Show us the billions!
Shareholder demands illogical; Arun Sarin must focus on long term growth

(column by Surbhi Chawla)

Erstwhile Vodafone CEO Christopher Gent clearly understood the importance of expansion through big ticket acquisitions. Unfortunately, though, he hardly worried for stakeholder value (unless he happened to be the stakeholder; remember the controversial £10 million bonus during the Mannessmann deal?)! And his successor Arun Sarin faces the brunt for Gent’s excesses; with shareholder groups in Vodafone getting more impatient day by day.

This year, too, an investment group Efficient Capital Structures (ECS) backed by former Marconi executive John Mayo is hell bent on giving Sarin a tough time. Vodafone is under pressure by ECS to shell out the 44.4% stake in US-based Verizon (they feel differences between the duo are killing shareholder value) and return the $79.4 billion in cash to shareholders. And guess the power ECS holds – a whopping... er... 0.0004% of Vodafone’s shares! Nevertheless, the group feels it has quite a few lessons to give to Sarin regarding shareholder value. Mayo is demanding to put up four motions up at its annual meeting slated for July 24.

Vodafone has responded negatively to all proposals. But shares rose by 2.13% during intra-day trade to end at 158.4 pence on June 7. To Vodafone’s credit, it has bounced back a bit since it registered the biggest loss in European corporate history in FY 2005-06. Operating losses went down from $28.16 billion to $3.13 billion for FY 21.3 2006-07. Commented Sarin with aplomb, “We have implemented core cost reduction measures... The last year has also seen a further reshaping of Vodafone’s portfolio, with our acquisitions in Turkey & India further increasing the Group’s exposure to the exciting growth opportunities in emerging markets.” The company spokesperson points out to B&E that the losses “are just paper losses & are significantly improving.”

Understandably though, Vodafone has a very unenviable portfolio geographically. It earns a whopping 80% of its revenues from Europe, a market that’s clearly in need of oxygen. Last year, Verizon Wireless business alone contributed 22% of Vodafone’s £9.53 billion adjusted operating profits. But one look at the growth potential of the North American market tells us why Vodafone needs to look elsewhere.

According to Gartner, the American market is going to show a CAGR of a mere 1.1% for services (for the period from 2007-2011) and a CAGR of 7.4% for mobile connections would touch 365 million. Meanwhile, Gartner forecasts growth for mobile connections in Asia Pacific to be a whopping 13.6% till 2011, led by India & Indonesia in particular. Indeed it isn’t a time to dole out freebies to shareholders, but it isn’t a time to hold on to assets in saturated markets either. So it is apt for Vodafone to profitably milk its Verizon assets over time, and move further to where all the growth & dynamism is coming from.

(End of Surbhi Chawla column)

Intel chips up!
As Barcelona is about to launch

(column by Rohan Sachdev)

Intel looks well prepared
It’s a fight to cram more and more electronic circuitry in the least available space. It’s a fight to deliver better performance at fewer bucks. It’s Intel v/s AMD yet again. Though the war was never over, the competitors were only waiting for the right moment to unleash their plans. At a time when AMD’s answer to Intel’s Quad Core, Barcelona, was just about to be unveiled, Intel has once again emerged as the biggest roadblock to defer AMD’s aspirations. Interestingly, this time, Intel has opted to hurt itself to make AMD bleed. The world’s largest chipmaker has announced a 50% price cut for its top-end Core 2 Duo chips. Such is the fierceness of competition between these players that despite AMD incurring a net loss of $166 million and In experiencing a 42% decline in net profits due to price cuts in 2006, the companies continue to deploy this price cut strategy.

Though AMD is yet to reveal the specifications of its Barcelona Quad Core chip, the company has put high stakes on the launch of its Intel Quad Core beater. If one is to go by the industry assumptions, even Intel fears the technological supremacy of AMD’s Barcelona chip. Exactly a year ago, these two companies were going through a similar phase when Intel had drastically reduced the prices of its Xeon chips in the wake of AMD’s superior technology. Though, Intel emerged the winner due to its Quad Core Processors, this time AMD looks confident. Nevertheless, Intel manages to retain the edge. According to an iSuppli quarterly report for April 2007, Intel has market share of 80.2% of global microprocessor sales, with AMD languishing at 11.1%. Speed, technology & price are the key weapons in this long drawn battle. Unless AMD outclasses Intel in all three, it can bid adieu to hopes of making the market leader flinch.

(End of Rohan Sachdev column)

Divine gains...
... from a loss making company!

