Economic Calendar

Tuesday, September 27, 2011

Fukushima Desolation Worst Since Nagasaki

By Yuriy Humber, Yuji Okada and Stuart Biggs - Sep 27, 2011 11:49 AM GMT+0700
Enlarge image Japan Dead Zone Evokes Hiroshima Stigma as Wasteland Emerges

Paddy fields overgrown with weeds sit inside the evacuation zone around the Fukushima Dai-Ichi nuclear plant, in Minamisoma, Fukushima, Japan. Photographer: Stuart Biggs/Bloomberg


Beyond the police roadblocks that mark the no-go zone around Japan’s wrecked Fukushima nuclear plant, six-foot tall weeds invade rice paddies and vines gone wild strangle road signs along empty streets.

Takako Harada, 80, returned to an evacuated area of Iitate village to retrieve her car. Beside her house is an empty cattle pen, the 100 cows slaughtered on government order after radiation from the March 11 atomic disaster saturated the area, forcing 160,000 people to move away and leaving some places uninhabitable for two decades or more.

“Older folks want to return, but the young worry about radiation,” said Harada, whose family ran the farm for 40 years. “I want to farm, but will we be able to sell anything?”

What’s emerging in Japan six months since the nuclear meltdown at the Tokyo Electric Power Co. plant is a radioactive zone bigger than that left by the 1945 atomic bombings at Hiroshima and Nagasaki. While nature reclaims the 20 kilometer (12 mile) no-go zone, Fukushima’s $3.2 billion-a-year farm industry is being devastated and tourists that hiked the prefecture’s mountains and surfed off its beaches have all but vanished.

The March earthquake and tsunami that caused the nuclear crisis and left almost 20,000 people dead or missing may cost 17 trillion ($223 billion), hindering the recovery of the world’s third-largest economy from two decades of stagnation.

Compensation Costs

A government panel investigating Tokyo Electric’s finances estimated the cost of compensation to people affected by the nuclear disaster will exceed 4 trillion yen, Kyodo News reported today, without saying how it got the information.

The bulk of radioactive contamination cuts a 5 kilometer to 10 kilometer-wide swath of land running as far as 30 kilometers northwest of the nuclear plant, surveys of radiation hotspots by Japan’s science ministry show. The government extended evacuations beyond the 20-kilometer zone in April to cover this corridor, which includes parts of Iitate village.

No formal evacuation zone was set up in Hiroshima after an atomic bomb was dropped on the city on Aug. 6, 1945, though as the city rebuilt relatively few people lived within 1 kilometer of the blast epicenter, according to the Hiroshima Atomic Bomb Museum. Food shortages forced a partial evacuation of the city in the summer of 1946.

Chernobyl Explosion

On April 26, 1986, an explosion at the Chernobyl reactor hurled 180 metric tons of nuclear fuel into the atmosphere, creating the world’s first exclusion zone of 30 kilometers around a nuclear plant. A quarter of a century later, the zone is still classed as uninhabitable. About 300 residents have returned despite government restrictions.

The government last week said some restrictions may be lifted in outlying areas of the evacuation zone in Fukushima, which translates from Japanese as “Lucky Isle.” Residents seeking answers on which areas are safe complain of mixed messages.

“There are no simple solutions,” Timothy Mousseau, a professor of biological sciences at the University of South Carolina, said. Deciding whether life should go on in radiation tainted areas is a “question of acceptable risks and trade offs.”

To Mousseau, one thing is clear.

‘Consequences’

“There will be consequences for some of the people who are exposed to levels that are being reported from the Fukushima prefecture,” Mousseau said by e-mail from Chernobyl, where he is studying radiation effects.

Japan abandoned any ambition to develop atomic weapons after the 1945 bombings. Two decades later, the nation embraced nuclear power to rebuild the economy after the war in the absence of domestic oil and gas supplies.

Tokyo Electric’s decision in the 1960s to name its atomic plant Fukushima Dai-Ichi has today associated a prefecture of about 2 million people that’s almost half the size of Belgium with radiation contamination. In contrast, Chernobyl is the name of a small town near the namesake plant in what today is Ukraine.

The entire prefecture has been stained because of the link, according to Governor Yuhei Sato.

“At Fukushima airport you don’t see Chinese and Korean visitors like before because of negative associations,” he said.

Stigmatized

The fear of radiation was prevalent after the Hiroshima and Nagasaki bombings and it stigmatized the survivors, known as hibakusha, or people exposed to radiation. Many hibakusha concealed their past for fear of discrimination that would prevent them finding work or marriage partners, according to the Japan Confederation of A-and H-bomb Sufferers Organization.

Some people believed A-bomb survivors could emit radiation and others feared radiation caused genetic mutations, said Evan Douple, Associate Chief of Research at the Radiation Effects Research Foundation in Hiroshima.

An examination of more than 77,000 first-generation children in Hiroshima and Nagasaki after the bombings found no evidence of mutations, he said.

While radiation readings are lower in Fukushima than Hiroshima, Abel Gonzales, the vice-chair of the International Commission on Radiological Protection, said similar prejudices may emerge.

“Stigma. I have the feeling that in Fukushima this will be a very big problem,” Gonzales said in a symposium held in Fukushima City on the six-month anniversary of the disaster.

Bullying

Some children that fled Fukushima are finding out what Gonzales means.

Fukushima schoolchildren were being bullied at their new school in Chiba prefecture near Tokyo for “carrying radiation,” the Sankei newspaper reported in April, citing complaints made to education authorities. An 11-year-old Fukushima boy was hospitalized in Niigata prefecture after being bullied at his new school, Kyodo News reported April 23.

Produce from Fukushima’s rich soil is also being shunned. Peaches, the prefecture’s biggest agricultural product after rice, have halved in price this year. Beef shipments from the prefecture were temporarily suspended and contamination concerns stopped the town of Minami Soma from planting rice, according to local authorities.

Fallow Land

Some land around the Fukushima reactors will lie fallow for two decades or more before radiation levels fall below Japan’s criteria for evacuation, the government said Aug. 26.

Radiation risks in the 20 kilometer zone forced the evacuation of about 8 percent, or 160,000, of some 2 million people who live in Fukushima. Almost 56,000 were sent to areas outside Fukushima, prefecture spokesman Masato Abe said by phone. More than 8,000 left on their own accord because of radiation fears, Abe said.

Inside the evacuation areas, levels of radiation higher than the government’s criteria for evacuation have been recorded at 89 of 210 monitoring posts. At 24 of the sites, the reading was higher than the level at which the International Atomic Energy Agency says increases the risk of cancer.

Japan Atomic Energy Institute researcher Toshimitsu Homma used Science Ministry data to compare the geographic scale of the contamination in Fukushima with Chernobyl.

He estimates the no-go zone in Fukushima will cover 132 square kilometers, surrounded by a permanent monitoring area of 264 square kilometers, assuming Japan follows the criteria set by the Soviet Union in 1986.

The two areas combined equal about half the size of the five boroughs that comprise New York City. In the case of Chernobyl, the two zones cover a land mass 25 times greater, according to Homma’s figures.

Intermittent Information

While scientists knew back in March that radiation contamination would create an uninhabitable zone in Fukushima, information to the public has come intermittently, said Hiroaki Koide, a nuclear physics scientist at Kyoto University.

“Many people in Fukushima have to face the reality that they cannot go back to their homes for decades,” Koide said.

Masaki Otsuka said it may be worse than that.

“I don’t think I can ever go back to my house, because it was just 4 kilometers from the Dai-Ichi reactors,” the 51-year- old pipe welder said in an interview at an evacuation center in Azuma, Fukushima city, where he has lived for six months.

People’s distrust of politicians and scientists, as well as conflicting commentary, makes it harder for residents to decide whether to stay or leave, said Michiaki Kai, a professor in environmental health science at Oita University of Nursing and Health Sciences.

