Samsung Net Beats Estimates on Galaxy Phones, Demand for TVs

By Jun Yang - Apr 27, 2012 6:58 AM GMT+0700

Samsung Electronics Co. (005930), Asia’s largest consumer-electronics maker, posted first-quarter profit that beat analysts’ estimates as surging sales of Galaxy smartphones helped mask slumping earnings at the chip business.

Net income was 5.05 trillion won ($4.4 billion), the Suwon, South Korea-based company said in a statement today. The average of 29 analyst estimates compiled by Bloomberg was for profit of 4.24 trillion won.

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A Samsung Electronics Co. Galaxy Note smartphone. Photographer: SeongJoon Cho/Bloomberg

Operating profit at the mobile-phone business gained in the quarter from a year earlier after Samsung unveiled new models such as the Galaxy Note to take on Apple Inc. (AAPL)’s iPhone and iPad. Samsung, which likely overtook Nokia Oyj as the world’s biggest handset maker in the first quarter, is counting on Galaxy products to capitalize on the $219 billion smartphone market and shield earnings as chip prices plunge.

“Earnings will only get better starting in the second quarter,” Ahn Seong Ho, a Seoul-based analyst at Hanwha Securities Co., said by phone before today’s announcement. “We don’t see anything particular that can slow down momentum on the phone side. The semiconductor side will improve after bottoming out in the first quarter, too.”

Samsung shares rose 2.7 percent to 1,340,000 won in Seoul trading yesterday. They have gained 27 percent this year, compared with a 50 percent jump in Apple.

Smartphones

Operating profit at the mobile business in the quarter almost tripled to 4.27 trillion won, the company said in the statement today. That beat the 4.01 trillion-won median estimate in a Bloomberg News survey of four analysts.

The company probably overtook Nokia (NOK1V) as the world’s biggest handset seller for the first time in the three months ended March 31, according to analyst estimates.

Samsung may have shipped about 92 million mobile phones, including basic types, during that period, according to the median of five estimates in a Bloomberg News survey. Nokia sold 83 million, including 12 million smartphones and 71 million low- end models, the Espoo, Finland-based company said this month.

Samsung probably sold 44 million smartphones in the first quarter, more than tripling from a year earlier, Matt Evans, a Seoul-based analyst at CLSA Asia-Pacific Markets, said in an April 2 report. That would make Samsung the top smartphone seller during the three-month period.

Samsung vs Apple

Apple sold 35.1 million iPhones during the quarter ended in March, helping the Cupertino, California-based company report a 94 percent surge in profit, the company said April 25. Apple sold 11.8 million iPads.

Samsung plans to double sales of smartphones and tablet computers this year, helped by new products, the company said in February. Including basic phones, Samsung expects to sell about 380 million handsets this year after shipping a record 300 million units last year.

Global sales of the Galaxy S II smartphone reached 20 million just 10 months after going on sale, about seven months faster than its predecessor, Samsung said in February. The Galaxy phones and tablets compete with Apple’s iPhone and iPad.

Samsung plans to unveil a successor in London next month.

The company sold more than 5 million units of the Galaxy Note, equipped with a 5.3-inch screen and a stylus, since its debut in October. Samsung expects to sell 10 million units of the model by year’s end and plans to introduce more pen-equipped products with different screen sizes.

Chip Prices

Samsung and Apple have been suing each other in the past year on four continents regarding patent-infringement claims related to mobile technology and design. Apple is Samsung’s biggest customer, buying chips and displays from the South Korean company and accounting for 7.6 percent of its revenue, according to data compiled by Bloomberg.

Operating profit at the chip business in the first quarter was 760 billion won, down 54 percent from a year earlier, the company said in the statement. That lagged behind the analysts’ estimate for 1.31 trillion won.

Samsung, the exclusive manufacturer of processors powering the iPhone and iPad, also will benefit from rising sales of chips used in mobile devices, Ahn said.

“Samsung is not just a DRAM company,” he said.

Elpida, Micron

The price of the benchmark DDR3 2-gigabit DRAM closed at $1.02 on April 26, compared with $1.95 a year earlier, according to data from Taipei-based DRAMeXchange, operator of Asia’s largest spot market for semiconductors.

Falling chip prices pushed smaller Japanese competitor Elpida Memory Inc. into bankruptcy earlier this year, while Micron Technology Inc. (MU) reported a third consecutive quarterly loss in March.

Demand for memory chips slowed in the first quarter as hard-disk drive output didn’t recover as fast as expected after floods in Thailand, a key production site, Choi Sung Jae, a Seoul-based analyst at SK Securities Co., said in a March 30 report. Elpida’s bankruptcy will likely prompt major chip buyers, including Apple, Dell Inc. and Hewlett-Packard Co. (HPQ), to seek alternative suppliers, helping boost prices in the second quarter, Choi wrote.

Samsung plans to invest $7 billion to build a factory in China, producing NAND flash, a different type of memory widely used in smartphones and tablet computers.

Display Profit

Profit at the display unit in the quarter was 280 billion won, compared with a loss of 230 billion won last year. Operating profit at the TV business was 530 billion won compared with a profit of 8 billion won a year earlier, Samsung said.

Samsung is the world’s biggest TV manufacturer.

While liquid-crystal-display prices were suppressed by slowing TV demand, panels used in mobile devices such as phones and tablets helped boost earnings, Choi at SK said. Samsung supplies Apple with screens used in the latest iPad, according to research company IHS Inc.’s iSuppli. Samsung spun off the LCD business April 1.

Last year, global TV shipments fell for the first time since 2004, according to DisplaySearch, part of NPD Group. Flat- screen TV shipments in the U.S. may fall for the first time this year, to 37.1 million units from 39.1 million in 2011, according to iSuppli.

