RIM Races ‘Against Clock’ as BlackBerry Disruption Spreads

By Adi Narayan, Jonathan Browning and Hugo Miller - Oct 12, 2011 9:53 PM GMT+0700
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A man holds a Research In Motion Ltd. BlackBerry smartphone at a mobile phone store in Mumbai, on Sept. 28, 2011. Photographer: Adeel Halim/Bloomberg

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BlackBerry users are still experiencing problems accessing data services as RIM, maker of the smartphone, works to clear the backlog of data, mobile-phone operator Vodafone Group Plc said today. Photographer: Simon Dawson/Bloomberg

Research In Motion Ltd. (RIM)’s BlackBerry service was disrupted for some users in North America, as a snag that is halting messaging for a third day across Europe, the Middle East and Africa spread to its largest market.

Subscribers in the Americas may experience “intermittent service delays,” RIM said on its website today. The company said it is working to resolve the issue and apologized to users.

RIM, which has built a reputation as a maker of secure and reliable e-mail devices, is struggling to stem declines in market share to touch-screen phones such as Apple Inc. (AAPL)’s iPhone that offer more consumer applications. The service disruptions began in areas that RIM is counting on for sales growth as revenue in North America drops.

“It’s like being disconnected from the world because people have gotten so addicted to BlackBerry services,” Nilesh Dedhia, managing director of Vidhi Wealth Management in Mumbai, said in an interview.

The disruptions began in Europe and Asia early this week. BlackBerry users continue to have problems accessing data services as RIM works to clear the backlog of data, U.K.-based mobile-phone operator Vodafone Group Plc (VOD) said today.

“The resolution of this service issue is our number one priority right now and we are working night and day to restore all BlackBerry services to normal levels,” RIM said on its U.K. website.

RIM, based in Waterloo, Ontario, fell 1.8 percent to $23.97 at 10:48 a.m. New York time. Before today, the stock had dropped 58 percent this year.

Data Backlog

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

That network concentration “has always been a risk to the service,” Dillon said. BlackBerry “is still the most robust e- mail system.”

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, it said. The result was a large backlog of data.

Race Against Time

For RIM, facing investor demands for a shakeup in strategy and calls for new leadership, the interruption comes at an inopportune time. The company has to fix the problem today to avoid sacrificing customer data as the backlog grows too great and alienating clients, said Malik Saadi, an analyst at Informa Telecoms & Media in Guildford, southern England.

“They cannot afford to have the problem for one more day, because the data backlog will just be massive,” Saadi said. “It’s really a race against the clock.”

Regions outside the RIM’s traditional stronghold of North America are accounting for an increasing share of its revenue and new subscribers. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

Users in India, one of RIM’s growth markets, were among those experiencing disruptions. Satchit Gayakwad, a spokesman for RIM in India, didn’t respond to four calls to his mobile phone.

BlackBerry users in South Africa that use local carrier Vodacom Group Ltd. received a text message telling them that “BlackBerry services could remain impaired for the remainder of today.”

Services were also disrupted in Brazil, Chile and Argentina yesterday. With subscribers in those countries affected, the failure is likely to stem from the company’s main infrastructure in Canada, Saadi said. The core switch routes the traffic to specific locations, he said.

To contact the reporters on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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Sony Recalls 1.6 Million Bravia TV Sets Because of Fire Risk

by Mariko Yasu and Takashi Amano - Oct 12, 2011 6:48 PM GMT+0700

Sony Corp. (6758) recalled 1.6 million Bravia flat-panel TVs sold worldwide since 2007 because a faulty component may cause them to melt or catch fire.

Sony recalled the liquid-crystal display TVs after a September incident in which a customer noticed a small fire and smoke, said Yuki Shima, a Tokyo-based spokeswoman for the world’s No. 3 maker of televisions. Eleven incidents have been reported in Japan since 2008, according to a company statement, and no injuries have been reported.

A faulty component in the backlight systems may be the source of overheating that can melt the top of the TV set, Shima said. It’s the second recall involving Sony products in a month, with KDDI Corp., Japan’s second-largest mobile-phone operator, saying it would replace Sony-made batteries in as many as 2 million handsets because they may overheat and melt.

“Sony-related recalls are following one another and that may ruin the company’s brand image,” said Keita Wakabayashi, an analyst at Mito Securities Co. who rates the stock “neutral plus.” “Considering Sony’s overall business size, the TV recalls won’t shake the company’s grounding.”

The same transformer is used in the five Bravia models in Japan being recalled, according to a Sony statement.

The recalled sets will be repaired if a faulty part was found. Sony will dispatch a service crew to inspect the set and may offer a rental TV while repairs are being made, Shima said. Sony won’t offer refunds or replacement TVs, she said.

U.S., Europe Announcements

There haven’t been any reports of overheating incidents outside Japan, the statement said. The recalls also will be announced today in the U.S. and Europe, Shima said.

The recall was announced after Tokyo markets closed. Sony rose 1.4 percent to close at 1,517 yen. The stock has plummeted 48 percent this year, compared with a 16 percent decline for the broader Topix index.

“It could impact the stock negatively if the recall causes a significant amount of expense,” Wakabayashi said.

The repairs will have a negligible impact on Sony’s earnings, Shima said. The recall was voluntary, she said.

Sony shares declined to their lowest in 24 years earlier this month on speculation the yen’s strength and slumping demand for televisions will hurt earnings. The company, which forecast full-year operating profit of 200 billion yen ($2.6 billion) in July, loses about 6 billion yen of annual operating profit, or sales minus the cost of goods sold and administrative expenses, for every 1 yen decline against the euro.

Previous Recalls

This is the company’s first recall of flat-screen televisions, though not the first associated with the Bravia line. In April 2010, Sony offered to repair the stands attached to two models because the screws weren’t strong enough and the stands could collapse.

Later that month, the company recalled 535,000 Vaio personal computers because of possible overheating from a temperature control defect.

Separately, the world’s second-largest maker of video-game machines said today it temporarily suspended about 93,000 user accounts of its online gaming and entertainment services after finding they were hacked.

“A massive number” of unauthorized attempts by intruders were detected between Oct. 7 and Oct. 10, Sony spokesman Satoshi Fukuoka said. The efforts included usernames and passwords that matched 93,000 accounts, including at least 35,000 in the U.S. and 24,000 in Europe, he said. Personal information, including home addresses, in some accounts may have been compromised, he said.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Billionaires Sail Yachts Through Post-Lehman Waters

By A. Craig Copetas - Oct 12, 2011 6:00 AM GMT+0700
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A rendering of the 328-foot PJ World, the world's biggest luxury icebreaker. Source: Palmer Johnson via Bloomberg

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The 280-foot Cakewalk takes its name from a dance made popular on 19th-century plantations in the southern United States. Source: Burgess Yachts via Bloomberg

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The 196-foot luxury ice-crusher Ulysses comes with a helicopter pad, pool table and a Batman pinball machine. At 49 million euros, the expedition superyacht can tackle polar waters as easily as lay anchor along the Amazon River. Source: Burgess Yachts via Bloomberg

Cool piped jazz floats over the luxury icebreaker Ulysses as Brian Carver wheels the five-story megayacht away from the sound of Cristal Champagne corks firing along the Monaco coast.

“This is not a marina ship,” says Carver, skipper of the 196-foot, 49 million euro ($66.9 million) expedition vessel that can tackle polar waters as easily as lay anchor for months along the uppermost reaches of the Amazon River. “Ulysses is a luxury yacht designed to avoid what’s happening on land.”

The decommissioned U.S. Navy submarine lashed to the foredeck provides an underwater getaway for six people.

Other isolationist perks aboard the ship named after the Ancient Greek mariner who got lost in a sea of troubles include a retractable helicopter pad and a 180,000 gallon diesel tank that costs around $700,000 to fill. That’s ample fuel for more than 6,000 nautical miles, and enough power to ensure the yacht’s four quantum-zero stabilizers allow guests to continue playing pool in a storm and not tilt the Batman pinball machine.

Those interested in this example of the future of luxury superyachting should contact billionaire owner Graeme Hart, managing director of the private-equity firm Rank Group Ltd. in Auckland, New Zealand.

Elite Armada

It has been three years since the collapse of Lehman Brothers triggered the worst fiscal crisis following the Great Depression and a gust of fear among the armada of giga-yachtsmen who each September sail into the Monaco Yacht Show to preen and prance their monstrous vessels for sale. Time and Europe’s multibillion-dollar credit calamity have not been kind to them.

Everything anchored in Monaco was on fire sale. The pitch aboard My Trust, a floating dockside city state selling at a distressed 23.95 million euros, includes a black-and-white loop video of Dean Martin singing happy songs from the 1940s. The tune that wafts from a passing 120-foot luxury ketch in need of a paint job is Shirley Temple chirping “On the Good Ship Lollipop,” an anthem from the Great Depression.