Official Contradictions

Similar circumstances affected residents near Chernobyl and those close to the nuclear accident at Three Mile Island in the U.S. in 1979.

“Contradiction in some official statements, and the appearance of non-scientifically based ‘expert’ voices, confused and added stress to the local populations in each case,” said Evelyn Bromet, distinguished professor in the department of psychiatry at Stony Brook State University of New York.

“Lies got told, contradictions got told. In the end it’s easier to believe nobody,” Bromet said in an interview, citing mental health studies she did on people in the areas.

What radiation hasn’t ruined, the earthquake and tsunami devastated. Fukushima prefecture welcomed 56 million domestic and overseas visitors in 2009, equal to 44 percent of Japan’s population.

Surfing Canceled

The coastal town of Minami Soma this year canceled its annual qualifying stage for the world surfing championship, part of a waterfront that lured 84,000 beachgoers in July and August last year, said Hiroshi Tadano, head of the town’s economic division. This year, nobody visited the beaches in the two months.

“Most of the beaches are destroyed,” Tadano said. “And of course, radiation played its part.”

The area’s biggest festival, Soma Noma Oi, a re-enactment of samurai battles, attracted 200,000 visitors last year. This year 37,000 came. Of the 300 horses typically used in the event, 100 were drowned in the tsunami and another 100 were evacuated due to radiation, Tajino said.

Minami Soma resident Miyaguchi, 54, lost his home and parents in the tsunami. He quit his job at Tokyo Electric, leaving him unemployed and housed in an evacuation center.

Still, he has no plans to move away. “Most people who wanted to move away have done so, but I can’t live in big cities like Tokyo,” he said, declining to give his first name.

The future of Fukushima is in the hands of residents like Miyaguchi and Harada who say they want to stay and work to reclaim their land from disaster.

A giant banner in the playground of the closed Haramachi elementary school in Minami Soma makes that a promise: “To all of you wherever you are, we say we won’t give up.”

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net; Stuart Biggs in Tokyo at sbiggs3@bloomberg.net

To contact the editors responsible for this story: Peter Langan at plangan@bloomberg.net; Teo Chian Wei at cwteo@bloomberg.net




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Crude Oil Advances in New York on Optimism Europe Debt Crisis Will Ease

By Ben Sharples - Sep 27, 2011 7:36 AM GMT+0700

Oil advanced for a second day in New York on speculation steps by Europe to tame its sovereign debt crisis will temper a slowdown in the region's economy and demand for raw materials.

Futures climbed as much as 1.6 percent as equities rallied. The European Central Bank may debate covered-bond purchases and interest rate cuts, a euro-region central bank official said. The European Union accounted for 16 percent of global oil demand last year, according to BP Plc’s annual Statistical Review of World Energy. U.S. crude stockpiles rose last week, an Energy Department report tomorrow may show.

“If there’s a credible plan that is good enough and certain enough to restore reasonable confidence to the world then a lot of things are going to look cheap at current prices and that probably includes oil,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney.

Crude for November delivery gained as much as $1.31 to $81.55 a barrel in electronic trading on the New York Mercantile Exchange and was at $80.97 at 10:33 a.m. Sydney time. The contract yesterday rose 0.5 percent to $80.24. Oil has dropped 8.9 percent this month and 15 percent this quarter. Prices are down 11 percent this year.

Brent futures for November settlement gained 61 cents, or 0.6 percent, to $104.55 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $23.58 to U.S. futures, compared with a record $26.87 on Sept. 6, based on front-month settlement prices.

Oil Supplies

“Crude benchmarks were propped up by the rally in equity markets and a softer U.S. dollar,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. “Uncertainty over Europe continued to be a drag on prices, but with most of the bad news already priced in, oil markets could stabilize after posting steep declines last week.”

The Standard & Poor’s 500 Index added 2.3 percent in New York. The Dollar Index fell and the euro weakened against 13 of 16 major peers yesterday.

U.S. crude stockpiles probably climbed 2.2 million barrels last week, according to the median of 11 analyst estimates in a Bloomberg News survey. Gasoline supplies rose 1 million barrels and inventories of distillate fuel, a category that includes heating oil and diesel, increased by 500,000 barrels.

Brent futures, the benchmark for more than half the world’s crude, have declined 7 percent this quarter. Saudi Arabia, the world’s biggest oil exporter, may cut production as Brent falls toward $90 a barrel next year because the government needs higher prices to fund its budget, HSBC Holdings Plc said yesterday.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net




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Gold Futures Recover From Biggest 3-Day Decline Since 1983; Silver Gains

By Glenys Sim - Sep 27, 2011 6:39 AM GMT+0700

Gold futures advanced for the first time in five days as the biggest three-day drop since 1983 encouraged purchases by investors seeking a store of value amid turmoil in global financial markets. Silver futures climbed for the first day in four, trading back above $30 an ounce.

December-delivery bullion rose as much as 2.4 percent to $1,633.30 an ounce in New York before trading at $1,630.50. Futures tumbled 11.8 percent in the previous three days, the largest such drop in 28 years. Immediate-delivery gold was little changed at $1,628.72 an ounce after slumping 9.8 percent in the last four days on optimism European officials will come up with a plan to stem the region’s debt crisis.

“The facts haven’t changed,” said Gijsbert Groenewegen, a partner at Silver Arrow Capital Management. “The only thing that changes over time is the perception that the Europeans are doing something about it, that they might come up with some solutions, but they’re not solving the problem. They’re just postponing what will happen in three months or six months or whatever but we will get default.”

The European Central Bank is likely to debate restarting covered-bond purchases and may discuss interest-rate cuts to ease funding strains, a euro-region central bank official said. Policy makers are under pressure to halt the 18-month European debt crisis that has Greece on the brink of default and threatens to tip the global economic back into recession.

“When the market gets very panicky they sell everything off and they go for cash and treasuries because that’s really the largest market where you can park your money,” Groenewegen said in a Bloomberg Television interview. “From a fundamental point of view, the dollar and treasuries are no better than the sovereign debt in Europe. It’s a great opportunity to accumulate more gold and silver.”

December-delivery silver gained as much as 2.8 percent to $30.81 an ounce after dropping to an 11-month low of $26.150 yesterday. Cash silver was little changed at $30.6775 an ounce.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net




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Google+ U.S. Traffic Soars After Social-Networking Site Opens to Everyone

By Brian Womack - Sep 27, 2011 7:33 AM GMT+0700

Google Inc. (GOOG)’s new social-networking service, an effort to lure away users from Facebook Inc., saw U.S. visits soar 13-fold last week after the site opened to the general public, Experian Hitwise said in a report.

The Google+ site received almost 15 million U.S. visits in the week ended Sept. 24, compared with 1.1 million the previous week, according to Hitwise, a research firm in New York. Until last week, the service was in an early test phase, and users could only join if they were invited.

Google, the world’s biggest Internet-search company, is trying to leverage that dominance to gain more social-networking users. When it opened Google+ to the public last week, it also added new search capabilities, making it easier to find posts from friends and other content.

With the changes, Google boosted the number of Google+ features to 100. The company is trying to provide reasons to leave Facebook, which has more than 750 million members. Google also unveiled an online-game service last month with developers such as Zynga Inc., maker of the Facebook game “FarmVille,” and Rovio Entertainment Oy, creator of the hit “Angry Birds.”

Google rose $6.38, or 1.2 percent, to $531.89 today in Nasdaq Stock Market trading. Shares of the Mountain View, California-based company have declined 10 percent this year.

To contact the reporters on this story: Brian Womack in San Francisco at +1-415-617-7218 or bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at +1-415-617-7223 or tgiles5@bloomberg.net




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Priceline Names Former Microsoft Executive Huston CEO of Booking.com Unit

By Ari Levy - Sep 27, 2011 4:51 AM GMT+0700

Priceline.com Inc. (PCLN), the biggest U.S. online travel agency by stock market value, appointed former Microsoft Corp. (MSFT) executive Darren Huston as chief executive officer of its European hotel unit, Booking.com.

