Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: The big blues: IBM, Microsoft, Intel, Google – they all disappoint. Retail land is booming – apparently. Barclays returns handsome profits to its saviour: why can’t Lloyds and RBS do the same? Blow for premium TV, victory for consumers. Mortgage lending hits highest level since 2008
The big blues: IBM, Intel, Microsoft, Google – they all disappoint
It’s the US earnings season. Equity prices look on the high side, and for such valuations to be sustained US earnings need to increase. So far, so very disappointing.
Profits in Q2 were down 29 per cent at Intel, and revenue shrunk by 3 per cent.
Intel is getting a drubbing at the hands of ARM. But what can it do about it? ARM applies a very different business model – one involving licensing its technology so that hardware companies can choose who manufactures the ARM chips that sit inside their products. Consequently ARM has much lower overheads than Intel, but then its profits per unit are tiny. To take on ARM, Intel not only needs comparable products, but has to persuade customers that its approach to manufacturing chips in-house is better. One thing is for sure, Intel cannot afford to adopt the ARM business model.
Microsoft saw revenue from its Windows PC operating system drop 6 per cent. At least net income was better than a year ago, coming in at $4.97 billion from a $500 million loss, after taking a good will write-down. In its latest quarter, Microsoft also took a $900 million charge relating to disappointing sales of its Surface tablet
The reason for the poor showing by the two companies is not rocket science – it is not even kindergarten science – the PC is struggling.
But what about Big Blue? IBM saw earnings fall 17 per cent, dropping to $3.23 billion Revenue lost 3 per cent, and fell to $24.92 billion.
IBM says the cost of staff lay-offs was partially behind the fall in profits. IBM figures were also hindered by a delay in the sales of its hardware businesses.
But at least IBM is seeing software sales rise, and that is encouraging because this provides a much higher margin.
A bit of bull: Don’t forget that IBM is one of the world’s great innovators. From nanotechnology, to genome sequencing, 3D printing to a new gel to fight infections – if you believe in technology IBM remains a pioneer. See: As the technology revolution begins to pick up steam, is IBM the company to watch?
And then there is Google. Now here is a company in crisis mode – profits grew by a mere 16 per cent from a year ago to a trifling $9.7 billion. Analysts had hoped for more.
The crisis at Google really is serious – akin in fact to a raging storm, a great torrent perhaps, in a porcelain tea cup. Google is having to adjust from advertising revenue from desktops to mobiles. The margins in desktop advertising are greater, but the potential for overall traffic on mobiles is far greater.
Larry Page, CEO at Google, said: “The shift from one screen to multiple screens and mobility creates tremendous opportunity for Google.”
Like IBM, Google is great innovator. It is not afraid to experiment and has lots of very interesting projects on the go – we have all heard of the glasses and self-driving car, but it is also looking at kite-like wind turbines that operate high in the sky where the wind is greater, for example.
Retail land is booming – apparently
It is hard to believe, but the data suggests that June’s retail sales by volume were at a record high.
Actually, the data for June does not seem that spectacular – not at face value. But then May really was a spectacular month, and many feared that June might see a fall in sales in a partial correction.
Instead, and according to the ONS, retail sales rose by 0.2 per cent in June month on month, after rising by 2.1 per cent the month before. Sales rose 2.2 per cent in the year to June.
Chris Williamson at Markit reckons July will be a good month too, with “better weather adding to the feel-good factor and boosting sales of seasonal goods such as summer clothes and outdoor goods.”
Mr Williamson also sees reasons for optimism in the latest data on average wages. They rose by 1.9 per cent in the year to May, meaning that the gap between inflation and rises in wages was the closest for some time. He said: “The ongoing squeeze on incomes from stubbornly high inflation will continue to act as a dampener on consumer spending growth, but even this pressure should start to ease in coming months.”
British Retail Consortium director general Helen Dickinson said: “This offers further evidence that tentative signs of a consumer-led recovery are beginning to take hold. Although there are wide variations in individual retailers’ fortunes and on-going volatility from week to week, it’s good news that the ONS figures confirm cautious optimism as they reflect the results of the BRC’s Retail Sales Monitor earlier in July.”
Apologies for bringing in a bearish comment, but much of the rise in sales volume was down to heavy discounting. Also, don’t forget that UK households are saving less. So how sustainable is the rise? There are at least some doubts.
Barclays returns handsome profits to its saviour: why can’t Lloyds and RBS do the same?
He invested £3.5 billion. His money meant that Barclays did not have to go cap in hand to the government. And he agreed one very good deal – at least good from his point of view – with lots of sweeteners, warrants and special prices. He is the Abu Dhabi sheikh Mansour bin Zayed bin Sultan al-Nahyanm, who also owns Manchester City football club.
Well actually it was the International Petroleum Investment Company that injected capital into Barclays, and the Sheik is its chairman.
But let’s not worry about semantics.
The point is that the Sheik has sold his stake. It is not clear how much he made. The shares alone are up 60 per cent, but with the various bits and pieces negotiated by the sheikh, his profit was much greater than that.
So why can’t the government make a similar profit from RBS and Lloyds?
Conventional thinking says the government can’t run companies – it is just no good at it. But in this case a bigger problem is that the government seems even worse at negotiating good deals
Okay, Barclays did appear to be a stronger proposition from day one than the banks that were bailed out by the state, , but even so, the government was a reluctant owner of the banks it saved. Its attempt to negotiate a price that was in the best interest of shareholders was half-hearted. Labour was terrified of being seen as Old Labour.
Blow for premium TV, victory for consumers
What were FIFA and UEFA thinking? The European General Court said that the World Cup and Euro Championships were protected events so they could be aired on free British TV.
UEFA and FIFA appealed, arguing that they should be able to sell broadcast rights at the market price.
The European Court of Justice has upheld the original decision. And so that’s it – there is nowhere left to appeal to.
The problem when sports’ governing bodies try to cash in like this by farming off TV rights to premium channels, is that in the long run they might kill off the very sports they are supposed to govern.
For one reason or another, we are in the midst of a golden age of British sport. It is a tragedy so little of it is free to view.
For sport to survive in the long run it needs new fans; it needs people to discover it by accident, to stumble across it.
England may have its best cricket team in decades, but its stars are not as famous as the stars of years ago. Radio coverage – once an example of the BBC doing something superbly – has morphed into phone-ins.
Mortgage lending hits highest level since 2008
If you want more evidence, here it is.
According the Council of Mortgage Lenders (CML), estimated total gross mortgage lending in June hit its highest level since October 2008. In total it increased to £15 billion, which was 2 per cent up on May and 26 per cent higher than the total in June 2012.
Mind you, don’t get too excited. Six months into the year, and CML put gross mortgage lending at $76 billion. For 2011 in its entirety lending was £141 billion, £135 billion in 2010, and £143 billion in 2009. So, yes, 2013 appears to be on track for seeing higher lending, but not a lot higher. In contrast, gross mortgage lending was £254 billion in 2008 and £362 billion in 2007.
The truth is that gross mortgage lending needs to double from the June level for it to be comparable with pre-recession levels.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees