Archive for January, 2009

UK may inject $13.8 billion into Northern Rock: report (Reuters)

Thursday, January 22nd, 2009 | Finance News

LONDON (Reuters) –
The British government is considering injecting as much as 10 billion pounds ($13.80 billion) into Northern Rock to use the nationalized bank to ramp up mortgage lending, the Daily Telegraph reported.

The Treasury has yet to make a final decision on the plan, which may also see the bank hiring new staff, the newspaper reported in its Friday edition.

Spokesmen for the Treasury and Northern Rock, which is due to unveil a new business plan in the next few weeks, could not immediately be reached for comment.

Northern Rock became the first British casualty of the credit crunch in September 2007 when the bank, heavily dependent on wholesale markets for its funding, revealed that it had been forced to seek emergency support from the Bank of England.

The bank was nationalized in early 2008 after attempts to find a private sector buyer fell through.

Since then, Northern Rock has been shrinking its mortgage book and focusing on repaying a government loan.

But the bank said on Monday it was slowing its rate of mortgage redemptions to support the government's policy of increasing mortgage lending. The announcement coincided with a second bank rescue package announced by Prime Minister Gordon Brown's government.

Standard & Poor's Ratings Services said on Monday that a likely consequence of this decision was that Northern Rock would need more capital than the 3 billion pound equity injection previously proposed by the government.

Banks hit by the credit crunch have cut back borrowing to businesses and households, a trend the government is desperate to reverse to avoid a recession deepening into a slump.

The injection into Northern Rock was likely to be in the form of equity and a new loan, the Daily Telegraph said. It will include the 3 billion pounds the government has already earmarked to be converted from part of its loan to the bank into equity, it said.

About 5 billion pounds of new equity could give Northern Rock the firepower to do about 50 billion pounds of new lending, providing the capital is not eroded by bad debts, it said.

Treasury officials have been liaising with Brussels as they need a waiver from European Union state aid rules, the newspaper said.

It said there had been no final decision on the plan and officials have not ruled out a more limited approach of just swapping the 3 billion pounds of debt for equity.

(Reporting by Adrian Croft; Editing by Andre Grenon)

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Google profit beats on strong ad sales (Reuters)

Thursday, January 22nd, 2009 | Finance News

NEW YORK (Reuters) –
Google Inc's quarterly earnings beat Wall Street forecasts as strong advertising sales on its self-branded websites helped the Internet leader defy the gloom pervading the tech sector.

The results, which sent Google shares up 2.6 percent in after-hours trading, were a relief for investors who had been stunned by a series of dismal reports from Microsoft Corp, Intel Corp and other tech companies.

"At least we have something to feel good about with this Google news in what has been shaping up to be a gloomy earnings period," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22 billion.

"It tells me that Google is very focused on their franchise and execution as a marketing, advertising and media company. It speaks highly to their business focus."

Google said fourth-quarter net income fell to $382 million, or $1.21 a share, from $1.21 billion, or $3.79 a share, a year earlier due to impairment charges on its investments in Clearwire Corp and Time Warner Inc unit AOL.

Excluding one-time charges, profit was $5.10 a share, beating the average analyst forecast of $4.95 according to Reuters Estimates.

Revenue rose 18 percent to $5.7 billion -- a shadow of the 50 percent growth levels that Google used to enjoy, but considered by analysts to be a robust performance given the weak economy and corporate cutbacks in advertising spending.

"It was, all things considered, very good numbers," said Wunderlich Securities analyst Martin Pyykkonen, noting Google's non-GAAP operating margin of 38 percent was also solid.

"In this market and relative to the numbers that are being put out -- and I would go so far as to say relative to the numbers that Yahoo probably will put out next week -- these will look good and maybe I'll use the term 'as good as it gets' as far as Internet stock performance goes."

WEAKNESS IN UK MARKETS

Google's revenue comes via searches on its branded sites such as google.com and google.co.uk, as well as through partnerships which license its search advertising platform.

Google-owned sites generated 67 percent of revenue, or $3.81 billion, rising 22 percent from a year ago. Traffic acquisition costs, the portion of revenues shared with Google's partners, decreased to $1.48 billion.

Cantor Fitzgerald analyst Derek Brown, who has a buy rating on Google and makes a market in its shares, said that was better than he had expected.

"It's clear that macroeconomic challenges continue to rob Google of growth, but it seems equally clear that the company continues to make headway in this market, and take share in this market," Brown said.

Google Chief Executive Eric Schmidt struck a cautious note, saying the last quarter had benefited from the holiday season.

"Now clearly we're in a worldwide recession as everybody knows, rising unemployment, foreclosures, that sort of thing," he said on a conference call. "But we don't know how long this period will last. We obviously hope it will be short."

Chief Financial Officer Patrick Pichette said Google's UK business showed "some softness" largely due to the weak British pound. UK revenue fell 1 percent to $685 million.