Kees Koolen, the founder and former head of Booking.com, will serve as chairman, the Norwalk, Connecticut-based company said today in a statement.

Revenue in Priceline’s international business, the bulk of which comes from Booking.com, surged 90 percent to $612.9 million in the second quarter, accounting for 56 percent of total sales. Since acquiring Amsterdam-based Booking.com in 2005, Priceline’s annual revenue has more than tripled and the stock price has jumped more than 20-fold.

“Globally, there are significant opportunities for our business, both in core markets and in developing ones,” Huston, 45, said in the statement.

Booking.com offers access to more than 165,000 hotels in 43 languages. Priceline also owns Agoda.com in Bangkok.

Priceline fell $1.02 to $513.59 at 4 p.m. today on the Nasdaq Stock Market. The shares have gained 29 percent this year, compared with the 7.5 percent drop in the Standard & Poor’s 500 Index.

Huston joined Microsoft, the world’s largest software maker, in 2003 and spent the last three years as corporate vice president in the consumer and online business. From 2005 to 2008 he was CEO of Microsoft Japan, the largest unit of the Redmond, Washington-based company outside the U.S.

Prior to Microsoft, Huston was a senior vice president at Starbucks Corp. (SBUX), handling acquisitions and product development at the world’s biggest operator of coffee shops. Huston has a master’s degree in business administration from Harvard Business School.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

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




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Oracle May Make Acquisitions to Gain Industry-Specific Software, Hurd Says

By Aaron Ricadela - Sep 27, 2011 4:32 AM GMT+0700
Enlarge image Oracle Co-President Mark Hurd

Oracle co-President Mark Hurd. Photographer: Tony Avelar/Bloomberg


Oracle Corp. (ORCL), facing mounting competition from smaller, “boutique” rivals, may make more deals to purchase industry-specific software companies, co- President Mark Hurd said.

Oracle is focused on so-called vertical markets, such as financial-services customers, and acquisitions could be a part of that strategy, Hurd said today in his first interview with a business publication since joining the company. Still, Redwood City, California-based Oracle doesn’t feel pressure to tap its $31.7 billion in cash to make a deal, he said.

“There’s a lot of value in these industry verticals we’ve invested in over the years,” said Hurd, referring to software for the banking, telecommunications and retailing industries. “It’s hard to beat the returns the company gets.”

Oracle, the world’s largest maker of database software, also is seeking to spur sales by appealing to budget-minded businesses. The company’s hardware and software can boost efficiency, letting customers reduce the number of servers and databases they ran, Hurd said. Oracle plans to unveil new computer systems packaged with database software and other programs at its OpenWorld conference next week in San Francisco.

OpenWorld Show

The company also will release new software applications in its Fusion line at OpenWorld, stepping up competition with boutique companies that focus on specialized software applications, Hurd said. The company aims to repeat the success it’s had with last year’s crop of new products, he said.

“If you went back a year ago and looked at the amount of technology released at Oracle OpenWorld, you’d have to say it’s a tremendous yield,” Hurd said. “Next week we’ll announce even more.”

Oracle rose 81 cents, or 2.8 percent, to $29.71 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have climbed 10 percent during the past 12 months.

Chief Executive Officer Larry Ellison has spent more than $40 billion on acquisitions since 2005, including last year’s $7.4 billion acquisition of computer maker Sun Microsystems Inc. The takeover spree has also added programs that let companies manage human resources, operations and other complicated computing tasks.

Ellison also introduced a new computer system, the Sparc Supercluster, at an event at the company’s headquarters today. The product includes a Sparc T4 processor that can run Oracle’s database and a user’s applications faster than older Sun machines, Ellison said at the event.

“We think lots and lots of people are going to upgrade from their current Sparc systems,” Ellison said. “This is a really fast computer.”

Hurd joined Oracle last September, a month after he was ousted as Hewlett-Packard Co. (HPQ)’s CEO. Hurd was replaced at Hewlett-Packard by Leo Apotheker, who was forced out himself last week and replaced by former EBay Inc. CEO Meg Whitman. Hurd declined to discuss Hewlett-Packard in today’s interview.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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



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JPMorgan Analysts Issue Differing Apple Reports

By Adam Satariano - Sep 27, 2011 8:05 AM GMT+0700
Enlarge image JPMorgan Analysts Issue Differing Reports on Apple Orders

An Apple Inc. employee, left, gestures towards an iPad 2 during the opening of the company's new store in Le Chesnay, near Paris, France, on Saturday, Sept. 24, 2011. Apple Inc. is cutting orders to vendors in the supply chain for its iPad tablet computer, a move that may result in slower sales for companies including Hon Hai Precision Industry Co., JPMorgan Chase & Co. said in a report. Photographer: Fabrice Dimier/Bloomberg


JPMorgan Chase & Co. (JPM) analyst Mark Moskowitz said research from his colleagues in Asia about a cut in Apple Inc. (AAPL) iPad orders doesn’t represent the views of the securities firm’s U.S. team.

“Apple is fine,” Moskowitz wrote.

Apple is cutting orders to vendors in the supply chain for its iPad tablet computer, a move that may mean slower sales for companies including Hon Hai Precision Industry Co., according to the earlier report by JPMorgan analyst Gokul Hariharan.

Analysts at other firms also issued research aimed at quelling speculation that demand for iPads had diminished -- a concern that dragged down Apple’s stock as much as 3.2 percent in Nasdaq Stock Market trading yesterday. Chris Caso, an analyst at Susquehanna International Group, said the resulting “chatter” was “misleading” and Gene Munster, at Piper Jaffray Cos., said changes in orders may be the result of Apple moving some iPad manufacturing out of Asia to Brazil.

The earlier report “has the equity markets worried about Apple,” Moskowitz wrote yesterday. “Mr. Hariharan’s report focuses on how Hon Hai could be impacted by potential iPad sell- in order cuts. This alert is not the view of the U.S. IT Hardware team.”

Moskowitz maintained his projection that Apple will sell 10.9 million to 12 million iPads in the fiscal fourth quarter.

Apple fell $1.13 to $403.17 yesterday in Nasdaq Stock Market trading after earlier declining to $391.30. The shares had gained 25 percent this year before today.

‘Troublesome’ Reports

The later note may have been prompted by complaints from Apple or large shareholders, said Bruce Foerster, president of South Beach Capital Markets in Miami.

“If nothing else this should be troublesome and at the end of the day you have to come down on the side of independent research,” said Foerster, a former managing director at securities firms including Lehman Brothers Holdings Inc. “That has to trump all, every time. Otherwise what are you selling?”

Moskowitz and Hariharan declined to comment beyond their respective reports. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment. Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately respond to a call and e-mail for comment after regular business hours.

Hariharan’s report, dated Sept. 25, said multiple supply- chain vendors indicated a 25 percent reduction in so-called sell-in orders in the past two weeks, the first such cut that analysts at JPMorgan’s electronic manufacturing services team in Hong Kong said they have seen. Sell-in orders are those made by a company -- in this case, Apple -- to a supplier.

‘Not a Good Proxy’

“We disagree with any talk of a shipment slowdown,” analysts at Barclays Capital wrote in a report. “The numbers being circulated Monday might be related to components and not to actual iPad 2 shipments, in our view. Components checks (are) not a good proxy for actual iPad product shipments.”

Edmund Ding, spokesman for Hon Hai, didn’t respond to an e- mail or answer calls to his Taiwan and China mobile phones.

Apple’s iPad may account for 73 percent of tablet sales this year, according to research firm Gartner Inc. Products that run on Google Inc. (GOOG)’s Android operating system, including Samsung Electronics Co.’s Galaxy tablets, will probably have about 17 percent of the market, Gartner said on Sept. 22.