There are 450 private vessels that bow-to-stern stretch beyond 200 feet, according to the Camper & Nicholsons 2011 Superyachting Index. That doesn’t mean their owners have found Peppermint Bay. As Patrick Coote tells it, the only sailors with the bankroll to keep the luxury-yacht market afloat are Russian, Chinese, Brazilian and old-money Europeans, and most of them want to navigate away from marina life.

“An ice-class megayacht is the solution,” says Coote, marketing director of Fraser Yachts. “New buyers want the ability to smack into any sort of iceberg and not do a Titanic.”

Discreet Players

For the middlemen charged with making the sale in treacherous post-Lehman waters, discretion is often more important than vanity.

“Many owners don’t want to be seen near their expensive toys,” says Pascal Wiscour-Conter, chief executive officer of ItMovesIt SA, a Monaco-based software company that specializes in managing the between 20,000-to-160,000 housekeeping documents annually required to keep private Gulfstreams in the air and superships at sea.

“Explorer yachts like Ulysses cater to the new expectations of high net-worth individuals in a troubled global economy,” says Wiscour-Counter, who has managed three explorer megayachts during his 20-year nautical career. “An ice-class vessel is more luxurious and more anonymous than any bling yacht. They’re also bigger inside, which means they can carry more stuff and avoid the need for a ghost ship.”

Ghost Ship

Although Wiscour-Conter says the financial chaos of 2008 compelled the rich to downsize their vessels and not attract the attention of tax authorities or judicial investigators looking to seize potentially questionable assets, it didn’t mean they’d stop pulling into port on a whim to buy a Picasso or a Porsche.

“We had a client on a 115-foot luxury yacht,” Wiscour- Conter says. “Three days into the voyage, the client had already berthed at three ports and bought 2 million euros worth of merchandise. But the boat was too small to carry the load, so we had to arrange for a ghost ship and crew to follow with the client’s shopping.”

Luxury icebreakers avoid the need for illusion.

“These yachts have no appeal for the guy who turns up stern-to-dock so people can watch him eating caviar,” says Burgess Yachts CEO Jonathan Beckett, who marquees his fleet of 150 vessels as “the superyacht superpower.”

Beckett accepts a cappuccino from a steward aboard Cakewalk, Burgess’s 280-foot superstar and on sale for 152 million euros. Cakewalk is a mighty ship. Yet the only ice she can crush comes from the lounge bar.

Explorer Yachts

“Someone will eventually buy Cakewalk,” Beckett says. “But the future is the self-sufficient explorer yacht, with fuel tanks and provision stores for owners who are allergic to marinas.”

Beckett leans back on the sofa and lays out the monetary dynamics of 21st-century superyachting: “There are no more than 25 people in the world who can afford a yacht in the 200 million-to-300 million euro range,” he says. “It’s more interesting in the 100 million-to-200 million euro range because we have hundreds of potential buyers.”

Fraser Yachts CEO Hein Velema adds the caveat emptor. “I’m a little nervous about the global economic situation,” he says. “Americans are not ready to commit to buying a yacht.”

Yet Beckett says the dearth of U.S. cash on deck for Burgess superyachts in excess of 150 feet is more than made up for by the Chinese market. “There are right now 2,500 superyachts in the world,” Beckett says. “And there are right now 10,000 people in China with the money to buy one.”

Luxury Refit

Beckett reckons some 100 explorer yachts have set sail since Lehman sunk. “More of them are on the way,” he says. “They’re a deal, particularly for Americans. We can purchase a used commercial ice-class or similar vessel for, say, 750,000 euros and then give it a 30 million euro refit into a luxury vessel with more decks, head space and range than anything on display in Monaco. That’s the trending global market.”

Luxury-icebreaker extras on offer in Monaco include the Jetlev Flyer, a self-contained 129,000 euro carbon-fiber backpack that uses a 225-horsepower water nozzle to launch passengers on a 180-minute, 35 kilometer-an-hour journey at an altitude of 33 feet. Escape pods provide serenity. The discerning prefer the $60,000 SeaJet Capsule, which resembles a gigantic escargot with a propulsion system. It lets passengers “look cool, fast and rich at the same time,” says SeaJet designer Pierpaolo Lazzarini.

Modern trinkets do little to enhance the 164-foot Shandor. Originally built in 1986 for Fiat SpA (F) Chairman Gianni Agnelli, the 8 million euro refit vessel, with a 100,000-liter fuel tank and a range of 5,600 nautical miles, is Jurassic in comparison to the 370-foot icebreaker Le Grand Bleu. Built for U.S. cellular-network tycoon John McCaw Jr. in 2000 for $90 million, Beckett 4 years later brokered the ship to Russian billionaire Roman Abramovich for an undisclosed amount.

Abramovich Gift

In 2006, Abramovich presented Le Grand Bleu to his friend Eugene Shvidler as a gift, leaving the oil tycoon’s Barcelona- based Ocean Group fleet without a luxury expedition vessel.

“Abramovich has the biggest luxury yacht in the world, the 557-foot Eclipse,” Wiscour-Conter says of the ship that’s 176 feet shorter than the Lusitania and cost an estimated 800 million euros to build. Unlike the fabled paquebot that fell victim to a German U-boat off Ireland in 1915, Eclipse features an array of torpedo and missile defense systems.

“Le Grand Bleu changing hands is a significant development in the competitive world of superyacht owners,” Wiscour-Conter explains. “Now the only cost-effective way to out-Abramovich Abramovich is to own a luxury icebreaker.”

Jet Eurocopter

The Norwegian superyacht company Palmer Johnson Yachts LLC has risen to the occasion. It’s called the PJ World, a 269-foot luxury ice crusher that’s six stories tall and priced at 135 million euros, not including the 35 million euro all-weather jet-powered Eurocopter. The steel-hull vessel, which can travel more than 10,000 nautical miles on a tank of gas, has a 200- square-meter master suite, a country-club-sized swimming pool, eight guest cabins and a 29-member crew.

“PJ World launches next year and we don’t yet have a buyer,” says Palmer Johnson salesman Mauricio Weiszberger. “We took a big risk and built her on spec to capture the market that’s on the horizon.”

To contact the writer on the story: A. Craig Copetas in Paris at ccopetas@bloomberg.net.

To contact the editor responsible for this story: Manuela Hoelterhoff at mhoelterhoff@bloomberg.net.

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U.S. Senate Shelves Obama’s $447B Job Plan

By Laura Litvan - Oct 12, 2011 8:44 PM GMT+0700

President Barack Obama’s drive to enact a $447 billion jobs plan was derailed by the U.S. Senate, falling short of the 60 votes needed to advance what he has proposed to revive a faltering economy.

Two Democrats joined the Republican minority to block the plan in a test vote. Yesterday’s tally was 50-49, shelving the measure in its current form. Voting was completed in the evening as the roll call remained open to let Senator Jeanne Shaheen, a New Hampshire Democrat, return to Washington to vote for the plan.

The broad legislation includes cuts in payroll taxes for workers and employers and provides new funding for roads, bridges and other infrastructure. Parts of it could still be salvaged if there is enough support for specific provisions.

Senate Minority Leader Mitch McConnell called the measure a “lousy idea” that relies on proposals similar to 2009’s $825 billion stimulus, an effort he said that failed to work.

“If voting against another stimulus is the only way we can get Democrats in Washington to finally abandon this failed approach to job creation, then so be it,” said McConnell, a Kentucky Republican.

Senate Democratic leaders last week revised the president’s initial proposal, partly to try to pick up more support within their party. That scrapped Obama’s method of paying for the jobs plan, including higher taxes on families making more than $250,000 a year. Senate leaders substituted a 5.6 percent surtax on people making at least $1 million annually.

‘Tax Gimmicks’

Even so, Democratic Senators Jon Tester of Montana and Ben Nelson of Nebraska opposed the plan. “I can’t support tax gimmicks that do little to create jobs” and don’t address the need for a bipartisan deficit-cutting plan, Tester said in a statement.

Before the Senate voted, Majority Leader Harry Reid accused Republicans -- who are trying to take control of the Senate and White House in 2012 -- of attempting to hamper the economy for political benefit. He said Republicans are opposing job-creation ideas they supported in previous years.

“Republicans oppose those ideas now because they have a proven track record of creating jobs, and Republicans think if the economy improves it might help President Obama,” said Reid, a Nevada Democrat. “So they root for the economy to fail, and oppose every effort to improve it.”

Pressing Ahead

Obama vowed to press ahead and seek to get individual provisions of his plan passed by Congress.

