Apple Apps Remain Developers’ Favorite Even as Android Spreads

By Olga Kharif - Feb 14, 2012 12:01 PM GMT+0700

Google Inc. (GOOG) has turned Android into the most popular operating system for smartphones. And yet the platform may be losing ground to Apple Inc.’s iOS in a major area: new applications.

Relative to Apple, fewer apps were created for Android in January than a year earlier, according to Flurry, a company that analyzes mobile-software data. Developers made roughly one new Android app for every three Apple apps, Flurry found. A year ago, they created two Android app for every three Apple apps.

While the study only tracked developers who design apps using Flurry’s tools, the shift suggests that Google’s bid to overtake Apple’s industry-leading App Store may be losing some steam. Apple has more than 550,000 apps in its store, compared with over 400,000 for Google’s Android Market. Both companies count on the array of apps to make their phones more enticing and lock in consumers who are already using the devices.

“We saw a greater migration to iOS,” said Peter Farago, vice president of marketing at San Francisco-based Flurry.

Google has made quick gains on Apple since the first Android phones went on sale in 2008. In 2011, though, the growth in new apps for Android was about half the level of Apple, according to the firm, which tracks more than 55,000 developers. The study measured more than 65,000 new software projects over the course of the year.

Less Interested?

Other research firms are seeing a similar slowdown in Android. A survey of about 2,000 developers conducted by Appcelerator and IDC found that fewer programmers were “very interested” in developing for Android phones and tablets in November than in June, while their interest in iOS devices remained unchanged.

Christopher Katsaros, a spokesman at Google in Mountain View, California, declined to comment. Christine Monaghan at Cupertino, California-based Apple didn’t return a request for comment.

The reasons for the smaller interest in Android involve time and money. Apple apps can be quicker to develop and it’s easier to generate revenue from them, thanks in part to Apple’s iTunes system.

“Developers can make more money on iOS,” Farago said.

Take GameHouse, a maker of games such as “Doodle Jump” and “NCIS the Game.” It makes three to four times more revenue on an iOS title than on an Android game, said Ken Murphy, a vice president at the company, which is part of RealNetworks Inc. (RNWK) GameHouse also has to spend an extra two months working on an Android game versus an iOS title. That lengthens the time it takes to get it to market by about 30 percent, he said.

“It’s nowhere near as simple as iOS,” Murphy said.

‘Tough Spot’

The sheer variety of Android devices is one complication. GameHouse has to tweak its games to account for variations in accelerometers and responsiveness in more than 550 different Android gadgets, Murphy said. Apple, by contrast, has just a few models.

Bill O’Donnell, general manager of mobile products at the travel site Kayak.com, says his company isn’t able to test its software on every variety of Android phone. There are just too many of them.

“It puts developers in a tough spot,” he said.

Sometimes individual models require many extra changes. With Amazon.com Inc. (AMZN)’s Kindle Fire tablet, two Kayak engineers had to spend a month and a half changing all of the company’s apps to work with Bing Maps rather than Google Maps, O’Donnell said. Despite being an Android device, Kindle Fire didn’t come with Google apps preloaded.

“That was a huge pain,” he said.

App Stores

Distributing Android software to multiple application stores takes more work as well, whereas developers only have to submit iOS programs to Apple’s site.

“For Android, there are 90 app stores,” said Alex Caccia, president of Marmalade, whose software lets developers adapt apps to different devices. “And if you are serious about this market, you’ve got to do it.”

It’s also not as easy to charge Android users for apps as it is on Apple (AAPL) devices. With iPhones and iPads, owners’ credit- card accounts are already stored on iTunes, which makes app purchases simple. Android doesn’t have the same mechanism for all its users, Farago said.

“Consumers are more trained to get free things on Android,” he said.

Long-Term Opportunity

While Android developers can make money off sales of in- game merchandise, such as virtual weapons and other digital items, many are still working out how to do that, Caccia said.

Even so, the slowdown in app development hasn’t stopped the spread of Android devices. In the fourth quarter, Android was running on 47.3 percent of U.S. smartphones, up from 44.8 percent in the previous three months, according to research firm ComScore Inc. And while Google’s Android Market has fewer apps than Apple’s store, the number of programs has almost tripled from a year ago.

Developers still see Android as a valuable source of revenue in the longer term, as Google irons out the wrinkles. GameHouse is planning to hire more staff to work on the software.

“In the short term, there’s a lot of money in iOS,” Murphy said. “In the long term, we are very bullish on Android.”

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

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

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Google Wins U.S. Nod to Buy Motorola Mobility

By Jeff Bliss - Feb 14, 2012 12:01 PM GMT+0700

Google Inc. (GOOG) won U.S. antitrust approval to purchase Motorola Mobility Holdings Inc (MMI). for $12.5 billion and expand its mobile-phone patents to increase competition with Apple Inc. (AAPL)

The acquisition of Libertyville, Illinois-based Motorola Mobility gives Google, the biggest maker of smartphone software, more than 17,000 additional patents in the largest wireless- equipment deal in at least a decade, according to data compiled by Bloomberg.

The U.S. Justice Department said that the Motorola Mobility patent purchases as well as two separate deals it approved yesterday wouldn’t hurt competition in the mobile-phone industry. Google earlier won approval for the purchase in the European Union while the company is awaiting regulatory clearance in China and Israel.

“The specific transactions at issue are not likely to significantly change existing market dynamics,” according to a Justice Department statement.

Google, based in Mountain View, California, cited reinforcing its defenses in patent litigation as the prime motive for buying Motorola Mobility and its patents.

Lawsuits Over Android

Apple, maker of the iPhone, and Microsoft Corp. (MSFT), developer of Windows Phone software, have alleged patent infringement in lawsuits around the world over phones that run on Google’s Android system, including handsets built by Motorola Mobility, Samsung Electronics Co. and HTC Corp. (2498)

In a blog posting on the European Union approval, Don Harrison, Google’s vice president and deputy general counsel, said the combination of Google and Motorola Mobility will “supercharge Android” and “enhance competition.”

Niki Fenwick, a Google spokeswoman, said in a statement the company hopes to complete the transaction early this year.

The deals approved by the department are part of a growing trend of technology companies buying patents they can use to defend themselves against intellectual-property suits. Google’s Chief Executive Officer Larry Page said in August that the company’s bid for Motorola Mobility would help protect Android against “anticompetitive attacks” from Apple and Microsoft.

The Motorola Mobility acquisition would make Google a competitor to the other handset makers that make Android devices.

Mobile-Device Industry

The patents include technology essential to the mobile- device industry, including location services, antenna designs and touch-screen motions.

A plan by a consortium led by Microsoft and Apple to buy Nortel Network Corp. patents also received antitrust approval yesterday, according to the Justice Department. The $4.5 billion acquisition will give the consortium, which includes Research in Motion Ltd., Sony Corp. (6758), Ericsson AB and EMC Corp (EMC)., control of more than 6,000 patents and applications that cover wireless technologies.

The department also said it approved Apple’s acquisition of some Novell Inc. (NOVL) patents.

During the Justice Department investigation of the patent deals, the agency said it became concerned with the increasing tendency of patent holders filing lawsuits to stop other companies from using their key smartphone technology. The department said it will continue to examine companies such as Google that haven’t sworn off the practice.

Enforcement Action

In its statement, the department said it “will not hesitate to take appropriate enforcement action to stop any anticompetitive use” of essential technology.

In approving the Google-Motorola Mobility deal, Joaquin Almunia, the European Union’s antitrust chief, told reporters he wouldn’t rule out future antitrust investigations into companies using lawsuits to block rivals.

Companies shouldn’t abuse their market power by “launching injunctions,” he said.

The EU is investigating whether Samsung Electronics (005930) Co. broke a commitment to license its smartphone patents to rivals on “fair, reasonable and non-discriminatory terms.”

Google said in a Feb. 8 letter that it would still consider seeking court injunctions if it couldn’t resolve “standard compliant” patent disputes. Google wrote the letter to answer questions of EU regulators.

Microsoft, of Redmond, Washington, and Cupertino, California-based Apple have said they won’t deny other companies from using their technology if they have previously signed an agreement to that effect.