Amazon.com Inc. (AMZN) may release a product later this year that could become the No. 2 tablet in the market behind the iPad, Moskowitz wrote in a report earlier this month.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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



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Netflix Proves 57% Less Expensive for Amazon-to-Google Acquirers: Real M&A

By Ronald Grover, Rita Nazareth and Cliff Edwards - Sep 27, 2011 3:30 AM GMT+0700
Enlarge image Netflix Gets Cheaper for A Buyer After Steep Stock Drop

Reed Hastings, CEO of Netflix, attends a press conference to announce the Netflix service in Mexico at the St. Regis Hotel on September 12, 2011 in Mexico City. Photographer: Hector Vivas/Latin Content/Getty Images

While Netflix may have lost more than a half-million U.S. subscribers after boosting rates, the company has more paying customers for movies and TV shows than Amazon, Google and Sony Corp. Amazon could now pay a 50 percent premium for Netflix’s. Photographer: Scott Eells/Bloomberg


Netflix Inc. (NFLX)’s biggest slump in seven years is making the mail-order and streaming movie service a 57 percent cheaper takeover target for companies from Amazon.com Inc. (AMZN) to Google Inc. (GOOG)

The Los Gatos, California-based company has lost almost $9 billion in market value since July, before a price increase and the rebranding of its DVD-by-mail service as Qwikster alienated customers and drove away investors. Netflix, which still earned more per dollar invested than 99 percent of the biggest American companies in the past year, was valued at $129.36 a share last week, half its record, according to data compiled by Bloomberg.

While Netflix may have lost more than a half-million U.S. subscribers after boosting rates, the company has more paying customers for movies and TV shows than Amazon, Google and Sony Corp. (6758) Amazon could now pay a 50 percent premium for Netflix’s streaming service and still get the entire company for 26 percent less than its value just two weeks ago, according to data compiled by Wedbush Securities and Bloomberg.

“It’s an attractive asset,” Todd Lowenstein, who helps oversee $17.2 billion for Highmark Capital Management Inc., said in a telephone interview from Los Angeles. “There would be some interested suitors taking a look at it, especially given the substantial pullback in the share price.”

Steve Swasey, a spokesman for Netflix, said the company doesn’t comment on rumors or speculation.

Rise and Fall

Today, Netflix climbed 2.2 percent to $132.22 in New York.

Separately, Netflix said in a statement that it secured rights to stream films from DreamWorks Animation SKG Inc., maker of “Madagascar” and the “Shrek” films.

Netflix, which had 24.6 million U.S. users at the end of June, had surged more than 1,000 percent in the past five years to a record $298.73 on July 13.

Netflix more than tripled last year for the biggest gain in the Standard & Poor’s 500 Index, the benchmark gauge for American common equity. The company had a return on equity in the past 12 months of 84 percent, versus a 15 percent average for S&P 500 companies, data compiled by Bloomberg show.

Since July, Netflix has tumbled as customers panned the pricing change, which increased the rate for users of both the online and DVD services by 60 percent, talks broke down with the Starz movie channel and pay-TV operator Dish Network Corp. (DISH) started a competing service with Blockbuster Movie Pass.

Hulu Offers

The drop accelerated in the past two weeks, with a 38 percent tumble over five days through Sept. 21, as the company cut its U.S. subscriber forecast and Chief Executive Officer Reed Hastings separated and renamed the DVD business.

Netflix’s decline may give companies with designs on the market such as Amazon and Google a reason to consider buying the online entertainment leader rather than build their own services. Both were said to have made first-round offers for Netflix rival Hulu LLC, people with knowledge of the situation said on Sept. 2.

Hastings may have split the business in order to sell the streaming service to Seattle-based Amazon, the world’s largest Internet retailer, according to Michael Pachter, an analyst at Wedbush Securities in Los Angeles, who upgraded Netflix to “outperform” last week.

Amazon, which offers online movie rentals free to customers who buy its $79-a-year Amazon Prime shipping service, may be willing to pay $130 a share for the streaming alone, Pachter wrote in a report to clients dated Sept. 22. His estimate includes a 50 percent takeover premium. Pachter projects the Qwikster DVD business would get $25 a share.

‘Logical Sense’

“For someone like Amazon to add additional content, it might be a way to do it,” Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, said in a telephone interview. The firm oversees $14.8 billion. “So much has been delivered over the Internet. Another distribution channel would make logical sense.”

Mary Osako, a spokeswoman for Amazon, didn’t respond to an e-mail and a telephone call seeking comment.

Google, owner of the YouTube video website, expanded its YouTube Movies rental service to Canada in the past month. The company last year introduced Google TV, a service that allows consumers to watch movies from the Internet through their television sets.

“The name that would pop in my mind first is Google,” Tim Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “Google loves to throw money at ideas and companies that they think have the potential to be game changers and become major players.”

Relative Value

Katelin Todhunter-Gerberg, spokeswoman at Mountain View, California-based Google, declined to comment on whether it is considering a purchase of Netflix.

Brett Harriss, an analyst with Gabelli & Co. in Rye, New York, says that potential buyers are more likely to wait until Netflix gets cheaper before making a bid.

Including net debt, Netflix is valued at 16.6 times earnings before interest, taxes, depreciation and amortization, almost twice as much as the average company in the S&P 500, according to data compiled by Bloomberg.

“At some point, this does get cheap,” Harriss said in an interview. “But I don’t think we’re down there yet.”

Netflix may need financial backing as competition for content and customers intensifies, said Frank Biondi, the former Universal Studios CEO and Viacom Inc. president who now sits on the boards of RealD Inc. and Cablevision Systems Corp.

‘The Only Independent’

Netflix had $376 million of cash at the end of the second quarter, data compiled by Bloomberg show. That compares with current and future accounts payable for streaming content of $687 million, as well as $2.2 billion of content commitments that didn’t meet recognition requirements, according to Wedbush.

Amazon has $6.36 billion in cash and equivalents, while Google holds $39.1 billion, data compiled by Bloomberg show.

“I don’t think Reed Hastings wants to be the only independent in a world where Amazon or Google can bring so many resources and have so much money,” Biondi said.

To contact the reporters on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net; Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Anthony Palazzo at +1-323-782-4228 or apalazzo@bloomberg.net.



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Buyback Gives Buffett Weapon Against Slump

By Andrew Frye - Sep 27, 2011 5:13 AM GMT+0700

Berkshire Hathaway Inc. (BRK/A)’s Warren Buffett, who invested more than $15 billion in a month at the depths of the 2008 credit crunch, is now prepared to spend cash on his own firm in a market slump.

Berkshire announced a buyback program yesterday that gives Buffett, 81, the authority to make his first share repurchases in four decades. Buffett, the chief executive officer since 1970, in February touted Berkshire’s capacity to “play offense” in a crisis. He may have $20 billion at his disposal to buy shares if markets decline, said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc.

“He’s laid the groundwork to swing big and hard if you wake up some morning and something nasty is going on,” said Rolfe. “He’s going to be on the phone with his broker saying, ‘Buy the shares.’”

The Dow Jones Industrial Average posted its biggest weekly drop since 2008 in the five days ended Sept. 23 amid concerns that the European sovereign debt crisis would pressure worldwide economic growth. Class A shares of Omaha, Nebraska-based Berkshire, which slipped below $100,000 in New York trading on Sept. 22 for the first time since January 2009, traded at the lowest price-to-book ratio this quarter since at least 1990.

Berkshire Class B shares jumped $5.72, or 8.6 percent, to $72.09 yesterday in New York Stock Exchange composite trading, the second-biggest gain the Standard & Poor’s 500 Index, which rose 2.3 percent. The buyback is “unexpectedly positive news” and could total about $15 billion, Jay Gelb, an analyst with Barclays Plc, said in a research report.

