IBM, the giant US computer company unveiled its quarterly figures yesterday which showed raise in its earnings this year. The shares of IBM rose to a six year high $124 which was at $120.47 before the release of the earnings report. IBM’s increased earnings allayed fears of job cuts and brought much relief to the difficult market conditions. It was earlier predicted that corporate world of America is tightening their budgets due to the economic downturn and want to curtail expenditure by reducing the spending on new technology. But, now the results of the earning report discourage such forecasts.
On the other hand, IBM has been battered by financial crisis last year and also suffered major job cuts. Now, IBM on its first three months report stated that its profits had surged 26 percent which is about 1.18 billion pounds in contrast with the corresponding period last year. The revenue of IBM had risen 11 percent to 24.5 billion dollars which has beaten the expectations of Wall Street. IBM confirmed that its sales in US had risen above 6 percent over the period. Mark Loughridge, the finance officer of the company said that this has echoed the company’s balance between US and international revenue flows. He added that the powerful first quarter had shown some optimistic signs.
Merck, the leading drug company has been accused of providing false information on the safety of its popular arthritis drug “Vioxx”. It is also alleged of publishing ghostwritten studies under name of renowned academicians after taking their consent. Journal of American Medical Association (JAMA) blamed Merck for the dubious practices over its best selling drug Vioxx. Merck withdrew Vioxx from the market after it was associated to a high rate of heart attacks.
Research conducted by two authors of University of Washington reported that the company had not disclosed the exact mortality rates in their trials which were conducted on Alzheimer’s patients. Also, in the published papers, it was reported that Vioxx was well accepted by the patients. But, some internal company reports showed that the patients who were administered Vioxx had increased chances of death which is four times more than the risk involved in other arthritis drugs. It is also stated in the report that the two trials conducted on the patients showed 34 deaths amid 1000 patients that were administered Vioxx and only 12 deaths were reported when given a placebo. The two authors alleged that these mortality analyses report was not provided to the FDA and also it was not made public in an appropriate time.
Council of Mortgage Lenders warned that the mortgage lending would decrease further if Bank of England does not provide more financial help to the building societies and banks. Steven Crawshaw, chief executive of Bradford & Bingley and the chairman of CML stated that the banks and other societies may have to halve their mortgage lending this year if the credit crisis continues. Banks have become cautious of loaning to each other due to the sub-prime crisis and now they provide loans only at higher costs to other banks.
As a result, the smaller banks are passing this cost to their clients by indirectly raising interest rates. Also, they are not keen to lend to those who don’t have huge deposits. So, the CML predicts that if this situation continues, then the mortgage lending may worsen further. Bank of England provides billions of pounds of loan each month to banks and building societies. Now, the lenders are requesting the bank to provide more long-term loans at least for a period of two years. The CML said that if BoE does not provide the required loans, then the 108 billion pound mortgage market may shrink to almost 60 billion pounds.
Burger King, the arch rival of McDonald is planning to open a chain of Whopper Bars to sell its most famous burgers. The restaurant offers variety of burgers and it introduces the local flavors in its burgers to attract local clientele. Now, the restaurant is planning to introduce a chain of restaurants in America this year and also stated that Britain would be the next place of expansion. Burger King has chosen some test sites for the chain which would sell signature hamburgers in a hipper setting.
Burger King is famous for its Steakhouse Burger and the Whopper Bars would introduce tastier varieties in the menu. Also, the customers have the option of “Pimp your whopper” where they can put in their own toppings. John Chidsey, boss of Burger Kind stated that he introduced low price items with costlier ones on the same menu to attract customers and this is the reason behind the success of his once-ailing chain of restaurants.
He fondly calls this plan the “barbell strategy” and he added that UK offers huge opportunities for growth and hence they have targeted the airports and other places with very limited space to open their Whopper Bars.
The chairman of Samsung, Lee Kun-Hee was questioned by investigators for a whole day for alleged bribery. The powerful business tycoon was questioned twice in the last five days. The investigations into Korea’s biggest business empire began in January and it was feared that these allegations may lead to the division of the family business. Samsung chaebol has about 59 operations which include the massive electronics brand and also it is the second biggest shipbuilder in the world. The assets of the family-run business are worth about 70 billion pounds.
During the 1970s, the chaebol was created under the leadership of General Park Chunghee, the former leader of South Korea. Though several chairmen of chaebol were convicted in the recent years, only little duration in jail has been served by them and they controlled their empires without much hindrance. The inquiry was started on the basis of the allegations by one of the own legal team of Samsung that the company has created a slush fund of about 200 billion won for bribing government officials. But, Mr.Lee and the Samsung group denied the allegations. Also, the whistleblower accused Lee’s family of using corporate money worth 30 million pounds to buy art pieces.
