Dell: A weak profit report stirs doubts
Dell announced last week that profits fell 17 percent from last year’s second fiscal quarter, “raising questions about the company’s 18-month turnaround effort,” said Justin Scheck in The Wall Street Journal. The Texas-based computer maker said “a slowdown in business spending is beginning to metastasize,” spreading from the U.S. to Europe and Asia. But CEO Michael Dell admitted that some of the company’s earnings problems were self-inflicted. The company, he said, “was a bit too aggressive” with its discounts and spent heavily on marketing, which cut into the firm’s profit margins.
Expect more disappointment in future quarters, said Jon Fortt in Fortune.com. After rising to industry dominance by selling directly to buyers over the Internet, Dell is now making the costly transition to selling through retail outlets such as Circuit City and Best Buy. The company “is bound to see a bump in its market share,” but its profits will continue to suffer as it offers deep discounts to win “the hearts and minds of consumers.”
Computing: Google launches its browser
Google this week unveiled a Web browser to compete with Microsoft’s dominant Internet Explorer, said Tom Bemis in Marketwatch.com. Google says that its browser, dubbed Chrome, is built to handle Web-based applications such as Google’s word-processing and spreadsheet programs. Chrome is a direct challenge to Microsoft’s control of “the vehicle that delivers advertising and search results.” And considering that “Microsoft all but destroyed rival Netscape by giving away its Internet Explorer browser in the late 1990s,” that’s “only poetic justice.”
Banking: German merger gets panned
European investors this week gave a big thumbs down to Commerzbank’s acquisition of Dresdner Bank, said David Jolly in The New York Times. Shares of Commerzbank, Germany’s second-largest commercial bank, fell nearly 10 percent on word that it would pay $14.4 billion for rival Dresdner Bank. Analysts said Commerzbank overpaid. “Shareholders in Commerzbank will suffer for years to come,” said analyst Heino Ruland. Nonetheless, “the agreement could help to hasten the wave of deals now under way in Germany, the largest banking market in Europe.”
Muni bonds: High finance sinks Alabama county
Jefferson County, Ala., prepared last week to file for bankruptcy, “after its aggressive financing tactics backfired during the credit crunch,” said Michael Aneiro in The Wall Street Journal. The county—home to the state’s largest city, Birmingham—borrowed $3.2 billion in the municipal bond market to finance its sewer system, then converted the fixed-rate borrowing to variable rates using financial contracts called interest-rate swaps. The swaps were intended to save the county money, but the county’s interest payments now exceed its sewer revenues.
Carmakers: Toyota trims production
Toyota cut its 2009 sales forecast by about 7 percent, or 700,000 vehicles, “as it acknowledged that the downturn in the U.S. car market would last at least until the end of next year,” said Jonathan Soble in the Financial Times. With consumers rebelling against higher gasoline prices, Toyota said it would speed the introduction of gas-electric hybrids; they will now be available to corporate buyers by the end of 2009.