“We are encouraged that the U.S. Department of Justice and the European Commission both have raised concerns about the misuse of standard-essential patents and Google’s failure to address this issue in a satisfactory way,” said Brad Smith, executive vice president and general counsel at Microsoft, in a statement.

Companies often sign contracts agreeing to license essential technology for a reasonable price as a way to ensure steady improvement in the technology.

To contact the reporters on this story: Jeff Bliss in Washington at jbliss@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Steven Komarow at skomarow1@bloomberg.net

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Attacks May Escalate Covert Israel-Iran War

By John Walcott - Feb 14, 2012 7:53 PM GMT+0700

U.S. officials and defense analysts are concerned that a covert war of assassinations between Israel and Iran could escalate out of control.

“Things are heating up and there is a surge” of assassination attempts, Matthew Levitt, a former U.S. Treasury Department official and now director of the Stein Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy, said in a telephone interview.

Israeli Prime Minister Benjamin Netanyahu yesterday blamed Iran for car bombings of Israeli diplomatic vehicles in New Delhi and the Georgian capital of Tbilisi. The attacks come after the deaths of several Iranian nuclear scientists, the most recent in a Jan. 11 car bombing in Tehran that Iran said Israel had orchestrated.

Israeli leaders have said time is running out for sanctions to deter Iran from developing nuclear weapons and have not ruled out a military strike. The U.S. and its allies have tightened economic restrictions on Iran while seeking to avert a military conflagration in a region that holds more than half of global oil reserves.

The attacks came a day after the fourth anniversary of the killing of Imad Mughniyeh, who was a leader of the military wing of the Iranian-backed Lebanese Hezbollah movement, which Israel and the U.S consider a terrorist organization.

Israeli Vow

Four people were injured in New Delhi, including the wife of an Israeli diplomat and her Indian driver, in a blast about 500 meters (1,640 feet) from Israel’s embassy, Indian Foreign Ministry spokesman Syed Akbaruddin said in a text message. A bomb planted in an Israeli embassy employee’s car in Tbilisi was discovered and defused before it exploded. Officials in Thailand said an Iranian was critically injured in a grenade explosion today as he and two others tried to escape arrest in Bangkok.

“Israel will act methodically and with determination and steadfastness against international terrorism originating from Iran,” Netanyahu said in comments to parliament sent to reporters by text message.

Secretary of State Hillary Clinton condemned yesterday’s attacks, and Iran denied any connection to them. White House press spokesman Jay Carney said the U.S. is concerned about the targeting of Israeli interests, adding that the American government doesn’t have information about who sponsored the operations.

U.S. intelligence officials and analysts said the latest incidents appear to fit a pattern of escalating violence between Israel and Iran, some of it probably carried out by Hezbollah in concert with elements of Iran’s Revolutionary Guard Corps.

Changed Calculus

In his annual threat assessment to Congress on Jan. 31, Director of National Intelligence James Clapper said an alleged plot last year to assassinate the Saudi Arabian ambassador to the U.S. “shows that some Iranian leaders -- probably including Supreme Leader Ayatollah Ali Khamenei -- have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived U.S. actions that threaten the regime. We are also concerned about Iranian plotting against U.S. or allied interests overseas.”

Another U.S. intelligence official, speaking on condition of anonymity because intelligence matters are classified, said there is growing concern that Khamenei, who he said controls the Revolutionary Guard and its elite Qods Force, is becoming more isolated and radical and less risk-averse, partly in reaction to heightened Western economic pressure on his country and its nuclear program.

Coincidence of Interests

Four U.S. officials who spoke on condition of anonymity cited a planned Hezbollah attack that was prevented in Thailand and what they said were other anti-Israeli operations that were disrupted in Azerbaijan and Bulgaria. Thai police charged a Swedish-Lebanese man they said was linked to Hezbollah with possessing illegal substances after he was detained last month in connection with a plan to attack tourist sites frequented by Americans and Israelis, Charamporn Suramanee, the assistant police chief, said on Jan. 16.

Levitt said this period resembles the years 1992-1994, when Hezbollah and Iran had a coincidence of interests in attacking Israeli targets similar to the situation that exists today. That period included a 1992 bomb attack on an Israeli embassy building in Buenos Aires and a 1994 attack on a Jewish community center in the Argentine capital, both blamed on Hezbollah.

This time, Hezbollah is seeking to avenge Mughniyeh’s 2008 death in Damascus and Iran is responding to the killings of its nuclear scientists, having blamed Israel in both cases, Levitt said.

‘Iranian Retaliation’

“The most likely possibility is that this is Iranian retaliation for assassinations of the scientists,” said Paul Pillar, a former CIA analyst who now teaches at Georgetown University, in an e-mail response to a query. “Even the method used was the same as the most recent such assassination” of the Iranian scientist.

Khamenei pledged Feb. 3 to help “any nation or group that confronts the Zionist regime.”

Indian and Georgian authorities said they were trying to determine who was behind the attacks.

The attack in New Delhi was carried out by somebody who had been “well trained,” India’s Home Minister Palaniappan Chidambaram told reporters today. The government is not “pointing the finger” at any group as its investigation is continuing, he said.

“There is reason to believe that the target was the Israeli diplomat’s wife and, therefore, one has to proceed on the basis that it was a terrorist attack,” he said.

Israeli Bonds Fall

The Israeli injured in the Delhi explosion was in stable condition in a hospital in the city, Police Commissioner B.K. Gupta told reporters. A fire engulfed the car moments after the blast and was responsible for most of the damage to the vehicle, he said.

“The Israeli car was targeted, there is no doubt about it,” Gupta said.

Israel’s benchmark bonds fell yesterday, lifting yields to the highest level in almost two months. The yield on the 5.5 percent notes due January 2022 rose two basis points, or 0.02 percentage point, to 4.6 percent, the highest since Dec. 15. The Tel Aviv Stock Exchange’s benchmark TA-25 Index fell 0.1 percent to 1119.49.

Initial investigations suggest that a magnetic device was attached to the car in New Delhi before it exploded, Gupta said. At least three other people including the driver were hurt in the explosion that occurred as the car drove toward the city’s American Embassy School, he said.

‘Propaganda War’

Iran’s ambassador to India, Mahdi Nabizadeh, rejected charges his country was behind the attacks. According to Iran’s official news agency IRNA, Nabizadeh called the Israeli accusations “lies” and said his government condemned any “terrorist” acts. Iranian Foreign Ministry spokesman Ramin Mehmanparast said the accusations “are part of a propaganda war” by Israel, according to a report on state-run Press TV’s website today.

In Tbilisi, an Israeli embassy employee discovered the bomb and reported it to police, who defused it, Georgian Interior Ministry spokesman Shota Utiashvili said by phone. There were no injuries and the embassy wasn’t evacuated, he said.

The incident in Thailand followed an explosion at a rented house, according to officials in Bangkok. Five people were hurt. Police said two men, possibly Iranian, escaped.

To contact the reporter on this story: John Walcott in Washington at jwalcott9@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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Alcatel-Lucent Seen as Leader in Wireless Carrier Fight for Capacity: Tech

By Olga Kharif - Feb 14, 2012 3:48 PM GMT+0700

Sprint Nextel Corp. (S) is in talks to use new Alcatel-Lucent (ALU) telecommunications gear designed to help wireless networks handle more calls. The discussions reflect the industry’s race to avert a capacity crunch for mobile service.

Alcatel-Lucent (ALU)’s lightRadio, introduced a year ago, is a Rubik’s Cube-sized device that contains radios and antennae and can be mounted on rooftops, phone poles and bus shelters to expand a network’s capacity in a given spot. LightRadio is one of several new technologies created to help the mobile-phone industry cope with the rising tide of calling and data that’s putting a strain on mobile networks just as the wireless airwaves -- or spectrum -- used to carry traffic grow scarce.

As consumers do more Web surfing and application downloading on devices such as Apple Inc. (AAPL)’s iPhone and tablets using Google Inc. (GOOG) Android software, mobile-data traffic will surge 26-fold in the five years through 2015, Cisco Systems Inc. (CSCO) estimates. And with limited spectrum available, mobile-service providers are looking for ways to squeeze more from existing capacity. That has Alcatel-Lucent and other gear makers racing for part of the $36 billion that Ovum predicts U.S. phone companies will devote to capital spending in 2012.

