Patently ambushed!
Qualcomm's obsessive fixation with lawsuits...is the best strategy

(column by Akansha Pradhan)

Show me the money!" screamed Cuba Gooding Junior at Tom Cruise in the movie Jerry Maguire, demanding immediate royalty payments. He went ahead to win the Academy Award for Best Supporting Actor at the Oscars. Following closely in the footsteps of Cuba is Qualcomm, the inventor of CDMA technology, shouting at its biggest client Nokia for pending royalties (Yeah, yeah, we realise, that wasn't quite impressive a metaphor, was it)!

Qualcomm, whose patents and applications number 20,000, is the sole proprietor of the popular CDMA (Code Division Multiple Access) standard. In November 2005, Qualcomm filed a suit against Nokia demanding additional royalty payments (over and above the $247 million Nokia pays annually to Qualcomm: Forbes), claiming that the usage of GSM technology by Nokia (and other telecom players) infringed on 11 of Qualcomm's patents.

The genesis of this claim goes way back to 1989, when Qualcomm standardised the CDMA technology and signed various royalty agreements. The industry, however, came up with alternative non-proprietary technologies including GSM consequently offering to customers services like web browsing, download of video clips et al. And surprisingly, it was actually Qualcomm that was first accused of restrictive trade practices when Nokia, Broadcom, Ericsson, NEC, Panasonic Mobile Communications and Texas Instruments complained to the European Commission recently that Qualcomm refused to provide patent usage rights at reasonable prices to those companies that refused to buy semi-conductors from Qualcomm.

The tide against Qualcomm seems to be growing. As per Financial Times, even players such as Vodafone, T-mobile and Telefonica are now lobbying with European Telecommunications Standards Institute for a change in intellectual property rights so that Qualcomm doesn't "patent ambush" them, a strategy of belatedly demanding royalties after companies have been misled into assuming the technologies are free of cost. Dr. P. Jacobs, CEO, Qualcomm (the handsome man on the left), aggressively defends that these allegations come from those who fear "the competition in 3G created by Qualcomm."

With analysts demanding Qualcomm should back off from law suits, what's the deal now for royalty incarnate King Qualcomm? Though Qualcomm can ill-afford filing law suits and antagonising current high net worth clients, the fact is that Qualcomm earned an unbelievable 34% of its revenues from royalty (fiscal year ending Sep 2005); and 41% of its royalty revenues from Wideband CDMA. What's more hitting is that against equipment (and service) sales of $3.7 billion, Qualcomm incurred expenses of $3.2 billion. And against royalty revenues of $1.9 billion? Not a pence. The punch line for King Qualcomm? Kill them all baby, don't let them be. Make them show you the money.

(End of Akansha Pradhan column)

Delivery pains...
Boeing must meet schedules

(column by Deepti Sharma, Karan Mehrishi)

Boeing CEO W. James McNerney seems to be flying high these days on a magic carpet, courtesy Sheikh Ahmed, chairman of Dubai-based airline, Emirates. Emirates recently placed the largest order for Boeing aircrafts at the Dubai Air Show in November. Sheikh Ahmed signed up for forty two Boeing 777 planes. Emirates was not the only large-scale buyer; eight Chinese airlines also signed a $4 billion deal to buy seventy 737 Boeing aircrafts. Now, with its order book (657 aircrafts) for the current year bigger than its European arch rival Airbus (499 aircrafts), are Boeing's fortunes finally on a rise?

The truth is, Boeing's fortunes have seen a chequered history since Airbus Mehrishiovertook its leadership position in 2003. Since then, Boeing has been embroiled in scandals, with two of its CEOs resigning on 'ethical grounds'. In fact, McNerney took the reigns from Harry Stonecipher after he was sacked due to his 'relationship' with a female colleague. To add to Boeing's 'labour pains', a four week machinists' strike this year resulted in a $1.5 billion loss in revenues.

But the biggest argument against Boeing remains that despite higher order bookings, all this while, Airbus is the one that has been reporting higher deliveries than Boeing for the past three years. Even this year (till October 31), Airbus has already delivered 304 aircrafts, with Boeing lagging behind at 240. Boeing is far from achieving its earlier target of 320 deliveries; this raises fears of a re-run of 1997, when production was raised to record levels but led to massive assembly line breakdowns. McNerney has gone on record to say, "Boeing does not want a repeat of what happened in 1997 and is taking an 'orderly' approach."