Samsung had a record market share in the U.S. LCD TV market in the fourth quarter, accounting for about 25 percent of total shipments, helped by a wide range of models and features, iSuppli said this month.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

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

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Amazon First-Quarter Revenue Tops Estimates on Kindle Sales

By Danielle Kucera - Apr 27, 2012 6:22 AM GMT+0700

Amazon.com Inc. (AMZN), the world’s largest Internet retailer, beat analysts’ first-quarter revenue and earnings estimates, led by demand for Kindle devices and e- commerce services for outside vendors.

The shares surged 15 percent after the report. Net income was $130 million, or 28 cents a share, compared with $201 million, or 44 cents, a year earlier, the company said today in a statement. Sales rose 34 percent to $13.2 billion. Analysts on average estimated earnings of 7 cents on sales of $12.9 billion, according to data compiled by Bloomberg.

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An Amazon.com Inc. Kindle Fire tablet computer sits on display at a Super Target store in Denver. Photographer: Matthew Staver/Bloomberg

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April 26 (Bloomberg) -- Bloomberg's Emily Chang and Jon Erlichman report that Amazon.com Inc., the world’s largest Internet retailer, beat analysts’ first-quarter revenue and earnings estimates, led by demand for Kindle devices and a jump in sales for outside vendors through its website. They speak on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

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April 26 (Bloomberg) -- Mark Harding, an analyst at JMP Securities, talks about Amazon.com Inc.'s first-quarter performance and business strategy. The largest Internet retailer beat analysts’ first-quarter revenue and earnings estimates, led by demand for Kindle devices and a jump in sales for outside vendors through its website. Harding speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

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Amazon.co.uk. Marston Gate 'Fulfillment Center,' in Ridgmont. Photographer: Chris Ratcliffe/Bloomberg

Chief Executive Officer Jeff Bezos is looking to add customers by pouring money into new versions of the Kindle and warehouses that are equipped to send out products faster. In the quarter when it was introduced last November, the Kindle Fire tablet rocketed to No. 2 in the market behind Apple Inc.’s iPad, according to IDC, and it remains the best-selling item on Amazon’s website, the company said today.

“It was above expectations, both top and bottom line,” Kerry Rice, a San Francisco-based analyst at Needham & Co., said in an interview.

Income from operations was $192 million in the first quarter, Seattle-based Amazon said. Analysts on average had projected $99.4 million in operating profit. Third-party unit sales represented 39 percent of the total and grew 60 percent from a year earlier, Amazon said.

Shares Soar

The company’s shares soared as high as $225.80 following the report. They had climbed less than 1 percent to $195.99 at the close in New York, and have gained 13 percent so far this year.

Amazon trades at about 141 times trailing 12-month earnings, compared with an average of about 53 for similar companies, data compiled by Bloomberg show.

This is the first quarter in three that Amazon reported higher revenue than analysts were predicting, data compiled by Bloomberg shows.

“First solid top and bottom line beat in quite a while, when some investors were expecting a miss on one or both,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco, who has an “outperform” rating on the company’s shares. “If Amazon can ultimately drive higher margins this year on continued strong revenue growth, then we could see further upside in shares.”

Amazon’s operating margin, a measure of profitability, was 1.46 percent in the first quarter, according to data compiled by Bloomberg. Margin for all of 2011 was 1.79 percent, the lowest for any year since 2001.

Second Quarter

Second-quarter operating income will range from a loss of $260 million to a gain of $40 million, the company said. Analysts in a Bloomberg survey were projecting operating income of $184 million. Sales in the current period will be $11.9 billion to $13.3 billion, Amazon said, compared with an estimate of $12.8 billion.

Bezos spent about $4.6 billion on Amazon’s warehouses last year, part of a series of investments that sent operating expenses up 44 percent in 2011 and sliced margins by 2.3 percentage points. The company will build 13 more distribution centers in 2012, Chief Financial Officer Thomas Szkutak said on a conference call today.

To bolster profitability, the company has been adding more third-party sellers, which generate higher margins, to its website. Amazon collects a commission, usually about 10 percent, on any item sold by an outside vendor. All of that money goes to the bottom line. Amazon also collects fees if the partner elects to fulfill through its chain of warehouses, according to Mercent Corp., a consulting firm that helps retailers improve online sales.

Video Offerings

Amazon is focusing on building out the video offerings available on its website and the Kindle Fire, Szkutak said. Amazon announced the availability of the Amazon Instant Video app for Sony Corp.’s PlayStation 3 earlier this year, the first video-game console that offers the software.

Sales of digital media increased 19 percent to $4.7 billion, Amazon said.

“Underlying user growth trends remain strong,” Douglas Anmuth, an analyst at JPMorgan Chase & Co. (JPM) in New York, wrote in a research note this week. “We project margin to improve in the back half of the year.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Goldman Sachs Banker in California Said to Be Target

By Edvard Pettersson and Patricia Hurtado - Apr 27, 2012 4:55 AM GMT+0700

Goldman Sachs Group Inc. (GS) banker Matthew Korenberg in California is under investigation for insider-trading related to Galleon Group LLC co-founder Raj Rajaratnam, a person familiar with the matter said.

Federal prosecutors in Los Angeles are investigating Korenberg, a banker at Goldman Sachs’s San Francisco office, and Paul Yook, a former Galleon employee, for insider-trading involving transactions in the health-care industry, said the person, who didn’t want to be identified because the investigation isn’t public.

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Raj Rajaratnam, co-founder of Galleon Group LLC, right, exits federal court followed by his attorney Terence Lynam in New York. Photographer: Peter Foley/Bloomberg

Goldman Sachs has been aware of the allegations for more than two years and conducted its own investigation, said Michael DuVally, a spokesman for the New York-based bank, in an e-mail. Korenberg “remains actively employed,” DuVally said.