‘Not a Dime’

Buffett previously preferred to use the firm’s profits to buy companies and securities issued by other firms. “Not a dime of cash” has been spent on buybacks or dividends in four decades, the billionaire told investors in his annual letter, published on Feb. 26. Buffett invested $5 billion in Goldman Sachs Group Inc. and $3 billion in General Electric Co. in 2008 when the Lehman Brothers Holdings Inc. failure cut companies off from traditional sources of funding.

“During the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival,” Buffett said in the letter, which accompanied Berkshire’s 2010 annual report. “That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy.”

Earnings from Berkshire’s businesses have grown to about $1 billion a month, and finding uses for that cash has become more difficult, Buffett said in April. Last year, Buffett bought the 78 percent of railroad Burlington Northern Santa Fe that his firm didn’t already own in a $26.5 billion deal, funded partly by issuing Berkshire stock. In 2000, Buffett told investors he was willing to repurchase shares at or below the market price.

Book Value

Berkshire will buy back Class A and Class B shares for as much as 110 percent of book value, a measure of assets minus liabilities, and refrain from any repurchase that would push cash holdings below $20 billion, the company said yesterday in a statement. Berkshire had about $47.9 billion in cash as of June 30. The stock traded at an average of more than 1.5 times book value since the end of 1999, according to data compiled by Bloomberg.

The disclosure of Berkshire’s stock-purchase criteria may aid the company in outperforming the broader market when equities slump, giving Buffett an edge the next time he considers issuing shares to fund an acquisition, said Buffett biographer Alice Schroeder.

‘A Floor’

“If people know they’ve got a buyer at 110 percent of book, who would sell it for less than that?” said Schroeder, author of “The Snowball: Warren Buffett and the Business of Life,” and a Bloomberg View columnist. “It puts a floor on the stock and keeps it at a price that is attractive. And it enables them to have an acquisition currency.”

Berkshire traded at about 1.1 times the June 30 book value after yesterday’s gain. Declines this quarter in stock holdings in Wells Fargo & Co. and American Express Co. have pressured Berkshire’s book value since June 30. Buffett’s firm may report third-quarter data in November.

Buffett didn’t respond to a request for an interview e- mailed to an assistant.

Buffett invited shareholders in 2000 to submit offers to sell blocks of stock back to Berkshire. In his annual letter that year, Buffett said he “missed some opportunities” by not repurchasing shares when Berkshire fell, and he instructed potential sellers to contact his broker.

Munger’s Wish

Berkshire’s advance in B shares yesterday, the biggest since a 9.4 percent gain on Aug. 9, contrasts with a decline that Buffett has said he would expect if the company eventually declares a dividend. A dividend, Buffett told shareholders at Berkshire’s annual meeting in April, will be an admission that the company can’t fully invest profits.

“I think that some of you will live to see a Berkshire dividend, but I hope I don’t,” Berkshire Vice Chairman Charles Munger, 87, said at a conference in Pasadena, California in July in response to a question from an audience member. “You’re saying, ‘Do you predict failure?’ And I suppose I do.”

Class A shares surged 8.1 percent yesterday to $108,449, the biggest jump since 2009.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net




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Dead Sea Scrolls Go Online in Israel Museum Project With Google

By Gwen Ackerman - Sep 26, 2011 6:08 PM GMT+0700
Enlarge image Great Isaiah Scroll

Screen Shot of the Great Isaiah Scroll, one of five of the eight Dead Sea Scrolls housed at the Israel Museum in Jerusalem, which was put online in a joint project between the museum and Google Inc. Source: Israel Museum via Bloomberg

Sept. 26 (Bloomberg) -- James Snyder, director of the Israel Museum, talks about today's launch of an Internet version of the Dead Sea Scrolls. The Google Inc. tool on the Israel Museum website makes entire scrolls accessible and allows browsers to zoom into the text as well as read the translation in English. Snyder spoke with Bloomberg's Gwen Ackerman in Jerusalem. (Source: Bloomberg)

The manuscripts were discovered between 1947 and 1956. Photographer: Chris Hondros/Getty Images


The Dead Sea Scrolls, so ancient and fragile that direct light cannot shine on them, are now available to search and read online in a project launched today by the Israel Museum and Google Inc. (GOOG)

“Google’s mission is to organize the world’s information and make it accessible and useful,” said Yossi Matias, managing director of Google’s R&D Center in Israel.

The people who wrote the scrolls hid them in caves along the shore of the Dead Sea, probably about the time the Romans destroyed the temple in Jerusalem in 70 A.D., and are generally attributed to an isolated Jewish sect that settled in Qumran in the Judean Desert. The manuscripts were discovered between 1947 and 1956.

Sections of the scrolls are on display at Israel Museum’s Shrine of the book and rotated every three to four months so as to minimize exposure. Only a facsimile of the Great Isaiah Scroll is on display. The Google tool on the Israel Museum website makes entire scrolls accessible and allows browsers to zoom into the text as well as read its translation in English.

“This gives you a way to understand the beginning of biblical history,” said museum director James Snyder. “Nothing could be more important.”

The project follows a Google project that went live in January and put online an archive and search function for photos from Israel’s Yad Vashem Holocaust museum. The world’s largest Internet search engine is also working on a project in collaboration with the Israel Antiquities Authority that will make available on the Internet fragments of the scrolls so they can be studied by scholars.

Cultural Opportunity

“The opportunity is amazing here for culture and heritage information,” Matias said. “We are trying to expand this and address these historical and heritage archives and there are great things that can be done here.”

Five of the eight scrolls housed at Israel Museum since 1965 have been digitalized, including the Great Isaiah Scroll, the Temple Scroll and the War Scroll. The Great Isaiah Scroll can be searched by column, chapter and verse, including the famous “and the wolf shall dwell with the lamb.” It is accompanied by an English translation tool and includes an option for users to submit translations of verses in their own languages.

“For us, the Dead Sea Scrolls couldn’t be a more important iconic cultural artifact,” said Snyder. “Any opportunity for us to bring them to the widest possible public audience and offer the opportunity to really begin to understand what these amazing documents are all about is something that we embrace.”

Google’s Chief Executive Larry Page is pushing into new markets such as mobile and display advertising, while trying to preserve the company’s leadership in search, an area that generates most of Google’s revenue. Shares of Google have dropped 0.3 percent in the past 12 months, compared with a 1.1 percent decline of the S&P 500 Index.

Both Israel Museum and Google declined to say how much the project cost.

To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

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



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Stocks Advance on Optimism Europe Will Act

By Rita Nazareth - Sep 27, 2011 3:49 AM GMT+0700
Enlarge image Stocks in U.S. Advance as Dow Average Caps Biggest Increase

Traders work on the floor of the New York Stock Exchange during morning trading on September 23, 2011. Photographer: Daniel Berehulak/Getty Images

Sept. 26 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks advanced, giving the Dow Jones Industrial Average its biggest increase in a month, amid speculation that European policy makers will act to prevent the region’s debt crisis from getting worse. (Source: Bloomberg)


U.S. stocks advanced, giving the Dow Jones Industrial Average its biggest increase in a month, amid speculation that European policy makers will act to prevent the region’s debt crisis from getting worse.

Bank of America Corp. and JPMorgan Chase & Co. (JPM) rose more than 4.5 percent as the European Central Bank was said to consider restarting covered-bond purchases along with further measures to ease monetary conditions. Berkshire Hathaway Inc. (BRK/A) Class B shares added 8.6 percent as the company plans a stock buyback. Boeing Co. (BA) rallied 4.2 percent as the delivery of the 787 Dreamliner ended more than three years of delays.

The Standard & Poor’s 500 Index added 2.3 percent to 1,162.95 at 4 p.m. in New York, after falling as much as 0.5 percent earlier. All 10 groups in the gauge advanced today. The Dow climbed 272.38 points, or 2.5 percent, to 11,043.86.