(column by Aditi Soni)

At the outset, some investment moves look quite illogical, even amusing! Consider the instance of a $50 million Fine Violins Fund (to invest in old violins) in the UK. Or, consider (in the UK again) the investment by BC Partners Ltd. Who bought 76% stake in Intelsat Ltd. for $4.6 billion on June 19. Raymond Svider, a managing partner of BC Partners stated, “Intelsat and the FSS sector are in the midst of a cycle of strong performance.” However, the first reactions of onlookers would be of utter shock. The fact that they have net losses since 2004, a total debt of $11.27 billion & will load on another $3.85 billion to this figure (with the BC Partners acquisition), must make everyone scamper in the reverse direction! Delve deeper and you understand the strategic logic. Intelsat is looking to tap the rapid growth sectors of HDTV & IPTV. A recent research by Digital Life scapes shows there’ll be 63.6 million IPTV subscribers by 2011. Furthermore, BC’s home continent Europe is expected to have 4.6 million HDTVs & 4.5 million Net TVs by 2008. And losses irrespective… Intelsat absorbed PanAm- Sat (PAS) in 2006, and became the number 1 company in the satellite provider segment. The contribution of PAS is clear by the rise of 42% in revenues for 2006 as against 2005, to touch $1.6 billion. Old violins may not go the distance, but these satellites sure do!

(End of Aditi Soni column)

Gone in $500 mn!
Yahoo! shareholders cannot take it any longer and Terry Semel is forced to quit... Can Yahoo! now chart a better future?

(column by Romsha Singh)

Disgrace is his middle name today. But ‘poor’? Certainly not! Terry Samel, the man Yahoo! Shareholders now love to hate and also blame for all things wrong with the company (be it falling market share, attrition at higher management levels or plummeting share prices) has finally gone the way out, as the Yahoo! CEO position is taken up by Jerry Yang, one of the co-founders of the company. But like we said, he is hardly poorer, as he leaves the company after having made a cool $500 million plus via stock options! Stated Yang on the announcement, “It’s been a real honour to work with Terry over the last six years, and it is an emotional time for us at Yahoo!.”

It was a reign full of peaks & valleys for Semel (only the last few years saw more of the latter!), who had earlier had a successful 24-year-old stint with Warner Brothers, where he served as Chairman & Co- CEO. Semel was mocked and laughed at when he joined Yahoo! for being a technological neophyte but he soon shut several mouths as he streamlined the management structure, made savoir-faire deals & acquisitions, improved the company’s image, earnings & stock price and made an alliance with SBC Communications (presently AT&T) to provide content and services, which proved rewarding.

But the criticism never stopped coming. Semel has been blamed for running the company like a souped-up movie studio as he considered technology to be a significant part of Yahoo’s culture but not the only thing. He tried marketing & distribution strategies at a portal company, which he had once used to increase the revenue of Warner Bros. by ten-fold, expecting a solid gain at Yahoo! as well, but it didn’t work out. His salary has raised eyebrows too. The biggest fl aw was his non non technical & marketing-centric background, which eroded the market-share of Yahoo! that accounts for 26% of all online searches in the US today. Furthermore, he tried to take the company away from online advertising and continued to build fee-based businesses, he pushed the Yahoo! dating service and employment site Hot Jobs, and some ‘landmark’ ventures like Yahoo! Platinum, failed. The current loss of executives such as COO Dan Rosensweig & Yahoo! Media Group Chief, Lloyd Braun, due to an executive re-shuffle were big blows to the company. The most striking blow was over the past year, which was tagged as a ‘difficult one’ for Yahoo! as its first quarter profits dropping by 11% & revenues reduced to a growth rate of 20% for branded advertising this year. Under his mighty reign; Yahoo! was defamed globally in 2005 for becoming the loyal American spy of the repressive Chinese government.

However, in the midst of his blotches, his list of achievements can’t be ignored. In 2005, Semel was given the UCLA Medal, the university’s highest honour, and the Yale Legends in Leadership Award. He happily sits on the Board of Trustees for Emerson College and if that’s not enough, he occupies the seat amongst the Board of Directors of Polo Ralph Lauren Corporation, Museum of Television & Radio and the Guggenheim Museum. It is said that sometimes you need to pay a heavy price for the little mistakes that you commit but six years is a long time to rectify them. Now that Semel has departed with some millions, what’s next for Yahoo!? States Roger Kay, President, Endpoint Technologies to B&E, “Investments in social media are required, which so far hasn’t been done well... Concentration on their main business is needed, that is their web-portal based on the advertising model... They need better search results to compete with Google (just like Microsoft )...” And what about the hapless shareholders? Well they can cool their heels for a while, as Mr.Yang shows the way...

(End of Romsha Singh column)