“There was an investigation of insider trading but it had nothing to do with Raj Rajaratnam,” John Hueston, a lawyer for Korenberg, said in a phone interview. “That’s very significant. He is still at Goldman Sachs and he has done nothing wrong and Goldman Sachs has stood behind him and continues to stand behind him.”

Federal prosecutors in New York this month disclosed that a Goldman Sachs employee was under investigation for passing illegal tips to Rajaratnam. It was at least the third person at the bank to be tied to a probe related to Rajaratnam and former Goldman Sachs director Rajat Gupta. The existence of the California investigation was disclosed in court proceedings involving Gupta’s prosecution for allegedly passing tips to Rajaratnam.

Gupta Trial

Gupta has pleaded not guilty and faces trial next month in Manhattan federal court.

Korenberg didn’t work on any of the deals involved in the Gupta case and has never been investigated for passing alleged tips to Gupta or Rajaratnam, Hueston said.

“These are entirely false allegations,” Hueston said.

“The multiyear investigation that he has been involved with has resulted in nothing,” Hueston said. “He has never tipped any information, he was never alleged to have tipped any inside information. He has had a distinguished career at Goldman Sachs.”

Hueston declined to comment on the nature of the investigation involving Korenberg.

‘Found Nothing’

“I’m not going to elevate the insignificance of that investigation that’s gone on now for more than 2 1/2 years and has found nothing,” he said.

Korenberg’s identity was reported earlier by the New York Times.

Yook didn’t immediately return a call to a number listed under his name in New York. Laura Eimiller, a spokeswoman for the Federal Bureau of Investigation in Los Angeles, declined to comment on the investigation. Gary Naftalis, a lawyer for Gupta, declined to comment on Korenberg.

On April 20, the U.S. notified U.S. District Court Judge Jed Rakoff, who is presiding over Gupta’s case in Manhattan, that an unidentified Goldman Sachs employee was under investigation for leaking inside information to Rajaratnam.

Unidentified Tipper

The unidentified tipper “allegedly gave material, nonpublic information to Mr. Raj Rajaratnam,” Naftalis said at the hearing. “We obviously would request of the government to get us any and all information relating to this additional sources that Mr. Raj Rajaratnam had at Goldman Sachs of nonpublic information as soon as possible.”

Yook and Rajaratnam’s brother Rengan were partners at Sedna Capital Management LLC. They were investigated by the U.S. Securities and Exchange Commission for insider trading in 2006, according to testimony at a pretrial hearing in Raj Rajaratnam’s case in October 2010 by Lindi Beaudreault, a lawyer who represented Galleon and Sedna. Yook was also questioned under oath by regulators as part of an investigation by the SEC into Sedna and Galleon, Beaudreault testified.

“At any time during Mr. Yook’s deposition, did he admit to engaging in insider trading?” Assistant U.S. Attorney Jonathan Streeter asked Beaudreault.

“I am sure he didn’t,” Beaudreault said.

“At any time during his deposition did he describe any suspicion that he had of insider trading?” Streeter asked.

“I don’t really remember about his deposition,” she said.

Since 2009, insider-trading and securities fraud charges have been filed against at least 64 people in the U.S. investigation. At least 59 people have either pleaded guilty or been convicted at trial. They include Rajaratnam, who is serving an 11-year prison term.

Goldman Sachs named Korenberg on a list of 272 managing directors in November 2009.

A woman carrying a white dog at Korenberg’s brown, two- story home in the Pacific Heights neighborhood of San Francisco, said “Sorry” and closed the door when asked for comment about the investigation. Korenberg bought the 2,640-square-foot, four- bedroom home built in 1900, for $2.6 million in 2010, according to real-estate website blockShopper.com.

To contact the reporters on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net; Patricia Hurtado in New York federal court at pathurtado@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Son of Bo Xilai Says Father’s Ouster ‘Destroyed My Life’

By Bloomberg News - Apr 27, 2012 7:05 AM GMT+0700

Li Wangzhi, the eldest son of ousted Politburo member Bo Xilai, rejected suggestions he used his father’s position for personal gain and said the downfall of a man he hasn’t seen in five years had destroyed his life.

Li, 34, said in a telephone interview yesterday that the last time he saw his father was at the funeral of his grandfather, Bo Yibo, in early 2007, and he hasn’t had any contact with him since. The former Citigroup Inc. (C) banker, who later went into private equity, said he was in China and not under detention.

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Li Wangzhi, elder son of Bo Xilai, former Chongqing communist party secretary, is identified as standing back row far right, in this Columbia University graduation photo provided by Tang Baiqiao, a former classmate, who stands back row far left, in New York on May 20, 2003. Source: Tang Baiqiao via Bloomberg

Li’s comments seek to dispel speculation he profited from the position of his father, who was suspended earlier this month from the ruling Politburo. The ouster of Bo and the arrest of his wife on suspicion of murder have heightened scrutiny of the family’s business interests and sparked China’s deepest political crisis since the 1989 Tiananmen uprising.

“This incident has destroyed my life,” said Li, who also goes by the name Brendan Li. “I have no way to control how others think, but I have no desire to bask in his glow,” he said, referring to his father.

Bo Xilai’s wife, Gu Kailai, was taken into custody for involvement in the murder of British businessman Neil Heywood, Xinhua News Agency reported April 10. The state-run agency said Gu and Heywood had “a conflict over economic interests.” Bo, 62, who was suspended as Communist Party chief of the municipality of Chongqing last month, has been accused of “serious violations of discipline,” the agency said.

