Tag Archives | Economy

Twitter May Begin Charging for Commercial Accounts

Twitter logoTwitter may yet prove that it is more than the gilded plaything of venture capitalists , and a productivity killer for those of us who tweet while we should be working. In an interview with UK-based Marketing newspaper, co-founder Biz Stone said that the company was identifying ways to charge for commercial accounts.

Stone told Marketing, “We are noticing more companies using Twitter and individuals following them. We can identify ways to make this experience even more valuable and charge for commercial accounts,” without specifying how much the company would charge. In a Twitter blog post today, he stressed that the company isn’t ready to make any announcements about how it’ll make money. But he did say “we hope to begin iterating on revenue products this year,” which is Silicon Valleyspeak for “Sooner or later we’re gonna need to make some money.”

An actual revenue model –fancy that. Twitter’s popularity has exploded, but there has not been so much as a single advertisement served up on its Web site. Since it is unlikely that anyone will pony up another $500 million offer to buy it out anytime soon (as Facebook is rumored to have done), it’s time for Twitter to face up to the reality of 2009 and earn some money.

Since its inception, venture capitalists Bezos Expeditions, Digital Garage, Spark Capital, and Union Square Ventures have showered a combined $20 million in private equity on Stone and crew. Meanwhile, Twitter hasnever publicly explained (or demonstrated) how it would turn a profit.

Now that it has an established user base, it makes perfect sense for Twitter to leverage the direct access that it has afforded brands to their customers. Twitter has the opportunity to create several products that could keep the failwhale at bay, and to keep its employees’ lights on.


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Apple Store Traffic Flat, But Sales Are Down

applestoreApple has taken quite a bit of pride in its successful retail operation, and rightly so. It has grown at a rate not seen by other electronics outlets as of late, and sales have been consistently higher every quarter.

Not so for the holidays. Traffic was essentially flat in the fourth quarter, down 1.8 percent. The real drop was in sales, falling 17.4 percent and showing that consumers are buying less, Needham analyst Charlie Wolf found.

“Consumers aren’t in a spending mood,” he quipped to Barron’s (subscription only).

Barron’s Mark Veverka also makes an astitute observation: Apple’s struggles at retail could reverberate. Malls will feel the difference as these stores have become attractions, bringing in new consumers that may have otherwise not shopped the mall.

Another effect is as Apple sells less, it produces less. This sends shockwaves backward into its whole supply chain. Companies that have produced iPod parts know this all too well: an adjustment in Apple’s ordering can cause them to completely miss their own financial goals (it’s happened).

While its certainly alarming to shareholders that one of Apple’s primary revenue drivers are falling upon hard times, consider this: Apple can afford some loss at retail.

As Doug McIntyre at BloggingStocks put it, these stores serve almost as a showroom of sorts for the company: “As long as Apple’s revenues are improving, there is hardly reason to complain,” he argues. I can’t argue with that.


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Make it Stop — More Tech Jobs Slashed

Since my last post mid-month, we’ve seen some acceleration in tech layoffs, and the overall jobs picture continues to look poor. Another 588,000 applied for initial unemployment benefits overall this week, which was worse than experts had forecast. The continuing rise of unemployment claims indicates the recession continues to intensify, and we’ll get a solid picture Friday when gross domestic product (GDP) numbers are released. So, who’s on the chopping block this week? Time Warner has announced it would cut 700 jobs, which would be about 10 percent of its workforce. SAP will be taking a similar route, cutting about 6 percent of its workforce during the year, which would amount to about 6,000 jobs. Sprint Nextel has the deepest cuts that we’ve seen: about 8,000 jobs or 14 percent of its workforce. With the deterioration of the financial position of the consumer, and confidence continuing to fall — there still appears to be no clear end in sight to the downturn, which means companies will continue to layoff at alarming rates well into 2009.


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Yahoo Releases Fourth Quarter Financial Results

YahooToday, Yahoo shared its fourth quarter financial results with investors, the first financial news it’s had since naming Carol Bartz as CEO. While revenue was relatively flat compared to 2007, Yahoo experienced a net loss of $303 million, compared to a net income of $206 million in 2008, due in part to strategic decisions that obliterated shareholder wealth.