“Tonight’s vote is by no means the end of this fight,” Obama said in a statement yesterday. As they vote on each component, “members of Congress can either explain to their constituents why they’re against commonsense, bipartisan proposals to create jobs, or they can listen to the overwhelming majority of American people who are crying out for action.”

The vote leaves Obama’s economic agenda in limbo because the political parties disagree about what should be done to lower the nation’s 9.1 percent unemployment rate, said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington. Republicans seek permanent tax cuts and deregulation, while Obama and congressional Democrats want more federal spending and short-term tax reductions.

“The president’s jobs initiative is at the end of its legislative life -- not that it really had one,” Stretch said. He said the focus will likely shift away from jobs and toward the work of a congressional supercommittee that is tasked with recommending $1.5 trillion of cuts from the federal deficit over 10 years.

Obama’s Plan

Obama proposes to create jobs by cutting payroll taxes for workers and employers by half, extending jobless benefits, providing aid to states for schools and emergency workers and boosting spending on public works projects such as roads and bridges. He also would provide tax breaks for employers to hire the unemployed.

The plan would be financed by Senate Democratic leaders’ proposed surtax, which the U.S. Congressional Budget Office said would raise $453 billion.

Obama endorsed the leaders’ plan. He had proposed capping itemized deductions for individuals earning more than $200,000 a year and couples earning more than $250,000. He also proposed raising taxes on private equity firm managers, real estate investors and venture capitalists, and ending oil and gas subsidies.

‘Issues of Inequality’

The new method of offsetting the bill’s costs still ran into Democratic opposition. Senator James Webb, a Virginia Democrat, said he would vote to let debate start, but wouldn’t support the Senate jobs legislation as it was drafted. He said a tax on millionaires that is income-based fails to address real issues of inequality in the tax code. He said the best method to spread the tax burden would be to boost taxes on capital gains.

“The present proposal looks good at first glance; it sounds good on a TV bite, but in all respect to the people who put it forward, I do not believe it’s smart policy and it does not go where the real economic division lies in our country,” Webb said.

In the House, Obama’s plan also faces hurdles. Republicans who hold the majority oppose the tax increases, and party leaders there also have said it adds spending in many areas already bolstered in 2009’s economic stimulus measure.

House Republican leaders say some of Obama’s ideas, such as payroll tax cuts, are worth considering.

The Senate bill is S. 1660.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Cain ‘9-9-9’ Tax Plan Captures Debate Spotlight as Perry Recedes

By Julie Hirschfeld Davis and John McCormick - Oct 12, 2011 7:28 PM GMT+0700

Herman Cain defended his “9-9-9” tax plan against criticism from rivals seeking to halt his momentum at a Republican presidential debate last night that showcased Mitt Romney’s status as front-runner.

Texas Governor Rick Perry, in need of a strong performance to recharge his bid, rarely challenged Romney, using his time on the Dartmouth College stage to promote an energy-related job creation plan he said he would unveil later this week.

With fewer than 100 days until New Hampshire is expected to hold its primary, the eight presidential contenders focused on jobs and the economy at the event sponsored by Bloomberg News, The Washington Post and WBIN-TV, a Derry, New Hampshire, station.

The gathering unfolded as Romney, who is making his second presidential bid, seeks to bolster his status as front-runner and Cain and Perry, among others, vie to emerge as a fiscally and socially conservative alternative to the former Massachusetts governor’s candidacy.

“The Cain bubble is going to continue to grow for a while,” said Fergus Cullen, a former chairman of the New Hampshire Republican Party, who also credited Romney with a “strong performance” in the debate.

Perry, Cullen added, “didn’t implode, but did he do enough? I don’t think so. He no longer looks like Superman, like he did two months ago” when he entered the race and for a few weeks led in the polls.

Cain said his plan to scrap the tax code and replace it with 9 percent individual, corporate and sales taxes is superior to his rivals’ because it’s simple.

‘9-9-9’ Defense

“9-9-9 will pass,” the former Godfather’s Pizza chief executive said, “because it has been well-studied and well- developed. It starts with -- unlike your proposals -- throwing out the current tax code. Continuing to pivot off the current tax code is not going to boost this economy.”

Other Republican candidates criticized or ridiculed the idea. “I thought it was the price of a pizza when I first heard it,” former Utah Governor Jon Huntsman Jr. said.

Minnesota Representative Michele Bachmann hinted at something more sinister: “When you take the 9-9-9 plan and turn it upside down, I think the devil is in the details,” she said.

The number 666 is associated by some Christians with the devil.

Too Simple

Romney said the proposal was too simple to solve the nation’s economic problems. “To get this economy restructured fundamentally, to put America on a path to be the most competitive place in the world to create jobs, is going to take someone who knows how to do it,” said Romney, who has proposed a 59-point economic plan. “And it is not one or two things.”

Cain defended his plan today in an appearance on ABC’s “Good Morning America,” deflecting criticism that it would hurt poor people the most and would amount to a big tax cut for the wealthy.

“You have to take the three together,” he said. “Together, you broaden the tax base and together you lower the net-net taxes for everybody.”

He said he wouldn’t revise the plan because of criticism from independent analysts, who he said used a different set of assumptions about the economy than he does. “We will be happy to share those assumptions,” Cain said today.

Unemployment Rate

The debate -- conducted around a large table where candidates sat and fielded questions from journalists as well as each other -- unfolded as unemployment sits at 9.1 percent, standards of living are falling, and the Occupy Wall Street protests have spread from Lower Manhattan, giving voice to mounting public frustration with economic inequality.

Asked about how he would address wealth disparities, Perry attacked Obama.

“The reason we have that many people living in poverty is because we have a president of the United States who’s a job killer,” Perry said. “You have a president that does not understand how to create wealth.”

Perry, who is scheduled to give a speech on the economy and energy in Pittsburgh on Oct. 14, said he wanted to open up the nation’s “treasure trove” of energy resources to invigorate the economy. “That’s the real key,” he said.

Romney kept his focus on Obama, shrugging off criticism from his competitors while portraying the president as incompetent.

‘Over His Head’

“What’s happened in this country under the Obama administration is that you have a president who I think is well- meaning, but just over his head when it comes to the economy,” Romney said.

Romney entered the debate with a new advantage. Earlier in the day, New Jersey Governor Chris Christie, whom some Republicans had urged to enter the presidential race, endorsed his candidacy.

Christie, who last week announced to reporters in New Jersey that he wouldn’t run, joined Romney in Lebanon, New Hampshire, for a joint news conference. “I have no question in my mind that Governor Romney is our party’s and our country’s best opportunity to defeat President Obama,” Christie said.

Bachmann’s Drop

Bachmann, a favorite of the anti-tax Tea Party who has seen her support drop following Perry’s entrance into the race, during the debate placed responsibility for the financial meltdown on the government, rather than on the private sector.

“If you look at the problem with the economic meltdown, you can trace it right back to the federal government,” she said, arguing that low interest rates and laws encouraging weaker lending standards to allow more middle-class people to purchase homes were to blame. “There’s a real problem, and it began with the federal government.”

Romney offered tepid support for the financial rescue package passed in 2008 with backing from both parties. He criticized its implementation, and left open the possibility he might support another one.

“My experience tells me that we were on the precipice, and we could have had a complete meltdown of our entire financial system, wiping out all the savings of the American people. So action had to be taken,” Romney said. “Was it perfect? No. Was it well implemented? No, not particularly.”

Fed Dispute

Cain, whose standing jumped in public opinion polls after his victory in a non-binding straw poll in Florida on Sept. 24, drew criticism from U.S. Representative Ron Paul of Texas, who long has advocated abolishing the Federal Reserve. Paul said Cain, a former board member of the Federal Reserve Bank in Kansas City, Missouri, had resisted efforts to audit the central bank.

When Cain named former Fed Chairman Alan Greenspan as a model for the type of chairman he would appoint, Paul retorted that Greenspan was a “disaster” who set the country on course for recession. “Alan Greenspan has ushered in the biggest bubble,” he said. “And what did we do? We’ve continued the same thing.”

Federal Reserve Chairman Ben S. Bernanke was also under attack in the debate. Former House Speaker Newt Gingrich of Georgia won applause when he called for Bernanke’s removal.

‘Wrong’ and ‘Corrupt’

“Bernanke has in secret spent hundreds of billions of dollars bailing out one group and not bailing out another group,” Gingrich said. “It is wrong and it is corrupt for one man to have that kind of power.”

Romney said that as president he would pick a new Fed chairman, though he declined to indicate whom he might choose.

Huntsman, Obama’s former envoy to China, challenged Romney over how to handle the Asian economic giant, saying Romney’s plan to sanction China for currency manipulation would prompt retaliation that would harm the U.S. economy.

