Economic Calendar

Thursday, October 6, 2011

Black Swan Manager Returning 23% Anticipating Bear Market

By Seth Lubove and Miles Weiss - Oct 6, 2011 10:09 PM GMT+0700
Bloomberg Markets Magazine

Mark Spitznagel pushes the throttles on his new twin-engine Chris-Craft Corsair 28, slicing through Grand Traverse Bay in northern Michigan on a warm day in late July. As the speedboat reaches more than 50 miles per hour, Spitznagel’s blond hair flying in the wind, he churns up a big wake.

Turbulence is where Spitznagel, the founder of hedge fund Universa Investments LP, thrives. On Aug. 4, while Spitznagel is still at his lake house, the Standard & Poor’s 500 Index begins to plunge as weak economic data prompt predictions of a double- dip recession. By noon, Spitznagel, a so-called black swan investor, has spoken with his Santa Monica, California-based firm 15 times by phone to capitalize on its positions to make money while other investors lose it, Bloomberg Markets magazine reports in its November issue.

At Universa’s office, between conversations with Spitznagel, two traders frantically buy and sell derivatives, including options on the S&P 500. The index’s 4.8 percent dive on that day is producing a windfall for Universa, says Brandon Yarckin, a Universa associate who handles investor relations. He points to a Japanese print on the wall -- one of Spitznagel’s favorites -- depicting a giant wave about to crash onto a group of hapless fishermen.

“Days like today are what we are here for,” he says.

Investors are pouring into doomsday black swan funds, spurred by the spreading European debt debacle and Standard & Poor’s downgrade of U.S. creditworthiness. The funds entice investors with the possibility of a huge payoff if a crisis hits; Universa returned about 115 percent to investors in 2008, according to a person familiar with the matter.

‘Stupidly Expensive’

This year, as markets retreated, Spitznagel’s team collected gains of 20 to 25 percent through August for its 11 sovereign-wealth-fund and institutional clients, whose investments are run in separate partnerships and managed accounts.

“I couldn’t be more bearish on the stock market right now,” Spitznagel, 40, says. “The stock market has gotten stupidly expensive again. Fortunately, with our position, I don’t have to time the next sell-off.”

The downside of black swan investing can be steady pain -- year after year of losses if a market catastrophe doesn’t occur. In both 2009 and 2010, Universa’s clients lost about 4 percent, according to the person. The hedge-fund industry had a 9.2 percent gain in 2009 and an 8.2 percent return in 2010, according to the Bloomberg aggregate hedge-fund index.

Investment Fad

Some managers dismiss black swan funds as a costly investment fad. Philippe Jorion, a managing director in the risk management group at Pacific Alternative Asset Management Co., a fund of hedge funds, compares this form of hedging with homeowners’ insurance: The premiums paid by the homeowner usually exceed the benefit over time.

On top of the ongoing losses, black swan hedge funds typically charge a 1.5 percent management fee and take 20 percent of any profit.

“The problem we have is that these hedging strategies tend to do well only when volatility is high,” says Jorion, who’s based in Irvine, California. “But over the long run, there can be stretches over many years where these strategies are expensive to run and bleed money.”

Nassim Nicholas Taleb coined the term black swan as a metaphor for an unforeseen catastrophe, such as the implosion of hedge fund Long-Term Capital Management LP in 1998 or the terrorist attacks of Sept. 11, 2001. The author and New York University professor has helped inspire a cottage industry of disaster funds.

‘The Black Swan’

His most well-known book, “The Black Swan: The Impact of the Highly Improbable” (Random House, 2007), has sold more than 3 million copies. His latest book dispenses wisdom via aphorisms. In “The Bed of Procrustes: Philosophical and Practical Aphorisms” (Random House, 2010), he writes, “In science, you need to understand the world; in business, you need others to misunderstand it.”

Taleb, 51, shut down Empirica LLC, his black swan hedge fund, in 2005 to focus on writing and because he feared he might have a recurrence of throat cancer. Taleb also frequently lectures before business groups, academics and policy makers.

“I’m not interested in money; I’m not interested in finance,” Taleb says. “I’m comfortable enough as it is. I don’t need it. Finance should be a footnote in my bio, not a central component. Why should I waste time in finance when my influence as an intellectual is so high?”

Ballooning Assets

Assets in black swan and tail-risk funds, which hedge against low-probability events and are named for the tapered lines at either end of a bell curve, are ballooning. They jumped to $38 billion in April from $500 million prior to the collapse of Lehman Brothers Holdings Inc. (LEHMQ) in 2008, according to a JPMorgan Chase & Co. (JPM) report.

Pacific Investment Management Co., whose chief executive officer, Mohamed El-Erian, says the U.S. may be headed for a long period of below-average expansion, is the biggest firm yet to jump into the catastrophe-hedging business. Newport Beach, California-based Pimco, which manages about $1.3 trillion, has a tail-risk strategy with almost $30 billion of assets spread across its funds. Pine River Capital Management LP in Minnetonka, Minnesota, runs the $160 million Nisswa Tail Hedge Master Fund Ltd., and 36 South Capital Advisors LLP of London, which oversees $330 million of assets, also manages black swan funds. Jerry Haworth, who co-founded the firm, says his black swan fund returned 234 percent in 2008.

Options Trading

Before starting Universa in 2007, Spitznagel was a partner and the head trader at Taleb’s Empirica, and together, they developed their options-trading strategy. Universa, whose clients include the Canada Pension Plan Investment Board, buys out-of-the-money call and put options tied to the S&P 500, commodities and stocks.

In a typical trade, Universa pays a fee for the right to lock in a set price on the S&P 500 for a period of time, such as one year. If the benchmark index declines below this strike price, Universa’s options increase in value.

“I’m a value investor in my bones,” says Spitznagel, who’s also the firm’s president and chief investment officer. “I want to trade on adverse expectations.”

In April 2010, Universa paid about $2 each for S&P 500 put options expiring that May that would pay off if the index fell below 1,100. At the time, the index was around 1,200. The firm sold the puts as they soared to more than $60 each during the one-day crash on May 6, when the S&P fell as low as 1,066, erasing $862 billion in U.S. equity values in 20 minutes.

‘Like an Idiot’

“Most of the time, you look like an idiot,” says Spitznagel, who’s wearing a Brooks Brothers striped polo shirt and boat shoes during lunch at a restaurant across the bay from his summer home. “You’re holding stuff no one else wants.”

Susan Manske, CIO of the $5.6 billion John D. and Catherine T. MacArthur Foundation, said at a symposium in Washington in July that she decided to avoid tail-risk funds because of the costs.

After the 2008 market meltdown, when the S&P 500 fell 38.5 percent, the foundation looked into tail-risk hedges and ended up buying U.S. Treasuries as part of a larger investment strategy, Manske said, adding, “Most people would say, ‘Why in the world are you adding long-duration Treasuries when they are trading at 4 percent?’”

She’s betting that long-duration U.S. government securities will provide cheaper portfolio diversification than a strategy using tail-risk protection.

Empirica Criticism

Janet Tavakoli, a former head of mortgage-backed-securities marketing at Merrill Lynch & Co. who now runs Tavakoli Structured Finance Inc., criticized the performance of Empirica, Taleb’s prior firm. In a 2009 commentary posted on her website, Tavakoli attacked Taleb for losing money in 2001 -- the year of the Sept. 11 terrorist attacks in the U.S., one of the biggest black swan events in history.

The firm’s Empirica Kurtosis fund posted a 7 percent gain in September yet declined 8.4 percent for 2001. Spitznagel, who won’t comment on Empirica’s specific returns, says the Kurtosis fund held a small portion of the firm’s assets and wasn’t representative of Empirica’s other results.

“In the year that Taleb called the mother of all black swans, they lost money,” Tavakoli says. “He’s quick to try to discredit others but not so quick to own up to the weaknesses in his own actions.”

Taleb is dismissive of Tavakoli.

“I can’t take her seriously,” he says. “I have other obsessive detractors more worthy of attention.”

‘White Swan’

Taleb says he no longer trades and instead devotes himself to writing and serving as an unpaid adviser on risk policies to governments. He doesn’t consider the equity market roller coaster that occurred in August, spurred by S&P’s downgrade of U.S. creditworthiness, to be a black swan.

“What we have here is like a white swan,” says Taleb from his suburban New York home, where he has a collection of 10,000 books. “Moves of 5 percent in the stock market are too common. The downgrade of the U.S. is cosmetic. The only black swan that came from the downgrade is that the bond market rallied.”

At Universa, Taleb has the title of distinguished scientific advisor and helps Spitznagel on research projects. Spitznagel’s devotion to black swan ideas partly swayed his choice of location for his firm. He opted for the relative safety of a one-story building in case an earthquake strikes, a classic black swan event.

J-Lo’s House

In the office, with its exposed beams and view of an alley and a loading dock in Santa Monica’s tourist district, Spitznagel hung a reproduction he commissioned of a somber painting of a black swan by Belgian symbolist William Degouve de Nuncques. On his office window, Spitznagel scribbled more decoration: complex mathematical formulas.

The firm’s bets -- it paid 70 cents in July for put options on Citigroup Inc. (C) that soared to $10 after the stock dropped -- have helped make Spitznagel rich. He seeded a family office with $100 million and paid $7.5 million in 2009 for a 7,357-square- foot (683-square-meter) house in Los Angeles’s wealthy Bel Air neighborhood that was previously owned by divorcing celebrity couple Jennifer Lopez and Marc Anthony.

Spitznagel does almost everything with zeal and intensity. He hones his trading discipline with weekly training sessions in Chinese Chen-style taijiquan, a form of tai chi that emphasizes fighting and defense, and he snowboards in the winter. In 2004, he separated a shoulder after falling off a skateboard to avoid an oncoming taxi in New York’s Central Park. He has given up piloting engineless sailplanes over California’s Sierra Nevada mountains.

Total Immersion

“He’s never had a casual interest in anything,” says older brother Eric Spitznagel, a freelance journalist and author. “If he cares about something, he’ll immerse himself in it totally.”

A native of Michigan, Spitznagel got hooked on trading in middle school when he visited the Chicago Board of Trade. “The energy was incredible,” he says. He hung a point and figure chart of the soybean futures markets on his bedroom wall.

With the help of Everett Klipp, a family friend and trader, Spitznagel clerked at the CBOT during summers while he was a student in high school and at Kalamazoo College in Michigan. Spitznagel joined Klipp’s firm after graduating with a political science degree in 1993 and soon began trading in the bond futures pit for his own account. Spitznagel says Klipp taught him the value of taking small losses while waiting for the big score.

Meeting Taleb

“A small loss is a good loss,” Spitznagel remembers the now deceased Klipp telling him.

In 1999, Spitznagel entered a master’s program at New York University’s Courant Institute of Mathematical Sciences, where he met and began to cement his relationship with Taleb. At the institute, former Morgan Stanley and Goldman Sachs Group Inc. (GS) quant trader Neil A. Chriss had built a program in applied financial math.

Chriss hired Taleb, then known for a wonky 1997 tome, “Dynamic Hedging: Managing Vanilla and Exotic Options,” as an adjunct professor. Chriss put Spitznagel in touch with Taleb after the student mentioned he had read Dynamic Hedging and said that the book was his bible as a trader.

The two men talked on the phone, and Taleb, who was preparing to start Empirica, says he was impressed that an experienced floor trader was training in quant theory.

“I hired him without seeing him,” Taleb says. “I told him to take a train to Greenwich.”

‘Shouting Matches’

The pair opened Empirica together in 1999 in Greenwich, Connecticut, staked with $50 million from Donald Sussman’s Paloma Partners LLC hedge fund. Taleb says Spitznagel brought his pit-trader aggressiveness to the firm in an effort to get a good price on transactions.

