There’s trouble in paradise...
Nike must address sluggish sales in some of its key markets

(column by Bikram Keshari Jena)

Nike seems to be doing ‘just’ fine. It just bettered analyst estimates with its results and is just having an outstanding sprint at the bourses. Well, the ‘swoosh’ might be swooshing ahead in panache, but there are still hurdles that can make the journey a bumpy one. On September 21, Nike announced its financial results for the quarter ended August 2006, which saw a strong top-line growth of 8.54% to $4.19 billion. However, there was an year on year earnings decline by 13% to $377.2 million. CEO Mark Parker commented, “While making major brand investments to drive key markets and implementing new accounting rules to include stock option expenses, we continued to deliver strong top line growth...” Nike’s share prices shot up by 6% to $87.62 since the announcement (as on September 29, 2006). Nike boasts of positive worldwide future orders for the quarter ending January 2007 (up by 6% year on year). The Adidas-Reebok merger doesn’t seem to be much trouble yet. As Christopher Svezia, Analyst, Susquehanna Financial Group, LLP puts it, “We believe Nike has certainly exploited the situation... by taking shelf space away from Reebok. We don’t believe Adidas-Reebok merger has been in a situation to negatively impact Nike.” However, Nike still faces the challenge of inventory build-up (up by 15% in the current quarter) that outpaces its single digit sales growth. Furthermore, it faces weak sales in Japan, its largest market in Asia Pacific and UK, the largest in the Europe, Middle East & Africa region. Back home, mall-based presence in US needs to perk up as they play a big role in creating demand for Nike’s products. Unless it addresses these strategic issues, it could be in for a rough road ahead.

(End of Bikram Keshari Jena column)

It’s the approach that matters
CVRD wins first major takeover battle in the Canadian mining sector

(column by Devdeep Singh)

The Canadian mining industry is turning into a hotbed for some really intense strategy games. The battle for leading nickel producer Inco, which had Brazilian firm Compania Vale do Rio Doce (CVRD), Phelps Dodge (PD) and Teck Cominco Ltd. competing tooth and nail has fi nally ended. On September 25, 2006, CVRD, the Brazilian mining giant, made an all cash bid of CAD $86.00 per share or a total of $17.3 billion to acquire Inco Corporation, an offer the Inco board has accepted and recommended to its shareholders. The tussle was on since May 2006. In fact, it was PD that was first successful in forming a combination agreement with Inco and Falcon Bridge. However, the party didn’t last long and the agreement was terminated on September 5. As a result, Inco will pay $125 million fine for contract termination to PD and upto $350 million more if it goes ahead with the CVRD deal. But the management of Inco doesn’t seem to mind that one bit. Scott Hand, Chairman & CEO of Inco points out, “We are satisfied with the CVRD offer of CAD $86.00 per share (all cash) as it represents compelling value for our shareholders.” While Inco would help CVRD diversify from iron ore, the two would still face issues, considering it’s a merger of Brazilian and Canadian cultures. Lawrence Smith, Mining Analyst, BlackMont Capital says, “The CVRD offer is the best for Inco, but synergies are quite small. This is just a strategic decision by CVRD to be a major nickel player.” But considering the growth potential, CVRD could well afford to take that in its stride.

(End of Devdeep Singh column)

Hurd caught in a hurdle?
Chairman & CEO Mark Hurd has everything going for him currently, except for the law

(column by Romsha Singh)

Hewlett Packard finds itself in the hornet’s nest, yet again. This time around, the company’s top brass is not being condemned for a strategic blunder like in case of the HP-Compaq merger (the infamous Carly Fiorina exit), but are rather being held responsible for being a bit too smart for comfort (legal comfort that is). The accusation – implementing the practice of pre texting; misrepresenting the identities to obtain information about others. The imbroglio reached such a stage that Patricia Dunn, who became the Chairperson in 2005, was ousted on September 22, for initiating the boardroom leak probe. This has given way to CEO Mark Hurd, who now shoulders the Chairperson’s post and (needless to add) the burden of high expectations from the company stakeholders. And these expectations are not without reason. When Mark became the CEO of HP last year, he faced an uphill task of reviving slumping morales and sagging stocks. He proceeded with stringent cost cuts and in the process, fired a whopping 15,300 employees (10% of HP’s work force) over a period of 18 months. Under his leadership, the services division churned out an operating margin of 6.9% (up from 4.4% in the same period for 2005) and contributed a whopping 17.76% to the net revenue of $21.89 billion of HP for the quarter ending July, 2006. Meanwhile, HP also acquired Mercury Interactive for $4.5 billion in July 2006, hence strengthening its position in the soft ware sector.