“I don’t want to find ourselves in a trade war,” Huntsman said. “We have to find common ground.”

Romney responded: “If you are not willing to stand up to China, you will get run over by China.”

Rick Santorum, a former senator from Pennsylvania, said he wanted to increase American economic competitiveness by challenging China. “I want to go to war with China and make America the most attractive place in the world to do business,” he said.

Reagan Model

Perry was asked whether he would follow the model of President Ronald Reagan and agree to tax increases as part of spending cuts. “I don’t think he ever saw those reductions,” Perry said, calling for a balanced budget amendment.

“One of the reasons that I think Americans are so untrustworthy of what’s going on is because they never see a cut in spending,” Perry said.

A pre-debate national poll of Republicans and Republican- leaning independents by Bloomberg News and The Washington Post showed Romney leading with 24 percent, followed by Cain at 16 percent and Perry at 13 percent.

Rounding out the field, 6 percent backed Paul, 4 percent were for Bachmann, 3 percent supported Gingrich, 1 percent picked Santorum and fewer than 1 percent preferred Huntsman.

To contact the reporters on this story: Julie Hirschfeld Davis in Hanover, New Hampshire. at

jdavis159@bloomberg.net; John McCormick in Hanover, New Hampshire, at jmccormick16@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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U.S. Stocks Rise on Debt Crisis Hopes

By Rita Nazareth - Oct 12, 2011 8:49 PM GMT+0700

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a third straight day, on investors’ optimism Europe will contain its debt crisis.

Bank of America Corp. (BAC) and Morgan Stanley added at least 1.3 percent, following a rally in European lenders. Freeport-McMoRan Copper & Gold Inc. (FCX) and Apple Inc. (AAPL) climbed more than 2.2 percent to pace gains among companies most-reliant on economic growth. PepsiCo Inc., the world’s largest snack-food maker, increased 3 percent as profit beat analysts’ estimates. Alcoa Inc. (AA) slumped 3.2 percent as earnings trailed projections.

The S&P 500 advanced 0.6 percent to 1,202.68 at 9:49 a.m. New York time, gaining 4.1 percent in three days. The Dow Jones Industrial Average climbed 58.73 points, or 0.5 percent, to 11,475.03, paring this year’s decline to 1 percent.

“There are a lot of things that can go right or wrong, but our playbook has been that the stock market is not going to have a major decline,” Liam Dalton, chief executive officer of Axiom Capital Management Inc., in New York, which oversees $1.8 billion, said in a telephone interview. “The process in Europe is likely to be resolved. Earnings are looking like they will be relatively good. With this set of circumstances, the market doesn’t want to turn back lower over the near term.”

The S&P 500 fell as much as 19 percent from its three-year high in April through Aug. 3, on a closing basis, on concern about Europe’s debt crisis. Gauges of financial, commodity and industrial shares in the index slid more than 26 percent over that period. The S&P 500 last week rose from the threshold of a bear market on optimism Europe will tame its crisis.

‘Calamity’

European Economic and Monetary Affairs Commissioner Olli Rehn said the region is moving toward a consensus on resolving the “calamity” of the debt crisis. European Commission President Jose Barroso called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes.

“The more we see evidence there’s not going to be a global collapse, the more markets will feel encouraged and realize they’re on the wrong multiple, so price-earnings ratios will rise,” said Graham Bishop, a European equity strategist at Royal Bank of Scotland Group Plc.

The Morgan Stanley (MS) Cyclical Index of companies most-tied to economic growth added 1.3 percent. The Dow Jones Transportation Average rose 0.8 percent. The KBW Bank Index gained 1.6 percent. Bank of America advanced 1.3 percent to $6.45. Morgan Stanley increased 2.1 percent to $15.71. Freeport, the world’s largest publicly traded copper producer, climbed 4.4 percent to $36.76. Apple increased 2.2 percent to $408.92.

PepsiCo Jumps

PepsiCo jumped 3 percent to $62.76 after saying third- quarter profit rose 4.1 percent as sales of Frito-Lay products increased. Chief Executive Officer Indra Nooyi created a council in September to better coordinate sales of snacks and beverages after the company reduced its full-year profit forecast.

“The reason we’re bullish and why we’re having a different view of the market is because we’ve had a lot more faith in the ability of U.S. corporations and the U.S. economy to still navigate through a U.S. expansion, despite what looks like very, very scary headlines,” Thomas Lee, the New York-based chief U.S. equity strategist at JPMorgan Chase & Co. said in an interview on Bloomberg Television “In the Loop” with Betty Liu.

Liz Claiborne Inc. (LIZ) surged 27 percent to $6.49 after agreeing to sell its namesake and Monet brands to J.C. Penney Co. and its Kensie line to Bluestar Alliance as the company works to reduce debt. The transactions and the completion of the sale of Dana Buchman brand to Kohl’s Corp. (KSS) are worth a total of $328 million in cash, New York-based Liz Claiborne said today.

Alcoa Slumps

Alcoa slumped 3.2 percent to $9.97. The first company in the Dow to report earnings this quarter posted profit that trailed estimates, saying European customers “dramatically” cut orders on economic uncertainty. Alcoa is grappling with rising production costs while the price of aluminum on the London Metal Exchange has fallen in the past two months.

Earnings per share for the S&P 500, excluding financial companies, rose 14 percent in the third quarter, according to analysts’ estimates compiled by Bloomberg. Still, it’s the smallest gain since the end of 2009, the data showed.

Companies in the S&P 500 will earn $96.64 a share in 2011, UBS AG said in a note, raising its prediction from a previous $95 because the U.S. economy is “somewhat stronger than we assumed.”

“We remain cautious,” UBS’s Thomas Doerflinger, a New York-based senior strategist, wrote. The increase in the 2011 estimate came because he raised second-half earnings predictions, saying technology profits in the third quarter “should be reasonably good,” consumer demand is “weak but not terrible” and financial companies’ credit costs should continue to decline.

Doerflinger said the tone of earnings will be “much weaker” than in the past six quarters, with “potential negative wild cards” of weaker commodity prices and mortgage- related losses at some banks over the next two years.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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European Stocks Rise to Five-Week High; Greek Lenders, ASML, Burberry Gain

By Corinne Gretler - Oct 12, 2011 8:55 PM GMT+0700
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Greek banks rallied, with Alpha Bank SA and National Bank of Greece SA soaring more than 10 percent. Photographer: Kostas Tsironis/Bloomberg

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Oct. 12 (Bloomberg) -- Slovakia’s opposition leader said lawmakers must find a way to approve the revised European Financial Stability Facility, the region's bailout fund, which was rejected yesterday amid a dispute over the future of Prime Minister Iveta Radicova. David Tweed and Owen Thomas report on Bloomberg Television's "Countdown." (Source: Bloomberg)

European stocks climbed to a five- week high as the European Commission’s Olli Rehn said the debt crisis can be resolved, outweighing earnings from Alcoa Inc. (AA) that missed estimates.

Greek banks rallied, with Alpha Bank SA and National Bank of Greece SA (ETE) soaring at least 13 percent. Burberry Group Plc (BRBY), the U.K.’s largest luxury-goods maker, climbed 2.9 percent as sales topped forecasts. ASML Holding NV (ASML) added 3.6 percent after Europe’s biggest semiconductor-equipment maker reported income that beat projections. YIT Oyj (YTY1V), Finland’s largest builder, slumped 4.5 percent after cutting its profit outlook.

The Stoxx Europe 600 Index rose 1.2 percent to 238.15 at 2:54 p.m. in London, having earlier dropped as much as 1 percent. That’s the highest level since Sept. 2. The gauge has still tumbled 18 percent from its high on Feb. 17 amid concern that the sovereign debt crisis in Europe will spread from Greece to the larger economies of Italy and Spain.

“Equity markets are still giving euro-zone leaders the benefit of the doubt in their efforts to stem the crisis,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in an e-mail. “A greater sense of urgency should not be mistaken for measures to tackle the sovereign debt crisis head-on.”

National benchmark indexes climbed in all of the 18 western-European markets, except in Iceland. Germany’s DAX Index advanced 1.7 percent and the U.K.’s FTSE 100 gained 0.6 percent. France’s CAC 40 increased 2.1 percent.

Coordinated Action

Rehn, the EU’s Economic and Monetary Affairs Commissioner, said in a prerecorded speech to a Dublin conference that the euro area is approaching a consensus on resolving the debt crisis. He said economic growth is stalling and Europe is in “a very dangerous place,” though the region can avert “calamity” by coordinating action, increasing banks’ capital and enhancing growth.