“Mark would get into shouting matches with brokers,” Taleb says. “He used to turn red with anger.”

When the Internet bubble burst in 2000, the Empirica Kurtosis fund posted a 57 percent return that year, according to company documents summarizing its results. In contrast, the S&P 500 fell 10.1 percent in 2000. The fund went into a tailspin starting with the 2001 decline, followed by drops of 13 percent in 2002 and 3.9 percent during the first two months of 2003. That’s when the partners closed the fund.

In February 2007, after about a year on Morgan Stanley (MS)’s proprietary-trading desk, Spitznagel left to open his own firm. He says the frothy market conditions early that year inspired his decision to start a black swan fund but that he had no idea that the credit crisis would soon plunge the world into recession.

Unconventional Ways

“The market was -- and still is -- very overvalued,” he says, referring to the price of stocks. “The risk-reward made particularly good sense. It certainly lit a fire for me.”

Spitznagel manages his investors’ money in unconventional ways. An investor specifies a notional amount to protect and then gives Universa the money to buy the options. Universa requires clients to deposit cash equaling the required exchange margin to support the position, which is only 1 to 5 percent of the face value of the options when market volatility is low.

Most futures and commodity-trading advisers, who counsel clients on futures and options contracts, require at least a 50 percent deposit, says James Bibbings, president of Chicago-based Turnkey Trading Partners, a consultant to commodity and currency traders. A fraction of that 50 percent will be invested in actual contracts, with the remainder parked in cash or cash-like securities that can easily be sold if the firm needs to post additional margin on the customer position.

Minimizing Losses

So while Universa hedged a notional $6 billion for investors, it managed only $68.3 million, according to a March Securities and Exchange Commission filing. Yarckin says the amount fluctuates as the market’s implied volatility rises and falls, and the firm’s capital in September was about four to five times higher than in March.

Spitznagel says investors appreciate not having to tie up so much of their capital with his firm. He says he can operate with small deposits because he structures his investments to minimize the size of losses. Spitznagel is now seeking $1 billion for a new fund that will try to capitalize on mispriced options on benchmarks as well as individual commodities, currencies, stocks and other financial instruments.

“There is no other vehicle out there that I know of where you will see this extreme underfunding, because I doubt there is any other vehicle out there that has the conservative risk controls we do,” he says.

Cherry Picking

Last year, Spitznagel bought a 200-acre (80-hectare) cherry orchard and farm near his summer home in Northport Point, Michigan, that he’s converting into a goat dairy. Driving through the orchard, he lowers a window in his Mercedes-Benz G 55 AMG sport utility vehicle, plucks a fresh cherry off one of his trees and pops it in his mouth.

“This is my idea of farming,” he says.

With the S&P 500 down about 16 percent in early October from its 2011 high, Spitznagel finds making money almost as easy as picking cherries. And he argues that there’s a high probability that the S&P 500 will continue its decline, plunging an additional 40 percent in the next few years. That would spur even more investors to flock to black swan funds -- hoping for a big payday while risking a bust.

To contact the reporters on this story: Seth Lubove in Los Angeles at; Miles Weiss in Washington at

To contact the editors responsible for this story: Laura Colby in New York at; Christian Baumgaertel at


Harvard Loses Top World Ranking to Caltech

By Namitha Jagadeesh - Oct 6, 2011 9:20 PM GMT+0700
Harvard University lost its top spot for the first time in eight years in a global ranking of higher education institutions, being overtaken by the California Institute of Technology.

Another California institution, Stanford University, tied with Harvard for second spot in the annual table compiled by the London-based Times Higher Education, with data supplied by Thomson Reuters Corp. The University of Oxford climbed to fourth from sixth last year, beating the University of Cambridge at sixth. Princeton University came fifth.

Harvard, the world’s richest university, has topped the rankings since they were started in 2004. The U.S. institution was beaten by Cambridge last month in a separate poll by higher education information provider QS. A 16 percent increase in research funding for Caltech helped it leapfrog Harvard in the Times Higher table, said Phil Baty, editor of the rankings.

“The difference between Harvard and Caltech last year was minuscule,” Baty said in a telephone interview. “What’s happened this year is Caltech has seen a significant increase in its research income. A 16 percent increase, it’s quite significant in tipping the balance over in its favor. Harvard had an increase as well, but it was more in line with sector averages.”

The rankings are based on a survey that gauges universities across five areas, including industry income, teaching, citations, research and international outlook. More than 17,500 academics were surveyed and 50 million citations analyzed and compared with the world average for this year’s rankings.

Funding Levels

“It doesn’t seem as if financial crisis has really damaged Harvard,” said Baty. “It still wins on the teaching indicator. Once you factor in research impact and universities’ research activities, Caltech is slightly better.”

U.S. and U.K. universities dominated the list, with 75 American schools in the top 200. Seven of the top 10 schools were in the U.S., with the rest in Britain, Imperial College London taking eighth place.

“The real issue that’s starting to show is that the great public American universities do seem to be suffering, whereas the private universities in America have managed to maintain or protect their funding levels a bit more,” Baty said.

Premier U.S. universities that depend on public funding, including Californian universities at Berkeley, Los Angeles, San Diego and Santa Barbara, had slipped on the list compared with a year ago, Baty said.

‘Steadfast Donors’

“Caltech is fortunate to have steadfast donors and partners whose support gives Caltech the ability to invest in new ideas long before they would be eligible for public funding opportunities,” Dr. Jean-Lou Chameau, president of Caltech, said in an e-mailed statement. “This public-private partnership model enables our research funds to go further.”

Oxford beat Cambridge, the U.K.’s richest university, after a change in the survey’s methodology put arts, humanities and social sciences on an equal footing with science, Baty said.

“At places like Oxford, where there’s a slightly heavier focus on humanities and social sciences than there is at Cambridge, that levelling of the playing field has helped,” he said.

The U.K. had the most number of universities in the top 200 after the U.S., with 32.

U.K. Reforms

While the U.K. did “exceptionally well,” the “biggest issue is that we’re entering into a very uncertain period of major reform, which will have unforeseen consequences,” Baty said. Higher tuition fee, spending cuts and new visa restrictions on international students restricting university income will affect U.K. rankings from 2012, he said.

“The U.K. is blessed with some truly brilliant universities, more brilliant than the government understands, judging by its hastily concocted higher education reforms, with all the uncertainty they entail,” said Ann Mroz, the editor of the Times Higher, in a report accompanying the list.

The Netherlands, Germany and Canada followed the U.S. and U.K. as the countries with most universities on the list. ETH Zurich, the Swiss Federal Institute of Technology, was the highest ranked outside of the U.S. and U.K. at 15th position.

The University of Tokyo, in 30th place, was the top-ranked Asian school. Japan has five schools in the top 200, the most of any Asian nation, while Hong Kong has four and China three. Three Taiwanese universities dropped out of the list this year, leaving just one, while India had none.

Top 20 World University Rankings 2011-12:

      Institution                         Country 1.  California Institute of Technology       U.S. 2.  Harvard University                       U.S. 2.  Stanford University                      U.S. 4.  University of Oxford                     U.K. 5.  Princeton University                     U.S. 6.  University of Cambridge                  U.K. 7.  Massachusetts Institute of Technology    U.S. 8.  Imperial College London                  U.K. 9.  University of Chicago                    U.S. 10. University of California, Berkeley       U.S. 11. Yale University                          U.S. 12. Columbia University                      U.S. 13. University of California, Los Angeles    U.S. 14. ETH Zurich                               Switzerland 15. Johns Hopkins University                 U.S. 16. University of Pennsylvania               U.S. 17. University College London                U.K. 18. University of Michigan                   U.S. 19. University of Toronto                    Canada 20. Cornell University                       U.S. 

To contact the reporter on this story: Namitha Jagadeesh at

To contact the editor responsible for this story: Colin Keatinge at


Senate Advances China Yuan Bill House Speaker Boehner Calls ‘Dangerous’

By Eric Martin - Oct 6, 2011 11:10 PM GMT+0700

The Senate advanced legislation letting U.S. companies seek duties to compensate for an undervalued Chinese yuan, setting up a vote on the measure as soon as today.

The Senate approved 62-38 a motion limiting debate on the bill backed by Democrats such as Senators Sherrod Brown of Ohio and Charles Schumer of New York and Republicans including Lindsey Graham of South Carolina and Jeff Sessions of Alabama.

The legislation, opposed by business groups such as the U.S. Chamber of Commerce, may stall in the House. Republican Speaker John Boehner of Ohio said today that the bill could start a trade war.

“To force the Chinese to do what is arguably very difficult to do I think is wrong, it’s dangerous,” Boehner said today at the Washington Ideas Forum, sponsored by Atlantic magazine and the Aspen Institute. “Given the economic uncertainty around the world, it’s just very dangerous and we should not be engaged in this.

‘‘I frankly think the president agrees with me but why isn’t the president speaking out?,” Boehner said. “Is he too busy campaigning?”

President Barack Obama said at a press conference today that while “China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States,” he wants to make sure the U.S. doesn’t pass laws that “are symbolic, knowing that they’re probably not going to be upheld by the World Trade Organization.”

Schumer’s Past Efforts

Schumer, who has proposed similar measures on China’s currency over the past six years, has failed so far to get an up-or-down Senate vote on a bill.

Supporters say the legislation has a better chance of passing the Senate this time because China, the world’s second- biggest economy after the U.S., has become a target for lawmakers frustrated by the widening trade deficit with that nation and domestic unemployment stuck at 9.1 percent.

The bill mandates that the Treasury Department identify misaligned currencies, instead of finding that a currency was manipulated, as is currently required. Governments that undervalue their currencies and don’t take corrective action would face penalties, including increased dumping duties, a ban on federal procurement in the U.S. and ineligibility to receive financing form the Overseas Private Investment Corporation.

The yuan has appreciated 5.1 percent against the U.S. dollar in the past year and 24 percent in the past five years, the steepest advance among 25 emerging-market currencies tracked by Bloomberg. China limits currency conversions for investment purposes and buys dollars to slow the yuan’s advance and preserve the competitiveness of China’s exports.

To contact the reporter on this story: Eric Martin in Washington at

To contact the editor responsible for this story: Larry Liebert at


Deutsche Telekom in Talks With Asia, U.S. Manufacturers Over Smart Homes

By Cornelius Rahn - Oct 6, 2011 4:37 PM GMT+0700

Deutsche Telekom AG (DTE) is in talks with Asian and U.S. makers of electronic devices and appliances about a co-operation to boost services that manage data exchange between household devices such as TVs and washing machines.

Europe’s largest phone company, which aims to make 1 billion euros ($1.3 billion) in sales by 2015 from such machine- to-machine services, is in talks with “big name” companies, including makers of entertainment electronics in Japan and South Korea, Gabriele Riedmann de Trinidad, the head of Deutsche Telekom’s energy unit, said in an interview in Kiel, Germany. Getting these high-caliber partners would be a “giant step” for the platform, she said, without naming them.

So-called smart home services, where machines use networks to exchange data and users can access and operate electrical appliances from anywhere, are part of Deutsche Telekom’s strategy to counter declining sales from traditional voice calls with new offerings. Riedmann de Trinidad says deals with well- known manufacturers are necessary to drive awareness among consumers and competitors.

“We have a long list of companies that are interested in working with us,” she said. “It’s an evolution, and that makes it important that large, big-name manufacturers get onto our platform to drive things forward.”

Under the name T-City, Bonn-based Deutsche Telekom is already running pilot projects that include smart metering to help utility companies measure and control energy consumption and delivery; and health projects such as instant communication of insulin readings to physicians.