“We use technologies to mine spectrum as much as possible,” Bob Azzi, senior vice president of network at Overland Park, Kansas-based Sprint, said in an interview. “That can give us some wiggle room along the way.”

‘Spectrum Crunch’

Multiple U.S. carriers are testing lightRadio and may begin deploying it this year, Marcus Weldon, chief technology officer at Paris-based Alcatel-Lucent, said in an interview. He declined to identify the carriers. Representatives of Dallas-based AT&T Inc. (T) and Verizon Communications Inc. (VZ), based in New York, declined to comment.

“We are in a spectrum crunch,” Weldon said.

Alcatel-Lucent (ALU) rose as much as 4.2 percent in Paris trading today and was up 3.6 percent at 1.71 euros as of 9:42 a.m., valuing the company at 4 billion euros ($5.3 billion).

For the past two decades, the U.S. government has helped carriers meet increased demand by auctioning off large blocks of airwaves, used to carry calls and data. Freeing new spectrum has emerged as a “crucial challenge,” Federal Communications Commission Chairman Julius Genachowski said in a speech last year. Even after new auctions happen, it would take several more years for the buyers to deploy the spectrum.

As a result, U.S. carriers may grow more dependent on new technologies to keep up with escalating user demand.

‘Waiting’ for the FCC

“The No. 1 issue for us as we move forward, and for the industry, I believe, continues to be spectrum,” AT&T Chief Executive Officer Randall Stephenson said during a January earnings call. “This growth cannot continue without more spectrum being cleared and brought to market. And despite all the speeches from the FCC, we’re all still waiting.”

Qualcomm Inc. (QCOM), the biggest maker of mobile-phone chips, has developed its own software and chips for small cells -- these the size of a cigarette pack -- designed to boost network capacity.

New capacity-boosting cells augur an overhaul of the design of wireless networks, which now rely on placement of large, expensive cell towers that transmit signals between handsets and the vast underground fiber-optic cable networks that send calls instantly across the globe.

“It’s going to change the way that networks get deployed, and we’re going to get the data rates through the devices up pretty dramatically by using that,” Paul Jacobs, CEO of San Diego-based Qualcomm, said during a November conference call with investors.

Revamp Costs

A recent survey by Informa Telecoms & Media showed that 60 percent of carriers say small cells of various types will be more important than traditional cells in advanced wireless networks.

Revamping networks won’t come cheap. Each cell has to be attached to existing equipment. The market for outdoor cells like those from Alcatel-Lucent could rise to as high as $8 billion by 2016, according to ABI Research. U.S. wireless carriers will increase capital spending 10 percent to $36 billion this year, according to London-based Ovum. That’s double the rate of last year.

“There’s a real concern: Can we keep up with demand?” Alcatel’s Weldon said. “There’s only one solution, and it’s a difficult solution to afford. Carriers can’t afford to increase spending much. All this means, they’ll take longer to do it. Network congestion is always going to be a factor.”

Capacity constraints already interfere with call quality and download speeds in highly populated areas. According to J.D. Power & Associates, 13 percent of all calls made with smartphones experience some degradation.

Congestion

“There are already isolated, but regularly occurring congestion issues in major cities,” Peter Rysavy, president of consulting firm Rysavy Research, said in an interview. “Over time, usage will increase, and it will constrain usefulness of the service.”

Carriers such as Sprint are coping in other ways, including shifting more traffic to local Wi-Fi networks, and using software to adjust mobile video so it takes less bandwidth during peak hours.

Sprint is also buying capacity from other network owners, such as Bellevue, Washington-based Clearwire Corp. (CLWR) As a result of the Clearwire arrangement, Sprint won’t face a spectrum crunch until 2016, Azzi said.

Clearwire is in discussions to provide airwaves to other carriers, Clearwire CEO Erik Prusch said in a recent interview.

“Spectrum deficiency really gets large in 2013-2014,” Prusch said. “We are talking to a lot of players, anybody who’s in need of it.” He declined to identify other carriers.

Rising Prices

Another option is for carriers to raise consumer prices, discouraging network use. Tim Horan, an analyst at Oppenheimer & Co., expects U.S. service providers to raise prices on wireless contracts at a faster pace in the coming years.

“They are going to either charge for usage more or increase the minimum amount” paid for a data plan, Horan said in an interview. AT&T in January increased the cost of its cheapest smartphone data plan for new customers to $20 a month, from $15. Several carriers moved away from unlimited data plans to limited plans last year.

For some carriers, technological innovation may do most to avert the capacity crunch, said Reed Hundt, a former chairman of the Federal Communications Commission.

“God only made a certain amount of spectrum,” Hundt said in an interview. “To go beyond that you have to have a different architectural solution, and that’s where micro cells come in.”

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

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

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BOJ Unexpectedly Adds Stimulus as It Sets 1% Target for Inflation: Economy

By Toru Fujioka and Keiko Ujikane - Feb 14, 2012 5:03 PM GMT+0700

Japan’s central bank unexpectedly added 10 trillion yen ($128 billion) to an asset-purchase program and set an inflation goal after an economic slide fueled criticism it has been slower to act than counterparts.

An asset fund increased to 30 trillion yen, with a credit lending program staying at 35 trillion yen, the Bank of Japan said in Tokyo today. The BOJ also said that it will target 1 percent inflation “for the time being.”

Stocks rose and the yen weakened against the dollar as the central bank expanded stimulus for the first time since October to revive an economy that shrank an annualized 2.3 percent last quarter. Lawmakers had urged extra efforts to counter deflation after the Federal Reserve adopted a 2 percent inflation target and the European Central Bank expanded its balance sheet.

Today’s decision “shows the BOJ bowed to political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There will probably be limited impact on the yen’s gains.”

The overnight lending rate stayed between zero and 0.1 percent. Twelve of 13 economists surveyed by Bloomberg News had anticipated no change in stimulus or rates.

Japan’s bonds rose, sending the yields on five-year securities down two basis points, or 0.02 percentage point, to 0.32 percent as of 6:56 p.m. in Tokyo, matching the lowest since November. The benchmark 10-year yield also declined two basis points to 0.96 percent.

‘Overcome Deflation’

The BOJ’s price framework is similar to that of the Fed and easing wasn’t in response to government pressure, Governor Masaaki Shirakawa said at a press briefing in Tokyo. The central bank aimed to “clarify its monetary policy stance” and wants to “overcome deflation and achieve sustainable growth with price stability,” it said in a statement.

The BOJ’s stated understanding of price stability has been gains of from above zero to 2 percent, centered on 1 percent. Today the policy board said it had “decided to set a goal of 1 percent for the time being to clarify the inflation rate which the bank’s monetary policy aims to achieve.”

The yen fell to 78.12 per dollar as of 6:56 p.m. in Tokyo, from 77.60 before the announcement and compared with a post World War II high of 75.35 in October. The currency’s strength is hurting exporters such as Sony Corp. (6758), which has more than doubled its annual loss forecast to 220 billion yen. The Nikkei 225 Stock Average closed 0.6 percent higher.

Lawmakers’ Complaints

Lawmakers renewed criticism of the BOJ after the announcement, with Kozo Yamamoto, of the Liberal Democratic Party, saying the 1 percent target was “too low” and not a substantial change from existing policy. Takeshi Miyazaki, a ruling Democratic Party of Japan lawmaker, said the central bank’s approach seemed half-hearted and may give the impression that Japan tolerates a strong yen.

A group of DPJ lawmakers is seeking a 2 percent to 3 percent inflation target.

“Compared to the ECB’s definition of price stability or the Fed’s price target, the BOJ’s clarification still seems vague,” said Junko Nishioka, a Tokyo-based analyst at RBS Securities Japan Ltd.

Prices haven’t risen at least 1 percent for any year since 1997 and the economy now faces drags ranging from weakness in global demand to shutdowns of nuclear power plants after last year’s March 11 earthquake and tsunami, which left more than 19,000 people dead or missing.

‘Bold’ Steps

“We welcome the BOJ’s policy measures, which are aggressive steps intended to beat deflation,” Finance Minister Jun Azumi said in Tokyo today. “I hope the BOJ’s bold monetary easing gives a boost to the economy.”

