Enhancing Its Hits, Apple Adds Movie Rentals, Ultralight Laptop

Robert Galbraith/Reuters

By JOHN MARKOFF
Published: January 16, 2008
SAN FRANCISCO — Steven P. Jobs, Apple’s chief executive, took several big gambles Tuesday, betting that he could repeat his success in selling digital music by persuading Hollywood to allow Apple to rent digital movies, while at the same time returning to his original Macintosh roots with an elegant — but limited — ultralight computer called the MacBook Air.

Mr. Jobs has made his keynote presentation at the opening of the Macworld Expo trade show here a consistent marketing tour de force in recent years. And although Mr. Jobs did not return to the heights of media frenzy that he reached with the introduction of the iPhone a year ago, his presentation on Tuesday trod familiar, and popular, ground.
While introducing products and services from Apple’s best-known areas, Mr. Jobs concentrated on the movie rental service and the new notebook computer.
The terms of the service are similar to those offered by other companies. In an interview after the speech, Mr. Jobs insisted that Apple was the first distributor to persuade all of the major studios to join in its rental strategy. But the risk for Apple is that consumers may not like the limits placed on their movie viewing.
For the iTunes movie rentals, consumers will have 30 days to begin watching, then 24 hours to finish the movie before it is erased from the hard disk. Mr. Jobs said that after extended negotiations both sides felt this was an obvious strategy.
The movie studios, he said, knew it was time: “We talked to them and talked to them and finally a bit flipped. They know the rental model; we came to the conclusion it was the right model. It took months and it took a lot of discussions, but it wasn’t really that difficult once the bit flipped.”

Picture by John G. Mabanglo/European Pressphoto Agency

In that interview, Mr. Jobs took pride in demonstrating the MacBook Air, a three-pound notebook computer that will sell at a base price of $1,799. Mr. Jobs said that in order to reach his goal of making the industry’s thinnest computer, Apple’s designers made a series of trade-offs that the majority of laptop buyers may not appreciate. The computer uses a 1.8-inch disk drive, on which no more than 80 gigabytes of data can be stored. Memory is limited to a standard two gigabytes of RAM and its processor is slower than those of Apple’s other laptops. The design team jettisoned an optical disk storage device for playing DVDs. Mr. Jobs demonstrated a feature called Remote Disk that will make it possible to play the contents of a DVD via a wireless network from another Macintosh or Windows PC. Also, the MacBook Air’s battery is not removable.
Responding to a question about the growing array of media, including digital photographs, movies and music, that now swell most users’ hard drives, Mr. Jobs said, “Maybe this isn’t the computer for you.”
In the interview, Mr. Jobs chastised the recording industry for its efforts to handicap Apple and iTunes by offering digital music without digital rights management copy protection through competitors like Amazon.
“They’re trying to create a competitor to iTunes by denying us D.R.M.-free music,” he said. He noted, however, that because one major label, EMI, and independent music producers are selling D.R.M.-free music through Apple, iTunes customers now have access to what he said was about 35 percent of the market without copy protection.
“It’s been frustrating us a little,” he acknowledged. “The music industry and iTunes need to find a way to work together because we’re the best vehicle they have.”
During his presentation, Mr. Jobs also demonstrated the first major software upgrade for the iPhone. He surprised analysts by reporting that Apple sold four million iPhones during their first six months on the market, a number significantly above most market research firms’ projections.
He demonstrated a handful of features that have been added to the phone, including a navigation feature that allows the phone to find the user’s rough location on a map by using network databases that record the location of cellphone towers and Wi-Fi hot spots.
Apple shares slipped, losing $9.74, or 5.5 percent, to close at $169.04. In after-hours trading, shares fell another 3.6 percent.

Is Britney on the Brink of Suicide?