Operators are in talks with manufacturers “to let them know what is possible for them to do, if they would incorporate that technology into their devices,” Jamie Moss, an analyst at Informa Telecoms and Media, said via phone. “It’s a good opportunity for long-term revenue for the operators. The amount you make per connection is not going to decline over time.”

Other technology companies are pushing into the home appliance and energy-control market as well.

Cap Gemini SA (CAP), Europe’s largest computer-services company, and Intel Corp. (INTC), the world’s biggest chipmaker, in February said they would offer a home energy-management system to consumers and utilities as the companies enter the market for power-saving upgrades to electric grids.


Google Inc. (GOOG), owner of the world’s most popular search engine, in June said it would retire its PowerMeter service, which gave consumers simple access to their energy use, as the company’s “efforts have not scaled as quickly as we would like.” At the same time, Google said “momentum is building toward making energy information more readily accessible, and it’s exciting to see others drive innovation and pursue opportunities.”

German utilities EON AG, the country’s biggest utility, and EnBW Energie Baden-Wuerttemberg AG (EBK) as well as appliance maker Miele & Cie KG and electronic device maker eQ-3 Holding AG have so far joined Deutsche Telekom’s Smart Connect standard. Deutsche Telekom would also welcome other telecommunications companies and cable companies to join, Riedmann de Trinidad said.

Private customers in Germany will be able to buy the Sumitomo Electric Industries Ltd.-made Smart Connect Box, which functions as the central control device, from mid-2012.

Deutsche Telekom has an advantage over other phone companies or companies because it combines telecommunications networks with its information-technology expertise and direct access to consumers, Riedmann de Trinidad said.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at

To contact the editor responsible for this story: Kenneth Wong in Berlin at


Apple Counts on Overseas Sales to Stay on Top Without Visionary Jobs: Tech

By Adam Satariano - Oct 6, 2011 8:34 PM GMT+0700
Bloomberg Markets Magazine
Enlarge image Apple Looks to Overseas Growth to Stay on Top Without Jobs

A customer looks at Apple Inc. laptop computers at the company's new store in Hong Kong, China. Photographer: Jerome Favre/Bloomberg

Oct. 5 (Bloomberg) -- Steve Jobs, who built the world’s most valuable technology company by creating devices that changed how people use electronics and revolutionized the computer, music and mobile-phone industries, died. He was 56. Bloomberg's Erik Schatzker reports on the life of Apple Inc.'s co-founder and former chief executive officer. (Source: Bloomberg)

Oct. 6 (Bloomberg) -- Kirk Yang, analyst at Barclays Capital in Hong Kong, talks about the death of Apple Inc. co-founder Steve Jobs and the company's business outlook. Yang speaks with Susan Li and Zeb Eckert on Bloomberg Television's "First Up." (Excerpt. Source: Bloomberg)

Oct. 6 (Bloomberg) -- Ashok Kumar, an analyst at Rodman & Renshaw LLC in New York, talks about the life of Apple Inc.'s co-founder and former chief executive officer Steve Jobs, who died yesterday. Kumar speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Oct. 6 (Bloomberg) -- Daniel Ernst, an analyst at Hudson Square Research, talks about the death of Apple Inc. co-founder Steve Jobs and the outlook for the company. He speaks with Susan Li on Bloomberg Television's "First Up."(Source: Bloomberg)

Oct. 6 (Bloomberg) -- Bob Rice, general managing partner at Tangent Capital Partners LLC, talks about the death of Apple Inc. co-founder Steve Jobs and his impact on technology and media. Rice speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Customers look at Apple Inc. laptop computers at the company's new store in Hong Kong, China. Photographer: Jerome Favre/Bloomberg

Steve Jobs built Apple Inc. into the world’s most valuable technology company with easy-to-use products that transformed the computing, wireless and music industries. The company will look for overseas growth to extend that legacy and remain an investor favorite.

Apple, which said its visionary founder died yesterday at 56, aims to maintain its expansion in markets such as China, fueling sales of the iPhone and iPad. The company also stands to gain from updated versions of those best-sellers and the new iCloud service, which makes it easier for its gadgets to share information -- and harder for users to switch to rival devices.

For Chief Executive Officer Tim Cook, the challenge will be developing Apple’s next generation of hot sellers and facing down competition in the markets Jobs pioneered. Google Inc.’s Android has emerged as one of Apple’s biggest threats after gaining momentum in phones and tablets. Cook, who this week led the debut of the iPhone 4GS, will lean on a cadre of fellow veteran executives who have long worked together under Jobs.

“He created an infrastructure that this management team can build on for a long time,” said Tim Bajarin, a technology analyst at Creative Strategies Inc. “The bigger question is how fast will they innovate and take advantage of that infrastructure for things like new devices, applications and services.”

Jobs had resigned as Apple Inc. (AAPL) chief executive officer on Aug. 24. He was diagnosed in 2003 with a neuroendocrine tumor, a rare form of pancreatic cancer, and had a liver transplant in 2009.

Apple Investors

Investors have had mixed reactions since Jobs stepped down as CEO. The shares rose more than 7 percent in the month after he resigned, and have since slipped back to little changed. The stock dipped $3.85, or 1 percent, to $374.40 at 9:31 a.m. New York time on the Nasdaq Stock Market.

The shares are recommended by 49 analysts, with no sell ratings, according to Bloomberg data. On average, analysts predict the shares will rise another 32 percent to $499.40.

“Steve Jobs has set up the company for the next few years to have some more blockbuster products,” said Giri Cherukuri, an Apple investor with Oakbrook Investments who has been following the company since the late 1980s. Updated models of the iPhone and iPad, as well as potential new products like a television, will keep the company growing, he said.

‘Final Great Act’

Apple’s stock price has risen more than 9,000 percent since Jobs returned to the company in 1997. The stock has more than doubled in the past two years, while Microsoft Corp. (MSFT) has gained 5.1 percent and Intel Corp. (INTC) has risen 14 percent. Hewlett- Packard Co. is down 48 percent.

While analysts once predicted that Apple shares would plunge when Jobs left the company, investors have grown more comfortable with other executives since he first went on medical leave in 2004. In 2008, Piper Jaffray Cos. analyst Gene Munster estimated that Apple shares would tumble 25 percent if Jobs departed.

Munster, who now has a target price of $607 for the stock, said Jobs’s “final great act” was grooming Cook as a successor.

Apple benefited from record purchases of iPads and iPhones in the quarter that ended in June, helping profit more than double to $7.31 billion. Sales climbed 82 percent $28.6 billion.

“For now, people are comfortable, but that could change if there are signs to the contrary,” said Mike Abramsky, an analyst at RBC Capital Markets in Toronto.

Cook’s Team

In addition to Cook, Apple’s executive team includes Jonathan Ive, senior vice president of industrial design; Scott Forstall, who is in charge of the iOS software that powers the iPhone and iPad; and Philip Schiller, who leads product marketing. Additionally, Bob Mansfield heads Mac hardware engineering; Eddy Cue runs iTunes, the App Store and iCloud; Bruce Sewell is chief counsel, putting him at the helm of the company’s patent disputes; and Chief Financial Officer Peter Oppenheimer is tasked with overseeing Apple’s more than $75 billion in cash and long-term holdings.

While Apple has turned its website into a memorial to Jobs and is flying the flags at its Cupertino, California, headquarters at half-mast, the company will quickly have to shift its focus back to the looming release of the iPhone 4S. The device, unveiled Oct. 4, goes on sale Oct. 14.

Nokia, RIM

The iPhone helped Apple upend the mobile-phone industry, increasing the popularity of touch-screen devices. That came at the expense of Nokia Oyj and Research In Motion Ltd. (RIMM), which have lost market share and shed workers.

As Apple’s sales and profit grew, its market value soared past rival technology companies. Its valuation now exceeds the combined worth of Microsoft and Intel, two companies that once pushed Apple to the fringes of the personal-computer industry.

To stay on top, Apple will have to maintain its expansion in China, where the company generated about $3.8 billion in the most recent quarter, up more than sixfold from a year earlier. The company’s retail outlet in Shanghai had 100,000 visitors on its opening weekend, Cook said at the iPhone 4S event. Apple is opening its first store in Hong Kong this year.

The new version of the iPhone, Apple’s top money-maker, will face competition from Samsung Electronics Co., Motorola Mobility Holdings Inc. and HTC Corp., which use Android software in their smartphones.

New Products

Apple’s ICloud, which lets customers access pictures, music and other information across a broad range of its devices, will be released on Oct. 12. The service was first showcased at Jobs’s last public appearance, Apple’s developer conference in June.

When Apple needs to introduce entirely new products, Jobs’s vision may be missed -- if the company introduces a TV, for example, Piper Jaffray’s Munster said.

Jobs was critical in hiring and pushing the company into new areas, Abramsky said. He was vital in negotiations with media companies for securing content such as music and movies that are sold through iTunes.

“There’s a certain unknown about how Apple will be different,” Abramsky said.

To contact the reporter on this story: Adam Satariano in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Tim Cook Aims to Carry On Jobs’s Vision at Apple

By Adam Satariano and Peter Burrows - Oct 6, 2011 8:35 PM GMT+0700
Enlarge image Apple Inc Chief Executive Officer Tim Cook

Apple Inc. chief executive officer Tim Cook. Photographer: David Paul Morris/Bloomberg

Oct. 5 (Bloomberg) -- Steve Jobs, who built the world’s most valuable technology company by creating devices that changed how people use electronics and revolutionized the computer, music and mobile-phone industries, died. He was 56. Bloomberg's Erik Schatzker reports on the life of Apple Inc.'s co-founder and former chief executive officer. (Source: Bloomberg)

Apple Inc. (AAPL) Chief Executive Officer Tim Cook faces the challenge of crafting the company’s strategy following the death of Steve Jobs, a man he called “a visionary and creative genius.”

Cook, who became CEO on Aug. 24 after Jobs switched to the role of chairman, announced his predecessor’s death yesterday in a message to employees.

“Apple has lost a visionary and creative genius, and the world has lost an amazing human being,” Cook, 50, said in the memo. “Those of us who have been fortunate enough to know and work with Steve have lost a dear friend and an inspiring mentor. Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.”

The announcement came one day after Cook took the stage to introduce a new iPhone, marking his first product unveiling since taking the reins. To maintain Apple’s growth, he will have to push into more new markets, continue the company’s Asian expansion and execute a shift to cloud computing.

Apple’s shares dipped $3.85, or 1 percent, to $374.40 at 9:31 a.m. New York time on the Nasdaq Stock Market. They had climbed 17 percent this year before today.

Jobs hired Cook from Compaq Computer Corp. in 1998, and the deputy soon proved his mettle as an operations expert. Cook transformed inventory management to enable Apple to ship the iconic iMac in a rainbow of colors, deviating from the typical plain beige box. He later was able to orchestrate the speedy delivery of iPods, iPads and iPhones -- often within 48 hours -- to help forge an army of Apple loyalists.

‘Not Going to Change’

Cook must now take up the mantle of charting Apple’s creative vision, something he was less involved with in his previous job as chief operations officer.

Following Jobs’s retirement as CEO, Cook said to employees that “Apple is not going to change” and he reiterated that thought yesterday: “We will honor his memory by dedicating ourselves to continuing the work he loved so much.”

Cook led the company when Jobs was out during three medical leaves. Though he’s a counterpoint to Jobs’s more emotional personality, the men are two sides of the same coin, said Mike Janes, who used to run Apple’s online store. Both are demanding leaders with an attention to detail.