Shirakawa and his colleagues acted three times last year to expand asset purchases by a total of 15 trillion yen, efforts that didn’t halt yen gains. Today’s increase in the asset- purchase facility will fund purchases of more government bonds, the central bank said.

Elsewhere around the world, a report today showed that euro area industrial production fell 1.1 percent in December from November.

Sales at U.S. retailers probably rose in January by the most in four months, led by growing demand for autos, economists said before a report today. The projected 0.8 percent increase would follow a 0.1 percent December advance, according to the median forecast of 82 economists surveyed by Bloomberg News.

Shrinking Economy

In Japan, the economy shrank more than analysts forecast in the fourth quarter, a report showed yesterday. RBS Securities Japan Ltd. forecasts that gross domestic product will expand 1.6 percent this quarter and JP Morgan Securities has estimated 1.8 percent growth as reconstruction work kicks in.

This week’s BOJ meeting was the first since Economy Minister Motohisa Furukawa said that the central bank may need to improve communication of its stance on prices.

The Fed and BOJ have signaled differences over the ability to control long-run rates of change in prices. Fed policy makers said last month that “the inflation rate over the longer run is primarily determined by monetary policy.”

By contrast, Shirakawa has for years indicated that the BOJ cannot achieve its inflation target on its own. He said at a business conference Jan. 29, 2010, that lack of demand was the “root cause of deflation” and there was no “magic wand.”

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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European Stocks Pare Advance as Rio Tinto, ThyssenKrupp Drop; Shell Rises

By Peter Levring - Feb 14, 2012 8:00 PM GMT+0700

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Feb. 14 (Bloomberg) -- Julian Jessop, chief global economist at Capital Economics Ltd., talks about Greece's membership of the euro and the outlook for gold and other commodities. He speaks with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

European (SXXP) stocks pared gains, after the Stoxx Europe 600 Index yesterday rallied the most in a week, as Rio Tinto Group slipped, offsetting a report showing that German investor confidence rose to a 10-month high. U.S. index futures were little changed, while Asian shares slid.

Royal Dutch Shell Plc (RDSA) gained 1 percent, dragging the Stoxx 600 higher. ThyssenKrupp AG (TKA), Germany’s biggest steelmaker, fell 2.5 percent after posting a first-quarter loss following project delays. TDC A/S (TDC) slipped 4.7 percent after private-equity investors sold shares in Denmark’s biggest phone company.

The Stoxx 600 gained 0.1 percent to 263.3 at 12:59 p.m. in London, extending yesterday’s 0.7 percent rally. The benchmark measure has advanced 7.7 percent this year amid optimism that the euro area will contain its crisis and as U.S. economic reports beat forecasts. S&P 500 futures expiring in March slipped less than 0.1 percent today, while the MSCI Asia Pacific Index dropped 0.4 percent.

“It’s good for Europe that its biggest economy is improving as German exporters are benefiting from the cheaper euro,” said Henrik Drusebjerg, a Copenhagen-based senior strategist at Nordea Bank AB, which helps oversee $230 billion. “Many European (SXXP) businesses are suppliers to German exporters and will benefit from an uptick in the German economy.”

German Investor Confidence

German investor confidence increased in February more than economists had forecast, rising to a 10-month high. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 5.4 from minus 21.6 in January. Economists had predicted a gain to minus 11.8, according to the median of 40 estimates in a Bloomberg News survey.

Italy sold 6 billion euros ($7.9 billion) of bonds at an auction, meeting its target. The country’s borrowing costs fell to the lowest since March even after Moody’s Investors Service lowered its rating for the nation. Italy’s Treasury sold 4 billion euros of benchmark securities due in November 2014 to yield 3.41 percent, down from 4.83 percent at the last auction of similar-maturity bonds on Jan. 13. The Rome-based Treasury also sold a total of 2 billion euros of bonds due in 2015 and 2017 to yield 3.77 percent and 4.26 percent respectively.

Italy, Spain Downgraded

Stocks declined earlier today as Moody’s said it may strip the U.K. and France of their top Aaa ratings, citing the euro area’s debt crisis. Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.

“Policy makers have made steps forward, but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”

In the U.S., retail sales probably rose in January by the most in four months, led by growing demand for autos, economists said before a report today. A Commerce Department report published at 8:30 a.m. in Washington will show a 0.8 percent increase, exceeding a 0.1 percent advance in December, according to the median forecast of economists surveyed by Bloomberg News.

Shell climbed 1 percent to 2,318.5 pence as Europe’s largest oil company limited losses on the Stoxx 600.

L’Oreal Shares Advance

L’Oreal SA (OR) gained 3 percent to 84.12 euros after the world’s largest cosmetics maker said it’s confident of achieving sales and earnings growth this year after reporting a 7.7 percent increase in 2011 operating profit, beating analysts’ estimates.

L’Oreal also said that Liliane Bettencourt will leave the company’s board and be replaced by her grandson Jean-Victor Meyers. Meyers, 25, studied economics and management and is a director of Tethys, the Bettencourt family holding company.

Deutsche Boerse AG (DB1) jumped 3.2 percent to 50.32 euros after the German bourse operator posted a fourth-quarter profit amid lower costs and higher sales while announcing a stock buyback and dividend.

Rio Tinto Group decreased 2 percent to 3,768 pence as the world’s third-biggest mining company approved a $4.5 billion expansion of its Chilean Escondida copper mine with BHP Billiton Ltd. (BHP) The mine accounts for about a fifth of all copper produced in Chile, the world’s top supplier of the metal. BHP Billiton slipped 0.6 percent to 2,071 pence.

ThyssenKrupp Slides

ThyssenKrupp dropped 2.5 percent to 21.36 euros after reporting a loss before interest and taxes of 33 million euros, compared with a profit of 261 million euros a year earlier.

TDC slid 4.7 percent to 43.09 euros as its private-equity investors sold 750 million euros of stock in a sale arranged by Morgan Stanley. Investors in NTC Holding GP & Cie. SCA, the consortium of buyout firms, sold about 128 million shares, raising 5.6 billion Danish kroner ($99 million).

Raiffeisen Bank International AG (RBI), the biggest Eastern European lender, retreated 2.8 percent to 27.11 euros as Moody’s cut the rating outlook of Austria to “negative” from “stable.”

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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

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Stocks Fall as Moody’s Cuts Europe Ratings; Default Swaps Rise a Fifth Day

By Stephen Kirkland and Lynn Thomasson - Feb 14, 2012 7:30 PM GMT+0700

Stocks (SXXP) and the euro rebounded as German investor confidence jumped to a 10-month high and borrowing costs fell at Italian and Spanish auctions, even after Moody’s Investors Service downgraded the debt ratings of six European countries.

The Stoxx Europe 600 Index gained 0.2 percent at 7:25 a.m. in New York, after dropping 0.4 percent. Standard & Poor’s 500 Index futures added 0.1 percent. The euro appreciated less than 0.1 percent to $1.3195. The yield on Italy’s 10-year bond fell two basis points, sending the spread with benchmark German bunds three basis points lower. Oil climbed 0.5 percent, reversing earlier declines.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 5.4 this month from minus 21.6 in January, compared with a median forecast of minus 11.8, according to a Bloomberg survey of economists. The U.K. and France may be stripped of their top Aaa ratings, Moody’s said as it reduced the debt rankings of countries including Italy, Spain and Portugal. Italy sold 6 billion euros ($7.9 billion) of bonds, meeting its target.

“Signs that the European Monetary Union economy is stabilizing, rather than collapsing as some have feared, and hopes of a resolution of the EMU debt crisis seem to have supported the economic sentiment,” Annalisa Piazza, a fixed- income analyst at Newedge Group in London, said in e-mails. Italy’s debt offerings “were well absorbed, despite last night’s downgrade by Moody’s that, in our view, was somehow expected.”

Profit Drops

Two shares gained for every one that fell in the Stoxx 600. Royal Dutch Shell Plc gained 1.1 percent. Storebrand ASA, Norway’s largest publicly traded insurer, plunged 12 percent after fourth-quarter profit dropped and the company said no dividend would be paid for 2011. TDC A/S slid 4.4 percent as the Danish phone company’s private-equity owners offered about 750 million euros of stock for sale.