According to the company, operating income was goggled up by a sundry of expenses before the customary subtraction of interest, tax and depreciation:

“restructuring charges of $108 million for severance, facilities, and other restructuring costs; a goodwill impairment charge of $488 million related to our international segment; and incremental costs of $7 million incurred for outside advisors related to Microsoft’s proposals to acquire all or a part of the Company, other strategic alternatives, including the Google agreement, the proxy contest, and related litigation defense (collectively, the “strategic alternatives and related matters”)”.

CFO Blake Jorgensen said that cost management and a Yahoo’s “strong balance sheet” helped it navigate 2008′s financial turmoil, and said that the company was well positioned for more challenging economic conditions. Blake probably wishes that he was on on a beach in Aruba sipping piña coladas instead of offering guidance to investors.

Bartz, meanwhile, told those listening in to Yahoo’s conference call that she didn’t take her new gig to sell the company. But she seemed to tippy-toe around questions of whether part of Yahoo, such as its search business, could be up for sale.

Yahoo made the mistake of turning down Microsoft’s $44.6 billion takeover bid, and now, those who remain have to drink from a muddy well.


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Has Microsoft Flight Simulator Been Canceled after 29 Years?

Microsoft Flight SimulatorReports this morning have it that Microsoft’s venerable Flight Simulator game may be realistically simulating the fate of Pan Am, Eastern, and TWA: Supposedly the Microsoft layoffs announced yesterday include the program’s entire development team, and it’s therefore being discontinued. I hope it’s a false alarm. I’ve never sat inside FS’s cockpit even once, but I feel like it’s been part of my life for almost as long as I’ve been using personal computers (that would be 31 years as of this summer).

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What Does Microsoft’s Bad News Day Means For the Future of Windows?

MicrosoftQuarterly financial results are in from Microsoft, and they’re pretty ugly: The company’s revenue fell short of guidance by $900 million, and net income was down by 11 percent. In reaction to these numbers and general economic gloom, the company says it’s eliminating 1400 jobs today and a total of 5000 positions over the next 18 months (while hiring in some areas where the company sees growth or opportunity). At least that headcount cut is less severe than the worst rumors would have had it.

The sentence in the announcement with the most profound long-term implications for the company is this one: “Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks.” Translation: Windows Vista sold poorly during the quarter, and it did so in part because folks were buying low-cost computers that didn’t run it. Vista has been a poor fit for notebooks for two reasons–it’s too resource-hungry to run well on many of them, and it costs PC manufacturers too much. End result: Many netbooks run Windows XP or Linux.

The country’s economic mood at the moment is so miserable that it’s difficult to extrapolate what current news might mean for the future. (In fact, Microsoft announced today that it’s not giving guidance on its likely results for the rest of the year.) So it would be dangerous to assume that disappointing sales for Windows in one quarter means that the OS is entering an era of decline.But it’s fascinating to see Microsoft’s money machine break down. And if a meaningful percentage of PCs are going to cost so little from now on that Windows will be an unaffordable luxury, it means that the financial model that made Microsoft a monopolistic monolith could crumble in the years to come.

Sluggish Vista sales show just how important it is to Microsoft that Windows 7 be a reasonable operating system for netbooks. That definitely means that it must run respectably on PCs that sport low-end CPUs and skimpy amounts of RAM. But it may also force Microsoft to charge PC manufacturers less for the OS, in hopes of preventing them from opting out of Windows altogether. (I was in a Target recently that had two Asus Eee PCs for sale side-by-side: A $300 Linux model and a $350 Windows one. I’d love to know what the sales breakdown is…)

Anyone out there care to guess where Windows will be, say, three years from now? It ain’t going to disappear, and if Microsoft is fast enough on its feet it might be doing okay. But it’s possible, at least, that the planet will be noticeably less Windows-centric come 2012…


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Apple Quarterly Sales Results: What Depression?

Apple LogoI’m not a financial analyst, so I hesitate to do anything that smacks of analyzing finances. But Apple just released its financial results for its first fiscal quarter and hosted a conference call to discuss them, and the news seems mostly good, especially given the dire condition of the economy. The company reported record quarterly revenue and profit, and also revealed the following:

Macs: 2.5 million Macs were sold in the quarter, representing 9 percent growth. 71% of them were notebooks; desktop sales, not surprisingly, are down. Macs sold Apple pointed out that an IDC study says that the overall PC market shrunk during the quartert.

iPods: The company sold 22.7 million iPods, representing 3 percent growth. The players have 70 percent market share. iPod revenue, however, was down.

iPhones: 4.4 million  handsets were sold in the quarter. 13.7 million were sold in calendar 2008–above the company’s once-daunting 10 million goal.