European stocks earlier fell as political wrangling in Slovakia delayed the approval of the euro area’s overhauled bailout fund. The only country that hasn’t ratified the revised European Financial Stability Facility is headed for a second vote after failing to approve the package yesterday. The rejection also triggered the fall of Iveta Radicova’s government, as the vote was tied to a no-confidence motion.

“The vote yesterday was not about the EFSF, but rather about getting rid of the prime minister,” said Peter Braendle, who helps manage $60 billion at Swisscanto Asset Management AG in Zurich. “I expect the parliament to agree in the second round.”

Slovak Vote

Slovakia “must sign up to the rescue fund,” opposition leader Robert Fico said late yesterday, adding that his party, which failed to back the measure, awaits a proposal from the ruling coalition. Radicova said Slovakia must approve the EFSF “as soon as possible.” While no date has been set for a new vote, Finance Minister Ivan Miklos said parliament will probably approve the revamped fund this week.

Alcoa, the first company in the Dow Jones Industrial Average to report earnings this quarter, posted profit that trailed analysts’ estimates, saying European customers “dramatically” cut orders because of economic uncertainty.

The U.S. aluminum producer reported earnings in the third quarter excluding restructuring costs and tax benefits of 14 cents a share, missing the average estimate of 22 cents in a Bloomberg survey. Chief Executive Officer Klaus Kleinfeld said European aluminum demand will decline 13 percent in the second half from the first half.

European industrial production unexpectedly rose for a second month in August as increasing output in countries from France to Portugal and Italy offset a slump in Germany.

European Economy

Production in the 17-nation euro area advanced 1.2 percent from July, when it rose 1.1 percent, the European Union’s statistics office said today. That’s the biggest gain since November 2010. Economists had forecast a drop of 0.8 percent, the median of 32 estimates in a Bloomberg survey showed.

Alpha Bank and National Bank of Greece soared 18 percent to 97.80 euro cents and 13 percent to 1.81 euros, respectively. Piraeus Bank SA (TPEIR) rallied 12 percent to 28.50 euro cents.

Barclays Plc (BARC) jumped 6 percent to 186.20 pence. Societe Generale (GLE) SA and BNP Paribas (BNP) SA, France’s biggest banks, added 5.4 percent to 23.03 euros and 6.9 percent to 36.76 euros.

Sixth Loan

European Commission President Jose Barroso called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes.

“Reactive and piecemeal responses to different aspects of the crisis are no longer sufficient,” Barroso said in Brussels. “We now need to get ahead of the curve.”

Burberry gained 2.9 percent to 1,300 pence after reporting fiscal second-quarter sales that beat analysts’ estimates and dispelled concern that demand has slowed with plans to add 15 percent to its average retail space.

Revenue in the three months ended Sept. 30 rose to 463 million pounds ($729 million) from 382 million pounds a year earlier, the London-based company said. The average of 11 estimates compiled by Bloomberg was 447.8 million pounds.

ASML increased 3.6 percent to 27.47 euros after reporting third-quarter net income of 355 million euros ($489 million), topping the average estimate of 323 million euros in a Bloomberg survey of 16 analysts.

Carmakers, Chemicals Gain

Michelin & Cie., the world’s second-largest tiremaker, gained 5.5 percent to 49.12 euros as a gauge of auto stocks posted the best performance of the 19 industry groups in the Stoxx 600. Fiat SpA (F), Italy’s biggest automaker, jumped 6.7 percent to 4.87 euros and Germany’s Daimler AG (DAI) surged 5 percent to 37.64 euros.

Clariant AG (CLN) and Yara International ASA (YAR) led a rally in chemical stocks, climbing 5.1 percent to 9.64 Swiss francs and 3 percent to 242.60 kroner, respectively. K+S AG, Europe’s biggest potash producer, added 2.3 percent to 43.12 euros.

A.P. Moeller-Maersk A/S rose 3.2 percent to 34,980 kroner. The world’s biggest container-shipping line said it agreed to sell its Maersk LNG A/S unit to Teekjay LNG Operating LLC and Marubeni Corp. for $1.4 billion.

YIT plunged 4.5 percent to 12.44 euros. The company cut its full-year outlook for operating profit after making a 10 million-euro provision in the third quarter for an ammonia problem at its flats in St. Petersburg.

Man Group Plc (EMG), the world’s largest hedge fund manager, sank 5.4 percent to 157.20 pence after reporting that the net-asset value of its AHL Diversified fund fell 5.5 percent in the week through Oct. 10.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Debate Shows Frontrunner Romney Lacks Party Majority

By Jeanne Cummings - Oct 12, 2011 12:01 PM GMT+0700

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Oct. 12 (Bloomberg) -- Republican presidential candidate Mitt Romney talks about confidence among Americans. Romney participates in the Bloomberg/Washington Post Republican presidential debate, in partnership with WBIN-TV and host Dartmouth College. (This report is an excerpt. Source: Bloomberg

Mitt Romney left the stage of last night’s Republican presidential debate on the economy as he entered: a cautious front-runner, not prone to mistakes, who has yet to win the backing of at least 70 percent of his party.

With four of his seven Republican challengers at a debate table in Hanover, New Hampshire, directing questions at him, Romney’s was the voice viewers and listeners heard the most.

For 10 minutes, the former Massachusetts governor explained the goals of his economic recovery plan and his record in the private sector on job creation, and he defended the health-care overhaul he signed into law as an appropriate remedy for his state.

“I’m not running for governor of Massachusetts,” Romney said in the debate at Dartmouth College sponsored by Bloomberg News, the Washington Post and WBIN-TV in New Hampshire. “I’m running for president of the United States.”

It was the sort of sharp, declarative statement that can resonate with voters.

The challenge for Romney was Herman Cain, seated next to him, who used humor to promote his plan to replace the tax code with one that imposes 9 percent rates on individuals, sales and corporations.

“I think Romney and Cain win,” said Greg Mueller, president of CRC Public Relations and a Republican strategist who is close to the anti-tax Tea Party movement. “Romney, because this is yet another debate in which none of the other candidates challenged his past record more broadly.”

‘9-9-9’

Cain scored well, Mueller said, because much of the debate focused on his tax proposal, nicknamed “9-9-9.” It was mentioned 15 times.

“When all the other candidates are talking about your plan, and you defend it well, which he did, you win. The others look envious,” said Mueller, who isn’t affiliated with a campaign.

In a Bloomberg National Poll in September, Romney’s support stood at 22 percent among Republicans and independents leaning Republican, second to Texas Governor Rick Perry’s 26 percent. In a Bloomberg/Washington Post pre-debate poll released Oct. 10, he was at the top of the pack with 24 percent support.

In all of the public surveys taken since last November, Romney’s support broke 30 percent in only two polls in June. An analysis by Real Clear Politics, a Washington-based nonpartisan organization that tracks polling data, put Romney’s average support today at 22 percent, which is enough to put him first place but far from securing a majority backing by his party.

Roller-Coaster

Republican voters’ lack of enthusiasm for Romney has added to the roller-coaster nature of the primary, as voter swings in the polls provided temporary spikes of support for, first, Minnesota Representative Michele Bachmann, then Perry, and now Cain.

Alex Castellanos, a Republican political adviser who hasn’t joined a campaign, said Romney’s standing will improve once primary voting is officially engaged. “You have to beat somebody to become somebody,” he said. “Elections don’t pick candidates, they make candidates.”

Until then, Romney’s best opportunities to sell his second candidacy for president have been at the seven debates held thus far.

At last night’s event, Romney highlighted issues important to Republican primary voters. He vowed to challenge China’s “currency manipulation” on his first day in office, maintained opposition to tax increases, and called for a balanced budget amendment -- drawing applause from the audience.

Mostly Sure-Footed

Romney’s sure-footedness wavered only once, when he was pressed to explain why he supported the bank bailouts in 2008 and is now opposing some future rescues.

“The idea of trying to bail out an institution to protect the shareholders or to protect a certain interest group, that’s a terrible idea, and that shouldn’t happen,” he said. “You do want to make sure that we don’t lose the country and we don’t lose our financial system and we don’t lose American jobs, and that all the banks don’t go under,” he added.

When it came his time to ask another candidate a question, Romney avoided a confrontation with his closest rivals -- Cain and Perry -- and asked Bachmann how she’d change taxes to create jobs. The query wasn’t tough; it was strategic, as Romney avoided using his question to give more speaking time to a more threatening opponent.

“I don’t think Mitt has closed the deal,” said Mike Murphy, a former campaign adviser to 2008 Republican presidential nominee John McCain of Arizona who is uncommitted in the 2012 race. “Once he starts winning primaries, he will do better. All things considered, I’d rather be Romney right now.”