“Despite their style differences, their intensity is basically equal,” Janes, now the CEO of tickets search engine, said in an interview earlier this year. “They are both perfectionists.”

Different Approach

Jobs’s absence was palpable throughout the 90-minute introduction of the iPhone 4S this week at Apple’s headquarters in Cupertino, California.

“This is my first product launch since being named CEO,” Cook said, the only Jobs reference, if veiled, at the entire event. “I’m sure you didn’t know that.”

Jobs was renowned for stirring, meticulously rehearsed pitches. Cook delivered his remarks more slowly and methodically, and he let other executives do much of the presentation.

“There’s no way to replace Steve Jobs -- and there were times during the performance that you felt that,” said Gene Munster, an analyst at Piper Jaffray Cos.

Still, Cook is the right man to carry on the vision, Munster said.

“Jobs’s final act as CEO was another of his many great accomplishments,” Munster said yesterday in a report. He reiterated his endorsement of Apple’s stock. “Cook is capable of running Apple, but his rare combination of extreme humility and insatiable motivation make him uniquely suited to continue Jobs’s work as CEO and carry on his vision with a peerless executive team.”

Long Hours

Cook is typically found working long hours at the company’s headquarters or traveling around the world to meet with suppliers and manufacturers, Janes said. Cook led the company’s negotiations with Verizon Wireless to bring the iPhone to that carrier in the U.S. this year.

During his 13 years at Apple, Cook has mastered an expanding list of operational roles, including manufacturing, distribution, sales and customer service.

“We have great confidence in Tim Cook, who is a partner of high quality,” Stephane Richard, CEO of France Telecom SA, said in an interview the day Jobs stepped down. Richard’s company provides carrier service for the iPhone.

Google Threat

While Cook was Jobs’s choice for successor, he hasn’t had much time to demonstrate whether he can rally the company’s roughly 50,000 employees as effectively as Jobs, who steered Apple into industries as varied as mobile phones, music downloads and retailing.

Cook also faces mounting competition, in part because of Apple’s foray into new markets. Google Inc. (GOOG)’s Android has emerged as the biggest smartphone operating system, bolstered by HTC Corp. (2498), Samsung Electronics Co. and Motorola Mobility Holdings Inc. adopting the software. Google said Aug. 15 it planned to purchase Motorola Mobility for $12.5 billion.

Investors, meanwhile, may be more likely to pressure Cook to use some of Apple’s cash -- now more than $75 billion, including long-term holdings -- for a dividend or stock buyback.

“He’s a very competent corporate manager,” said Apple investor Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which oversees $14.8 billion in assets. “People are going to be looking for that crack of weakness, and they’ll be looking at him a lot closer than they look at Steve.”

ICloud Service

In addition to overhauling the company’s supply chain, Cook also has led the company into new markets. Sales in China reached $3.8 billion in the last reported quarter, up sixfold from a year ago. The company is looking to fuel more growth with its new iCloud service, which stores files online.

To maintain its streak of innovations, Cook will have to lean on a corps of executives. Jonathan Ive oversees a staff of product designers that is considered among the best in the world. Scott Forstall leads development of Apple’s mobile software. Bob Mansfield runs hardware engineering, and Peter Oppenheimer is chief financial officer. The executive team, which often meets on Monday mornings to receive sales updates and discuss strategy, has been together for years.

“The team here has an unparalleled breadth and depth of talent and a culture of innovation that Steve has driven in the company,” Cook said in January. “Excellence has become a habit.”

Companies such as Nike Inc. and International Business Machines Corp. have thrived without their iconic leaders, said John Connors, a venture capitalist at Ignition Partners and former finance chief at Microsoft Corp. He and Cook sit on Nike’s board, which oversaw the retirement of CEO Phil Knight.

“The good Lord created one Steve Jobs, but he only created one Phil Knight and Nike is still an enormous success,” Connors said. “I am sure the world will see in the next several years that Tim is a very uniquely gifted guy and Apple will be wildly successful under his leadership.”

To contact the reporters on this story: Adam Satariano in San Francisco at; Peter Burrows in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Oil Industry Slump May Herald Takeover Wave

By Brian Swint - Oct 6, 2011 7:52 PM GMT+0700

The oil and gas industry’s worst slump since the financial crisis heralds a surge of takeovers for Goldman Sachs Group Inc. and Sanford C. Bernstein Co. as Asia buyers put $150 billion in cash to work.

The market valuation of U.K. and North American exploration company reserves has dropped 23 percent this year to the lowest since 2008, Bloomberg data shows, while Brent crude prices gained 8 percent to $102 a barrel. The dislocation between crude and company valuations is “extreme” and may lead to twice as many deals as usual, Goldman said last month.

Asian buyers may spend $150 billion by 2016 to secure energy resources for their faster-growing economies and targets could include Tullow Oil Plc (TLW), Canadian Oil Sands Ltd. and Kosmos Energy Ltd., according to Bernstein. London-listed Premier Oil Plc (PMO) said it will seek more acquisitions after buying EnCore Oil Plc for $340 million yesterday.

“The valuations are pretty compelling if you believe in $100 oil,” said Christopher Wheaton, who manages RCM Ltd.’s $140 billion Energy Fund in London. “Once the economic uncertainty clears, we should see a pickup in deals. Asia still has the appetite because the security of supply issues haven’t gone away.”

The U.K.’s FTSE All-Share Oil & Gas Producers Index rose 4.3 percent as of 1:48 p.m. in London, compared with a 2.2 percent gain for the FTSE 100. Afren Plc, an explorer in Africa and Iraq, rose 6.8 percent, bringing its two-day gain to 12 percent, while Tullow increased 3.2 percent today.

Bowleven, Rockhopper

Explorers that need money for drilling next year may find it hard to get debt or equity funding if economies continues to deteriorate. That may help better capitalized companies looking to buy into projects and fields, Phil Corbett, an analyst at Royal Bank of Scotland Group Plc, said in a Sept. 23 note.

Among U.K.-listed companies, Africa explorer Bowleven Plc (BLVN) may be a target, while Cairn Energy Plc and Heritage Oil Plc (HOIL) have cash to make acquisitions, Corbett said.

Goldman analysts also identified Bowleven as a potential takeover target, as well as Falkland Islands explorer Rockhopper Exploration Plc (RKH) and Canada’s Bankers Petroleum Ltd. (BNK) in a Sept. 21 research note.

While Brent crude has dropped 13 percent since July, investors forecast prices staying above $90 a barrel for the next two years. That’s 10 percent more than its five-year average compared with the FTSE oil and gas producers’ index and the Standard & Poor’s Oil & Gas Index Exploration & Production Index both trading below their five-year averages.

Worst Since 2008

Global energy shares fell 21 percent in the third quarter, the worst three months since 2008.

The 20-member All-Share index of oil and gas explorers traded in London fell to 7273 last month, or 64.4 times the price of crude futures, the lowest ratio in three years. The benchmark has dropped 16 percent since July, while the U.S. oil index has dropped 30 percent.

The shares of 65 oil and gas explorers traded in London and New York have dropped an average of 21 percent this year, and the value of their reserves has slipped to $14.34 per barrel of oil equivalent from $18.60, the lowest since $9.85 in 2008, according to Bloomberg data.

Companies with fields large enough to be of interest to national oil companies and with assets mostly in one country are the most attractive, Goldman said.

M&A on Hold

The global volume of mergers and acquisitions among oil and gas companies was $47 billion in the third quarter, barely up from the $46.2 billion in the second three months in the year that was the weakest quarter since 2009.

The European sovereign-debt crisis and threat of a U.S. recession have erased more than $9 trillion from global equities since July 1, Bloomberg data show, and the MSCI All-Country World Index has slumped 19 percent during the period. Concern that the global economy will slip back into recession may still hold back transactions.

“There’s a pipeline of deals that have been on hold,” said Christine Tiscareno, an equity analyst at Standard & Poor’s in London. “I don’t think there’s going to be a boom in M&A now, it will just go back to more normal levels.”

Spending on acquisitions may not increase until next year, Wheaton said. Asian buyers may focus on purchasing assets rather than companies, Bernstein said.

The biggest deal of the third quarter was BHP Billiton Ltd. (BHP)’s acquisition of Petrohawk Energy Corp (HK) for $15 billion in July. China Investment Corp. bought a 30 percent stake in GDF Suez (GSZ) SA’s oil gas production and exploration subsidiary for $3.2 billion in August, and Cnooc Ltd. (883), China’s biggest offshore oil producer, agreed to acquire Opti Canada Inc. (OPC) for $2.1 billion to expand in oil sands.

Buyers would favor companies in the U.K. and Canada, which usually have lower exploration premiums built into their valuations and are cheaper in terms of reserves per barrel of oil, Bernstein wrote. These countries, unlike the U.S., also don’t have very strict restrictions on acquisitions by Asian national oil companies, according to the analysts.

To contact the reporter on this story: Brian Swint in London at

To contact the editor responsible for this story: Will Kennedy at


Air France Crash Probe Shows Crew Errors

By Laurence Frost and Heather Smith - Oct 6, 2011 8:01 PM GMT+0700

Air France Flight 447’s crew reacted badly to an autopilot shutdown and misread instruments showing the plane’s rapid descent before it plunged into the Atlantic, killing all 228 people aboard, a report shows.

“I’ve lost VSI,” the junior co-pilot said of the Airbus’s vertical-speed indicator, according to a recording detailed in the report from court-appointed experts. In fact, the instrument was functioning normally, its analog needle immobilized at the lower limit because the plane was hurtling toward the ocean at 15,000 feet a minute, the document seen by Bloomberg News shows.

Flight 447 from Rio de Janeiro to Paris crashed on June 1, 2009, after ice-blocked speed sensors shut down the autopilot and the crew reacted incorrectly by pulling the jet into a steep climb until it slowed to an aerodynamic stall, France’s BEA accident investigation bureau said in May. The interim report from the criminal probe broadly endorses those findings.

“The aircraft’s stall went completely unnoticed by the crew, who made no reference to it,” according to the report, which was presented to victims’ families yesterday. Faced with unusual readings, the two co-pilots, alone at the controls while the captain was on a rest break, “rejected them en masse.”

Focus on Airline

The document identifies no fault with the Airbus SAS A330, beyond the failure of Thales SA (HO) airspeed sensors which caused the autopilot shutdown. Manslaughter charges have been filed against Paris-based Air France and Toulouse, France-based Airbus as part of the criminal investigation, which could increase damages payouts if any criminal liability is proven.

“The emphasis on the crew’s handling of the situation does seem to put the focus on Air France, rather than Airbus,” said Simon Foreman, a Paris-based attorney with Soulez Lariviere & Associes who has represented French authorities in previous crash investigations and isn’t involved this time.

To put the airline on trial prosecutors would have to go much further in linking pilot error to Air France procedures or training, he said. “Based on what I’ve seen so far, it’s hard to see where criminal liability might be established,” he added.

Interface Issue

Airbus spokesman Stefan Schaffrath declined to comment on the judicial report, while Air France attorney Fernand Garnault said it was “impossible to draw any conclusions” from the interim findings.

“The real focus of this investigation is the man-machine interface, and why the pilots didn’t have everything they needed to understand what was happening,” Garnault said.

Air France had earlier suggested that a stall alarm confused the A330’s pilots by initially sounding when the jet began to lose lift and then shutting down as it slowed to a point where the computer was receiving no useful information, before coming back on again when the air-speed picked up -- misrepresenting what was actually a positive development.

In reality, the junior copilot began pulling the nose up again -- deepening the stall -- before the alarm resumed, the criminal report suggests.

While referring to the aircraft’s artificial horizon as they struggled to keep its wings level, the copilots also disregarded its indications that the jetliner was at a dangerous nose-up angle, the document says.