“You had some quasi-positive comments out of Europe,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a telephone interview. His firm oversees $3.66 trillion as the world’s largest asset manager. “The situation in Europe is a near term risk, but if the global economy muddles through, you’ll probably have room for a rally in stocks.”

The S&P 500 is down 12 percent since June 30 and headed for the biggest quarterly slump since 2008 on concern about a global economic slowdown. Stocks were having the worst quarter on record relative to U.S. Treasuries and gold, which could force investors to buy equities to rebalance their allocations, Marko Kolanovic, the New York-based global head of equity derivatives strategy at JPMorgan, wrote in a note last week.

$1 Trillion

Last week’s rout erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The S&P 500 last week was trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, according to data compiled by Bloomberg.

“Now is the time to be bullish, not the time to panic,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $278 billion. “I don’t think we’re going into a recession. Europe will come up with something.”

ECB policy makers are likely to debate next week restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.

Interest-Rate Cuts

The reintroduction of 12-month loans to banks will also be discussed at the ECB’s Oct. 6 policy meeting, said the person, who spoke on condition of anonymity because the information is confidential. Interest-rate cuts are likely to be discussed, though they are not on the current agenda, the official said. A spokesman for the Frankfurt-based ECB declined to comment.

Stocks briefly pared gains earlier after German Finance Minister Wolfgang Schaeuble said euro region governments have no intention of raising the European Financial Stability Facility’s volume above 440 billion euros. Equities rebounded after ECB Governing Council member Ewald Nowotny said there may be “good reason” to reintroduce loans with a maturity of more than six months.

“When you look at Europe, the solutions are not going to be implemented any time soon,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “That means the market volatility is going to continue.”

The Morgan Stanley Cyclical Index of companies most-tied to economic growth increased 2.7 percent as Dow Chemical Co. and Caterpillar Inc. added at least 4 percent. The Dow Jones Transportation Average gained 2.2 percent. The KBW Bank Index increased 5.3 percent as all of its 24 stocks rose.

Biggest Gain

An index of financial shares had the biggest gain in the S&P 500 within 10 industries, rising 4.4 percent. Bank of America added 4.6 percent to $6.60. JPMorgan climbed 7 percent to $31.65, while Citigroup Inc. (C) jumped 7 percent to $26.72.

Berkshire Class B shares surged 8.6 percent to $72.09. Warren Buffett’s Berkshire Hathaway will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. The growth of Berkshire’s cash hoard makes it harder to effectively invest the proceeds, Buffett told investors at the company’s annual meeting in April.

Buffett, the chief executive officer since 1970, in February touted Berkshire’s capacity to “play offense” in a crisis. He may have $20 billion at his disposal to buy shares if markets decline, said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc.

‘Swing Big’

“He’s laid the groundwork to swing big and hard if you wake up some morning and something nasty is going on,” said Rolfe. “He’s going to be on the phone with his broker saying, ‘Buy the shares.’”

Boeing added 4.2 percent to $62.01. The twin-engine 787 is Chicago-based Boeing’s best-selling new jet ever, with 821 orders from 56 customers. Boeing is working to boost output to 10 a month by the end of 2013, a record for wide-body aircraft, after the setbacks increased costs, sent 787 inventory ballooning to $16.2 billion through June and upset airlines’ timetables for adding new routes.

Apple Inc. (AAPL) fell 0.3 percent to $403.17, trimming an earlier decline of as much as 3.2 percent. The company is cutting orders to vendors in the supply chain for its iPad tablet computer, JPMorgan said in a report. Several supply-chain vendors indicated in the past two weeks that Apple lowered fourth- quarter iPad orders 25 percent, the first such cut that analysts at JPMorgan’s electronic manufacturing services team in Hong Kong said they have ever seen.

Kodak Tumbles

Eastman Kodak Co. (EK) tumbled 27 percent, the biggest decline since January 2009, to $1.74. The camera maker drew down $160 million from its revolving bank line. The company is borrowing money after Chief Executive Officer Antonio Perez said last month that the patents Kodak is seeking to sell have generated interest from potential bidders. Kodak is trying to raise cash to continue funding inkjet printing and other digital businesses that it has projected will generate operating profits by 2013.

Stocks fell earlier today as figures from the Commerce Department showed that purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties.

A malfunction kept the Dow from updating for 12 minutes after trading began at 9:30 a.m. New York time, a spokesman for the index’s owner said.

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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Berkshire to Buy Back Shares as Cash Tops $40B

By Andrew Frye - Sep 26, 2011 11:02 PM GMT+0700
Enlarge image Berkshire to Buy Back Stock; Cash Tops $40B

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks during an interview on July 8, 2011. Photographer: Scott Eells/Bloomberg

Sept. 26 (Bloomberg) -- Keith Wirtz, chief investment officer at Fifth Third Asset Management Inc., talks about Berkshire Hathaway Inc.'s share buyback plan and investment strategy. Berkshire Hathaway said it will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. Wirtz speaks with Betty Liu, Jon Erlichman and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)


Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which has shunned buybacks for four decades, will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. Berkshire jumped in New York trading.

“The underlying businesses of Berkshire are worth considerably more than this amount,” the Omaha, Nebraska-based company said today in a statement. “If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares.”

Buffett, 81, previously preferred to use the firm’s profits to buy companies and securities. The growth of Berkshire’s cash hoard makes it harder to effectively invest the proceeds, Buffett told investors at the company’s annual meeting in April.

“He thinks the stock is cheap and he’s putting his money where his mind is,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.”

Berkshire’s A shares closed at $100,320 Sept. 23 on the New York Stock Exchange. The book value, a measure of assets minus liabilities, is about $98,700 a share, according to data compiled by Bloomberg. Buffett’s firm may repurchase both A and B shares, according to the statement, and buybacks won’t be made if they reduce consolidated cash holdings below $20 billion.

Share Rebound

Class A shares climbed 5.4 percent to $105,725 at 11:42 a.m. in composite trading. The stock dropped below $100,000 on Sept. 22 for the first time in 20 months after natural disasters including the Japan earthquake pressured reinsurance units and equity-market declines hurt Buffett’s derivative bets.

“At certain times in the past, I have erred in not making repurchases,” Buffett told shareholders in a letter published in 2000. “My appraisal of Berkshire’s value was then too conservative or I was too enthused about some alternative use of funds.”

Berkshire had about $47.9 billion in cash as of June 30, and General Electric Co. (GE) has set a date of Oct. 17 for a $3.3 billion payment to repurchase preferred stock sold to Buffett’s firm in 2008. Berkshire this month completed the acquisition of engine additives maker Lubrizol Corp. for about $9 billion.

Buffett has said interest rates near record lows reduce the attractiveness of new fixed-income investments.

‘Different Tools’

“As the firm has grown in scale and reach, they’re going to have to employ different tools than the ones got them here,” said Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner. “One of them is shareholder buybacks.”

Buffett said in the letter that only one combination of facts justifies share buybacks.

“First, the company has available funds -- cash plus sensible borrowing capacity -- beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively calculated,” he wrote.

Buffett said in February that his firm was able to invest $15.6 billion in the 25 days after Lehman Brothers Holdings Inc.’s 2008 bankruptcy because Berkshire was so committed to accumulating capital to seize opportunities at times of distress.

“Not a dime of cash has left Berkshire for dividends or cash repurchases during the past 40 years,” Buffett wrote in his most recent annual letter. “Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month.”

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net



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Gold May Drop on Europe Optimism

By Nicholas Larkin and Glenys Sim - Sep 26, 2011 9:19 PM GMT+0700

Gold slid below $1,600 an ounce and headed for the biggest two-day slump in a month, while silver erased its gains this year, as some investors sold the metals to cover losses in other assets. Bullion futures dropped more than margin requirements for a second consecutive day.

