evident on the labour front as employee cost in relation to sales fell by more than 50 basis points to 2.2%. Maruti has also improvised on its other expenditure, which was 11.7% of sales in December '12 quarter against 13.4% of sales a year ago. A strong topline growth coupled with reduced costs helped the company post 8% EBITDA margins for the quarter, higher by close to 300 bps compared to a year ago.
(Source: Economic Times)

Friday, January 25, 2013

Microsoft price cuts hint for Windows PCs

Microsoft hinted at lower consumer prices to come for new Windows PCs and tablets, as its latest quarterly figures suffered from weak demand for the first version of its operating system to be built mainly for touchscreen devices.
Shares in the world’s biggest software company slipped by 2 per cent in after-market trading as it reported tepid revenue growth of less than 3 per cent in the final three months of last year, while earnings declined in the face of rising marketing costs.

However, Microsoft executives sought to put the figures in a more positive light, arguing that the company’s Office software and games division had both performed more strongly than suggested by the headline numbers.
Windows 8, which is designed to stem the inroads that tablets are making into the PC market, got off to a slow start as many consumers held back from buying new machines that included the software after its late-October launch.
“We all collectively learnt a lot, there are a lot of things we’re working on with our partners,” Peter Klein, chief financial officer, said of the reception to new Windows 8 machines. The adjustments were meant to ensure that consumers were being offered “the right mix of devices” with “more varied price points”, he added.
The launch of Windows 8 has touched off a rash of experimentation, with new hybrid devices intended to combine the attributes of both PC and tablets. However, hardware makers held back from making touchscreen machines in large volumes as they waited for a better indication of which styles would prove popular with consumers.
Mr Klein said that some of the new devices had sold well and could have done better if more had been produced.
Microsoft did not reveal initial sales figures for its own hybrid machine, called Surface, adding to Wall Street concerns that the first consumer version of the device had fallen flat. A second version of the Surface, aimed at Microsoft’s core business customer base, is due to be launched on February 9th.
The Windows PC division registered an underlying 11 per cent increase in revenues for the final months of last year, reflecting a relatively weak performance for the first quarter of a new operating system. Including revenue deferred from the previous quarter, Windows sales grew 24 per cent, to $5.88bn.
The company’s business division, meanwhile, reported a drop in sales ahead of the launch of a new version of Office. Microsoft said some $800m of this was due to sales of Office that it had had to defer to future periods.
Adjusting for the impact of these and other deferred sales, it said its revenues would have been $22bn rather than the reported $21.46bn, putting it ahead of most analysts’ forecasts.
At the same time, a 15 per cent jump in marketing and sales costs, linked to the launch of new products, contributed to a slide in earnings. Net income of $6.4bn was down 4 per cent, while pro-forma earnings per share fell to 81 cents, 3 cents lower than a year before. Wall Street had been expecting earnings per share on this basis of 79 cents.

IBM develops gel to fight infections

IBM has developed a new antimicrobial gel designed to fight drug-resistant, hospital-acquired infections by replicating the science it uses to produce semiconductors.
Using similar materials that allow for the swift transfer of computing messages, IBM scientists are developing a gel that kills microbes – including those that cause the kinds of intractable staph infections that vex medical experts.
While IBM has long provided computing technology for the healthcare sector, its efforts to develop its own medical or pharmaceutical products are more recent. The nanomedicine programme that developed the new gel was established only four years ago.
“The techniques and tools we use to do semiconductor applications translate really well to areas of more societal impact,” said Bob Allen, IBM’s senior manager of chemistry and advanced materials research. “We put a lot of horsepower behind this whole push into healthcare.”
The main goal of the gel, developed in collaboration with the Institute of Bioengineering and Nanotechnology, is to replace antibiotics. Overuse of antibiotics has created drug resistance that costs the US an estimated $20bn a year in healthcare costs, and 8m additional days spent in the hospital, according to the Centers for Disease Control and Prevention.
Whereas antibacterials pass through the membrane of a microbe and work to destabilise the internal mechanism, IBM’s new gel shatters the membrane like an eggshell, then sweeps away the infectious material.
“The microbe doesn’t have time to think the way it does when you put in antibiotics,” said Jim Hedrick, a researcher at IBM’s Almaden Lab in San Jose. “With antibiotics, the microbe has time to think and evolve and develop resistance, spitting out or degrading the antibiotic.”
Although the research is still early, IBM imagines several commercial applications for the gel. It can be used in a cream-like consistency to coat medical equipment, such as catheters and tracheal tubes, to prevent the introduction of infection. Or it can be used in pharmaceuticals to treat a full range of bacterial and fungal infections.
How well the new gel will work in practical applications is far from proven. A research paper on the gel was recently accepted for publication in the German chemistry journal, Angewandte Chemie.
But Michael Otto, a microbiologist who studies infectious disease at the National Institute of Health, said the study was limited to in vitro research. The lack of animal testing leaves a gap in knowing whether the gel will actually work.
“I’m frankly a little disappointed in the infectious disease part,” he said. “The chemistry might be there, but the microbiology is weak.”