The S&P 500 advanced 0.7 percent yesterday. Data today may show U.S. retail sales rose in January by the most in four months, gaining 0.8 percent after a 0.1 percent increase in December, according to the median forecast of economists surveyed by Bloomberg News.

Eleven companies in the S&P 500 are due to release results today, including Goodyear Tire & Rubber Co. and Avon Products Inc. Of the 333 companies in the index that have reported earnings since Jan. 9, 70 percent had per-share profit that exceeded estimates, according to data compiled by Bloomberg.

Yields on Italy’s two-year bonds fell five basis points. The yield on Spain’s 10-year bond rose two basis point, paring an increase of as much as five basis points, after the government sold 5.45 billion euros of bills. The Greek two-year yield jumped to 197 percent from 183 percent yesterday. Greece, Belgium and the Netherlands also auction government debt today.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net;

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net

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Italy, Spain Cut by Moody’s; U.K. Rank at Risk

By Ben Livesey and Cordell Eddings - Feb 14, 2012 6:02 PM GMT+0700
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Tourists refresh themselves at the fountain in front of the Pantheon in Rome. Photographer: Filippo Monteforte/AFP/Getty Images

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Feb. 14 (Bloomberg) -- Moody's Investors Service cut the debt ratings of six European countries including Italy, Spain, Portugal, Slovakia, Slovenia and Malta, and said it may strip France and the U.K. of their top Aaa ratings, citing Europe's debt crisis. Caroline Hyde and Mark Barton report on Bloomberg Television's "First Look." (Source: Bloomberg)

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Feb. 14 (Bloomberg) -- Simon Derrick, chief currency strategist at Bank of New York Mellon Corp., discusses the threat to the U.K.'s top Aaa rating by Moody's Investors Service and the outlook for the euro and pound. He speaks with Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg)

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Feb. 14 (Bloomberg) -- Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa rating to "negative." John Dawson and Susan Li report on Bloomberg Television's "First Up." (Source: Bloomberg)

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis.

Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.

“Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”

The euro reversed losses after a report showed German investor confidence rose more than economists forecast in February. Moody’s decision highlighted the risk that the European debt crisis will deepen even as the region’s finance ministers prepare to meet tomorrow to discuss a second aid package for Greece, following the country’s approval of austerity measures.

AAA Ratings

Still, recent rating reductions have done little to deter investors, who poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month. U.S. Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August.

“The ratings agencies are kind of behind the curve,” said Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia Ltd., who previously worked for the International Monetary Fund. “The risks have actually been falling in Europe. There may be worries that countries cutting fiscal spending may drag on their economic growth, but the concerns aren’t new and the downgrade should have minimal impact on market sentiment.”

The Stoxx Europe 600 Index rose 0.3 percent at 12 p.m. in Frankfurt, reversing earlier losses. The euro appreciated 0.2 percent, trading at $1.3205.

“The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework,” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

‘Weak Prospects’

Moody’s yesterday also lowered its outlook on Austria’s Aaa rating to negative. Malta’s rating was downgraded to A3 from A2, and Slovakia and Slovenia were both downgraded to A2 from A1. All three were given negative outlooks. In a statement earlier today, the ratings company affirmed its top Aaa rating for the European Financial Stability Facility.

Moody’s said Europe’s “increasingly weak macroeconomic prospects” threaten the “implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.” It said market confidence “is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”

ECB Injection

Investors have ignored credit rating companies’ concerns about Europe and focused instead on steps taken by policy makers to end the crisis. While Standard & Poor’s on Jan. 13 cut the credit rating of nine euro-region states, yields on most governments bonds continued to edge lower since the European Central Bank on Dec. 21 allotted a record 489 billion euros ($643 billion) in three-year loans to banks.

Yields on Italian 10-year bonds have dropped more than 1 percentage point since ECB’s injection, while French 10-year yields have declined 20 basis points in that period.

In the U.K., Chancellor of the Exchequer George Osborne said his fiscal consolidation program is the only thing stopping Britain from an immediate downgrade.

“This is proof that, in the current global situation, Britain cannot waver from dealing with its debts,” Osborne said in an e-mailed statement released by the Treasury in London yesterday.

The spending cuts that helped the U.K. preserve its AAA credit rating at Standard & Poor’s last year and bolstered the pound have weighed on the currency this year as investors lose confidence that Prime Minister David Cameron will revive economic growth. Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg.

‘Relatively Weak’

The National Institute for Economic and Social Research forecasts the U.K. economy will shrink 0.1 percent this year and grow 2.3 percent in 2013, compared with previous projections in October for growth of 0.8 percent and 2.6 percent.

“The U.K.’s fiscal trends are relatively weak among top- rated countries, mainly because of the U.K.’s relatively high pre-crisis structural deficit and recent prolonged economic weakness,” Michael Saunders, chief European economist at Citigroup Inc. in London, wrote in an e-mailed note. “A negative outlook statement typically indicates there is about a one in three chance of a ratings downgrade in the next 18 months.”

Brussels Meeting

French Finance Minister Francois Baroin said the country’s AAA rating was maintained by Moody’s because of “the size of its economy” and its “increased productivity.”

Baroin’s comments were included in an e-mailed statement from the Finance Ministry after Moody’s downgraded the rating outlook to negative.

Germany and the European Commission yesterday welcomed Greek approval of the austerity steps demanded for a financial lifeline, suggesting euro finance chiefs will pull Greece back from the brink when they meet tomorrow.

The Greek parliament’s backing “is a crucial step forward toward the adoption of the second program,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels. “I’m confident that the other conditions, including for instance the identification of the concrete measures of 325 million euros, will be completed by the next meeting” of finance ministers.

Euro-area finance chiefs will convene in Brussels for their second extraordinary meeting on Greece in a week. Frustrated after two years of missed budget targets, ministers declined to ratify the 130 billion-euro package in a special session on Feb. 9, demanding that Greek officials put their verbal commitments into law.

“It’s important for now to complete this program,” German Chancellor Angela Merkel said in Berlin. “The finance ministers will meet again on Wednesday to undertake the work on this, but there can’t and there won’t be any changes to the program.”

To contact the reporters on this story: Ben Livesey in London at blivesey@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Ben Livesey at blivesey@bloomberg.net

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Romney, Santorum Lag Obama in National Poll

By Kristin Jensen and Stephanie Armour - Feb 14, 2012 5:53 AM GMT+0700

Republican presidential contender Rick Santorum has vaulted into a front-runner’s position with Mitt Romney in a Pew Research Center poll that also shows both losing to President Barack Obama in hypothetical matchups.

Santorum drew the backing of 30 percent of Republican and Republican-leaning registered voters in the Feb. 8-12 poll, while Romney got 28 percent, Pew said on its website. Obama held a 10-percentage-point lead over Santorum and an edge of 8 points over Romney among a survey of all registered voters, Washington- based Pew said.

Romney’s status in the race was shaken when Santorum won all three contests on Feb. 7 -- in Colorado, Minnesota and Missouri. Santorum charged yesterday that Romney has responded by making “desperate” attacks on his conservative credentials to regain his footing.

“Another candidate has come up to challenge him, and this time he’s having trouble finding out how to go after someone who is a solid conservative, who’s got a great track record of attracting independents and Democrats and winning states as a conservative,” Santorum said in an interview on ABC Television’s “This Week.”

‘Desperate Things’

Romney’s attacks show “you reach a point where desperate people do desperate things,” Santorum said.

Santorum, a former U.S. senator from Pennsylvania, is campaigning today in the state of Washington, where he has a rally scheduled in Tacoma. Before the appearance, the Romney campaign organized supporters in the state to tout their candidate and his Feb. 11 win in Maine’s caucuses.

“There’s a lot of campaign momentum,” said Cathy McMorris Rodgers, a U.S. representative who is Romney’s campaign chairwoman in Washington, during a conference call for reporters today. “There’s no question in my mind that he’s the most electable of the Republican candidates.”

Romney, a former Massachusetts governor, is campaigning in Arizona today, with a rally scheduled in Mesa. The state holds its primary on Feb. 28, along with Michigan.

Santorum and onetime U.S. House Speaker Newt Gingrich have been vying for weeks to become the chief alternative to Romney and unite the conservative Republican activists who haven’t warmed to Romney’s candidacy. Today, National Review Online suggested Gingrich should step aside.