The euro slumped to an eight-month low versus the dollar on concern European policy makers are struggling to resolve the debt crisis as the region’s economy slows. Commodities touched the lowest level since December and global equities were near the lowest in more than year. The value of a 100-ounce futures contract traded in New York dropped $10,190 on Sept. 23, more than the $9,450 margin requirement that day, prompting margin increases.

“Gold is one of the few assets that remain in positive territory this year, in a sense it is one of the last assets standing, and because of this as investors head for cash they sell the assets that have performed,” Edel Tully, a London- based analyst at UBS AG, wrote today in a report. “While gold’s retracement was not really a surprise, the depth of its plunge certainly was.”

Gold for December delivery fell as much as $104.80, or 6.4 percent, to $1,535 an ounce, the lowest since July 8, and was at $1,619.30 by 9:57 a.m. on the Comex in New York. It’s down 7 percent since Sept. 22. Immediate-delivery gold was 2.8 percent lower at $1,618.95 in London.

Silver for December delivery fell as much as 13 percent to $26.15 an ounce, the lowest price since Nov. 18, and was last at $28.885. It’s down 6.6 percent this year after climbing as much as 61 percent when it touched a 31-year high of $49.845 on April 25.

Central Bank Purchases

Gold is in the 11th year of a bull market, the longest winning streak since at least 1920 in London. Futures reached a record $1,923.70 on Sept. 6 as investors sought to diversify away from equities and some currencies. Central banks are adding to reserves for the first time in a generation, joining billionaire investors including John Paulson in hoarding gold.

CME Group Inc. increased the margin requirements on gold and silver trading after prices plunged. The minimum cash deposit for gold futures will rise 21 percent to $11,475 per 100-ounce contract at the close of trading today, CME said on Sept. 23. The minimum cash deposit for silver was raised 16 percent to $24,975. Margin increases may help steady prices, said James Steel, an analyst at HSBC Securities USA Inc.

Failure to combat the Greek-led debt crisis threatened “cascading default, bank runs and catastrophic risk,” U.S. Treasury Secretary Timothy F. Geithner warned euro-area leaders at the annual meeting of the International Monetary Fund. German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to prevent contagion.

Next Tranche

Euro-region finance ministers won’t be in a position to decide on the disbursement of the next tranche of aid to Greece when they meet on Oct. 3 because a report by the IMF, European Central Bank and European Commission has been delayed, German Deputy Finance Minister Joerg Asmussen said yesterday.

“A rising fear factor coupled with sinking confidence levels should be helping gold, but this isn’t happening because of overriding concerns about liquidity, European bank funding and margin calls amid a stronger U.S. dollar,” UBS’s Tully said. Physical demand and investor buying after recent declines may “point to a floor being nearby,” she said.

The Standard & Poor’s GSCI Index of 24 commodities declined as much as 2.6 percent today. The MSCI All-Country World Index of shares has plunged 23 percent since touching this year’s high on May 2.

Hedge Funds

Hedge funds and other large speculators trimmed their net- long gold positions by 11 percent to 150,529 contracts in the week to Sept. 20, data from the U.S. Commodity Futures Trading Commission showed. Gold exchange-traded-product holdings fell 0.4 metric ton to 2,235.6 tons on Sept. 23. Assets reached a record 2,298.4 tons on Aug. 8, Bloomberg data show.

The decline in speculative positions “may mean that short- term longs are being cleaned out of the market,” said HSBC’s Steel. “This could leave bullion well-placed to trade higher when the current selling cycle winds down.”

An ounce of gold bought as much as 60.4 ounces of silver in London, the most in almost a year, data compiled by Bloomberg show. That ratio may extend to 70, UBS said. Silver’s slump shows it “is not suited as a store of value and is behaving more like an industrial metal,” Commerzbank AG analysts wrote today in a report.

Platinum for October delivery slipped as much as 8.5 percent to $1,475.30 an ounce, the lowest since May last year, and was last at $1,568.40. Palladium for December delivery was down 1.9 percent at $630.20 an ounce. It earlier today fell to $605, the lowest level since October.

To contact the reporters for this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net




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Stocks Weaken as Apple Leads Tech Lower

By Rita Nazareth - Sep 26, 2011 9:59 PM GMT+0700

U.S. stocks advanced, following the biggest weekly decline for the Dow Jones Industrial Average since October 2008, on speculation European leaders will act to prevent the region’s debt crisis from getting worse.

U.S. stocks recovered after briefly erasing an early rally, as Apple Inc. led technology shares lower after an analyst said it is cutting orders for iPad parts and data showed new-home sales fell to a six-month low.

The Standard & Poor’s 500 Index added 0.4 percent to 1,140.62 at 10:58 a.m. in New York, after dropping as much as 0.5 percent earlier. The Dow added 78.22 points, or 0.7 percent, to 10,849.70 today.

“This market is starting to get cheap,” Jack Ablin, who helps oversee $55 billion as chief investment officer for Chicago-based Harris Private Bank, said in a telephone interview. “If we don’t see any chips falling, investors will be pleased.”

U.S. stocks fell last week as the Federal Reserve said risks to the economy have increased and concern grew that policy makers will fail to spur growth. Equities rebounded on Sept. 23, following a four-day rout that drove the S&P 500 down 7.1 percent, amid speculation European governments will act to prevent a financial crisis.

Last week’s rout erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The S&P 500 last week was trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, according to data compiled by Bloomberg.

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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Freescale Semiconductor Falls After Cutting Third-Quarter Sales Forecast

By Lisa Rapaport - Sep 26, 2011 9:04 PM GMT+0700

Freescale Semiconductor Holdings, the chipmaker mostly owned by a private-equity consortium including Blackstone Group LP and TPG Capital, fell after forecasting lower third-quarter sales than analysts projected.

Slowing demand in the industrial and networking business may push net sales for the quarter down by 6 percent to 8 percent sequentially, the Austin, Texas-based company said today in a statement. The average decline projected by analysts in a Bloomberg survey was 2.5 percent.

The company is the largest supplier of chips to the auto industry and also makes chips for mobile phones and portable devices such as Amazon.com Inc.’s Kindle e-reader. In July, Freescale estimated sales for the third quarter would be flat to down 3 percent.

“The whole industry is stabilizing, but hasn’t stabilized yet,” said Richard Schafer, an analyst at Oppenheimer & Co., in an interview today. “Freescale will have to cut its fourth quarter sales forecast as well.”

The shares dropped 24 cents, or 2 percent, to $12 at 10:00 a.m. on the New York Stock Exchange. The stock had dropped 32 percent this year before today.

In July, the company reported a second quarter loss of $168 million, or 79 cents a share, compared with a $538 million loss, or $2.73 a share, a year earlier. Second-quarter revenue was $1.22 billion.

Gross Margins

Gross margins will show a modest sequential improvement in the third quarter, the company said today. Freescale reported a second-quarter gross margin of 42.3 percent. Analysts surveyed by Bloomberg projected a gross margin of 46.2 percent for the current quarter.

Freescale sold 43.5 million shares at $18 each in an intital public offering in May, raising 25 percent less than it originally sought. The IPO price reflected a 50 percent discount to the average of $36 that investors paid for the company, according to a regulatory filing.

Rob Hatley, a Freescale spokesman, didn’t immediately return calls seeking comment.

To contact the reporter on this story: Lisa Rapaport at lrapaport1@bloomberg.net

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




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Broadcom Rolls Out Near-Field Chips as It Targets NXP, Samsung

By Olga Kharif - Sep 26, 2011 9:06 PM GMT+0700

Broadcom Corp. said today that it’s introducing a new line of near-field communication chips, which can turn smartphones and consumer electronics into mobile wallets.

