Archive for September, 2011

Auto parts execs forgo pay after price fixing case

Thursday, September 29th, 2011 | Finance News

TOKYO – The Japanese auto parts company pleading guilty to price-fixing in the U.S. promised to prevent a recurrence Friday, with its top executives returning part of their pay in a sign of remorse.

Furukawa Electric Co. said it has been cooperating fully with U.S. authorities. It concluded an agreement Thursday with the U.S. Justice Department to plead guilty and pay a $200 million fine on charges of taking part in a cartel with rivals in the U.S. for wiring for vehicles. Three Furukawa executives will serve prison sentences.

Chairman Hiroshi Ishihara and president Masao Yoshida are returning 50 percent of their pay for three months, according to the company. Two other senior executives, Masahiro Yanagimoto and Suguru Shinozaki, are returning 30 percent and 25 percent of their pay for three months.

Toshinori Kimura, a company spokesman in Tokyo, said several price-fixing cases had surfaced at Furukawa Electric about three years ago in Japan.

The company concluded an internal investigation in late 2009, including group companies and outside legal counsel, to stamp out the problem, and remains committed to compliance with laws around the world to regain public confidence, he said.

Kimura said the latest U.S. move was for past price-fixing that was stopped when the company put measures in place after its 2009 investigation.

The Justice Department says Furukawa conspired with other cartel members to fix prices of wiring harnesses, or groups of wires that link brakes, transmission and other parts in a car, for 10 years starting in January 2000.

Three Furukawa executives, all Japanese, who pleaded guilty to roles in the cartel, will serve prison time in the U.S. ranging from a year and a day to 18 months, according to the department.

It is rare for foreign executives to serve any U.S. prison time for price-fixing, much less serious felony time of more than a year behind bars. Such severe penalties are also rare in Japan for price-fixing.

Kimura said two of the executives were working at the company's 100 percent-owned U.S. subsidiary, while a third was in Japan. He declined to give further details, including when they would appear in court.

The Justice Department and court documents identified them as Junichi Funo, Hirotsugu Nagata and Tetsuya Ukai.

Furukawa Electric said in a statement it will rack up a special loss of 15.3 billion yen ($200 million) in the second quarter of this fiscal year to account for the $200 million fine.

It was unclear how many automakers were affected by the conspiracy, how many models were affected and how much the price-fixing scheme inflated parts prices.

Furukawa Electric declined to give details about the companies that it supplied.

The Justice Department did not identify the other companies involved in the cartel. It said two of the Furukawa Electric executives who pleaded guilty worked in sales to Honda Motor Co.

Word of the investigation surfaced in February of 2010 when the FBI raided the U.S. offices of three parts makers that supply Toyota Motor Corp. and other manufacturers.

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Follow Yuri Kageyama on Twitter at http://twitter.com/yurikageyama

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Amazon’s $199 Fire sparks supply, margin questions

Thursday, September 29th, 2011 | Finance News

(Reuters) – The rock-bottom price of the new Kindle Fire tablet computer is raising questions about Amazon.com Inc's ability to keep up with demand and the device's effect on the company's already razor-thin profit margins.

Amazon's billionaire Chief Executive Jeff Bezos unveiled the Fire on Wednesday at a lower-than-expected price of $199.

Bezos said Amazon is making "millions" of the tablets, without being more specific. However, he urged customers to pre-order the device early.

"When Bezos quipped that people should get their pre-orders in quick, that wasn't just a sales pitch," said Brian Blair, an analyst at Wedge Partners. "That was him warning this will sell out."

When the first Kindle came out in 2007, Amazon hadn't made enough and the e-reader sold out in less than a week. That meant the company missed out on sales and got the device into fewer customers' hands, limiting quick adoption.

"I hope they learned their lesson from the last time," said Vinita Jakhanwal, an analyst at IHS iSuppli, which tracks electronic component supply chains.

Amazon spokeswomen didn't respond to a request for comment on Thursday.

Amazon has lined up about four to five million screens for the Fire in the fourth quarter, which is a "fairly significant" amount, Jakhanwal added.

However, the technology that is being used for the Fire's screen has been around for at least a year and already has been produced in high volume, reducing the chances of supply shortages, Jakhanwal said.

One of the components that was in shorter supply in the first half of 2011 was the 10-inch screen, mostly because of the iPad, according to Bradley Gastwirth of technology research firm ABR Investment Strategy.

"This is probably one of the main reasons why Amazon started off at the 7-inch form factor," he said.

Still, other specialized components may be in short supply and that could limit how many Kindle Fire's can be made quickly, Jakhanwal said.

Other components aren't known yet, according to Wedge's Blair. But he expects a re-run of 2007, with the Fire selling out quickly.