“The information was there, but the question is why they were blind to it,” said David Learmount, a former Royal Air Force pilot and safety editor for Flight International magazine.

“This is all about human cognition,” Learmount said. “Even if we’re left guessing about what was going on in the pilots’ heads, that doesn’t absolve us from the responsibility of trying to understand.”

BEA crash investigators have convened a “human factors” working group of psychologists, doctors and pilots to examine how the Flight 447 crew analyzed and responded to cockpit information. A spokeswoman for the agency declined to comment on the legal investigation today.

The criminal report also notes the captain’s failure to consider a detour around bad weather shown on the radar, despite concerns repeatedly voiced by a copilot, and questions his decision to take a break while crossing the so-called inter- tropical convergence zone, which is generally stormy.

While the captain broke no regulations by leaving the cockpit, the report says, staying put would have been “the safety-minded choice.”

To contact the reporters on this story: Laurence Frost in Paris at; Heather Smith in Paris at

To contact the editors responsible for this story: Chad Thomas at; Tony Aarons at


U.S. Stocks Drop as ECB’s Trichet Sees Risks

By Rita Nazareth - Oct 6, 2011 8:31 PM GMT+0700

U.S. stocks fell, following the biggest two-day gain for the Standard & Poor’s 500 Index in a month, after European Central Bank President Jean-Claude Trichet said the euro-area economy faces “intensified downside risks.”

The S&P 500 dropped 0.1 percent to 1,143.45 at 9:30 a.m. New York time. U.S. stocks rallied yesterday as economic data topped estimates and investors speculated Europe will act to contain the region’s debt crisis.

There are “intensified downside risks” to the economic outlook, Trichet said at a press conference in Berlin today. “Ongoing tensions in financial markets and unfavorable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year.”

Trichet said the ECB will resume covered-bond purchases and reintroduce yearlong loans for banks as the sovereign debt crisis threatens to lock money markets. ECB policy makers left the benchmark interest rate at 1.5 percent, resisting calls to reverse its two rate increases this year.

The European Commission is proposing coordinated action to recapitalize banks, according to Commission President Jose Barroso. The Bank of England pledged to buy the most bonds since the depths of the last financial crisis as officials raced to stop the euro-region debt turmoil from pushing the economy back into recession.

Stock futures extended gains earlier as U.S. Labor Department figures showed applications for jobless benefits increased by 6,000 in the week ended Oct. 1 to 401,000. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The monthly average dropped to the lowest level since the end of August.

To contact the reporter on this story: Rita Nazareth in New York at

To contact the editor responsible for this story: Nick Baker at


European Stocks Climb for Second Day as BNP Paribas, BHP Billiton Advance

By Adria Cimino - Oct 6, 2011 8:20 PM GMT+0700

European stocks rose for a second day amid speculation policy makers will reach agreement to contain the sovereign-debt crisis and as the Bank of England expanded its bond-purchase program.

BNP Paribas (BNP) SA, Credit Agricole SA (ACA) and Natixis surged after Le Figaro said the French government is working on a contingency plan to take stakes in the country’s lenders. BHP Billiton Ltd. (BHP), the world’s biggest mining company, rallied 4.1 percent as metal prices increased. SABMiller Plc (SAB) surged 6.2 percent after a report the brewer is in talks to be bought by Anheuser-Busch InBev NV. (ABI)

The Stoxx Europe 600 Index climbed 0.8 percent to 226.03 at 2:18 p.m. in London. The benchmark gauge gained 3.1 percent yesterday as investors speculated that euro-area policy makers are working on plans to boost bank capital. The gauge had declined 5 percent in the previous three days, leaving it trading at 9.1 times estimated earnings, near the cheapest since March 2009, data compiled by Bloomberg show.

“The market optimism may be explained by new initiatives that have emerged as part of efforts to quell both the sovereign debt and the banking crises,” said Stephane Ekolo, chief European strategist at Market Securities in London. “The bond- purchase announcement was a good move by the Bank of England as the economy still faces downside risks stemming from the sovereign-debt crisis.”

Bank Recapitalization Plans

Stocks extended gains today as European Commission President Jose Barroso said in a video question-and-answer session that the commission is proposing coordinated action to recapitalize banks.

German Chancellor Angela Merkel said that the euro area will only use its rescue fund as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue. Merkel’s comments, her most explicit on banks’ role in fighting the debt crisis since the spillover from Greece began to threaten France and Italy, followed talks with Barroso in Brussels.

European banks need the region’s regulators to help with financing to prevent the debt crisis from worsening, said UniCredit SpA Chief Executive Officer Federico Ghizzoni in an interview.

BOE Asset Purchases

The Bank of England expanded its bond-purchase plan as government budget cuts and Europe’s debt crisis jeopardize Britain’s economic recovery. The nine-member Monetary Policy Committee raised the ceiling for so-called quantitative easing to 275 billion pounds ($421 billion) from 200 billion pounds. Only 11 of 32 economists in a Bloomberg News survey had forecast an increase in asset purchases.

European stocks pared gains after European Central Bank President Jean-Claude Trichet said the euro-area economy faces “intensified downside risks.” The ECB kept its benchmark rate unchanged at 1.5 percent, as predicted by 41 of 52 economists in a Bloomberg News survey.

In the U.S., a report showed that claims for unemployment benefits rose less than forecast last week to a level that shows companies may be starting to slow the pace of dismissals.

Applications for jobless benefits increased by 6,000 in the week ended Oct. 1 to 401,000, Labor Department figures showed today. Economists had predicted 410,000 claims, according to the median estimate in a Bloomberg News survey.

Credit Agricole, Natixis (KN)

Credit Agricole climbed 2.8 percent to 5.31 euros, while BNP advanced 6.5 percent to 31.41 euros. Shares of Natixis surged 11 percent to 2.56 euros.

France’s state-holding agency is working on a plan, involving two or three unnamed banks, Le Figaro said, citing a person familiar with the matter that it didn’t identify. A French government official, who declined to be named because he’s not authorized to speak to the press, rejected the report, calling it false.

Basic-resources shares jumped 4 percent, for the best performance of the 19 industry groups in the Stoxx 600. BHP gained 4.1 percent to 1,851.5 pence. Rio Tinto Group, the world’s second-largest mining company, increased 5.9 percent to 3,075.5 pence. Copper, lead, nickel and tin rose in London.

SABMiller, AB InBev

SABMiller, the maker of Peroni and Grolsch beer, soared 6.2 percent to 2,230 pence, its biggest gain since May 2010. Brazilian news website IG reported that AB InBev, the world’s largest brewer, has held talks to acquire the company for about $80 billion. AB InBev slipped 1.4 percent to 39.07 euros.

Nigel Fairbrass, a spokesman for London-based SABMiller, and Marianne Amssoms, a spokeswoman for Leuven, Belgium-based AB InBev, declined to comment on the report.

Atos SA rose 4.7 percent to 33.55 euros. Chief Executive Officer Thierry Breton confirmed the French computer-services company’s targets for 2011 and 2013 in an interview with French newspaper Les Echos. The company will be debt free by June 30, 2012, Breton said.

UBS AG (UBSN) gained 2.5 percent to 10.76 Swiss francs after Switzerland’s biggest bank said Francois Gouws and Yassine Bouhara resigned as co-heads of global equities following last month’s $2.3 billion loss from unauthorized trading.

Eurofins Scientific (ERF) SA surged 9 percent to 58.97 euros. The company predicted that adjusted earnings before interest, taxes, depreciation and amortization of as much as 145 million euros ($192 million) in 2011.

Hays Plc (HAS), the London-based recruiting company, rallied 5.9 percent to 71.6 pence. The company said net fees rose 21 percent in the quarter ended September 30.

Dexia Shares Tumble

Dexia SA (DEXB) sank 15 percent to 87.1 euro cents for the largest plunge on the Stoxx 600 after Luxembourg’s Finance Minister, Luc Frieden, said an international investor is ready to take over Dexia Banque Internationale a Luxembourg SA.

Qatari Investment Authority, the country’s sovereign-wealth fund, may be part of a group of international investors looking to buy the Luxembourg banking unit of Dexia, Les Echos reported, without saying where it got the information.

Belgium will nationalize Dexia Bank Belgium NV pending a sale, De Tijd reported on its website, citing unnamed sources. Dexia needs to sell its Belgian banking unit to free capital for its so-called bad bank, according to De Tijd.

To contact the reporter on this story: Adria Cimino in Paris at

To contact the editor responsible for this story: Andrew Rummer at


Stocks in U.S. Fluctuate as Investors Watch for European Steps on Economy

By Michael P. Regan - Oct 6, 2011 8:38 PM GMT+0700

U.S. stocks swung between gains and losses as investors dissected the European Central Bank’s plans to tame the sovereign debt crisis. The euro weakened, European shares trimmed an earlier rally and oil reversed gains.

The Standard & Poor’s 500 Index was little changed at 1,143.57 at 9:37 a.m. New York time after rallying 4.1 percent over the previous two days, its best back-to-back gain in a month. Apple Inc. slipped 0.7 percent after co-founder Steve Jobs died. The Stoxx Europe 600 Index trimmed a 2 percent rally in half. The euro weakened against nine of 16 major peers. The pound slid against 15 of 16 counterparts after the Bank of England unexpectedly added stimulus to help the economy.

European Central Bank President Jean-Claude Trichet, fronting a policy decision for the final time, said “downside risks” to the economy have intensified and the ECB will resume covered-bond purchases and reintroduce year-long loans for banks. The BOE expanded its bond-purchase plan for the first time in almost two years as budget cuts and Europe’s debt crisis jeopardize Britain’s economic recovery.

To contact the reporter on this story: Michael P. Regan in New York at

To contact the editor responsible for this story: Nick Baker at


Europe’s Rescue Fund Is Only Last Resort: Merkel

By Tony Czuczka and Rebecca Christie - Oct 6, 2011 5:00 AM GMT+0700

German Chancellor Angela Merkel said that Europe’s rescue fund will only be used as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue.

Merkel’s comments, her most explicit on banks’ role in fighting the debt crisis since the spillover from Greece began to threaten France and Italy, followed talks with European Commission President Jose Barroso in Brussels. Financial shares rose yesterday amid speculation that euro-area policy makers are working on plans to boost bank capital to contain the crisis.

“Time is running out” to establish if recapitalization is necessary, Merkel told reporters. Troubled banks need to first seek capital on their own and national governments will help if that’s not possible, she said.

“If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the rescue fund is “always tied to a certain conditionality.”

Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues. Moody’s Investors Service followed its three-level downgrade of Italy on Oct. 4 by warning that euro-area nations rated below the top Aaa level may see their rankings cut.

‘An Adjustment’

Merkel said that “if needed, there will be an adjustment” in investors’ share of a 159 billion-euro ($212 billion) second aid package for Greece, pending a report by international auditors on Greece’s finances due before a meeting of European finance ministers next month.

She said that she supports recapitalizing European banks “if there is a joint assessment that the banks aren’t adequately capitalized” and finance officials develop “uniform criteria.” Germany is ready to discuss possible bank aid at this month’s EU summit, she said.

France’s Credit Agricole SA and Dexia SA led the 46-member Bloomberg Europe Banks and Financial Services Index up as much as 4.8 percent yesterday. Credit Agricole climbed 9.9 percent to 5.17 euros at the close of Paris trading, while Dexia was up 1.3 percent to 1.02 euros.

Capital Needs

European banks may need more than 140 billion euros of capital through a program similar to the U.S. Troubled Asset Relief Program, Morgan Stanley analysts say.