‘Proper Course’

“When he led Santorum in the polls, he urged the Pennsylvanian to leave the race,” the publication said in an editorial on its website. “On his own arguments, the proper course for him now is to endorse Santorum and exit.”

The National Review in December warned Republicans against nominating Gingrich, saying he might ruin the opportunity to win the White House. Today, the publication said “it would be a grave mistake for the party to make someone with such poor judgment and persistent unpopularity its presidential nominee.”

Gingrich will be campaigning in California later today, holding a “Hispanic Leadership Event” in South El Monte and a reception in Pasadena.

In the Pew Poll, Gingrich drew the support of 17 percent of Republican and Republican-leaning voters, while U.S. Representative Ron Paul of Texas got the backing of 12 percent.

Support for Romney and Gingrich in the Republican race is virtually the same as recorded in a Jan. 4-8 national Pew poll. The backing for Santorum has almost doubled.

Obama Matchups

In the matchups with Obama, the president led Romney, 52 percent to 44 percent, among all registered voters and ran ahead of Santorum, 53 percent to 43 percent. Obama topped Gingrich 57 percent to 39 percent.

The poll’s margin of error in its survey of Republican and Republican-leaning voters is plus-or-minus 5 percentage points; for all registered voters, it is 3.5 points.

While Romney has struggled to unite the party behind his candidacy, he scored a victory this weekend in a straw poll at the Conservative Political Action Conference, a group of activists who oppose government spending, abortion rights and gay marriage.

Santorum, who has a record of working against abortion rights, yesterday downplayed the CPAC straw poll’s importance, saying Paul had won it in the past by paying for participants’ tickets. He declined to say whether the Romney campaign had rigged this year’s contest when asked on CNN’s “State of the Union” program.

Ticket Question

“You have to talk to the Romney campaign and how many tickets they bought,” he said. “We’ve heard all sorts of things.”

Santorum has “a history of making statements that aren’t grounded in the truth,” Andrea Saul, a spokeswoman for Romney, said in an e-mail. “Mitt Romney won the CPAC straw poll.”

In a Feb. 10 speech at the CPAC gathering, Romney termed himself “severely conservative” during his governorship as he sought support from his audience.

The Pew poll shows that among his party’s electorate, those viewing him as a “strong conservative” has dipped to 42 percent from 53 percent in a November survey.

Saying the Republican nomination contest is now a “two- person race,” Santorum said on NBC’s “Meet the Press” yesterday that he had “raised over $3 million this week alone and money continues to pour in.”

Santorum said he’s in a strong position heading into the primaries in Arizona and Michigan, where Romney’s father, George Romney, was governor. Santorum’s wins last week underscore his potential strength in the Midwest and Mountain West, particularly in areas with large blue-collar populations.

Ad Dollars

Romney didn’t devote many resources to the Missouri, Minnesota and Colorado contests, none of which allotted any national convention delegates. He has millions of dollars available for television advertising in the coming weeks from his campaign and a super-PAC that supports his candidacy.

Former Alaska Governor Sarah Palin, a favorite of the Tea Party movement within the Republican Party, said on “Fox News Sunday” that Republican chances of defeating Obama won’t be hurt by an extended campaign for the party’s nomination as long as the candidates don’t spend the time attacking one another.

“They need to quit beating each other up,” said Palin, the 2008 Republican vice presidential nominee. “We need to hear from our candidates the solutions, what is their plan to get us back on the right road in America? We haven’t heard that yet.”

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net; Stephanie Armour in Washington at sarmour@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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McDonald’s to Phase Out Pens Deemed Cruel to Pigs 11 Years After Chipotle

By Leslie Patton - Feb 14, 2012 4:46 AM GMT+0700

McDonald’s Corp. (MCD), the world’s largest restaurant chain, will require its pork suppliers to get rid of gestation pens that animal-rights groups have long deemed cruel to pigs.

“There are alternatives that we think are better for the welfare of sows,” Dan Gorsky, McDonald’s senior vice president of North America supply-chain management, said in a statement today, released with the Humane Society of the United States.

The company, which uses pork in sausage McMuffins, breakfast platters and McRib sandwiches, will require its suppliers to submit plans by May to phase out the metal cages.

McDonald’s is “one of the largest purchasers of pork -- bacon and sausage, in particular,” David Warner, a spokesman for the National Pork Producers Council, said in an e-mail. The Oak Brook, Illinois-based fast-food chain buys about 1 percent of the U.S. pork supply, according to Lisa McComb, a McDonald’s spokeswoman.

The move comes 11 years after Chipotle Mexican Grill Inc. (CMG) began requiring its pork suppliers to raise pigs outside or in large cages and use antibiotic-free and vegetarian food. McDonald’s spun off Chipotle in 2006.

Gestation cages are typically about 2 feet by 7 feet, too small for a full-sized sow to turn around.

Pigs kept in these pens are more susceptible to disease and illnesses such as urinary tract infections, said Paul Shapiro, a spokesman for the Washington-based Humane Society. They also suffer psychologically because pigs are “very social, intelligent animals,” he said.

Cargill, Smithfield

Cargill Inc., the commodity trader that’s the largest closely held U.S. company, and Smithfield, Virginia-based Smithfield Foods Inc. (SFD) are leading the way in getting rid of the animal enclosures, McDonald’s said in the statement. Cargill is based in Minneapolis.

“It’s just wrong to immobilize animals for their whole lives in crates barely larger than their bodies,” Wayne Pacelle, president of the Humane Society, said in the statement.

McDonald’s, which has about 33,500 locations worldwide, rose 0.2 percent to $99.65 at the close in New York. The shares gained 31 percent last year.

“McDonald’s isn’t going to say this, but we’re throwing away a lot of good things about gestation stalls,” Steve Meyer, the president of livestock and grain marketing consulting firm Paragon Economics in Adel, Iowa, said in an interview. The separate pens keep hogs from fighting with each other, he said.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Apple Tops Google for No. 1 Image

By Alex Nussbaum - Feb 14, 2012 4:37 AM GMT+0700

Apple Inc. (AAPL), burnished by the iPhone’s success and memorials to Steve Jobs, displaced Google Inc. (GOOG) as top company in Harris Interactive (HPOL)’s poll of corporate images. Berkshire Hathaway Inc. (BRK/A) and Johnson & Johnson dropped.

Apple earned the highest score in the 13-year history of Harris’ survey of U.S. consumers, buoyed by the Cupertino, California-based company’s financial success and products like last year’s iPhone 4S, said Robert Fronk, the pollster’s executive vice president. The rise came even as corporate America’s reputation sank, hurt by sagging views of the financial industry, Harris said today in a statement.

“After a little positive momentum last year, across the board, we saw the tarnish come back,” Fronk said in a telephone interview. “Whether it’s due to Occupy Wall Street or the bad news in general, the negatives of the banking and financial- services industries are spreading.”

J&J (JNJ), the world’s second-biggest seller of health-care products, fell to seventh after three years of product recalls, the first time the reputation of the New Brunswick, New Jersey- based company has ranked below the top two in Harris’ annual poll. Berkshire, based in Omaha, Nebraska, plunged from fourth place to 24th, after an executive resigned in March and was accused by Chairman Warren Buffett of violating the firm’s insider trading rules.

Only eight companies were rated as “excellent” in Harris’ poll of 17,000 people, half the number in 2011.

Google, Coke

Google, the Mountain View, California-based owner of the world’s most-popular search engine, slipped to second place from first last year. Rounding out the top five were Coca-Cola Co. (KO), based in Atlanta, followed by Amazon.com Inc. (AMZN) of Seattle, and Kraft Foods Inc. (KFT), based in Northfield, Illinois.

Apple topped the public’s ratings for vision and leadership, products and services, financial performance and workplace environment, four of the six categories that Harris tracked. The company’s shares topped the $500 mark at the close today and advanced 41 percent in the past 12 months.

Along with the glow of products like the iPhone and iPad, Apple benefited from the praise aimed at co-founder Jobs, said Harris’ Fronk. The former chief executive officer, who rescued Apple from the brink of bankruptcy when he returned to the company in 1997, died on Oct. 5. The poll’s online surveys were conducted from Dec. 2 to Dec. 19.