Growing Support

Among his reasons, said Murphy, is that, while Romney’s lead in national polls is small, he has been building more support in some of the states that matter most and knitting together a path to the nomination.

According to an Oct. 3-5 poll by NBC News and the Marist Institute of Public Opinion, based in Poughkeepsie, New York, Romney leads the field in Iowa, the first primary caucus site, with 26 percent support, compared to 20 percent for Cain and 11 percent for Perry.

In New Hampshire, which holds the first primary election, the NBC/Marist poll showed Romney with 45 percent support among Republicans, compared to 13 percent for Cain and 7 percent for Perry.

In South Carolina, the third state to weigh into the nomination race, a Sept. 11-18 survey by Winthrop University, based in Rock Hill, showed Romney with 27 percent support, closing the gap with Perry’s 31 percent. And in Florida, the biggest early primary state, a Sept. 29 poll by Miami-based Survey USA put Romney in the lead with 23 percent, followed by Perry at 19 percent and Cain at 17 percent.

Challenging Obama

“At the end of the day, it’s not who you fall in love with that will decide the nomination; it’s who can beat Obama, and I believe he will,” said John Feehery, a former aide to Republican Speaker Dennis Hastert of Illinois who isn’t affiliated with a presidential campaign.

Given the reluctance of the party’s base activists to rally around Romney’s candidacy, Feehery said “he’s got to grind down his opponents. Everyone doesn’t have to love him. They have to respect him.”

Romney will have the ability to do that because of his fundraising strength compared to the rest of the field.

Fundraising Strength

In his first disclosure report, Romney reported raising $18.5 million; his second report, which will be filed with the Federal Election Commission on Oct. 15, is expected to show he raised about $13 million in the third quarter period that ended Sept. 30.

Perry is the only other candidate to show the same level of fundraising strength. A day after New Jersey Governor Chris Christie said on Oct. 4 he wouldn’t seek the nomination, Perry’s campaign announced that he’d raised $17 million in the seven weeks since he entered the race on Aug. 13.

“They came out early because it was a good number and they wanted to show he could be competitive,” said Anthony Corrado, a campaign finance expert at Colby College in Waterville, Maine.

Perry’s announcement was also timed to stop a shift of Christie backers, including major fundraisers, to the Romney campaign, Corrado said. Yesterday, Christie endorsed Romney.

Early Primaries

Florida’s decision to move its primary to Jan. 31 could also work to Romney’s advantage. In the wake of that decision, Iowa, New Hampshire, South Carolina, and Nevada began debating new and earlier dates for their primary events. Iowa, for instance, is likely to move its caucuses to Jan. 3.

The truncated calendar is shortening the time candidates have to raise money before the voting begins, while increasing such costs as travel to and advertising in Florida. According to Corrado, the candidates will need between $15 million and $20 million in the bank by the end of December in order to compete in most of the five January primaries and caucuses.

“Ultimately, the battle for the nomination will be between Mitt Romney and someone else,” Dave Carney, a Perry adviser, said after the debate. “Our goal is to make us that someone else.”

To contact the reporter on this story: Jeanne Cummings in Washington at jcummings21@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Apple Seeks to Overcome Online Business Misfires With ICloud Debut: Tech

By Peter Burrows - Oct 12, 2011 11:01 AM GMT+0700
Bloomberg Markets Magazine
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ICloud will be included free along with an update of Apple’s iOS mobile software, which will be made available to customers today. Photographer: Justin Sullivan/Getty Images.

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Eddie Cue, senior vice president of Internet Software and Services at Apple Inc., speaks about new features of the iCloud service during an event at the company's headquarters in Cupertino, California. Photographer: David Paul Morris/Bloomberg

Apple Inc. (AAPL)’s iCloud service, part of its first product release since the Oct. 5 death of Steve Jobs, may cement the loyalty of millions of consumers lured by Jobs’s pioneering mobile devices over the past decade.

The service will automatically store photos, songs and other files on servers at Apple’s data centers and sync them with all of a customer’s gadgets. A photo taken with an iPhone would appear within seconds on a user’s iPad, iPod Touch, Apple TV set-top box and any personal computer running iTunes.

The move steps up competition with Google Inc. (GOOG)’s Android and other mobile-device rivals by making it harder to switch away from Apple products, said Bill Whyman, a technology analyst with International Strategy & Investment Group. If iCloud works as advertised -- something Apple’s previous online products haven’t always achieved -- the convenience of no longer needing to upload, download or sync files may lead many customers to buy exclusively from Apple, he said.

“ICloud could raise the switching costs for the customer, and the barriers to entry for the competitor,” Whyman said. “That’s very powerful.”

Walter Price, a portfolio manager at RCM Capital Management, has estimated that iCloud could increase Apple’s market value by $100 billion to $500 billion, due to the service’s effect on hardware sales and purchases of songs, movies and other media. The Cupertino, California-based company is already the world’s most valuable business, with a capitalization of $371.1 billion.

‘Just Works’

ICloud will be included free along with an update of Apple’s iOS mobile software, which will be made available to customers today. The service marks Apple’s most ambitious effort to expand its Internet-based operations beyond the basic iTunes store, which doles out songs, TV shows, audio books and mobile apps to one device at a time.

“Keeping these devices in sync is driving us crazy,” Jobs, then chief executive officer, said when he introduced iCloud at Apple’s Worldwide Developers Conference in June. With the new service, he said, “everything happens automatically and there’s nothing new to learn. It all just works.”

To succeed, Apple will need to improve on its mixed record in online services. Since Jobs returned to the company in 1997, the company has unveiled a series of Internet features. While iTunes and its App Store took off, some were quickly forgotten, such as an Apple-staffed editorial site to recommend websites called iReview. An online storage service named iDisk also never caught on. And a synchronization service called MobileMe suffered high-profile outages and performance problems after it was introduced in 2008.

Walled Garden

If iCloud is a hit, it could help Apple build thicker walls around its carefully controlled ecosystem of devices, at a time when Google, Facebook Inc. and Amazon.com Inc. (AMZN) are trying to lock in users to their own technologies.

Price predicts that iCloud will magnify Apple’s strength as a content distributor. If more customers buy only Apple devices, they’re more likely to get their music, TV shows and other forms of media from Apple -- rather than from Netflix Inc. (NFLX), Amazon and Comcast Corp.

ICloud is one of many features in Apple’s new mobile operating system, called iOS 5. The software also includes a service called iMessage that lets Apple customers send text messages to each other. And iOS 5 includes better integration with Twitter Inc.; a service for seeing the location of other iOS devices; and Cards, for people who want to create greeting cards and have Apple print and mail them.

Photo Stream

ICloud itself is comprised of a handful of separate free services. One called Photo Stream automatically stores a user’s 1,000 most recently taken pictures and syncs them with a customer’s iOS devices. Another one ensures that all the machines have the latest version of memos and spreadsheets created with Apple’s iWork applications.

Apple will charge $25 for a service called iTunes Match, which lets music fans automatically sync songs in their iTunes library that weren’t purchased from Apple. Apple will also charge for extra storage on its servers, offering the first 5 gigabytes for free.

ICloud is a risky, if necessary, move for Apple, said Stephen Baker, an analyst at NPD Group. One challenge: Customers will need to balance the convenience of iCloud with the cost of running up their monthly bandwidth fees. For now, many of the iCloud services only work over Wi-Fi networks. If the company wants to let customers also sync files over cellular networks -- when out of range of a Wi-Fi hot spot -- “someone is going to have to pay for the bandwidth,” Baker said.

‘Hotel California’

If Apple makes it difficult for consumers to move files to rival online services, iCloud also could infringe users’ rights to their own information, said Jonathan Zittrain, co-founder of the Berkman Center for Internet & Society.

“Just because Apple’s in Silicon Valley doesn’t mean it should run the Hotel California,” where data enters but can never leave, he said.

Then there’s the risk of disruptions, said Trip Chowdhry, an analyst at Global Equities Research. Not having access to the iTunes store due to an outage is an inconvenience. Losing one’s family photos or business documents is far more serious, he said. Millions of consumers may try iCloud, but would quickly go back to using existing services such as Google’s Gmail or Dropbox Inc. if it isn’t easy and reliable from the start.

“There’s no second chance to get it right,” he said.

To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Sprint Will Reveal IPhone Impact to Fix ‘Mistake,’ Chairman Hance Says

By Scott Moritz - Oct 12, 2011 11:01 AM GMT+0700

Sprint Nextel Corp. (S) Chairman James Hance said the company made a mistake in failing to disclose the future costs of selling Apple Inc. (AAPL)’s iPhone and it will provide the information this month.