Not a Spy

Heywood wasn’t a British spy and “was not an employee of the British government in any capacity,” U.K. Foreign Secretary William Hague wrote in a letter yesterday to the House of Commons Foreign Affairs Committee in London.

Li said he didn’t know Heywood or the relationship between Heywood and the Bo family, and said his mother, Li Danyu, has not had any contact with her ex-husband in three decades. Li Danyu and Bo divorced when Li Wangzhi was a child. Li said he left the Bo family “a long time ago.”

Since Bo’s ouster from his posts, details of his extended family’s wealth and business dealings have emerged that show businesses from China to the Caribbean, the U.S. and U.K.

“The spouses and children of some cadres have taken advantage of their power to seek personal gains, disregarding the law, thus stirring public outcry,” state-run Xinhua News Agency said in an April 14 commentary, four days after reporting that Bo had been suspended from the Politburo.

“It’s an obvious fact that my family name isn’t Bo,” Li said when contacted on his mobile phone number.

Guagua, Xiyong

Bo Xilai’s removal has altered the lives of his extended family, including that of Li’s half-brother and Harvard University student Bo Guagua, 24, and their uncle Bo Xiyong. The uncle on April 25 resigned from Hong Kong-listed alternative energy company China Everbright International Ltd. (257), where he served as vice chairman. Li said he hasn’t had any contact with other Bo family members since the funeral.

Bo Guagua denied reports in newspapers including the Wall Street Journal and Daily Telegraph that he led a lavish lifestyle, which included driving a red Ferrari and expensive schooling beyond the means of his father’s salary as a party official. He made the comments in a statement published April 24 in the Harvard Crimson, the student newspaper.

The grandfather of Bo Guagua and Li Wangzhi is a former vice premier of China who died in 2007. The family patriarch was one of the so-called eight immortals who helped steer China after the 1966-1976 Cultural Revolution.

Columbia, Citigroup

After graduating from Columbia University’s School of International and Public Affairs in New York in 2003 with a master’s degree, Li worked for Citigroup. He wouldn’t comment about his time at the New York-based bank, saying he had signed a confidentiality agreement.

After leaving Citigroup he began a career in private equity. He said investments he made in Dalian, where his father was mayor for much of the 1990s, were not very successful.

Li, who said he hasn’t worked since February, is linked to Chong’er Investment & Consultancy Co. by office and e-mail addresses. Chong’er was a Chinese prince in the seventh century B.C. who fled his home in the ancient state of Jin, modern-day Shanxi province and the ancestral home of the Bo, Li and Gu families, because his father made his half-brother the crown prince. Chong’er eventually fought back and took the crown.

Referring to Bo Xilai, he said: “I also want to know if he’s safe.

‘‘I look forward to seeing a fair conclusion to this case,’’ Li said. ‘‘My country’s government will make the correct judgment.’’

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Wenxin Fan in Shanghai at wfan19@bloomberg.net; Yidi Zhao in Beijing at yzhao7@bloomberg.net; Dune Lawrence in New York at dlawrence6@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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S&P 500 Caps Biggest Three-Day Advance Since February

By Rita Nazareth - Apr 27, 2012 4:00 AM GMT+0700

U.S. stocks gained, giving the Standard & Poor’s 500 Index its biggest three-day advance since February, after better-than-estimated housing data overshadowed disappointing earnings at United Parcel Service Inc.

A measure of homebuilders in S&P indexes rose 4.8 percent as PulteGroup Inc. rallied 10 percent amid a narrower loss. Chevron Corp. (CVX) advanced 2.3 percent as the energy company lifted its dividend. Amazon.com Inc. (AMZN), the largest Internet retailer, surged 12 percent at 4:57 p.m. New York time as revenue beat estimates. UPS (UPS), the biggest package-delivery company that is considered a proxy for the economy, retreated 1.8 percent.

The S&P 500 increased 0.7 percent to 1,399.98 at 4 p.m. New York time. It has advanced 2.4 percent in three days. The Dow Jones Industrial Average climbed 113.90 points, or 0.9 percent, to 13,204.62 today. About 6.7 billion shares changed hands on U.S. exchanges, almost in line with the three-month average.

“Things are better,” said Michelle Gibley, director of international research at San Francisco-based Charles Schwab Corp. Her firm has $1.83 trillion in client assets. “We did get several months of better-than-expected economic data. The earnings season has been pretty good.”

Equities rose as data showed that signed contracts to buy U.S. homes increased more than forecast in March. The Federal Reserve yesterday upgraded its estimates for growth and unemployment this year. Policy makers are holding off on additional steps to boost the economy amid signs that the more than two-year expansion is gaining strength. Yet earlier today, data signaled a cooling labor market as more Americans than forecast filed applications for unemployment benefits.

Earnings Season

Investors also watched earnings data as profits have topped forecasts at 75 percent of S&P 500 companies reporting since April 10, according to data compiled by Bloomberg. Per-share profits are forecast to have grown 3.3 percent in the first- quarter, Bloomberg data show. That’s up from the 0.8 percent growth projection before the earnings season started.

“The most recent concern of the bears was that earnings this quarter were going to disappoint and take the market lower,” Birinyi Associates Inc., the Westport, Connecticut- based firm founded by Laszlo Birinyi, said in a note to clients. “That this was a concern last quarter, as well, was conveniently forgotten.”

Today’s gain extended this year’s advance in the S&P 500 to 11 percent and the benchmark gauge for American equities trimmed its monthly decline to 0.6 percent. If the S&P 500 erases its April drop, it will cap the fifth straight month of gains, the longest winning streak since 2009. Financials and energy shares had the biggest losses in April, while telephone companies rose.