The deal is a consequence of Mark’s vision to make HP a complete IT solution provider like IBM. But HP’s portfolio is still dominated by the printing business, which accounts for 60% of its operating profits. Richard Ptak, Analyst, Ptak Noel & Research points out, “HP is following the cradle to grave strategy... HP, with all its sizes, has yet to prove that it can pull together all the pieces and present them effectively.” Nevertheless, Mark Hurd has brought some cheer to HP. The company’s stock price stood at $36.69 on September 30 (a growth of 69% since he took over on April 1, 2005, split adjusted). Turnaround is definitely not a new phenomenon for Hurd. As CEO of NCR (maker of ATMs), he managed to quintuple NCR’s net income from $58 million to $258 million in 2003. From being a graduate in business administration at Baylor University to orchestrating successful turnarounds at leading companies, Mark has come a long way. He literally looks to be the “Man Friday” for HP today. But whoever said that life for a Man Friday is easy. At a time when Mark should be further strategising on the future of HP, he finds himself in court, giving explanations for the boardroom leak scandal. But Hurd is facing these charges with dignity. Taking responsibility on himself for the errors, he states, “We intend to continue our investigation until we determine the root causes of the failure. We will introduce process changes to correct the situation.” Whether it’s a gruelling board meeting or a six hour long hearing session in the courtroom, Mark Hurd never fails to impress with his uncanny knack for handling the toughest of situations in the most diligent manner. HP stakeholders look towards him to take the company to unbeatable heights. But for that, HP and Mark Hurd will have to first weather the legal storm that confronts them...

(End of Romsha Singh column)

Taking the bull by its horns
To become number 1, Hyundai needs to compete model to model with Maruti in the small car segment

(column by Siddharth Nahata)

India's largest car exporter Hyundai Motor’s India Ltd. (HMIL) is busy mapping out its growth strategy and reinforcing its throttlehold in the small car segment. On September 23, 2006, Hyundai and its component makers announced a mega investment of $1.47 billion for setting up their second car & engine plant in India. Hyundai will invest $911 million, while the rest of the outlay will be deployed by the auto-parts suppliers. The company also launched the Hyundai Verna for the mid-sized segment on September 26. Hyundai will pump $528 million into the car plant, which is expected to be operational by the end of 2007. With this new facility, Hyundai will double its existing capacity levels of 300,000 units. It also plans to spend $263 million for the construction of an engine & transmission plant. Arvind Saxena, VP, Marketing & Sales, HMIL opines, “The investments are being made keeping the future in mind. We are very bullish on the growth on the domestic as well as on the export frontier. The new factory will mainly be utilised for producing new compact car models.”

Hyundai's aggressive move can be viewed as a riposte to attempts by auto giants like GM, Toyota & Honda to make a dent on the market of existing players by entering the compact car segment. Auto Analyst Tutu Dhawan elaborates, “The competition in the sector is going to be bloodthirsty. More models and capacity will definitely give an edge. The company has done the right thing at the right time.” In addition, the investments will help the company achieve its hard-line target of exporting half of its total production in two years. Currently, exports account for 30-35% of total production and 40% of turnover. Once this is accomplished, India will become the global hub for manufacturing compact cars for Hyundai. The company also plans to increase its export portfolio from its flagship model Santro to Accent & Getz and to add more models in the future. H. S. Lheem, MD, HMIL, explains, “India is important for our overall strategy. Geographically, it is located advantageously for our other markets.” The company has in fact set for itself a stiff target of becoming the No.1 player in the Indian market. If it needs to dominate the market, it needs to pitch itself model vs model of Maruti and hit back where it hurts the leader the most. As it is, Maruti Swift has nearly taken over the B+ segment (where Hyundai Getz was the pioneer), and put Hyundai on the backfoot. Hyundai needs some blockbuster compact car models to regain its lost ground. After all, that’s where the market shares are decided, aren't they?

(End of Siddharth Nahata column)