The semiconductors are 90 percent more energy-efficient and 40 percent smaller than competing products, Broadcom Vice President Craig Ochikubo said in an interview. They’re already being designed into products by several Broadcom customers, and the first of these will debut by mid-2012, he said. The chips will let consumers tap their smartphones on store cash registers to pay for goods and redeem coupons.

Ochikubo wouldn’t name the manufacturers using the chips, though Irvine, California-based Broadcom has supplied components to companies such as Apple Inc., Hewlett-Packard Co. and Dell Inc. Apple has considered putting near-field communication, or NFC, chips into its products.

“What makes Broadcom unique in this market is we are coming into it with a connectivity portfolio,” Ochikubo said. “NFC is poised to become standard in smartphones. There will be companies next year that buy our complete package.”

Broadcom plans eventually to sell complete packages of chips, including NFC, global positioning, Bluetooth and other capabilities, Ochikubo said.

Broadcom’s new offerings could heat up competition with near-field chipmakers such as NXP Semiconductors NV, Samsung Electronics Co. and Inside Secure.

‘Competitive Pressure’

“Broadcom can bring breadth and heft to this industry,” Mark Hung, a research director at Gartner Inc., said in an interview. “It’s going to present significant competitive pressure.” Broadcom could grab 20 percent of the near-field chip market within a year, he said.

Broadcom’s move is also a sign of growth in the market for near-field chips and devices that use them. The value of mobile payments made with such technologies worldwide will more than double to $670 billion by 2015 from $240 billion this year, according to Juniper Research.

The U.S. market’s growth is driven by Google Inc.’s recent debut of its mobile wallet service and by wireless carriers’ efforts to bring near-field payments and promotions into select cities next year.

Broadcom has offered less-capable NFC chips, which are not suited to smartphones, in the past. Last year, it acquired NFC chipmaker Innovision Research & Technology Plc for $47.5 million. The new chips are the result of combining Innovision’s and Broadcom’s technologies, Ochikubo said.

Broadcom dropped 71 cents, or 2.1 percent, to $33.82 at 10:05 a.m. on the Nasdaq Stock Market. The shares had fallen 21 percent this year before today.

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

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




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Samsung Says Apple Infringes Its 3G Patents ‘Structurally’

By Maaike Noordhuis - Sep 26, 2011 9:19 PM GMT+0700
Enlarge image The Apple iPhone 3G

The Apple iPhone 3G went on sale in July, 2008. Photographer: Daniel Acker/Bloomberg


Apple Inc. has infringed upon Samsung Electronics patents since entering the mobile-phone market with the iPhone 3G, a lawyer for Samsung told a Dutch court as the Korean company seeks a ban on some Apple products in the Netherlands.

“Apple just entered the market in 2008 without taking care of the licenses,” Bas Berghuis van Woortman, a lawyer for Simmons & Simmons LLP who represents Samsung, said in The Hague court. “Apple is consciously, structurally infringing the 3G patents.”

Samsung, the world’s second-largest maker of mobile phones, filed four lawsuits against Apple in the Netherlands and the first scheduled hearing is today. Samsung is claiming Cupertino, California-based Apple’s iPhone and iPad that use 3G technology infringe Samsung patents and is seeking a ban on their sale in the Netherlands.

Apple told the court it uses Intel Corp.’s chipsets for iPhones in Europe, and licenses are covered that way. “When we entered the market we did have patent licenses,” said Rutger Kleemans, a lawyer for Freshfields Bruckhaus Deringer LLP representing Apple in the Netherlands.

The legal battle between Apple and rival smartphone makers is intensifying as an increasing number of consumers use smart phones and wireless handsets to surf the Web, play games and download music and videos. Samsung and Apple have been involved in lawsuits around the globe since Apple claimed in an April lawsuit filed in the U.S. that the Korean company’s Galaxy devices copied the iPhone and iPad.

Fair Access

The two companies are in talks on 3G licenses, “so an injunction is premature,” Kleemans said. Samsung holds a standard-essential patent and is obliged to provide third parties with a license under fair, reasonable and non- discriminatory terms, he said. The so-called FRAND discussions are continuing, Kleemans said.

Apple has blocked sales of the Galaxy Tab 10.1 in Germany, which Strategy Analytics forecasts will be Europe’s third- largest market for touch-screen mobile computers this year.

In Australia, Samsung’s debut of its Galaxy 10.1 tablet computer may be delayed beyond the end of the month after a judge today said she needs time to study Apple’s patent- infringement claims.

Suwon, South Korea-based Samsung lost a preliminary court ruling over sales of its Galaxy S, S II and Ace smart phones in the Netherlands in a patent dispute with Apple last month. The judge in that case didn’t extend the ruling to Samsung’s tablet computers.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net



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PCCW Says Proposed Trust Listing May Raise HK$10 Billion

By Mark Lee - Sep 26, 2011 3:52 PM GMT+0700
Enlarge image PCCW Says Planned Trust Spin-Off May Raise HK$10 Billion

Assets of the trust include fixed-line, broadband Internet and mobile-phone services, and mobile-phone services, PCCW, Hong Kong’s biggest phone carrier, said in June. Photographer: Jerome Favre/Bloomberg


PCCW Ltd., Hong Kong’s biggest phone company, said it may raise more than HK$10 billion ($1.3 billion) from the proposed listing of its telecommunications business trust to repay debt and fund investments.

PCCW may sell 36.7 percent of the units in HKT Trust in an initial public offering to raise the money, and the total may be boosted by HK$1.6 billion if the over-allotment option is exercised, it said in a statement yesterday. The planned spinoff is “subject to market conditions,” PCCW said.

Billionaire Chairman Richard Li expects to lure investors to Hong Kong’s first business trust by offering to pay out a higher proportion of the income from PCCW’s businesses including fixed-line and broadband Internet. PCCW’s announcement comes amid a rout in global stock markets that has prompted companies including Sany Heavy Industry Co. to delay share sales.

“Given the state of the markets, there is a risk that the listing may not go ahead as planned,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “A lot of investors have factored in a successful spinoff into PCCW’s share price.”

PCCW fell 6 percent, the biggest drop since Aug. 5, to close at HK$3.08 in Hong Kong. The stock has declined 10 percent this year, compared with the 24 percent drop for the city’s benchmark Hang Seng Index.

The trust listing will only proceed if the pricing of the offer is in the interests of PCCW, the company said. Anita Choi, a spokeswoman at the carrier, declined to elaborate.

Dividend Payouts

PCCW’s fund-raising target is lower than an estimate by Macquarie Group Ltd. in June, when the investment bank said that the proposed trust listing may raise as much as HK$13.5 billion.

PCCW, which aims to complete the spinoff next quarter, estimates its telecommunications trust will have a minimum market capitalization of HK$28.6 billion, according to the statement. The trust will be able to distribute a minimum of HK$2.57 billion to investors next year, higher than the at least HK$1.36 billion it is forecast to make in profit, it said.

A trust will be able to pay out a larger proportion of its income as dividends than a company structure, Li said in May.

PCCW, which posted a profit of HK$1.93 billion in 2010, paid HK$1.27 billion in dividends to shareholders last year, according to its annual report.

Shareholders’ Meeting

The company will hold a shareholders’ meeting on Oct. 12 to ratify the trust spinoff plan, it said.

Hong Kong moved to permit business trusts, a structure that allows investors to receive dividends from operating cash flow, after Hutchison Whampoa Ltd. picked Singapore for the $5.5 billion initial public offering of a trust backed by its port assets.

PCCW will place its assets including divisions that operate fixed-line, broadband Internet and mobile-phone services in the business trust, it said. After the spinoff, PCCW will retain operations including pay-television and computer services.

PCCW will use HK$7.8 billion of the proceeds from the trust spinoff to repay debt, while the remainder may be re-invested, it said. The company will retain at least 55 percent ownership of the business trust after the spinoff, it said.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net



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