“Policy makers increasingly want to build a large solvency buffer,” the analysts led by Huw van Steenis said in a note. “We think banks in core Europe need to be recession proofed and banks in the periphery depression proofed.”

EU officials are working on plans to boost bank capital to contain the debt crisis, the International Monetary Fund said.

“There is no secret at all that European authorities and the European Commission are all working together on a plan to bring more official capital, more public-sector capital, into the banking sector,” Antonio Borges, the IMF’s European department head, said yesterday in Brussels. “We would recommend that it move to a European approach,” he said. “More should be done on a cross-border basis.”

No ‘Concrete Plan’

EU spokesmen moved to damp speculation triggered by a Financial Times report late on Oct. 4 on progress toward a bank- recapitalization plan.

EU Economic and Monetary Commissioner Olli Rehn “doesn’t speak of a concrete plan in hand,” his spokesman, Amadeu Altafaj, said. “He speaks of an initiative, of discussions in progress and he pleads for a European approach.”

The speculation about efforts to support banks followed a finance ministers’ meeting in Luxembourg in which officials signalled their intent to prod investors to cover more of the cost of bailing out Greece. Finance Minister Wolfgang Schaeuble said that Germany’s Soffin bank-rescue fund, set up in October 2008 during the financial crisis, may need to be reinstated, his spokesman told reporters in Berlin yesterday.

“Many euro countries have now realized that the July deal is too advantageous for investors and there’s too little investor burden sharing,” Finland’s Finance Minister Jutta Urpilainen said in Helsinki. “This was discussed at Monday’s euro group; how can we find a way to increase burden sharing? No solution’s been put forward so far.”

Greek Swap

Banks are negotiating a bond swap with Greece that would cut the nation’s debt load at a cost to investors estimated at about 21 percent. They pushed back at suggesting deeper losses.

It would be “counterproductive” to reopen the Greek deal now that investors have signaled support and the euro area’s 17 parliaments are close to ratifying the agreements, Charles Dallara, managing director of the Institute of International Finance said, said by phone. IIF represents more than 450 banks and took part in the negotiations that led to the second rescue package for Greece.

When the bailout was announced, banks and other bondholders were expected to contribute about 50 billion euros alongside 109 billion euros in public funds and a proposed 20 billion-euro debt buyback.

To contact the reporters on this story: Tony Czuczka at; Rebecca Christie in Brussels at

To contact the editor responsible for this story: James Hertling at


Apple’s Steve Jobs: A Life, a Legacy

By Jim Aley - Oct 6, 2011 11:35 AM GMT+0700
Enlarge image Steve Jobs

Steve Jobs delivers a keynote address at the 2005 Macworld Expo in San Francisco. Photographer: Justin Sullivan/Getty Images

Oct. 5 (Bloomberg) -- Steve Jobs, who built the world’s most valuable technology company by creating devices that changed how people use electronics and revolutionized the computer, music and mobile-phone industries, died. He was 56. Bloomberg's Erik Schatzker reports on the life of Apple Inc.'s co-founder and former chief executive officer. (Source: Bloomberg)

Oct. 6 (Bloomberg) -- Daniel Ernst, an analyst at Hudson Square Research, talks about the death of Apple Inc. co-founder Steve Jobs and the outlook for the company. He speaks with Susan Li on Bloomberg Television's "First Up."(Source: Bloomberg)

Steve Jobs, who built the world’s most valuable technology company by creating devices that changed how people use electronics and revolutionized the computer, music and mobile-phone industries, died. He was 56.

Jobs, who resigned as Apple Inc. chief executive officer on Aug. 24, 2011, passed away yesterday, the Cupertino, California- based company said. He was diagnosed in 2003 with a neuroendocrine tumor, a rare form of pancreatic cancer, and had a liver transplant in 2009.

“We are deeply saddened to announce that Steve Jobs passed away,” Apple said. “Steve’s brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives. The world is immeasurably better because of Steve.”

Jobs embodied the Silicon Valley entrepreneur. He was a long-haired counterculture technophile who dropped out of college and started a computer company in his parents’ garage on April Fools’ Day, 1976. He had no formal technical training and no real business experience.

What he had instead was an appreciation of technology’s elegance and a notion that computers could be more than a hobbyist’s toy or a corporation’s workhorse. These machines could be indispensable tools. A computer could be, he often said, “a bicycle for our minds.” He was right -- owing largely to a revolution he started.

Obama Statement

Jobs’s passing was met with an outpouring of grief from consumers who laid flowers and posted tributes on the walls of Apple stores and technology executives who partnered and competed with Jobs over the years and paid homage in statements. Flags flew at half-mast at Apple’s headquarters and the company published an honorarium on its website. Even U.S. President Barack Obama and first lady Michelle Obama lamented the loss.

“Michelle and I are saddened to learn of the passing of Steve Jobs,” Obama said. “Steve was among the greatest of American innovators -- brave enough to think differently, bold enough to believe he could change the world, and talented enough to do it.”

On his watch, Apple came to dominate the digital age, first through the creation of the Macintosh computer and later through the iPod digital music player, the iPhone wireless handset and more recently, the iPad tablet.

With each product, Jobs confronted new adversaries -- from International Business Machines Corp. (IBM) in computers to Microsoft Corp. in operating systems, to Sony Corp. (6758) in music players and Google Inc. in mobile software.

Visionary to Virtuoso

And Jobs would prove himself not just a techie visionary, but the virtuoso executive who built the world’s second-most valuable company after Exxon Mobil Corp. (XOM)

The opening act of Jobs’s professional ascent stretched from 1976 to 1984. He scored his first hit with the Apple II computer, a device that resonated with schools and some consumers and small businesses, and made Apple an alluring alternative to IBM, then the world’s largest computer maker. Apple had its initial public offering in 1980 and the graphical Macintosh was born just over three years later.

During his second act, from 1984 to 1997, Jobs’s star dimmed. In 1985, he was fired after a power struggle with Apple’s board. He started another computer company, NeXT Computer Inc., and bought a digital animation studio from filmmaker George Lucas. The firm later took the name Pixar.

String of Hits

Apple’s purchase of NeXT in 1997 brought Jobs back to the computer maker he helped found and commenced his career’s third act. The company was foundering. He ignited a flurry of innovation and growth -- and achieved what may be the greatest comeback in business history.

Whether he was working on the Mac or the iPhone or backing the computer animation that yielded an unbroken string of Pixar hits, Jobs proved that complex technologies could be designed into simple, beautiful products that people would find irresistible.

His meticulous attention to product detail carried over to his public image, which grew inseparable from the Apple brand. In public he wore beltless jeans and a black mock-turtleneck.

On the few occasions he granted interviews -- appearing on the covers of Time, Fortune or BusinessWeek, for instance -- he fretted over such minutiae as which photographer would take his picture. The reclusiveness only added to his mystique.

‘Wonderful’ Mystery

“The mystery is actually wonderful,” said Regis McKenna, a computer-industry marketing consultant who first worked with Apple in the 1980s. “You want to know more about this company the more mysterious it is.”

Another way Jobs manufactured his aura was with product unveilings. He obsessively prepared for the choreographed occasions, often at Apple’s Cupertino campus or San Francisco’s Moscone Center, rehearsing his delivery many times over. He would scrap presentations wholesale, even at the last minute, if they weren’t up to snuff.

He captivated audiences, and the gadgets he introduced resonated with consumers the world over, adding billions of dollars in revenue. Sales surged 82 percent to a record $28.6 billion in the June 2011 period, the last full quarter before Jobs resigned, and the stock closed at $376.18 on Aug. 24, before the move was announced. That gave Apple a market value of $348.8 billion.

All that success came with an ego to match. Jobs was a notorious control-freak with authority issues, associates and former employees say. He came close to breaking securities laws by backdating employee stock options. Even his worsening health -- or his non-disclosure of his illness to shareholders -- drew scrutiny from authorities.

‘Park Different’

In Apple’s parking lot, people often noticed Jobs’ silver Mercedes-Benz SL 55 AMG parked in the handicapped spaces. His cars were easy to spot because he refused to put license plates on them. “It’s a little game I play,” he told Fortune in 2001. Employees stuck notes under the car’s windshield wipers, encouraging Jobs to “Park Different,” a play on the “Think Different” Apple advertising slogan.

Jobs was known to praise people one minute and belittle them the next. According to “The Second Coming of Steve Jobs” by Alan Deutschman, this management style was known at Apple as the “hero-shithead roller coaster.” No one was immune from Jobs’s tirades, and he had strained relationships with colleagues, friends, and family throughout his life.

‘Like a Campfire’

“Steve Jobs is a bit like a campfire,” Neil Sims, a headhunter who helped recruit executives for Jobs, said in an interview in October 2008. “Everyone wants to be close enough to stay warm. No one wants to get close enough to get burned.”

Steven Paul Jobs was born Feb. 24, 1955, in San Francisco, to unwed college graduate students Joanne Carole Schieble and Syrian emigrant Abdulfattah “John” Jandali. He was adopted by Clara and Paul Jobs, who raised Steve in the middle-class enclaves of Mountain View and Los Altos in California.

“That was right in the heart of Silicon Valley, so there were engineers all around,” Jobs said in a 1995 interview conducted by the Smithsonian Institution. “It was really the most wonderful place in the world to grow up.”

Jobs took advantage of the local technological ferment. His father had a workshop in the garage, and created a space for his son to tinker. A neighbor, who was a ham radio operator and Hewlett-Packard employee, taught him about electronics. Young Steve loved figuring out how things worked.

“It gave a tremendous level of self-confidence,” Jobs said in the Smithsonian interview. “Through exploration and learning one could understand seemingly very complex things.”


That self-confidence was on full display before he hit high school. As Jobs once told BusinessWeek, at age 12 he called William Hewlett, the co-founder of Hewlett-Packard Co. (HPQ), about some parts for a frequency counter he was trying to build. Hewlett stayed on the phone 20 minutes; Jobs got the parts he needed -- and eventually, a summer gig at Hewlett-Packard.

Catherine Lawler Jacobs, who lived around the block from the Jobs family, said she remembers Steve as a teen. Jobs appeared in her driveway one day, asking for her help setting up an office in his parents’ house. She’d been earning money selling turquoise jewelry and a neighbor recommended her as someone who knew a little about business. Jobs had no money to pay her but offered her shares in his new company.

“I said, and I remember this exactly, ‘I don’t want any phony shares. I want to get paid,’” Jacobs recalled in an interview. “You see, I wasn’t going to be burned by some nerd who was always hanging out in his garage.”

5-Cent Cans

In 1972 Jobs graduated from Homestead High School in Cupertino, also the alma mater of his future business partner, Steve Wozniak, Class of 1968. He then headed north to attend Reed College, a liberal arts school in Portland, Oregon, famous for its Bohemian atmosphere. He dropped out after six months.

He didn’t leave right away, though. He stuck around campus for another year and a half, sleeping on friends’ floors and living off the money he raised by collecting bottles for 5-cent deposits. He listened in on classes, too, including one that would inspire a lifelong mission of elegant design -- a course on calligraphy.

“It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating,” Jobs said in a 2005 commencement address at Stanford University.

As Jobs told those Stanford grads, he “connected the dots” between this developing aesthetic sense and his technical understanding. He realized that technology and artistry could be complementary. More than that, the new world of computers offered a new medium for creativity.

Back in California

By late 1974, Jobs was back in California, immersed in the technology-tinged counterculture of Silicon Valley. He traveled to India, became a Buddhist, experimented with LSD. He also hung out with his friend Wozniak -- they’d met a few years earlier through a fellow electronics enthusiast -- at the Homebrew Computer Club, a group of engineers and hobbyists who would meet to swap parts and ideas.