“The outpouring around him as a visionary leader probably played a strong role in where they ended up,” Fronk said.

Steve Dowling, an Apple spokesman, didn’t immediately return a message seeking comment on the Harris poll.

Berkshire Revelations

Berkshire’s slide followed the March resignation of executive David Sokol, amid revelations that he had bought shares of a Buffett takeover target. In interviews, respondents also cited the company’s ties to Goldman Sachs Group Inc. (GS), the New York-based bank in which Buffett invested $5 billion in 2008. Goldman ranked 59th, second to last, in this year’s poll. Financial firms suffered four of the five biggest drops in reputation from last year.

Buffett may also have suffered from his endorsement of President Barack Obama’s so-called “Buffett rule,” Fronk said. Democrats said the proposal would ensure the wealthy don’t pay lower tax rates than other Americans. U.S. Representative Michele Bachmann, a Republican candidate for president last year, dismissed the idea as a “sound bite” and suggested Buffett donate his fortune to the government if he felt he wasn’t paying enough.

Buffett didn’t respond to a request for comment about the poll e-mailed to his assistant.

View of J&J

While J&J, which sells products as varied as cancer drugs, Band-Aids and artificial hips, remained among the most reputable companies, there were worrisome signs that it no longer commanded respect on vision, leadership and emotional appeal, Fronk said. Consumers questioned one of J&J’s “bedrock strengths,” the idea that it can be counted on to “do the right thing,” Fronk said.

“They’ve got a window here where, if they can prove to the general public and their customers that this was a blip, then they can bring some of those not-sure or neutral people back,” he said. “If there’s a belief that it’s a long-term erosion, they’re going to take a hit” to sales as well as their image.

J&J was pleased to again rank “among the most reputable companies among U.S. consumers,” William Price, a company spokesman, said in an e-mail. “We remain in a category of companies with an excellent reputation, reflecting the unrelenting commitment our employees have for the needs of patients and customers.”

American International Group Inc. (AIG), the New York-based insurer rescued in a $182.3 billion U.S. bailout, took last place, just as it did the previous year.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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Apple Shares Climb Above $500 After Earnings Surprise Ignites 17% Surge

By Nikolaj Gammeltoft - Feb 14, 2012 4:23 AM GMT+0700

Shares of Apple Inc. (AAPL) rallied above $500 for the first time after a two-week gain spurred by the iPhone maker’s first-quarter earnings report approached 20 percent.

Apple increased 1.9 percent to $502.60 today. In the Standard & Poor’s 500 Index, Google Inc. (GOOG), Priceline.com Inc. (PCLN) and Intuitive Surgical Inc. (ISRG) cost more per share, at $612.20, $571.15 and $503.07, respectively.

“It reminds us all of the amazing transformation of Apple over the past eight years,” Timothy Ghriskey, who owns Apple and oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview today. “We think the stock has higher to go, $600 is next,” he said. “It’s still an inexpensive stock for a company that is executing at the very highest level and continues to innovate.”

Apple has climbed 11 of the 14 days since reporting quarterly results. Its earnings are expanding so fast that even with the rally, the shares are trading at less than half their median valuation since 1990, data compiled by Bloomberg show. The gain since Apple reported results is almost four times as large as the advance in the Nasdaq-100 Index.

The world’s largest company by market capitalization said on Jan. 24 that profit in the quarter ended Dec. 31 was $13.1 billion, 36 percent more than the average analyst projection, while revenue beat forecasts by $7.3 billion, the most ever. The Cupertino, California-based company single-handedly erased a drop in S&P 500 earnings for the October-to-December period, turning a 4.2 percent decline into a 4.4 percent gain.

Shares of the maker of the iPod, iPhone and iPad have risen 17 percent over the past month, the biggest gain since August 2009 rolling back as of Feb. 10. The stock rose 22 percent this year through the end of last week, compared with a increase of 12 percent for technology companies in the S&P 500.

Analysts see the stock climbing to $575.56, according to the average of price estimates in a Bloomberg survey.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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Gunfights in Saudi Arabia Show Spread of Tensions

By Glen Carey - Feb 14, 2012 3:00 AM GMT+0700

Armored anti-riot vehicles cluster outside the police station in Awwamiya in Saudi Arabia’s oil- producing eastern region, where unrest is turning violent.

“We have enough police force to deal with any criminal or prohibited situation,” says Brigadier-General Yousef al-Qahtani as he drives through the town. In nearby al-Qatif, graffiti scrawled on a cemetery wall criticizes the Al Saud family, founders of the kingdom eight decades ago, and calls for the removal of their fellow Sunni Muslim monarchs in Bahrain. Black Shiite flags adorn religious centers in the back-alleys.

Clashes between police and armed Shiite protesters in the two towns have intensified since October, when 11 police were injured in an attack. Since then, seven Shiites have been killed by security forces, according to figures provided by Saudi Arabia’s Human Rights First Society.

It’s in such places that tensions between the Gulf’s Sunni nations and Shiite-led Iran may spark violence inside Saudi Arabia, the world’s biggest oil exporter. Shiites here have cultural and family ties with Iran, and also with Bahrain, where Saudi troops helped crush Shiite-led protests that broke out a year ago today. Saudi authorities accuse Iran, which is under growing western pressure to back down over its nuclear program, of stirring up unrest in both cases.

‘Much Bigger Fire’

“This is another one of those possible flashpoints in the region that could become a much bigger fire if it is not contained early on,” Paul Sullivan, a political scientist specializing in Middle East security at Georgetown University in Washington, said in an e-mail.

After two Shiites were shot dead in gun battles in Awwamiya and al-Qatif last week, the cost of Saudi Arabia’s credit default swaps jumped 2 percent to 131.8, before retreating to 129.2 yesterday. They reached a two-and-a-half- year high last month as Iranian threats to block the Strait of Hormuz, in response to a planned western oil embargo, stoked concerns of conflict in a region that supplies a fifth of the world’s crude.

Most of that comes from Saudi Arabia, and the biggest Saudi oil fields are in the Eastern Province, home to most of the Saudi Shiite population. It’s the second-largest Shiite community in the Gulf after Iraq’s, comprising between 10 and 15 percent of the total of 19 million Saudi nationals, according to the U.S. State Department.

Iran denies charges of interference by Saudi Arabia and other Gulf nations, and accuses their Sunni rulers of discriminating against Shiites.

Holy Sites

In Bahrain, linked to eastern Saudi Arabia’s Shiite regions by a 16-mile (26-kilometer) causeway, protests have also been escalating, in the run-up to today’s anniversary. Yesterday, Shiite-led opposition groups accused the security forces of attacking peaceful demonstrations with teargas and stun grenades, while the Interior Ministry said protesters hurled rocks and set fire to private property.

Saudi Arabia largely escaped the unrest that spread across the Arab world last year, though there were protests in Awwamiya, al-Qatif and other eastern towns. Shiite cleric Tawfiq al-Amir was arrested after he called for a constitutional monarchy and equal rights.

Tensions between Saudi Arabia and Iran date back to Iran’s Islamic Revolution in 1979. Ayatollah Ruhollah Khomeini accused Saudi rulers of corruption and argued that the holy sites of Mecca and Medina in Saudi Arabia shouldn’t be under a single country’s guardianship. In December, the U.S. agreed to sell Saudi Arabia 84 F-15 fighter jets in a $29.4 billion deal seen as bolstering defenses against Iran.

‘Card They Can Use’

“To ask if Iran has an interest in destabilizing Saudi Arabia, yes they do,” said Khalid al-Dakhil, a political science professor at King Saud University in Riyadh, in a phone interview. “It is a card they can use to pressure the Saudis.”

In al-Qatif, the graffiti shows Shiite resentment at their perceived exclusion from the country’s wealth. “Where is the oil money?” one slogan asks. Smashed street lights and road signs attest to recent violence in the Gulf city, where wooden dhow boats anchor and families picnic as vehicles carrying riot police speed along the coast road.

The U.S. State Department noted in a human-rights report on Saudi Arabia published in 2009 that Shiites in the kingdom face “significant political, economic, legal, social and religious discrimination condoned by the government.”