Marriott owns 52 hotels in Britain whose turnover is more than 600 million pounds. Now, the US hotel operator is planning to build another 30 hotels under its lifestyle “Renaissance” brand name. Jurgen Giesbert, the head of Marriott’s Ireland and UK business said that these new hotels are for those who wish to have more of a local flavour on their stay at these hotels. Earlier, Marriott was criticized for its cookie cutter approach and now in response, it has come with the all new renaissance hotels.
However, its current new renaissance hotels are not up to the mark and hence it is expected that the Heathrow and Manchester hotels would be refurbished or disposed to meet the required standard. Marriott had taken over almost 47 hotels which were previously run by Whitbread under a franchise deal. Quinlan Private and IgaI Ahouvi Group, a property investment association now owns these hotels. The new owners are planning to spend 140 million pounds in the up gradation of about 42 hotels, a part of which will be met by selling the remaining five low quality hotels for nearly 70 million pounds. It is believed that the investment programme would be complete by the year 2009.
Capital Economics has predicted that the banks of UK may lose up to 7 billion pounds from the declining value of the shop, industrial and office buildings stock of the country over another two years. Also, it states that the write-offs could rise to about 18 billion pounds if the country’s economy slides into recession. It is said that the lenders and investors of nearly 450 billion pounds of commercial property are affected by the fall of about 15 percent in the price of the properties since last June.
The bearish warnings of Capital Economics have had an impact in the sales and rental demand of buildings. Capital Economics also predicts that the prices of the properties may fall further up to 30 percent by next year. Banks have typically loaned their borrowers an amount equal to 80 percent of the value of the property. So, if the fall in property prices continues for another year, many investors may have to repay larger amount within shorter period and hence may find it difficult to refinance their debt. This in turn may force the bank lenders and owners of mortgage backed securities to face losses to the tune of 7 billion pounds as the investors may tend to sell their properties to meet the huge repayment demands.
HSBC is planning to launch a “Rate Matcher Mortgage” which would benefit many borrowers that own fixed rate mortgage. With this scheme, those borrowers whose fixed-rate mortgage is due to end before 30 June 2008 can continue the deal with a fresh loan from HSBC on the same rate for another two years. But, the maximum loan size would be less than 80 percent of the value of the property and the maximum loan amount would be 250,000 pounds. The minimum rate of interest that HSBC would accept is 4.54 percent and the deal is fixed for two years.
On the other hand, the cost of the agreement fee varies with the size and interest rate of the loan. The borrowers may have to pay a gigantic 4,999 pounds if the loan amount is really high and the interest rate that they have on the existing mortgage is less than 5 percent. But, it is estimated that nearly 3/4th of the customers would pay only 999 pounds towards the agreement fee. If any borrower wishes to get this deal, they have to visit the nearest local branch of HSBC for a quote as this deal is not offered through brokers.
Dell yesterday announced that it would cut more than 8,800 jobs in the next four years in order to curtail some $3 billion of costs spent on its employees. Michael Dell, founder of the company told that the saving measure would include outsourcing some of its manufacturing operations and reform in logistics network. The company is trying hard to supplement its profit margins after its rival Hewlett-Packard had surpassed its sales during 2006.
Dell is under pressure to compete with Hewlett-Packard as its rival is capable of taking more risks and promote more products due to the profits earned by the company in the printers business. HP designs more innovative products by taking support of the profits earned by it in the printer business. Another reason for declining of Dell’s business is the falling price rates. In the current market scenario, a Dell laptop comes with a price tag of as low as $500. So, only the highest seller of the products can compete in the ever-changing market. Dell has already made some 5,500 job cuts and it is not clear how much job cuts from US would take place. Dell has global manufacturing facilities and so the cost-cutting measures would affect people from various parts of the globe.
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Novartis is planning to acquire 25 percent of Alcon from Nestle, the world’s largest eye-care company for about 11 billion dollars. The next deal will give the right to buy Nestle’s remaining 52 percent shares for about 28 billion dollars in another 2 years. The two-stage acquisition would give Novartis 77 percent of the total shares for about 39 billion dollars. Alcon’s annual sales last year were around 5.6 billion dollars and the operating income was 1.9 billion dollars.
The brands of Alcon include Vigamox antibiotic solutions, Travatan for contact lenses and Opti-Free products used for maintenance of contact lenses. Novartis already has an ophthalmic and contact lens business and it is expected that the acquisition would grow this division rapidly. Alcon spent nearly 564 million dollars on R&D last year and about 3.5 billion dollars is about to be invested in 15 late stage projects. Novartis would finance the first deal with short term debt and its internal cash reserves. It is believed that financing for the second step would be derived from further external borrowing and constant cash generation. On the other hand, Nestle stated that from the deal it can now seek acquisitions more than its fixed ceiling of 2 billion dollars annually.