“He was one of those cool guys,” Wozniak said in an interview with Bloomberg TV after Jobs’s death. “He knew technology, he understood it. We talked about the philosophies of the day, the hippy movement, words in songs and went to concerts together. It was a strong friendship.”

The two started working together on projects, with Woz the tech genius and Jobs the brash idea man. An early effort was a “blue box” -- a hacker’s term for a device that taps into the phone system to make free long-distance calls. It worked.

“What we learned was that we could build something ourselves that could control billions of dollars worth of infrastructure in the world,” Jobs said in the 1996 PBS documentary “Triumph of the Nerds.” “That was an incredible lesson. I don’t think there would ever have been an Apple computer had there not been blue boxes.”

Apple’s Origins

Wozniak began putting together a contraption he and Jobs could show off to their Homebrew buddies. The Apple I was little more than a motherboard, the main circuit board in a personal computer. Whoever bought one -- Woz and Jobs sold 50 to a local hobby store -- had to supply their own case to hold the circuitry, not to mention a keyboard and monitor. It may have been primitive, but it was the proof of concept they needed. They knew they could build a better computer, and Jobs knew people would buy it.

The pair officially began Apple Computer on April 1, 1976. Twelve months later the company introduced the Apple II. It was a hit and became the first widely used home computer. The company’s sales reached $117 million in fiscal 1980, the year the company went public.

‘Welcome IBM. Seriously’

The Apple II was hardly a technological great leap forward. Yet unlike its predecessor, it did come with a keyboard and was housed in a plastic case. Nor was it alone in the marketplace. Commodore and RadioShack Corp. (RSH) also came out with early home- computer models around the same time; the Altair 8800 had been introduced in 1975.

IBM entered the market in 1981 with its own PC, using software from a tiny startup called Microsoft Corp. rather than building its own operating system. Jobs professed to be unconcerned, even running a full-page ad in the Wall Street Journal, saying “Welcome, IBM. Seriously.”

The Mac’s slow start gave IBM and other machines running Microsoft software and Intel Corp. (INTC) chips a chance to win adherents and build an ecosystem.

Us Against Them

What set Apple apart was its charismatic frontman, Jobs, who was rapidly turning into a business superstar. He hyped. He dated Joan Baez and Diane Keaton. He saw himself and his company as an anti-establishment force, waging a noble campaign to battle the faceless power of IBM.

“You always need to have bad guys and good guys in America,” said McKenna, the technology marketing expert. “Apple was thumbing its nose at this big world of monolithic standards. It became a rebel. It became a symbol of fast growth, youth.”

Us-versus-IBM was the guiding worldview behind the famous TV commercial that introduced Apple’s next major product, the Macintosh. The 60-second spot, directed by Ridley Scott, ran only once, during the 1984 Super Bowl. It depicted an Orwellian world of grim conformity. A lone woman wearing a tank top sprints through the grayness and throws a hammer through a giant screen, shattering the droning visage of Big Brother.

The Mac, with its mouse and graphics, demonstrated Jobs’s ability to see the potential of new technologies and package them in a way that would appeal to the most demanding aesthete he could imagine: himself.

Matter of Taste

Jobs had first seen a graphical user interface prototype a few years earlier on a visit to Xerox Corp. (XRX)’s Palo Alto Research Center, and immediately knew it was the future of computing. He had no compunction about copying the idea.

“Ultimately it comes down to taste,” Jobs said in “Triumph of the Nerds.” “It comes down to trying to expose yourself to the best things that humans have done and then trying to bring those things in to what you’re doing. I mean, Picasso had a saying. He said, ‘Good artists copy. Great artists steal.’”

The Mac project showed another side of Jobs: the inscrutable autocrat. He could be charming and rude almost in the same sentence, leaving underlings scared or dazzled or both. People who worked for Jobs called his powers of persuasion the “reality distortion field.”

‘Indomitable Will’

Andy Hertzfeld, an early Apple engineer, described the phenomenon in “Revolution in the Valley,” his 2005 book about the development of the Macintosh computer.

“The reality distortion field was a confounding melange of a charismatic rhetorical style, an indomitable will and an eagerness to bend any fact to fit the purpose at hand,” Hertzfeld wrote. “If one line of argument failed to persuade, he would deftly switch to another.”

Andrea Cunningham, who worked with McKenna on marketing the Mac in the 1980s, said that Jobs’ intolerance of aesthetic infractions never let up. Cunningham was with Jobs in his room at The Carlyle hotel in New York City for a magazine cover shoot. Jobs, who Cunningham said “always had to have the environment exactly right,” began yelling about a particular flower he wanted -- a calla lily.

“He was being such a pill,” said Cunningham, who is now head of marketing of Rearden Commerce in Foster City, California. “Where do you get a calla lily in New York in December at 11 at night? I found a florist. I found the calla lilies. And the next thing was a bowl of strawberries on the piano. And a separate bowl of whipped cream. We spent three or four hours doing this.”

Courting Sculley

Jobs could bewitch too, as he did when he hired PepsiCo Inc. executive John Sculley to be Apple’s CEO in 1983. Jobs famously asked him, “Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?”

“He looked up at me and just stared at me with the stare that only Steve Jobs has,” Sculley recalled in “Triumph of the Nerds.” “I just gulped because I knew I would wonder for the rest of my life what I would have missed.”

Not long after the launch of the Mac, Jobs’ relationship with Sculley and Apple’s board soured. Arthur Rock, the Silicon Valley venture capitalist and early Apple board member, said Jobs’s obsessions and unyielding personality got the best of him.

Jobs Ousted

“Back then he was uncontrollable,” Rock said in a 2007 interview with Institutional Investor. “He got ideas in his head, and the hell with what anybody else wanted to do. Being a founder of the company, he went off and did them regardless of whether it ended up being good for the company.”

The Mac didn’t sell well during the 1984 holiday shopping season, and Sculley demanded in April 1985 that Jobs be relieved of day-to-day duties and serve as a non-executive chairman, playing the role of outside spokesman. Jobs hated the idea and tried to get the backing of Apple’s directors. The board sided with Sculley and Jobs was out.

Jobs was 30 years old and devastated, but not for long.

“I didn’t see it then,” Jobs said in his 2005 Stanford speech, “but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again.”

In 1985 he founded NeXT, which developed a powerful computer based on the Unix operating system. The sleek, black machines earned a reputation for elegant design and high performance; Tim Berners-Lee created the World Wide Web on a NeXT workstation.


NeXT was hardly a success. The computers were too expensive to gain a wide following. Still, the software developed at NeXT would later provide the technological underpinnings for Apple machines.

The following year, Jobs bought George Lucas’s computer- graphics shop for $10 million and renamed it Pixar. The studio’s first feature film, “Toy Story,” was the top-grossing film of 1995, and kicked off an unbroken string of hits. Walt Disney Co. (DIS) bought Pixar in 2006 for $8.06 billion and gave Jobs a seat on the company’s board. He became Disney’s largest shareholder.

In his personal life, Jobs settled down. He married Laurene Powell in 1991 in a Buddhist ceremony at the Ahwahnee Hotel in Yosemite National Park, according to biographer Deutschman. The couple have three children.

‘Glamorous World’

He also reconciled with his daughter, Lisa Brennan-Jobs, who was born in 1978 to his then girlfriend Chrisann Brennan. Chrisann raised Lisa mainly on her own. By the time Lisa was a teenager and before she attended Harvard University, she moved into her father’s home.

“In California, my mother had raised me mostly alone,” Lisa wrote in an article for Vogue in 2008. “We didn’t have many things, but she is warm and we were happy. We moved a lot. We rented. My father was rich and renowned, and later, as I got to know him, went on vacations with him, and then lived with him for a few years, I saw another, more glamorous world.”

Neither Lisa Brennan-Jobs nor Chrisann Brennan, now a painter in San Francisco, would comment when contacted recently.

Jobs didn’t get in touch with his biological father, John Jandali, a onetime academic who went on to run beverage services at the Boomtown Casino in Reno, Nevada. Jandali and Schieble had another child after putting Steve up for adoption, a daughter named Mona Simpson, now a novelist. Jandali left the mother of his child. Schieble raised the girl alone.

Gates Ascends

“I’m proud of the fact that he’s my biological son, even though I cannot take credit for anything he’s done,” Jandali said in an interview at the Boomtown Casino in April 2009. He said he had never spoken to Steve.

Jobs’s absence from Apple coincided with the ascendance of Bill Gates and Microsoft Corp. (MSFT), developer of a graphics-driven operating system of its own called Windows. Apple filed, and eventually lost, a lawsuit against Microsoft, arguing that Windows was a Mac knockoff.

When Jobs got wind of Microsoft’s plans for what would become Windows, he screamed at Gates about ripping Apple off, according to a 1983 essay by Andy Hertzfeld, the Mac’s chief software designer.

Gates coolly replied, “It’s more like we both had this rich neighbor named Xerox, and I broke into his house to steal the TV set and found out that you had already stolen it,” wrote Hertzfeld, who witnessed the interchange.

‘Shut It Down’

Meanwhile, Apple was dying. By late 1997, it had racked up two years of losses and the Mac’s share of the PC market was in the single digits and falling. On stage at a conference that year, Michael Dell was asked how he would revive Apple if he were CEO.

“What would I do? I’d shut it down and give the money back to the shareholders,” he said. Jobs would later say the company was 90 days from bankruptcy.

In desperation, Apple agreed to buy NeXT for $400 million in late 1996, and Jobs accepted a role as adviser to then-CEO Gil Amelio. Within seven months, Amelio was gone and Jobs was once again running the company.

One of the first things Jobs did upon retaking the reins was fire all but two of Apple’s board members. His handpicked replacements were Bill Campbell, a former Apple executive and then-CEO of Intuit; Jerome York, former IBM CFO and onetime adviser to Tracinda Corp. CEO Kirk Kerkorian; and Jobs’ longtime friend, Oracle CEO Larry Ellison. Ellison left the board in 2002; York died in 2010. Campbell is still a director.

$1 a Year

Jobs also rebuilt the executive team, installing key technical managers from NeXT who would help him guide Apple’s strategy over the next decade. They included Jon Rubinstein, who had run NeXT’s hardware engineering, and Avie Tevanian, the young software engineer who helped create NeXT’s operating system.

Rubinstein went on to lead Apple’s iPod division before departing for smartphone maker Palm Inc., while Tevanian served as chief software technology officer. Jobs also found talent within Apple, singling out a British-born designer named Jonathan Ive to lead industrial design.

As a show of Jobs’s not-in-it-for-the-money drive to fix Apple, he insisted on getting paid $1 a year, a salary package that continued for the remainder of his career.

Jobs’s remuneration instead came mainly from stock options, restricted stock and an $84 million Gulfstream V jet, given to him by the board in 2000.


Jobs’s net worth was at least $6.7 billion as of Sept. 6, according to Bloomberg estimates. His 7.4 percent Disney stake was worth $4.4 billion, and his 5.5 million shares of Apple were worth $2.1 billion. Jobs’s 138 million shares of Disney had paid him at least $242 million in dividends before taxes since 2006, according to Bloomberg data.

Stock options let holders buy shares later, usually at the trading price on the day the options were granted. Like other Silicon Valley executives, Jobs viewed the securities as a necessary incentive to keep valuable employees.

“That’s the key asset Apple has -- is its talent,” Jobs would later say in a March 2008 deposition with the Securities and Exchange Commission. “I was very concerned that Apple could really suffer some big losses on its executive team with the business environment we were in, and the competitors coming after our people.”