Homebuilders Rally

All 11 stocks in a measure of homebuilders in S&P indexes gained. PulteGroup (PHM) jumped 10 percent to $9.58. The largest U.S. homebuilder by revenue, which has reported a loss in six of the last seven quarters, has been focused on cutting costs after the acquisition of Centex Corp. in August 2009.

Chevron rose 2.3 percent to $106.22. The second-largest U.S. energy company boosted its quarterly dividend to 90 cents a share from 81 cents.

More S&P 500 companies are paying dividends than at any time since 2000 after Apple Inc., Nasdaq OMX Group Inc. and six other corporations initiated payouts this year. The number has risen to 401, according to Howard Silverblatt, S&P’s senior index analyst. His estimate for total payouts this year, which Silverblatt said is under review, is a record $279 billion.

Companies are increasing shareholder returns in the form of dividends and buybacks after the 2008 financial crisis led them to hoard cash to a record $1 trillion by the end of 2011. The rise in payouts coincides with a 13th quarter of better-than- estimated earnings.

Record High

“Given underlying fundamentals, low payouts and cash reserves, 2012 should set a record high for cash dividend payments,” Silverblatt wrote in an e-mail today.

Amazon surged 12 percent to $220 after the close of regular trading. Chief Executive Officer Jeff Bezos is looking to add customers by pouring money into new versions of the Kindle and warehouses that are equipped to send out products faster. The Kindle Fire tablet is the best-selling item on Amazon’s site, the company said.

Wal-Mart Stores Inc. (WMT) rallied 2.8 percent, the most in the Dow, to $58.95. The world’s largest retailer rebounded after an 8.2 percent slump in three days, which was triggered by allegations that executives in Mexico paid more than $24 million in bribes to speed expansion.

Citrix Systems Inc. (CTXS) surged 12 percent to $86.76. The software maker forecast earnings in 2012 will be at least $2.75 a share, topping the average analyst estimate of $2.72.

UPS Slumps

The Dow Jones Transportation Average (TRAN) slid 1.1 percent. UPS dropped 1.8 percent to $78.25. Package volume gains at UPS, an economic bellwether because it carries goods from mobile devices to pharmaceuticals, have slowed in recent quarters as Asian economic growth cools. Average revenue per piece stagnated as the company struggles to raise rates.

FedEx Corp. (FDX), which operates the world’s biggest cargo airline, last month projected a profit range for this quarter whose low end trailed analysts’ estimates as the company pared its global growth forecast.

Starbucks Corp. (SBUX) slumped 4.5 percent to $57.90 after the market close. The world’s largest coffee-shop chain reported second-quarter same-store sales that trailed analysts’ estimates amid weaker demand in Europe.

Exxon Mobil Corp. (XOM) declined 0.9 percent to $86.07. The world’s largest energy company by market value said net income fell 11 percent as its biggest first-quarter production decline since 2008 wiped out most of the benefit of record oil prices.

Dow Chemical

Dow Chemical Co. slumped 3.4 percent to $34.85 after rising costs for oil-based raw materials in Europe (DOW) and Asia cut earnings in plastics.

Akamai Technologies Inc. (AKAM) plunged 14 percent, the most in the S&P 500, to $33.15 after forecasting profit that missed estimates. The company that helps businesses deliver data at faster speeds over the Internet said Chief Executive Officer Paul Sagan will leave by the end of 2013. Akamai’s sales more than quadrupled during his leadership.

Aetna Inc. (AET) plunged 8.2 percent to $45.31. The third-biggest health insurer by sales reported first-quarter profit that missed analyst estimates.

The S&P 500 may lose as much as 10 percent from current levels given the market’s tendency to give back some gains after a “strong” rally, according to Bank of America Corp.’s Mary Ann Bartels.

‘In a Correction’

“We’re in a correction,” Bartels, the New York-based head of technical and market analysis at Bank of America, said in a phone interview yesterday. “We’re starting to get sell signals on our intermediate indicators.”

Industries such as consumer staples, telecommunications and utilities have fallen too much as investors favor more “defensive” industries, Bartels said. Stocks driven by the economy, including materials, energy and industrial shares, have fallen out of favor, pointing to a potential “deeper pullback” for the U.S. equity market, she said.

“The market is still staying away from commodity-sensitive cyclicals,” Bartels said. “As long as that continues, that means the market is more likely to go down.”

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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Cooling Job Market Takes Toll on U.S. Confidence: Economy

By Timothy R. Homan and Shobhana Chandra - Apr 27, 2012 3:29 AM GMT+0700

More Americans than forecast filed applications for unemployment benefits last week and consumer confidence declined by the most in a year, signaling that a cooling labor market may restrain household spending.

Jobless claims fell to 388,000 from a revised 389,000 the prior week that was the highest since early January, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index declined to minus 35.8 from minus 31.4 the previous week.

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Job seekers in New York on April 12, 2012. Photographer: Michael Nagle/Bloomberg

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April 26 (Bloomberg) -- Mort Zuckerman, chairman and chief executive officer of Boston Properties Inc., talks about the U.S. labor market and the outlook for real estate. Zuckerman, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses News Corp. Chairman Rupert Murdoch’s testimony at a U.K. media-ethics inquiry. (Source: Bloomberg)

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April 26 (Bloomberg) -- U.S. jobless claims fell to 388,000 in the week ended April 21 from a revised 389,000 the prior period that was higher than initially estimated, Labor Department figures showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg News called for a drop to 375,000. Michael McKee and Betty Liu report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke offers his views on the outlook for central bank monetary policy and the U.S. economy. Fed policy makers say they expect growth to accelerate, while refraining from new actions to lower borrowing costs. Bernanke says the central bank stands ready to add to its stimulus if necessary. (Excerpts. Source: Bloomberg)

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People wait in line to attend a job fair in New York, on April 12, 2012. Photographer: Justin Lane/EPA/Landov

“There has been some slowdown in the labor market,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly projected the level of jobless claims. “That makes consumers feel less confident, and makes them more cautious about their spending. We could see some weakness in April payrolls.”