It is clear that Boeing has again failed to meet delivery schedules. This evident inability to fulfill committed deliveries could well be the biggest critical failure factor for Boeing; and unless this issue is addressed most urgently, Boeing can never hope to overtake Airbus.

(End of Deepti Sharma, Karan Mehrishi column)

Keep'em yankees drunk, can you?
Cadbury's sale of European beverage is most appropriate

(column by Karan Mehrishi)

The world's biggest confectioner, Cadbury Schweppes, announced on November 21, 2005, that it is selling off its European beverage business to the private equity consortium of Blackstone Group and Lion Capital for $2.17 billion. "We have achieved an offer for a price, which reflects the quality of its brands," said CEO Todd Stitzer. The division to be sold off includes brands like Schweppes tonic water and Orangina.

Gross sales of 1.7 billion litres make this division the third largest beverage manufacturer in Europe. But critics ¬have outright questioned the sale, quoting that the overall beverage business of Schweppes was actually growing at a healthy 4%, with a turnover of $1.12 billion. In reality, such apprehensions seem to be grossly misplaced. Despit Cadbury's overall beverage business growing, its European beverage business has regularly seen stagnant growth in the past; even reporting a 2.5% drop in operating profits in 2004.

Furthermore, the European beverage business was contributing only a miniscule 9% to group revenues, compared to Cadbury's American beverage business, which was contributing an impressive 41%; in fact, according to the Annual Beverage Industry Report by Beverage Digest, Cadbury Schweppes' market share in the US increased by 0.2% in US last year, while those of Coke & Pepsi declined by 0.9% and 0.1% respectively.

But the most compelling supporting argument for this sale comes from the fact that Cadbury Schweppes is loaded with a gigantic $7.97 billion net debt, thanks to a series of costly acquisitions in the past few years. And this sale of $2.17 billion is surely going to mitigate the repayment issues; Cadbury's divestment decision is indeed timely.

(End of Karan Mehrishi column)

Zetsche-Get 'Smart'er
DaimlerChrysler needs to sell off the disappointing Smart division

(column by Smita Polite)

Five years ago, when Dieter Zetsche joined Chrysler Group as CEO, few people would have imagined that this 'average Joe' from Stuttgart would go on to become one of the most talked about men in Europe and Detroit. His penchant for dancing around with girls in short skirts at auto launches, his trademark moustache, and the fact that he refused the overtures of Bill Ford to join Ford Motors, are all a part of Stuttgart folklore now.

Zetsche's stars seem to be shining so brightly that they have completely dimmed the sparkle of Juergen Schrempp, the one time blue eyed boy of Chrysler, who brought about the merger of Daimler and Chrysler in 1998. Schrempp is to step down as the CEO of DaimlerChrysler by December 2005, two years before his contract is due to end, passing on the baton to the current favourite Zetsche.

Zetsche has his work cut out for him, with people expecting he would work the same magic on DaimlerChrysler, as he did on Chrysler. By the looks of it, he seems to have got a head start. Zetsche, currently the head of Mercedes' premium division, was part of the camp which was for selling off DaimlerChrysler's stakes in Mitsubishi Motors-one of Schrempp's pet projects. On November 11, 2005, DaimlerChrysler sold its final 12.4% stake in Mitsubishi Motors to Goldman Sachs for $1.14 billion. Mitsubishi got into the red five years ago, after admitting that in order to avoid recalls, it had not divulged auto defects. Incidentally, Mitsubishi has recorded a net loss of $542 million in the six months ended September 2005.

Now, Zetsche needs to focus more on getting his core Mercedes and Chrysler Groups in order; and he has to clearly make some crucial decisions after taking control of the fifth largest car maker in the world. The most important of which seems to be on the Smart small car division - a part of the Mercedes group - that Zetsche plans to introduce in the US market.

On the face of it, the Smart business seems to hold promise, with the movement of various American customer segments to smaller and efficient cars. However, the principal critique of this decision comes from the fact that despite recent promises, the Smart business has actually made a combined loss of $2.9 billion ever since its launch seven years ago. Even in the short term, Smart has recorded an operating loss of $702 million (previous fiscal year) and is the prime reason for lowering earnings at the Mercedes car group. Publicly, almost with blind conviction, Zetsche has supported turning around Smart, than selling it. But mirroring analysts' and investors' sentiments, the company's shares rose 2% on a recent speculative report about the possible sell off plans of the business.