And like hundreds of other technology companies, Apple engaged in “backdating,” or retroactively changing grant dates to those with lower stock prices. The practice could artificially boost employee compensation and ran the risk of shielding compensation costs from investors. It came under scrutiny by the SEC.

Backdating Options

Jobs admitted in 2006 to recommending some favorable dates on options other than his own. A special committee of Apple’s board exonerated him of any misconduct, and the SEC said in April 2007 that Apple wouldn’t be sanctioned.

“Jobs was one of these CEOs who ran the company like he wanted to -- he believed he knew more about it than anyone else, and he probably did,” Arthur Levitt, a former chairman of the SEC, said in a February 2009 interview.

Levitt said that around the time of the two grants that got Apple in trouble, Jobs invited him to join the company’s board - - then disinvited him because his views on corporate governance were “too independent, too doctrinaire” for Jobs.

Levitt also praised Jobs.

“He’s among the best CEOs I’ve ever known, in spite of his irreverence, irascibility and ego,” Levitt said.

Back to Apple

When Jobs returned to Apple in 1997, he was still an exacting connoisseur of design. Only now, he demonstrated an understanding that he needed to place his bets carefully. He culled the company’s product line, killing money-losing projects such as the Newton personal digital assistant. He ended the Mac “clone” program that let other computer makers install Apple’s operating system on their machines; he called the welcoming of clones an “ill-conceived” move that undercut Apple’s own Mac hardware sales.

“We’re always thinking about new markets we could enter,” Jobs told BusinessWeek magazine in 2004. “But it’s only by saying no that you can concentrate on the things that are really important.”

“How he looked at things from a product perspective is very rare,” said Ed Zander, a CEO of Motorola Inc. before it split into two companies. “You don’t find many CEOs who have the attention to detail from the product experience point of view -- and understand the business side of the house.”

Of Macs, IPods

The first tangible result of Jobs’ return was the iMac, which he introduced at the Flint Center in Cupertino, California, in 1998. The iMac looked like no other computer: It was a bulbous, sci-fi looking number encased in translucent plastic. The unveiling that day had all the usual language of a Jobs keynote -- the iMac was “beautiful,” “cool,” and “a really big deal.”

The iMac would become Apple’s best-selling desktop ever, according to the company. The decision to offer the computer in five colors flew in the face of the then-common industry practice of packaging machines in easy-to-manufacture -- if dull -- beige boxes.

“I remember scratching my head at the time, when Apple first came out with those first little colored desktop Macs, the iMacs,” said Blake Johnson, an assistant professor in engineering at Stanford University. “But the message and splash of five different colors was a conscious decision -- okay, we have some supply chain inefficiencies, but those are more than offset by the positive impact on customers.”

Software Matters

Apple was profitable again by 1998, and over the next decade released a series of blockbusters that went beyond traditional computing. The iPod media player and the iPhone were beautiful objects that ignited consumer lust in Apple’s sparsely elegant -- and typically crowded -- retail stores. Jobs dropped “Computer” from the company name in 2007 at the time he unveiled the iPhone.

Beneath the contours of Ive’s designs were two less obvious achievements. The first was the software that made all those devices work together.

All of it was rooted in a single operating system, OS X, which had its beginnings in Tevanian’s work at NeXT. Apple’s great strength, Jobs would say repeatedly, was that it was a software company.

“An iPod is really just software,” Jobs said at the All Things D technology conference in 2007. “It’s in a beautiful box -- but it’s software. If you look at what a Mac is, it’s OS X. It’s in a beautiful box, but it’s OS X. And if you look at what an iPhone will hopefully be, it’s software.”

Cancer Diagnosis

The other big achievement was Jobs’ ability to create hits by getting industry partners to do his bidding. For the iTunes music store, he not only demanded that the major music labels sell their product over the Internet, but do so at a single price, 99 cents a song.

He convinced AT&T Inc. to modify its network to handle the iPhone’s many features in exchange for exclusive rights to sell the iPhone to U.S. buyers. Verizon Communications Inc. (VZ)’s wireless division started selling the iPhone in February 2011.

“The AT&Ts and Verizons of the world want to control the software, product, the brand, the colors, where the keyboard goes, the pricing, the distribution,” said Zander, the former Motorola CEO, who partnered with Jobs on an early music-playing phone. “Here comes Steve and he says to AT&T, you get the product but I get the brand, I get the colors, I get the software, I get the distribution pretty much, I get the pricing.”

‘Follow Your Heart’

Apple’s iPhone became the world’s best-selling smartphone in the second quarter of 2011.

Jobs said in 2004 that he had been diagnosed and treated for a neuroendocrine tumor in his pancreas. After surgery to remove an islet cell tumor, he took a month off to recuperate and declared himself healthy and cancer free.

For a few years he looked that way. He was thinner, which was no surprise after what he’d been through. One person who knew him well said that the cancer scare didn’t slow him down, convince him to spend more time with family or reconnect with friends. If anything, Jobs seemed to get even more engaged with work, said this person, who wished to remain anonymous because the matter was private.

During the 2005 Stanford commencement address, Jobs described how the inevitability of death was a motivating force in his life.

“Remembering you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked; there is no reason not to follow your heart,” he said.

Reports of Death

Jobs’s appearance changed noticeably by early 2008. He started looking gaunt. Tech blogs bubbled with discussion about what was going on. Typical headlines: “The Incredible Shrinking Apple CEO,” and “Why Does Steve Jobs Look So Thin?

When he took the stage at Apple events, Jobs joked about his health. In August of that year, Bloomberg News erroneously published an obituary; at a product launch a month later he recited the Mark Twain line that reports of his death were greatly exaggerated. At another event that year, he projected a slide of his blood pressure.

In January 2009, Jobs said that his weight loss was caused by a “hormone imbalance”; nine days later, he began a five- month medical leave, handing control of the company to his COO, Tim Cook. Later that year, he underwent a liver transplant at Methodist University Hospital in Memphis.

Illness Disclosure

Apple’s disclosures -- or lack thereof -- around Jobs’s health became a matter of debate among investors and corporate governance experts. Some said that because his health was critical to the company’s success, Apple should have said more, sooner. The counterargument: privacy laws trump investors’ right to know the details of his health.

U.S. Securities and Exchange Commission officials examined in 2009 whether the company violated disclosure rules regarding Jobs’s medical status, a person familiar with the matter said at the time. No legal action was taken.

While Jobs was on leave that year, Apple came under competitive pressure from an unexpected source: Google Inc. (GOOG) The search giant, whose then-CEO Eric Schmidt was an Apple board member, had gotten into the smartphone business with its Android operating system.

Unlike the iPhone, Android phones were made by multiple manufacturers. The budding rivalry evoked the Mac vs. PC showdowns of the 1980s. It pitted a company -- Apple -- that made one kind of device against an array of manufacturers orbiting around a software operating system -- in this case, Google’s Android.

‘Global Footprint’

By the time Jobs returned to work in June, several Android devices were on the market. Google’s Schmidt resigned from Apple’s board in August, acknowledging the escalating tension between the two companies.

“The economic engine that Steve built is an amazing one in terms of cash generation, global footprint distribution,” Schmidt said in an interview with Charlie Rose after Jobs’s death. “It is just one of the great American success stories.”

Jobs the following year introduced his next epoch-making product: the iPad. The run-up was full of the buzz that greeted past products. What would it look like? What would it do? Only a select handful of developers and media companies got access to pre-release versions of the iPad, and then only under strict conditions. Recipients had to agree to keep the devices tethered to a fixed object in rooms that blacked-out windows.


At the product unveiling, Jobs said that the tablet computer would go on sale later that year, calling it “magical.” The public agreed: Apple sold more than 300,000 iPads on day one, and within a few months the device had a near monopoly share of the tablet market that companies led by Microsoft had failed to crack for a decade.

Another momentous product was in store for 2010. The iPhone 4 boasted a glass front and back and a brushed-steel band around the edge. It also came with a front-facing camera that would allow mobile videoconferencing.

While the iPhone 4 was destined for success, this time there was a glitch. Customers who held the phone a certain way experienced dropped phone calls -- the “death grip,” it was called.

At first, Apple denied anything was wrong and suggested that customers were holding the phone incorrectly. The flaw snowballed into a public-relations crisis that came to be known as “Antennagate,” stoked by longtime grumbling over service quality on the network of AT&T, then the only U.S. iPhone carrier.

Cook Comes to Fore

By July, Jobs had changed his tune. He apologized to customers and offered free “bumpers,” rubber cases that fit around the metal edge of the phone, so that fingertips wouldn’t cause any antenna interference.

The imbroglio had little impact on iPhone demand. Apple sold 1.7 million iPhone 4 units during the first three days it was on sale; by the end of the year, the iPhone would represent nearly 40 percent of revenue.

During the introduction of a new MacBook Air in October 2010, Jobs appeared thinner than ever. Three months later, Jobs said he would be taking a new leave of absence to “focus on my health.” “I love Apple so much and hope to be back as soon as I can,” he said.

For the third time since 2004, Cook took over day-to-day operations. He oversaw the introduction of the second version of the iPad and introduced a music-storage service called iCloud. He traveled to China to discuss the iPhone with China Mobile Ltd. (941), the country’s largest mobile-phone carrier.

Post-Jobs Era

Jobs announced his resignation Aug. 24. “I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know,” Jobs said in a statement. “Unfortunately, that day has come.”

In the weeks preceding his resignation, Jobs was largely housebound, according to a person familiar with the matter.

“Under Steve’s leadership Apple has not only revolutionized the computer industry but also transformed how the world communicates, plays, shops and works,” Frank Quattrone, CEO of Qatalyst Partners LLP, a Silicon Valley investment bank, said at the time. “In the entrepreneur hall of fame, he is the charter member. He is, and will remain, an inspiration to the world.”

Cook became CEO for good. While Cook had mastered an expanding list of operational roles, including manufacturing, distribution, sales and customer service, he hadn’t demonstrated Jobs’s penchant for product vision.

Ive, Forstall, Schiller

In the post-Jobs era, that role would lie more squarely with head product designer Ive, who oversaw the development of devices including the iMac, iPod, iPhone and iPad.

Rounding out the executive team are Scott Forstall, who is in charge of the iOS software that powers the iPhone and iPad; Philip Schiller, who leads product marketing; Bob Mansfield, who heads Mac hardware engineering; and Chief Financial Officer Peter Oppenheimer, who is tasked with overseeing Apple’s more than $75 billion in cash and long-term holdings.

Jobs left a company with a market value larger than that of Microsoft and Dell combined. Apple’s revenue reached a record $65 billion in fiscal 2010, with analysts predicting that they will exceed $100 billion in 2011.

Besides relying on surging demand for the iPhone and iPad, Apple is also counting on growth in China. “We’re just scratching the surface right now,” Cook said of the region in July. The company is also due to sell a new service called iCloud that will let users access photos, videos and other content across an array of Apple products.

‘Magical’ Thinking

The Apple Jobs left behind was well suited to confront the challenges it then faced, including the Google threat, largely because of a product lineup Jobs set in motion, analysts and investors said at the time of his resignation. The concern is whether the company can produce industry-disrupting devices long after Jobs’s influence recedes.

“The world rarely sees someone who has had the profound impact Steve has had, the effects of which will be felt for many generations to come,” Bill Gates said after his passing. “Steve and I first met nearly 30 years ago, and have been colleagues, competitors and friends over the course of more than half our lives.”

At the AllThingsD conference in 2007, Gates had said, “I’d give a lot to have Steve’s taste. The way he does things is just different and, you know, I think it’s magical.”

To contact the reporter on this story: Jim Aley in New York at

To contact the editors responsible for this story: Tom Giles at