Colin Sebastian, an analyst at RW Baird, kept his Amazon tablet sales forecasts the same on Wednesday on concern about potential supply issues. He expects two million to three million units to be sold this year and four to six million next year.

Amazon has better data on consumer demand and supply chains than it did in 2007, said Scott Devitt, an analyst at Morgan Stanley.

"But the $199 price point could drive heavy demand, so supply issues are possible and something to consider," he added.

Part of Apple Inc's success with the iPad and other products was driven by the company's tight control of its supply chain, which ensured it got enough parts before rivals.

"Apple's supply chain, production and distribution capabilities provide a competitive advantage over Amazon, which may find it difficult to produce more than a few million Kindle Fires for the holiday season," said Gene Munster, an analyst at PiperJaffray.

MARGINS

The Fire's $199 price has Munster and others concerned about profit margins at Amazon too.

Amazon always competes aggressively on price, often sucking up losses when it enters new markets. The company is currently branching out in several new areas and its profit margins have suffered.

Apple enjoys gross profit margins over 30 percent on the iPad. That's partly because the company offers digital content cheaply to promote purchases of such devices. In contrast, Munster estimated that Amazon will probably lose about $50 on each Kindle Fire it sells.

Anthony DiClemente, an analyst at Barclays Capital, expects Amazon's pro-forma operating profit margin to be 3.2 percent in the fourth quarter, down 160 basis points from a year earlier.

Still, Amazon hopes to make up any losses on the Kindle Fire through extra purchases of the company's other products and services made by users of the device.

Morgan Stanley's Devitt cites the example of ebooks. The Kindle Fire may increase purchases of digital books, hastening the demise of physical bookstores, he explained.

That would "lead to an industry with fewer merchants and thus higher long-term margins," Devitt said.

(Reporting by Alistair Barr; editing by Carol Bishopric)

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Japan factory output disappoints

Thursday, September 29th, 2011 | Finance News

TOKYO (Reuters) – Japanese factory output rose less than expected in August, in a sign that companies were feeling the pinch from a strong yen and faltering global demand and the economy's swift rebound from the March 11 earthquake and tsunami was tailing off.

Industrial output rose 0.8 percent in August from the previous month compared with a median market forecast of a 1.5 percent increase and a 0.4 percent gain in July, data from the Ministry of Economy, Trade and Industry showed on Friday.

Manufacturers surveyed by the ministry expect output to fall 2.5 percent in September, but climb 3.8 percent in October.

A purchasing managers' survey for September, which marked the first contraction in manufacturing activity in five months, confirmed that the world's No. 3 economy was losing momentum.

"Overall production remains on a recovery trend but the momentum seems to be slowing, partly on weakening external demand," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

"I expect factory output will continue its moderate recovery this year as auto makers are still making up for production delays. But there is a chance that production may weaken after this period is over."

CAUTIOUS OVER OUTLOOK

Output has rebounded sharply from a deep slump caused by the March 11 disaster as companies made strides in mending broken supply chains and factories. The government said production almost reached pre-quake levels, but voiced caution about the outlook.

Both the yen's strength and sagging growth in major export markets in Europe, which is caught in the throes of a sovereign debt crisis, and the United States have raised doubts about the strength of economic recovery in the months ahead.

A bigger-than-expected 4.1 percent annual fall in household spending, weighed down by high energy costs and pessimism about economic prospects, showed consumer spending at home was too weak to pick up the slack.

Friday's data follow a slew of disappointing figures including a smaller-than-expected rise in last month's exports and a surprising drop in retail sales, as well as downward revisions to July output and second quarter GDP.

Japan's auto industry remained one of the few bright spots as auto makers have maintained output to restock inventories overseas and orders yet to be met due to output delays caused by the earthquake. But the IT sector has been hurt by slowing global demand for personal computers and semiconductors.

Toyota Motor Corp, the world's biggest auto maker, said on Wednesday its exports rose 19.8 percent in August from a year earlier, with output in Japan during the month up 11.9 percent.

Japan's economy has emerged from a post-quake recession this quarter, but the bounce driven by retooling of damaged factories and recovering output is petering out faster than previously thought, prompting economists to trim their growth forecasts for the final months of the year.

Fears of a global recession and persistent yen rises have cast doubt on the forecast shared by the government and the central bank that the Japanese economy is picking up, albeit amid heightening uncertainties over the outlook.

The Bank of Japan is expected to ponder whether additional monetary easing will be necessary when it meets for a rate review on October 6-7, after it loosened policy in August to forestall risks to the outlook.

(Additional reporting by Stanley White and Kaori Kaneko; Writing by Tomasz Janowski; Editing by Edmund Klamann)

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