The third-largest U.S. wireless operator fell two trading days in a row after an Oct. 7 investor meeting in New York, sliding 26 percent to the lowest level since February 2009. The event grew “ugly,” according to Walter Piecyk, an analyst with BTIG LLC, as Sprint said it needs to raise capital and refused to give detailed forecasts in response to repeated questions.

The iPhone, which Sprint began selling this month for the first time, has upfront expenses because the company subsidizes the cost to consumers in exchange for service revenue.

“Friday was tough on the stock, tough on everybody in terms of the way it came across,” Hance said in an interview. “It was a mistake not to disclose the impact of the iPhone -- a mistake we will fix. We will talk about the impact when we talk about the third-quarter earnings.”

The chairman also said Sprint’s board supports Chief Executive Officer Dan Hesse and his management team. Sprint has tumbled 83 percent since Hesse took over in December 2007, compared with an 18 percent drop in the Standard & Poor’s 500 index. The decline, punctuated by the analyst day drop, has put the CEO “on thin ice,” said Ed Snyder, an analyst with Charter Equity Research in San Francisco.

“There’s really no thought of doing anything with anyone on the management team,” Hance said. “We are supportive of management.”

‘Blame Us All’

“What we should have done is a better job of disclosing everything financially -- iPhone, Clearwire, all the questions hanging out there,” Hance said.

“I blame us all, frankly,” he said, referring to the company and board. “Collectively we missed it.”

At least seven analysts cut their ratings on the stock after the investor meeting, citing concerns that rising spending will hurt liquidity. Sprint, based in Overland Park, Kansas, said it will raise money to shift to long-term evolution, or LTE, wireless technology, the standard used by AT&T Inc. (T) and Verizon Wireless.

The latest upgrade strategy represents one of several strategic shifts that are getting expensive for shareholders, said Ben Abramowitz, an analyst with Kaufman Bros.

“Management credibility is lost with investors,” Abramowitz wrote about Sprint, as he downgraded the stock to “hold” from “buy.”

Network Vision

Sprint has been struggling to compete with AT&T and Verizon, the country’s largest wireless operators. Sprint has lost money for 15 consecutive quarters and in July missed second-quarter estimates by enough that its stock dropped 16 percent, at the time the largest decline since 2008.

At the strategy summit last week that Sprint called Network Vision, Hesse and his lieutenants explained how the company would upgrade its wireless network for the higher-speed LTE technology. Still, Hesse and Chief Financial Officer Joseph Euteneuer didn’t provide forecasts for profit or revenue, and they said all the financial information provided excluded the impact of the iPhone.

“They have a real credibility problem right now,” said Scott Dinsdale, a high-yield bond analyst at Montpelier, Vermont-based KDP Investment Advisors. “We were really positive on management beforehand because they’ve done a really good job of navigating the company through a lot of pitfalls. Now I feel like they’ve got an incomplete plan.”

Hance said the meeting was designed to explain how Sprint would simplify its wireless networks, shifting to new technologies to save money in the long term.

“That was seriously important to Sprint,” he said.

Clearwire Complexity

Analysts and investors expressed frustration over the lack of clarity about the relationship with partner Clearwire Corp. (CLWR) Though Sprint now uses Clearwire’s network to provide high- speed, fourth-generation wireless services, Hesse said it would only commit to using Clearwire’s network through 2012 and may not continue after that. Clearwire plunged 32 percent that day.

When Craig Moffett, an analyst with Sanford C. Bernstein & Co., asked whether Clearwire will be able to survive on its own, Hesse said analysts would have to ask Clearwire about its financial position. He also said service for Sprint customers would continue even if Clearwire files for bankruptcy.

Hance said the partnership is still important to Sprint.

“No question we want them to do well; it’s in our interest that they do well,” he said. “Nothing good happens in a restructuring and there’s nothing good in the outcome of that.”

To contact the reporter on this story: Scott Moritz in New York at Smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Romney Steers Debate Course; Cain Trumpets 9-9-9

By John McCormick and Lisa Lerer - Oct 12, 2011 10:13 AM GMT+0700

Former pizza executive Herman Cain sought to capitalize on his rise in opinion polls by repeatedly promoting his 9-9-9 tax plan at a debate focused on the economy, as other Republican presidential candidates derided it as impractical and criticized each other’s credentials.

Mitt Romney, the former Massachusetts governor who is the party’s frontrunner, navigated through repeated attacks from his opponents, including Texas Governor Rick Perry, who is struggling to reignite his candidacy.

The debate tonight showcased disputes among the candidates on a range of economic issues, including Chinese currency, housing loans, job creation and the possibility of future bailouts should the nation face another economic crisis. The candidates were united in their criticism of government, blaming President Barack Obama, the Federal Reserve and Congress for the nation’s economic struggles without noting that Republicans control the U.S. House.

The session was viewed as especially important for Cain, 65, and Perry, 61. Cain’s polling gains have reshaped the primary race and created a new challenge for Perry as he tries to regain ground he has lost to Romney.

The debate, moderated by Charlie Rose at Dartmouth College in Hanover, New Hampshire, and sponsored by Bloomberg News and the Washington Post, prodded the candidates to detail their plans for turning around an economy with an unemployment rate of 9.1 percent.

Cain’s Plan

Cain proposes to replace the tax system with 9 percent corporate and individual taxes and a 9 percent sales tax. Cain challenged a Bloomberg analysis of his tax plan that found it short in needed revenue. He has not publicly released his own campaign’s analysis and the assumptions used in the plan.

Jon Huntsman Jr., a former U.S. ambassador to China and ex- Utah governor, was one of those to mock Cain’s plan.

“I thought it was the price of a pizza when I first heard it,” Huntsman said, adding that instead something needs to be done that is “doable-doable-doable.”

Representative Michele Bachmann of Minnesota said: “When you take the 9-9-9 plan and turn it upside down, I think the devil is in the details.”

Bailouts

Romney left open the possibility that he would support another rescue package for the financial community though he criticized implementation of the 2008 package backed by both parties.

“I’m not interested in bailing out individual institutions that have wealthy people that want to make sure their shares are worth something,” Romney said. “I am interested in making sure that we preserve our financial system, our currency.”

Romney, 64, and seven Republican rivals are competing to persuade voters they are best-suited to challenge Obama on the economy.

Perry, who is scheduled to give a speech on the economy and energy in Pittsburgh on Oct. 14, said he wanted to open up the nation’s “treasure trove” of energy resources to invigorate the economy. “That’s the real key,” he said.

“The reason we have that many people living in poverty is because we have a president of the United States who’s a job killer,” Perry said. “You have a president that does not understand how to create wealth.”

Health-Care Issue

Perry questioned the health-care plan Romney passed as governor of Massachusetts, saying it raised insurance premiums in the state.

“I’m proud of the fact that we took on a major problem in my state,” Romney said, explaining that his goal was to tackle the problem of uninsured children. That problem, he said, was solved.

“We have less than one percent of kids uninsured in Massachusetts,” he said. “You have a million kids uninsured in Texas.”

U.S. Representative Ron Paul of Texas criticized Cain’s background, saying that as a one-time member of the board of the Federal Reserve Bank of Kansas City he resisted efforts to audit the bank.

“I don’t have a problem with the Federal Reserve being audited,” Cain responded. “It’s simply not my top priority. My top priority is 9-9-9. Jobs. Jobs. Jobs.”

Bernanke Targeted

Former House Speaker Newt Gingrich of Georgia won applause when he called for the removal of Federal Reserve Chairman Ben Bernanke.

“Bernanke has in secret spent hundreds of billions of dollars bailing out one group and not bailing out another group,” he said. “It is wrong and it is corrupt for one man to have that kind of power.”

Romney said he would pick a new Fed chairman as president, though he declined to indicate who he might choose.

Cain named Alan Greenspan as his favorite Federal Reserve chairman over the past several decades.

“I don’t believe in ending the Fed,” he said. “I believe we can fix the Fed.”

Paul called Greenspan “a disaster,” saying that although he hoped to end the bank, Paul Volcker was the only chairman who did “a little bit of good.”

Rick Santorum, a former U.S. senator from Pennsylvania, said he wants to increase American economic competitiveness by beating out China.

“I want to go to war with China and make America the most attractive place in the world to do business,” he said.

Perry was asked whether he would follow the model of President Ronald Reagan and agree to tax increases as part of spending cuts. “I don’t think he ever saw those reductions,” Perry said, as he called for a balanced budget amendment.

Balanced Budget

“One of the reasons that I think Americans are so untrustworthy of what’s going on is because they never see a cut in spending,” Perry said. “The fact of the matter is the issue is we need to have a balanced budget amendment to the United States.”

Reagan, renowned by Republicans as a tax-cutter, also increased revenue about a dozen times when confronted with surging deficits. The Treasury Department has estimated those measures would be the equivalent of $300 billion annually today.