Fewer firings are needed to lay the groundwork for more hiring and support consumer demand, which makes up 70 percent of the economy. Another report today showed that signed contracts to buy homes rose more than forecast in March, more evidence of a stabilizing housing market that may boost confidence.

Stocks climbed for a third day after the housing data and as technology companies rallied on better-than-estimated earnings. The Standard & Poor’s 500 Index (SPX) rose 0.7 percent to 1,399.98 at the close of trading in in New York. The yield on the benchmark 10-year Treasury note fell to 1.94 percent at 4:21 p.m. from 1.98 percent late yesterday.

Confidence is also slipping in the euro region, a report today showed.

Europe Index

An index of executive and consumer sentiment in the 17- nation euro area fell to 92.8 from a revised 94.5 in March, the European Commission in Brussels said today. Economists had forecast a drop to 94.2 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.

U.S. jobless claims were forecast to decline to 375,000, according to the median of 48 estimates in a Bloomberg News survey of economists. The Labor Department revised the previous week’s figure from 386,000. Claims in the week ended April 14 were the highest since Jan. 7.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

Among companies cutting positions is AMR Corp. (AAMRQ)’s American Airlines, which said last week it will eliminate 1,200 airport agent, baggage and cargo jobs. The cuts come as part of a bankruptcy restructuring plan to trim annual labor spending by $1.25 billion.

Stable Headcount

CSX Corp. (CSX), the biggest U.S. eastern railroad, is hiring people mainly to keep headcount stable.

“Last year, you may recall we hired 4,000 people --roughly 3,000 was attrition, the other 1,000 was evenly split between train and engine crews to move the products” and others to install safety systems to comply with regulations, Michael Ward, chief executive officer at CSX, said in an April 18 interview. “So those people were hired. This year the 3,000 will be largely attrition.”

A report from the Labor Department on April 6 showed hiring cooled in March. Employers added 120,000 jobs, the fewest in five months. The jobless rate fell to 8.2 percent from 8.3 percent the prior month.

The figures help explain why Federal Reserve policy makers yesterday stuck to a plan to hold borrowing costs close to zero through 2014. Central bankers said that while labor-market conditions have improved, unemployment “remains elevated.”

Buying Climate

Slower job growth may weigh on consumer moods. The Bloomberg comfort data showed the buying climate index decreased to minus 41.5 last week from minus 36.8 the prior week. A measure of Americans’ views of the state of the economy dropped to minus 66.4 from minus 64.3, and a gauge of personal finances slid to 0.4 from 6.8 the prior week.

Men and young Americans, those from 18 to 34 years old, showed the biggest declines in sentiment during the latest week. The gauge for men declined after reaching a four-year high the prior week. Sentiment among the young fell last week to the lowest level since January.

Among independents, a key swing group during this year’s presidential election, the comfort gauge fell to a two-month low of minus 37.7 from minus 29 the prior week. The measure also worsened for Democrats while holding at the prior week’s level for Republicans.

Jobs and the economy are a central theme in political sparring between President Barack Obama and Republican challenger Mitt Romney.

Job Recovery

The former Massachusetts governor and co-founder of the private-equity firm Bain Capital LLC this week vowed to use his business experience to “lead us out of this stagnant Obama economy and into a job-creating recovery.”

Obama’s senior strategist, David Axelrod, said Romney’s “business career was not about job creation.” Rather, “It was about wealth creation for himself and his partners.”

Consumers may get a boost from today’s housing data, which added to evidence this week that the industry at the heart of the financial crisis is bottoming.

New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, Commerce Department data showed. Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, according to the S&P/Case-Shiller index.

Signed contracts to buy previously owned properties jumped 4.1 percent in March to 101.4, the highest level since April 2010, today’s data from the National Association of Realtors showed.

Leading Indicator

Pending home sales are considered a leading indicator of progress in real estate because they track contract signings. Purchases of existing homes are tabulated when a contract closes, typically a month or two later, and made up about 93 percent of the housing market last year.

Compared with a year earlier, March pending home sales climbed 10.8 percent after a 14.9 percent surge in February. Two of four regions saw an increase in pending home sales from the prior month, led by an 8.7 percent jump in the West, while the South posted a 5.9 percent gain.

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Apple Profit Surge Fueled by China Teachers to Furniture Makers

By Bloomberg News - Apr 26, 2012 8:50 AM GMT+0700
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Apple sold 35.1 million iPhones in the fiscal second quarter, an 88 percent increase from a year earlier. Photographer: Jerome Favre/Bloomberg

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April 25 (Bloomberg) -- Shaw Wu, an analyst at Sterne Agee & Leach Inc., talks about Apple Inc.'s financial results and business outlook. Apple profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases globally of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks. Wu speaks from San Francisco with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 25 (Bloomberg) -- Kirk Yang, an analyst with Barclays Plc, talks about Apple Inc.'s financial results and the company's Asian suppliers. Apple profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks. Yang speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Apple Inc. employees cheer at the official opening of the company's new store in Shanghai, China. Apple’s growth probably won’t slow any time soon. Photographer: Qilai Shen/Bloomberg

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

Li Wenhua, a 35-year-old school teacher in Beijing, left work early last week to buy an iPhone -- even though she didn’t need it for work and wasn’t planning to use many of its features.