Apple Stores: The company’s 251 stores in 10 countries sold $1.7 billion of stuff in the quarter, including 515,o000 Macs–”almost half to new owners.” But per-store sales were down because of the touch economy and discounts and deals offered by third-party sellers of Apple products.

A few tidbits based on questions asked by financial analysts who were in on the call–the quotes below are from Apple COO Tim Cook and CFO Peter Oppenheimer:

How’s Steve Jobs? How will Apple fare without him? “Steve is the CEO of Apple, and plans to remain involved in major strategic decisions, and Tim will be responsible for day-to-day operations.” There’s an “extraordinary breadth and tenure of senior Apple executives,” and they lead a team of “wicked-smart” employees. “The values of our company are extremely well-entrenched…We’re on the earth to make good products, and that’s not changing…We believe in saying no to thousands of products…I strongly believe that Apple is doing the best work in its history.”

Will Apple continue to open new Apple Stores given the economic climate? Yes. 25 new stores in FY09, half outside the U.S.

Would Apple sell more iPhones if they cost less? “$199 with contract is compelling…we see nothing else close to it…we’re years ahead of the competition.” Apple isn’t interested in selling cheap, basic phones.

Netbooks: They represent only 3 percent of PC sales. “It’s a category we watch, but right now we think the products there are inferior, and won’t provide an experience to consumers that they will be happy with.”

Apple TV: Sales are up by a factor of three, but it’s still “a hobby” that the company is investing in because it thinks there’s something there long-term.

Snow Leopard, the next version of OS X: They’re excited about it, but no comment beyond that, and no timetable for its release.

The sale of iPhones in Wal-Mart stores: Wal-Mart’s outlets “reach a tremendous amount more people than we could reach in our stores” in areas of the country with no Apple Stores.

iPhone competitors: Most aren’t for sale yet, so it’s hard to judge them. It’s tough for developers to build for platforms which involve devices with different size screens and other variances in features. “We’re very, very comfortable with where we are competitively…we like competition, as long as they don’t rip off our [intellectual property]…and if they do, we’ll go after them.”

Does the Palm Pre’s multi-touch screen violate Apple patents? “I don’t want to talk about any one company…but we will not stand for having our IP ripped off and will use whatever weapons are at our disposal. I don’t know how much clearer I could be than that.”

Apple’s market share: The company had 16 percent unit share, 32 percent revenue share in U.S. retail in the quarter. “I think those are fantastic results, and we’re extremely proud of them.”

What percentage of the 500,000 apps downloaded from the App store were free versus paid? The company isn’t disclosing that.

Others who know way more about crunching numbers will analyze these numbers in depth, and likely poke holes in Apple’s upbeat spin. (Silicon Alley Insider is already saying that iPhone sales were disappointing.) But Apple sold scads of products and made financial progress on multiple fronts in a quarter during which much of Silicon Valley was busy reporting dismal numbers, scaling back ambitions, and laying off employees. It may not live in a reality-distortion field of its own, but its contrarian instincts still seem to be serving it well.


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Circuit City Under Siege

Circuit CityThey’re the grim reapers of failing retail chains, except they brandish going-out-of-business signs instead of scythes. And they were surrounding the Circuit City a couple of miles from my house today, which, like the rest of the company’s 500+ U.S. stores, is liqidating its stock as the company goes out of business. When I drove up to the store, I was startled to find a long line of customers waiting to get in, snaking all the way to the Sports Authority next door–maybe the longest such line I’ve ever seen that wasn’t at a store with a fresh batch of iPhones or Wiis. (I sure never saw lines like it when CompUSA, Good Guys, and other defunct chains held their liquidation sales–but perhaps today’s economic climate is leaving shoppers obsessed with finding bargains.)

I joined the line, and got the impression that other folks had joined it in part because they saw a line and figured it was worth joining. (Or at least the woman behind me seemed unclear on the concept–she asked what was going on in the store, and why were were all queuing up.)