Saudi Grand Mufti Sheikh Abdulaziz al-Sheikh described practices during the Ashoura festival, a day of mourning for Shiite Muslims, as “against Islamic law” in an article published in Al-Watan newspaper on Dec. 3.

Job Discrimination

Seventy-four students, mainly Shiites, from the Jubail Industrial College north of al-Qatif called on the government to penalize companies that discriminate in hiring, Safwa News reported on Feb. 3. Their petition criticized Saudi Arabian Mining Co., the kingdom’s largest miner, for excluding 60 Shiite students from an employment program. Calls to the company’s communications office weren’t answered yesterday.

Shiite leaders held meetings with the late King Fahd in 1993 and were promised measures to address the region’s grievances. The Eastern Province is benefitting from King Abdullah’s $130 billion spending pledges last year, including a new stadium and roads in Awwamiya.

“The majority of people in Qatif, while they do have grievances and quite legitimate demands, they don’t believe it is the right way to alleviate their grievances through violence,” al-Dakhil said.

First Shootings

Violence, though, has been increasing since October when security forces were fired upon from side streets of Awwamiya. Gun battles between police and demonstrators broke out there and in Qatif on Feb. 9 and 10.

“We never experienced shooting at the police before,” Colonel Abdullah Aseeri, the police chief of al-Qatif, said in an interview. Brigadier General Yousef, an almost 30-year veteran with the Interior Ministry, said the use of weapons and “endangering the lives and safety of citizens is a red line.”

Security forces are displaying more restraint than they have in the past in their response to protests, said Ibrahim al- Mugaiteeb, president of the Human Rights First Society. “A lot of demonstrations happen without a police crackdown,” he said.

A delegation of Shiite Muslim scholars and clerics from al- Qatif condemned clashes in November that left four people dead and nine injured, Al-Yaum newspaper reported. They also pledged loyalty to the Al Saud leadership.

Such community elders, seeking to soothe tensions, don’t have the traction they used to have, said Tawfiq al-Saif, a prominent Shiite cleric. Young Saudi Shiites, like their contemporaries elsewhere in the Arab world, are demanding change, he said.

“There is the sense of being marginalized in the country among the Shiite young,” al-Saif said. “The younger generation feels that it is no longer the role of the leaders or elders to solve their problems. People want promises fulfilled.”

To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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Pentagon May Oust Troops Involuntarily to Meet Reductions in Budget Plan

By Viola Gienger and Roxana Tiron - Feb 14, 2012 4:51 AM GMT+0700

The Defense Department may have to force soldiers, Marines or other members of the military out of the services for the first time since the aftermath of the Cold War to achieve the spending reductions in its budget proposal.

The Pentagon plans to cut 67,100 soldiers from active and reserve Army units and the Army National Guard in the five years starting Oct. 1, as well as 15,200 from the active and reserve ranks of the Marine Corps as part of an effort to save $487 billion over a decade, according to the budget sent to Congress today. The Navy and Air Force would lose fewer people -- 8,600 and 1,700 respectively -- because of their role in a strategic shift toward the Asia-Pacific region and the Middle East.

The military will first try buying out contracts or offering bonuses for people to leave, while working to keep those with valuable specialties such as cyber warfare and acquisitions, according to Travis Sharp, a fellow at the Center for a New American Security, a Washington policy group, who attended a Pentagon briefing for analysts last month.

“I was surprised that they were going to complete the reductions to the Army and the Marine Corps in just five years,” Sharp said in an interview before the budget was released. “What they told us is that they will try to use those types of positive incentives to the greatest extent possible, but that involuntary separations would probably still be necessary.”

The Pentagon has said it is aiming to a create a smaller, more agile military. Special operations forces, whose commandos killed Osama bin Laden last year, would be expanded.

Republican Opposition

Republicans in Congress already have signaled they will challenge the Pentagon reductions when lawmakers take up the proposed fiscal 2013 budget that President Barack Obama sent to Congress today.

Representative Howard “Buck” McKeon, the Republican chairman of the House Armed Services Committee, cited a comment by White House Chief of Staff Jack Lew in an interview on NBC’s “Meet the Press” that “the time for austerity is not today.”

“They’ll have a tough time explaining that to the 100,000 troops who will be forced from service under the president’s new budget plan,” McKeon of California said today in a statement.

The cuts, spurred in part by plans to wind down the war in Afghanistan in the next three years, would mark the first time the U.S. military has forced personnel out of the services since the larger troop reduction after the end of the Cold War with the Soviet Union.

Service Options

The military services, which decide how to achieve the cuts, may be able to tighten re-enlistment standards and offer incentives to leave, Defense Department Comptroller Robert Hale said.

“I don’t think we can stand here and say there won’t be any involuntary separation,” Hale told reporters at the Pentagon today. “We have very high retention right now with the economy still fairly weak. If that changes, it will be easier. If it doesn’t, it will be harder.”

The department will seek to “do this in as humane a way as we can,” Hale said.

The prospect of cutting the U.S. military to about 2.15 million people by October 2017, a reduction of 92,600 starting next year, creates political risks for Obama in an election year, and economic risks as military personnel enter the civilian workforce in coming years, Sharp said. Including reductions in the current year, the plan would eliminate 123,900 positions from all the branches.

‘Kicking People Out’

“You are kicking people out of the military at a time when unemployment is not only a major challenge, it is also a primary factor in the upcoming presidential election,” Sharp said. “They will have to start the machinery and the process of implementing these drawdowns this year.”

The reductions would start with 31,300 uniformed positions, or 1.4 percent, eliminated in the 12 months starting Oct. 1, cutting the force size to 2,238,400 from 2,269,700 this year, according to the proposal.

After the Cold War, the military pared its active-duty ranks by 494,000 from 1991 to 1995, according to the Defense Department comptroller’s office. That included 216,000 from the Army and 21,000 from the Marine Corps. Further cuts followed in the next few years, ending just before the Sept. 11 terror attacks by al-Qaeda.

Junior Officers

The Army forced more than 5,300 out of its officer ranks alone in the five years ended Sept. 30, 1997, according to a report published in October 2000 by a researcher at the U.S. Army War College’s Strategic Studies Institute. The study found forced exits also contributed to attrition in the ranks of younger officers.

“With junior officers witnessing such an array of policies designed to entice or force over 23,000 of their peers and role models to leave, it is not surprising that their loyalty to the military has been redefined with a healthy dose of skepticism,” the researcher, Leonard Wong, wrote in the report.

The Army’s budget director, Major General Phillip McGhee, told reporters at the Pentagon today that his service will rely first on on-time and early retirements, reducing recruitment and other steps before resorting to involuntary measures.

“We really want to put minimum stress on the force as we do the rampdown,” McGhee said.

Protracted Conflicts

In addition to focusing more national security attention on Asia and the Middle East, the Pentagon’s revised strategy outlined last month sets aside previous assumptions that the military plan for large and protracted conflicts such as Iraq and Afghanistan.

The cuts in uniformed personnel are in keeping with proposed steps such as eliminating eight Army brigades, five Marine infantry battalions and four of the Corps’s tactical air squadrons. The Air Force would lose 303 aircraft and six fighter squadrons, while the Navy jettisons seven cruisers and 2 dock landing ships.

“In preparing this budget, we endeavored to avoid the mistakes of previous drawdowns that attempted to maintain more force structure than the budget could afford,” the department wrote in a Jan. 26 summary of its five-year priorities.

Cuts by Service

Today’s budget proposal fleshes out the cuts for each of the military branches.

Army forces would be reduced by less than 1 percent to 1,115,300 in 2013 and then drop to 1,048,200 in 2017. That’s still far greater troop strength than in February 2002, a year before the U.S. invasion of Iraq, when the Army numbered about 480,000 on active duty.

The Navy would have 1.7 percent fewer personnel, or 385,200 in 2013, and faces a reduction of 3.9 percent to a total of 376,600 people in 2017.

The Marines would be down to 236,900 in 2013, or 2 percent fewer than this year. By the end of 2017, the Marines face a reduction of 8.3 percent from this year to 221,700.

The Air Force will have 501,000 personnel in 2013, or 1.9 percent fewer than this year. In 2017, Air Force personnel will decline to 499,300.

To contact the reporters on this story: Viola Gienger in Washington at vgienger@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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