But the rest of Europe performed better, driven by strong performances in Germany, France and the Netherlands, Google said. Overall international revenue, which accounted for 50 percent of total revenue, was relatively flat.

Paid clicks -- a measure of how often Google gets paid for advertisements alongside its Web search results -- rose 18 percent. Investors have worried that Google's paid search business would face keyword pricing deflationary pressures due to the worsening economy, but the company said search query growth was strong with revenues up in most verticals.

Google's stock has fallen by more than half in the last year as investors expected its pay-per-click advertising format to be hit by the wider advertising market slump.

The shares rose to $314.51 in after-hours trading from their Nasdaq close of $306.50.

Just 13 months ago, Google's stock hit an all-time high of $747 as investors bet moves into new advertising formats such as mobile phones and YouTube would bring in huge returns.

Google joins International Business Machines Corp and Apple Inc as the few bright spots in a tech sector hurt by sweeping job cuts and cutbacks in corporate and consumer spending.

It has stepped up efforts to rein in expenses, to the relief of Wall Street and investors. Late last year, it confirmed that it was cutting back on the use of contractors and earlier this month it laid off 100 recruiters -- significant for a company which has previously hired at a rapid pace.

(Additional reporting by Anupreeta Das and Jennifer Ablan in New York, Gina Keating and Sue Zeidler in Los Angeles, and Jim Finkle in Boston, writing by Tiffany Wu, editing by Richard Chang)

(Click on http://blogs.reuters.com/category/themes/mediafile/ to see Reuters MediaFile blog)

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Chipmaker AMD posts wider-than-expected loss (Reuters)

Thursday, January 22nd, 2009 | Finance News

SAN FRANCISCO (Reuters) –
U.S. chip maker Advanced Micro Devices (AMD.N) posted a wider-than-expected quarterly loss and warned of dwindling revenue as worldwide demand for PCs continued to crumble, sending its shares 3.5 percent lower.

Underscoring the dismal industry landscape, diversified U.S. chipmaker Marvell Technology Group Ltd (MRVL.O) on Thursday slashed its fiscal fourth-quarter revenue outlook. Its shares fell more than 3 percent in extended trading.

Other makers of PC components have also taken a hit. Intel (INTC.O), the dominant maker of CPUs, announced this week it would cut 6,000 jobs. Microsoft (MSFT.O) and hard drive maker Seagate (STX.O) have also unveiled downsizing efforts.

AMD's gross margins dived to 23 percent in the fiscal fourth quarter after taking into account a $227 million writedown of inventory because of weak market conditions. The firm's gross margins stood at 44 percent a year earlier, and 51 percent in the previous quarter.

"It's a bit surprising to see their financials fall off so much more than Intel's. It has to do with market weakness and also may be a reflection of the competitive nature of the product," said Patrick Wang of Wedbush Morgan Securities.

"It was a relatively disappointing quarter, but the ugliness in the quarter was really expected at this point."

Still, AMD told a conference call that it hoped to have lowered its revenue break-even point to $1.3 billion from $1.5 billion by the fiscal second quarter, highlighting cost controls.

For now, the firm expected revenue in the first quarter to decrease from the fourth quarter, it said without elaborating. AMD said last week it would eliminate 1,100 jobs and take more charges for its purchase of graphics chip maker ATI.

The firm reported on Thursday a net loss of $1.42 billion, or $2.34 a share for the quarter ending December 27, compared with a loss of $1.77 billion, or $3.06 a share, a year ago.

Excluding certain items, the company posted a loss of 69 cents a share. Analysts, on average, had expected a loss of 56 cents a share, according to Reuters Estimates.

Revenue for the second-largest maker of central processing units for personal computers fell 33 percent to $1.16 billion, compared with analysts' estimates of $1.19 billion according to Reuters Estimates.

Shares of AMD, based in Sunnyvale, California, fell to $1.95 after closing regular trading down 10.2 percent at $2.02.

Its disappointing results and the lack of clearer guidance pointed to the lack of visibility plaguing much of the sector.

Marvell now expects revenue for the January quarter of $500 million to $520 million, well below its previous forecast of $690 million to $730 million.

Sehat Sutardja, Marvell's chief executive, said there was much uncertainty around the "duration and depth" of the global economic slowdown, particularly in the PC and consumer electronics markets.

It "is clear an inventory correction process is underway in the near term," Sutardja said in a statement. "Consequently, we will continue to take actions to re-align our expense profile to the current environment."

Longer term, AMD has announced that it will move to an asset-smart strategy, breaking itself into a foundry company and a design company.

Executives on a conference call said the firm planned to split off its foundry company if it won shareholder approval.

AMD conceded that Intel had sent a letter seeking to "discuss" whether AMD's creating that foundry company had violated agreements linked to the cross-licensing of patents between the two firms, but AMD executives said on Thursday that was not a factor.

Intel had agreed years ago to license some of its patents to AMD, placing certain conditions on their use.

(Reporting by David Lawsky and Gabriel Madway, editing by Leslie Gevirtz)

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