A CNet reporter said he found “pandemonium” inside a Southern California Circuit City; this one, just to the south of San Francisco, was relatively sedate inside. Actually, there were fewer people in line to buy stuff than I usually see at Best Buy on a Saturday afternoon. The store felt downright lonely, in part because it was full of staffers who knew they were about to be unemployed, tables of open-box merchandise, items scattered in the aisles, and TVs forlornly playing a video loop arguing that you should buy a TV from Circuit City because of its great post-purchase service.

It was easy to tell why so few people were filling their carts with gear: The deals to be had were far from spectacular. The signs outside promised “Up to 30% OFF,” but a more direct claim would have been something along the lines of “Most hardware 10 percent off, software 20 percent off, and good luck if you find anything in the store that’s 30 percent off.” If your goal was to get the best possible price, you could probably beat even Circuit City’s liquidation prices without trying very hard by going online. Which is presumably one reason why Circuit City was forced into bankruptcy in the first place.

If Circuit City’s liquidation follows the usual pattern, the discounts will get larger as the shelves grow barer, and within a few weeks the stores will be left with items that you don’t want to buy even at 80 percent off. After the jump, some bad iPhone photos from my visit, which left me melancholy about the death of the 60-year-old merchant even though I was never a big fan in the first place.

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Tech Layoffs Are Picking Up Speed

Folks, I have to say the rate at which these layoffs are coming lately is beginning to seriously worry me a little. While we focus here on technology, forgive me a moment while I stray a bit. Across the economy layoffs — as pointed out by this CNBC article — have increased dramatically after the New Year.

The reasoning? After a holiday season that was more about denial of our economic situation rather than facing reality, companies are looking at their balance sheets and realizing what bad shape the US economy is in.  So the first reaction is to cut costs, and that nearly always means layoffs.

You have probably already read David’s reporting on AMD’s latest round of cuts, and Harry’s take on the end of Circuit City. But it goes beyond this.

Motorola? They’ll be cutting another 4,000 jobs due to weak handset sales. Autodesk’s balance sheet is deteriorating, so it has decided to cut its workforce by 10 percent, which leaves about 750 without a job.

Seagate is set to lay off 2,950, which would be 6 percent of its workforce. Worse yet, some employees will see their salaries cut by as much as a quarter. Oracle and Lexmark are both cutting 250 apiece, and I’m sure we’ve only just begun. Sad to think we’re only 15 days into 2009, and its already this bad.

What’s more worrisome is that when stuff like this happens, spending on advertising also drops. Take for example Federated Media, Technologizer’s ad partner. The company announced that it’s laying off staffers who were focused on traditional display advertising in order to focus on more “conversational” social-media marketing initiatives. The weak market for display ads inevitably means less ads on at least some of the tech sites that are dependent on them for revenue.

What does that mean for those publications? Obviously, they’ll start letting go of writers. It’s just like dominoes.

This recession is by no means over: we aren’t even to the worst part yet. President-elect Obama is going to inherit one hell of a mess, that’s for sure.


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AMD Cuts Employees, Compensation

amdlogoDeflation is rearing its head in the chip-making business. Advanced Micro Devices intends to reduce its workforce by nearly 9 percent and will reduce employee compensation during its first quarter.

Even its top executives are taking a hit to their base salaries (no word about their bonuses); the rank and file will see their incomes drop on a staggered basis depending on their employment status. Other perks, including the company’s 401(k) matching program are being suspended indefinitely.

AMD must take difficult and prudent steps to reduce its cost in response to the worldwide economic downturn, it explained in a statement to the press.

This should come as no surprise considering there has been a corresponding downturn in the sales of semiconductors. Chip sales dipped to $20.8 billion in 2008 from $23.1 billion in 2007, according to a recent report by the Semiconductor Industry Association. Public companies like AMD are going to respond to reduced demand by cutting expenses, because they have to act in the interest of shareholders.

The company is not selling the copper plumbing–yet. While its sales have dipped, it still remains second largest semiconductor producer in the world next to Intel, and it has laid out long term road maps for future technologies. Further, new chips designed for low-cost computers, such as its Neo processor, could entice spendthrift consumers to open up their wallets.

Should PC buyers worry about AMD’s prospects or even shy away from buying machines that use its chip? Not really. Companies  that big don’t just close up shop overnight, and AMD is also highly unlikely to skimp on its manufacturing processes or R&D, lest it risk damaging its brand or ceding even more market share to Intel. Customers can buy AMD-based systems with confidence.


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