“A lot of people in my office use it and said I should get one, so I did,” Li said as she exited Apple (AAPL) Inc.’s Joy City Mall store. “I chose it just because it’s beautiful. I like the style.”

The must-have sentiment helps explain why China made up 20 percent of Apple’s sales and fueled a 94 percent profit surge last quarter. Hundreds of miles from Foxconn Technology Group plants where iPhones are built, shoppers in Beijing, Shanghai and other cities are flocking to the devices and making their country a centerpiece of the company’s growth strategy. Like Starbucks Corp. (SBUX) and Yum! Brands Inc., Apple is benefiting from rising wages that give Chinese citizens more disposable income.

“China has an enormous number of people moving into higher income groups,” Apple Chief Executive Officer Tim Cook said this week on a conference call with analysts. “There’s a tremendous opportunity for companies that understand China, and we’re doing everything that we can to understand it and serve the market as good as we can.”

Apple sold 35.1 million iPhones in the fiscal second quarter, an 88 percent increase from a year earlier, and higher than the average estimate of analysts surveyed by Bloomberg. That came after the January release of the most recent version of the iPhone in China and 21 other countries.

‘Zero to $13 Billion’

China accounted for $7.9 billion of Apple’s $39.2 billion in sales in the period that ended March 31. In the first six months of this fiscal year, Apple’s sales reached $12.4 billion in China, almost matching $13.3 billion, the total for all of last year. Before the iPhone’s debut there in 2009, the company had less than $1 billion in annual sales in China.

“I don’t know of any other company that has driven its sales from virtually zero to $13 billion in a few years,” said Donald Straszheim, a senior managing director who heads China research at ISI Group LLC in Los Angeles. “There’s a growing appetite for Apple products.”

Once considered a niche computer maker with a smaller international footprint than competitors such as Hewlett-Packard Co., Apple has used products including the iPhone and iPad to become one of the world’s biggest electronics makers. The Americas made up only 35 percent of sales last year, down from 48 percent in 2007. In the same period, sales in the Asia- Pacific region, which includes China, grew to 21 percent from 7 percent. Last quarter, international sales made up 64 percent of the total.

Offsetting U.S. Declines

Sales in China and other countries last quarter helped make up for a drop in iPhone sales in the U.S., where the new model went on sale in October. AT&T Inc. (T) and Verizon Wireless, the largest U.S. carriers, said iPhone sales fell last quarter compared with the previous three-month period.

In China, Apple sells its products from six company-run retail outlets and its online store, as well as a network of thousands of authorized resellers. Wireless carriers such as China Unicom (Hong Kong) Ltd. (762) and China Telecom Corp. also sell the iPhone. Lines of unauthorized sellers sell the company’s gadgets a short walk from its flagship stores in Beijing.

The appeal extends beyond the iPhone.

At the same store where teacher Li bought her device, Chu Fuzhan, a 42-year-old manager in a furniture-manufacturing business, said he was buying a new MacBook to go along the iPhone and two iPads he already owns.

‘Quality and Style’

“Everywhere around the world, people love the quality and style of Apple products, and now people want that in China too,” Chu said. “I wanted to be part of that.”

Mac sales rose more than 60 percent in China last quarter, compared with 7 percent globally, Cook said this week.

Apple’s growth probably won’t slow any time soon. According to a report published last year by Credit Suisse Group AG, China may generate almost $30 billion in sales for Apple by 2015.

“They are just scratching the surface with China, with the iPhone being the highlight,” said Chris Jones, an analyst at Canalys in Palo Alto, California. “There’s still a tremendous amount of upside as they get more carriers and more points of sale in the market.”

Apple will get another boost if the iPhone becomes available on China Mobile Ltd. (941), the world’s largest mobile-phone carrier, with more than 660 million users. China Mobile said last month that it and Apple are “working very hard together” on an agreement to have China Mobile carry the iPhone.

Siri in Mandarin

Even without a formal deal to provide an iPhone with a service contract, more than 15 million China Mobile customers are using an iPhone on the company’s 2G network.

To extend its appeal in China, Apple may need to add features tailored to Chinese users, said Nathan Washburn, an assistant professor at the Thunderbird School of Global Management, who studies business management in China.

Many Chinese iPhone owners use separate phones for texting because the Apple’s device isn’t well equipped for Chinese characters. Siri, the voice-recognition software in the new iPhone 4S, doesn’t work with Mandarin, though Apple says the tool is coming this year.

“They need to be sure the product is tailored to the needs of the Chinese market,” said Washburn. Failing that, many customers may regard it as a status symbol with limited appeal beyond that, he said.

Pelted With Eggs

Apple will also need to manage the expectations of the Chinese public eager to own its gadgets. Police were called in to break up a crowd that pelted an Apple store with eggs in January after growing frustrated that iPhone sales were delayed.

The company is hardly alone in attempting to benefit from the spending power of Chinese consumers. Samsung Electronics Co. and other phone makers using Google Inc.’s Android operating system are outselling Apple, said Shaun Rein, managing director of the China Market Research Group. The company ought to release its products sooner in the Chinese market, he said.

“Apple is a good story in China, but they are succeeding in spite of themselves,” Rein said. “They are winning because they have a great product, but they are underperforming when it comes to localizing and understanding the China market. They should be releasing products in China first.”

In a sign of China’s growing importance to Apple, Cook visited the country last month, meeting with government officials and touring factories where its devices are made.

‘Exclusive Few’

The visit came after the company had faced criticism about its labor practices in the country, including excessive overtime and unsafe working conditions.

Foxconn is putting in place changes, such as higher wages and reduced overtime of assembly plant workers. Investors and analysts will be watching to see whether the new policies will reduce Apple’s profit margins. Gene Munster, an analyst at Piper Jaffray Cos., said the impact could be minimal, with costs bringing margins down by 1 percentage point over time.

In another example of the challenges of operating in China, Apple also has been entangled in a legal fight there over the trademark for the iPad. Proview International Holdings Ltd. (334), a Hong Kong-listed company, has claimed ownership of the name in China, an assertion Apple says isn’t true.

If Apple faces obstacles in China, there was no sign of them at the bustling Apple store at the Joy City Mall.

Chu, the furniture worker, summed up his desire for Apple products by saying, “I wanted to have the experience of being one of the exclusive few.”

To contact Bloomberg News staff for this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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Bernanke Takes On Krugman’s Criticism Ignoring Own Advice

By Jeff Kearns and Craig Torres - Apr 26, 2012 9:28 PM GMT+0700
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Ben S. Bernanke chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

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April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke offers his views on the outlook for central bank monetary policy and the U.S. economy. Fed policy makers say they expect growth to accelerate, while refraining from new actions to lower borrowing costs. Bernanke says the central bank stands ready to add to its stimulus if necessary. (Excerpts. Source: Bloomberg)

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April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the central bank's monetary policy and the U.S. economy. He speaks a news conference following a meeting of the Federal Open Market Committee in Washington. (Source: Bloomberg)

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April 26 (Bloomberg) -- Eric Pellicciaro, head of global rates investment at BlackRock Inc., talks about Federal Reserve monetary policy. He speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Federal Reserve Chairman Ben S. Bernanke took on Nobel prize-winning economist Paul Krugman yesterday and called his advice to reduce unemployment by boosting inflation “reckless.”

“The question is, does it make sense to actively seek a higher inflation rate in order to achieve” a slightly faster reduction in the unemployment rate, Bernanke said yesterday to reporters after a Federal Open Market Committee meeting. “The view of the committee is that that would be very reckless.”

Krugman, whom Bernanke hired at Princeton University in 2000 when he was chairman of the economics department, said in a New York Times Magazine article that the Fed should raise its 2 percent inflation target to cut unemployment. Such a policy shift would align with Bernanke’s comment in 2000 that the Bank of Japan (8301) should pursue faster inflation to escape deflation, he said. Japan’s consumer prices fell 0.2 percent that year.

“While the Fed went to great lengths to rescue the financial system, it has done far less to rescue workers,” Krugman wrote. “Higher expected inflation would aid an economy” because it would persuade investors and businesses “that sitting on cash is a bad idea,” Krugman said.

Bernanke, during yesterday’s press conference in Washington, denied that the FOMC’s policy contradicts his prior academic work. The chairman spoke in response to a reporter’s question referring to Krugman’s story, titled “Earth to Ben Bernanke,” published April 24. The article cited “the divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done.”

‘Completely Consistent’

“So there’s this view circulating that the views I expressed about 15 years ago on the Bank of Japan are somehow inconsistent with our current policies,” Bernanke said. “That is absolutely incorrect. My views and our policies today are completely consistent with the views that I held at that time.”

Krugman didn’t respond to telephone and e-mail messages to his publicist, Sarah Fogarty.

Bernanke said the main difference between Japan’s economic slump 15 years ago and the U.S. today is that Japan was in deflation and the world’s largest economy isn’t, with an inflation rate that’s close to the Fed’s objective.

The U.S. today doesn’t face a deflation threat, in part because the Fed expanded its balance sheet to $2.88 trillion through $2.3 trillion in bond purchases, Bernanke said. The FOMC yesterday raised its estimate for the personal consumption expenditures price index for this year to 1.9 percent to 2 percent versus 1.4 percent to 1.8 percent in January.

Inflation, Deflation

Bernanke said pushing the increase in prices above the Fed’s 2 percent goal would risk undermining inflation expectations and erode the central bank’s credibility as a force for stable prices.

“There are academics who have suggested that the Fed actively seek very high inflation for a couple of years,” said Laurence Meyer, senior managing director at Macroeconomic Advisers LLC in St. Louis and a former Fed governor. “Central bankers appreciate that credibility helps stabilize inflation and makes the real sector more stable. The costs of getting it back when you lose it are enormous.”

If the Fed can’t convince investors that it can contain inflation, “we would in fact have less rather than more flexibility to use accommodative monetary policy to achieve our employment goals,” Bernanke said.

‘Doubtful Gains’

“We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable in that we’ve been able to take strong accommodative actions in the last four, five years,” Bernanke told reporters. “To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do.”

The Standard & Poor’s 500 Index rose 0.1 percent to 1,391.92 as of 10:16 a.m. in New York. Yields on benchmark 10- year Treasury notes slumped four basis points to 1.95 percent.

Krugman, who won the 2008 Nobel Prize in Economics, said in a blog posting on the New York Times’ opinion page yesterday that Bernanke’s response was “disappointing stuff.”

Krugman, 59, has previously proposed higher inflation to boost employment and criticized Bernanke in a Bloomberg News interview last year for not taking more aggressive action.

Bernanke, 58, joined Princeton, in New Jersey, as a professor in 1985, according to the central bank’s website. He was a member of the Fed’s Board of Governors from 2002 to 2005 and chairman of President George W. Bush’s Council of Economic Advisers from 2005 to 2006, when he took office as Fed Chairman.

“Krugman’s views are not closely related to the reality in which Bernanke is forced to operate,” said Anthony Karydakis, an adjunct professor of economics at New York University’s Leonard N. Stern School of Business and former chief U.S. economist at JPMorgan Asset Management. “One of them has the responsibility of steering the economy through treacherous waters and the other has the luxury of sitting in his office and sending articles to the New York Times,” Karydakis said.

To contact the reporters on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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