Hours before the debate Romney won the endorsement of Governor Chris Christie of New Jersey, who came to the state to personally deliver his support.

Christie’s announcement followed his decision last week not to enter the race, dashing the hopes of some Republican leaders and donors seeking an alternative to Romney and others running for the party’s nomination.

Seventh Debate

The gathering marked the seventh formal debate for the Republican candidates since May 5. Their next meeting is scheduled for Oct. 18 in Las Vegas.

Romney, who has become a more frequent target for his rivals, enjoys something of a home-field advantage for the debate, given that he owns property in New Hampshire and his service as governor of neighboring Massachusetts from 2003 to 2007. He also unsuccessfully sought the Republican presidential nomination in 2008.

The dynamics of this year’s contest have shifted over the last month as Perry fell from frontrunner status following stumbles at previous debates, including his comment at a Sept. 22 face-off that those who oppose an in-state tuition program for the children of undocumented immigrants that he favored as Texas’ governor don’t “have a heart.” He has since retreated from that phrasing, while standing by the program.

A pre-debate poll of Republicans and Republican-leaning independents by Bloomberg News and The Washington Post, the debate sponsors, found that Cain, a former chief executive officer of Godfather’s Pizza, has gained ground.

Romney Leads

Romney was picked by 24 percent of Republicans as the person they want to win the nomination, followed by Cain at 16 percent and Perry at 13 percent.

Rounding out the field, 6 percent backed Paul, 4 percent were for Bachmann, 3 percent supported Gingrich, 1 percent picked Santorum and less than 1 percent backed Huntsman.

The poll surveyed 391 Republicans and Republican-leaning independents with a margin of error of plus or minus 6 percentage points for that group.

Different Format

Tonight’s debate was the first time the candidates have debated sitting down. They sat at an oval table based on poll results, which means Romney and Cain are next to each other. They also were allowed to ask questions of each other.

Christie, appearing today with Romney at a news conference in Lebanon, New Hampshire, praised the former Massachusetts governor as “an executive who has used executive power,” a reference to Romney’s business experience.

“This is not someone who just decided to run for president off the back of an envelope,” Christie said of Romney. “This is somebody who has thought and listened and planned for a good long period of time about what you would do if he was given the honor of being president of the United States.”

He also said Romney, the onetime chief executive of the investment firm Bain Capital LLC, has “laid out the most detailed economic plan of anybody in the race.”

Romney on Sept. 6 released a 59-point plan that included proposals to cut U.S. corporate taxes, reduce federal regulations and pursue sanctions against China for currency manipulation.

During the debate, Romney said his economic plan calls for cutting capital gains tax rates for middle-class taxpayers because they are the people “who are hurting the most.”

Christie told reporters in New Jersey that he was attracted by Romney’s pledge that on his first day to as president he would issue all U.S. states automatic waivers from implementing Obama’s health-care overhaul.

Running Mate Question

Christie, 49, said he doesn’t anticipate being asked to join a Romney ticket as a vice presidential candidate. He didn’t say no when asked twice whether he would accept the position if offered.

The New Jersey governor said he’s ready to travel the U.S. in support of Romney, and has urged his backers and party leaders in New Jersey and other states to follow his lead.

“I have no question in my mind that Governor Romney is our party’s and our country’s best opportunity to defeat President Obama,” he said.

Debbie Wasserman Schultz, a Florida congresswoman who is chairwoman of the Democratic National Committee, discounted the significance of Christie’s endorsement.

“We’re talking about a governor with a failed record on jobs endorsing a former governor with a failed record on jobs,” she told reporters before the debate. “I would probably look for someone with a little more track record for success.”

To contact the reporters on this story: John McCormick in Hanover at jmccormick16@bloomberg.net; Lisa Lerer in Hanover at llerer@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Senate Blocks Obama’s $447B Job Creation Plan

By Laura Litvan - Oct 12, 2011 11:01 AM GMT+0700
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President Barack Obama holds up a copy of the American Jobs Act as he speaks after a tour of the Children's Laboratory School at Eastfield College in Mesquite, Texas, on Oct. 4, 2011. Photographer: Saul Loeb/AFP/Getty Images

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Oct. 11 (Bloomberg) -- Ed Zander, former chief executive officer of Motorola Inc., talks about U.S. economy and ways to spur employment growth. He speaks with Jon Erlichman and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

President Barack Obama’s drive to enact a $447 billion jobs plan was derailed by the U.S. Senate, falling short of the 60 votes needed to advance what he has proposed to revive a faltering economy.

Two Democrats joined the Republican minority to block the plan in a test vote. Yesterday’s tally was 50-49, shelving the measure in its current form. Voting was completed in the evening as the roll call remained open to let Senator Jeanne Shaheen, a New Hampshire Democrat, return to Washington to vote for the plan.

The broad legislation includes cuts in payroll taxes for workers and employers and provides new funding for roads, bridges and other infrastructure. Parts of it could still be salvaged if there is enough support for specific provisions.

Senate Minority Leader Mitch McConnell called the measure a “lousy idea” that relies on proposals similar to 2009’s $825 billion stimulus, an effort he said that failed to work.

“If voting against another stimulus is the only way we can get Democrats in Washington to finally abandon this failed approach to job creation, then so be it,” said McConnell, a Kentucky Republican.

Senate Democratic leaders last week revised the president’s initial proposal, partly to try to pick up more support within their party. That scrapped Obama’s method of paying for the jobs plan, including higher taxes on families making more than $250,000 a year. Senate leaders substituted a 5.6 percent surtax on people making at least $1 million annually.

‘Tax Gimmicks’

Even so, Democratic Senators Jon Tester of Montana and Ben Nelson of Nebraska opposed the plan. “I can’t support tax gimmicks that do little to create jobs” and don’t address the need for a bipartisan deficit-cutting plan, Tester said in a statement.

Before the Senate voted, Majority Leader Harry Reid accused Republicans -- who are trying to take control of the Senate and White House in 2012 -- of attempting to hamper the economy for political benefit. He said Republicans are opposing job-creation ideas they supported in previous years.

“Republicans oppose those ideas now because they have a proven track record of creating jobs, and Republicans think if the economy improves it might help President Obama,” said Reid, a Nevada Democrat. “So they root for the economy to fail, and oppose every effort to improve it.”

Pressing Ahead

Obama vowed to press ahead and seek to get individual provisions of his plan passed by Congress.

“Tonight’s vote is by no means the end of this fight,” Obama said in a statement yesterday. As they vote on each component, “members of Congress can either explain to their constituents why they’re against commonsense, bipartisan proposals to create jobs, or they can listen to the overwhelming majority of American people who are crying out for action.”

The vote leaves Obama’s economic agenda in limbo because the political parties disagree about what should be done to lower the nation’s 9.1 percent unemployment rate, said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington. Republicans seek permanent tax cuts and deregulation, while Obama and congressional Democrats want more federal spending and short-term tax reductions.

“The president’s jobs initiative is at the end of its legislative life -- not that it really had one,” Stretch said. He said the focus will likely shift away from jobs and toward the work of a congressional supercommittee that is tasked with cutting $1.5 billion from the federal deficit over 10 years.

Obama’s Plan

Obama proposes to create jobs by cutting payroll taxes for workers and employers by half, extending jobless benefits, providing aid to states for schools and emergency workers and boosting spending on public works projects such as roads and bridges. He also would provide tax breaks for employers to hire the unemployed.

The plan would be financed by Senate Democratic leaders’ proposed surtax, which the U.S. Congressional Budget Office said would raise $453 billion.

Obama endorsed the leaders’ plan. He had proposed capping itemized deductions for individuals earning more than $200,000 a year and couples earning more than $250,000. He also proposed raising taxes on private equity firm managers, real estate investors and venture capitalists, and ending oil and gas subsidies.

‘Issues of Inequality’

The new method of offsetting the bill’s costs still ran into Democratic opposition. Senator James Webb, a Virginia Democrat, said he would vote to let debate start, but wouldn’t support the Senate jobs legislation as it was drafted. He said a tax on millionaires that is income-based fails to address real issues of inequality in the tax code. He said the best method to spread the tax burden would be to boost taxes on capital gains.

“The present proposal looks good at first glance; it sounds good on a TV bite, but in all respect to the people who put it forward, I do not believe it’s smart policy and it does not go where the real economic division lies in our country,” Webb said.

In the House, Obama’s plan also faces hurdles. Republicans who hold the majority oppose the tax increases, and party leaders there also have said it adds spending in many areas already bolstered in 2009’s economic stimulus measure.

House Republican leaders say some of Obama’s ideas, such as payroll tax cuts, are worth considering.

The Senate bill is S. 1660.

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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