Dr. Henk Dykmans, former director sales & marketing, Micro Compact Car, Mercedes, confirms, "DaimlerChrysler (actually) has three possibilities - sell Smart, close down the division or reorganize its activity." But the irony is that Zetsche has already earmarked $1.4 billion to turnaround the Smart business and even expects that it will break even by 2007. In reality, Zetsche should actually be investing money in the Commercial Vehicles unit, which registered a stupendous 29% growth in the first half (ending September 2005), but is crying out loud for more investments.

DaimlerChrysler has been the only one of the big three in Detroit to have made profits from automobiles in the US market this quarter (ending September 2005); Zetsche's emotional and irrational attachment to Smart could well change that, and his fortunes too...

(End of Smita Polite column)

Tightening the noose till they die
Unless Europe adopts standardised regulations, banks will suffer

(column by Asif Ahmed)

Ithurts the industry.. costs of meeting differing regulations are too high." Addressing the shareholders at the annual general meeting last quarter, John Bond, HSBC's chairman, summed it up well, "Sensible regulation is fine; not all regulation is sensible." HSBC had to spend $400 million (3% of its pre-tax profits) on servicing regulatory requirements last year.

Even though ECB (European Central Bank) declared in late November 2005 that they plan to increase interest rates that had been kept static for almost 29 months, the fact is that the increasing cost of compliance in Europe, which is due to ambiguity arising from adherence to both intra and inter regional level norms, is acting as an impediment in the proposed integration of European financial markets, especially the banking Ahmedsegment. For example, in UK alone, the cost of compliance for bankers has gone up by over 50% since 2001, due to additional requirements institutionalised by the UK's Financial Services Authority (The Banker, 2005).

According to ECB reports, for the past few years, EU banking has witnessed continuous consolidation. In the period 1997-2004, as many as 2,300 credit institutions either merged, or disappeared due to internal restructuring of banks.

But the major bottleneck in this integration process remains the swelling cost of compliance for banks in Europe. Discrepancies between wide arrays of regulation practiced across European nations have become the bane of compliance costs for banks operating across countries. Therefore, the need of the hour for European nations is to ensure a common regulatory platform that goes beyond the EU limitations of member nations, to ensure that individual banks do not duplicate investments to achieve redundant regulatory norms. Otherwise, it won't be long before Europe has no profitable banks.

(End of Asif Ahmed column)

It's a Mickey
Disney should necessarily buy out Jobs' stake in Pixar

(column by Damodar Menon)

The Disney-Pixar alliance is coming to an end. For years, the Disney honchos have held on dearly to their cash making studio, but after the latest Pixar offering, Cars, is released in January 2006, the currentcontract will expire. Hence, the big question is, whether the alliance would continue beyond the current period?

The alliance dates back to 1997, after Toy Story, when Steve Jobs' Pixar signed a 10-year, five picture deal with Disney. Production was Pixar's responsibility, while distribution and promotion was Disney's forte. Production costs and profits were split equally. Since then, Pixar produced six of the most successful animated features of all time that together grossed over $3.2 billion at the world box office.

The fallout began when Steve Jobs demanded 100% profits, only allowing 10-15% of the distribution fee to Disney, which Michael Eisner, Disney's erstwhile CEO, bluntly refused. But of much interest has been New York Times' recent report that Steve Jobs has indicated he is ready to sell off Pixar, of which he owns 50%. More interestingly, Jobs has also indicated that he's ready to wait for a "right price" offer from Disney; and Disney, as usual, is dithering.

Pixar, which has had its blockbuster movies, has eager suitors like Fox and Warner waiting to snatch this golden goose. Disney's own recent animated features, like Brother Bear and Treasure Planet, were box office bombs. Pixar, on the other hand, is floating in cash, and now doesn't anymore need Disney's support for either finance or distribution. In this light, Steve Jobs' offer is perhaps the best that could have happened to Disney. Instead of trying to renegotiate a much debated contract, Disney should animatedly buy out Pixar.

(End of Damodar Menon column)