. 15, 2008
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Britney Spears' divorce, child custody battle and bizarre breakdowns appear to have taken a greater toll on her than most people know.
According to In Touch Weekly, days before her Jan. 3 breakdown, Spears left a suicide note on her bathroom counter that was allegedly found by friend Sam Lutfi.
"The letter was very [sad]," a friend close to Spears told In Touch. "It was filled with reasons why she shouldn't live, included lines from poems about death. She said in it she was sorry for never making her life what everyone else wanted. She mentioned how lonely and unfair life could be, how peaceful death seems and how your mind would finally be at ease ... She went on and on about wanting to just rest in peace."
Things are not looking up for Spears. Because she failed to show up to a child custody hearing Monday, choosing instead to go out to lunch and church, she remains unable to see her two sons.
Los Angeles Superior Court Commissioner Scott Gordon decided to keep in effect an order suspending Spears' right to visit Sean Preston, 2, and Jayden James, 1. The boys will remain in the custody of Spears' ex-husband Kevin Federline.
Another hearing has been scheduled for Feb. 19.
A slew of people testified at Monday's family court hearing, many of whom saw Spears' bizarre Jan. 3 breakdown.
Court spokesman Allan Parachini said those who testified included two Los Angeles police officers; Paula Strong, the court-appointed monitor who was present for the visit at Spears' home; Lisa Hacker, a parenting coach who has been working with Spears and Federline; and Lonnie Jones, the bodyguard who went to the home to get the children Jan. 3.
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According to celebrity news service TMZ.com, the witnesses "presented a deeply disturbed picture of Spears" that led the court commissioner to believe that mental health is the root of Spears' problems, not substance abuse.
Outside the courthouse after the hearing, Federline's attorney said that while his client felt the ruling was correct, he wants Spears to be a part of his sons' lives.
"The word victory is not something Mr. Federline or his counsel would ascribe to this. There is no joy. This is a grave situation for all," Mark Vincent Kaplan said, adding, "his goal, his hope for the future is at some point he will be able to parent the children with the participation of their mother."
Pressure's On to Play the Part of a Good Parent
Spears hasn't had a good history of showing up to hearings in recent weeks. Dec. 12, she called in sick for a court-ordered deposition, then arrived nearly two hours late on its rescheduled date, Jan. 3.
Spears arrived more than three hours late to Monday's hearing. She briefly pulled up to the L.A. courthouse in a black sport utility vehicle and got out of the car, but never went inside. She drove off moments later surrounded by a swarm of paparazzi.
Now more than ever, pressure is on for Spears to own up to her parental responsibilities. Jan. 3, police were summoned to the pop star's home during a meltdown in which she refused to hand over Sean Preston and Jayden James to Federline's security guard and locked herself in a bathroom with one of the boys.
She surrendered custody after a three-hour-long standoff with cops and was subsequently taken by ambulance to Cedars-Sinai Medical Center where she stayed for two nights. Various reports allege Spears was under the influence of alcohol or drugs.
The day after the incident, Kaplan presented papers to Gordon, who awarded sole legal and physical custody of the boys to Federline and suspended Spears' visitation rights.
Since checking out of the hospital, Spears has been seen around Los Angeles with photographer and potential new boyfriend Adnan Ghalib. The two reportedly hit up West Hollywood's Westfield Mall for a shopping spree the day before her scheduled court hearing.
The Associated Press contributed to this report.

Oprah Winfrey and Discovery to Create New Cable Network

By EDWARD WYATT
Published: January 16, 2008
Oprah Winfrey, the daytime talk show host whose media empire also includes a television production company, radio show, magazine, popular Web site and other ventures, will soon be getting her own television network.
Ms. Winfrey and Discovery Communications said on Tuesday that they would jointly create OWN, the Oprah Winfrey Network, a cable television channel to make its debut in 2009 on what is now the Discovery Health Channel. Discovery Health is available in more than 70 million homes.
The new channel will not initially carry “The Oprah Winfrey Show,” the top-rated syndicated daytime talk show featuring Ms. Winfrey as host. But Ms. Winfrey said that she had the option to end that show in 2010 or 2011 and could move the talk show to the new channel then.
“Eventually that will happen, we hope,” Ms. Winfrey said in a conference call with reporters on Tuesday.
The venture will be half owned by Discovery, of Silver Spring, Md., and half by Harpo Inc., Ms. Winfrey’s production company, which is based in Chicago. Ms. Winfrey will serve as chairwoman of the network, will have full editorial control over the joint venture and will be responsible for its “programming, branding and creative vision,” the companies said.
In addition to continuing her syndicated talk show, Ms. Winfrey said she would also continue to produce programming for other outlets. A new reality show, “Oprah’s Big Give,” is scheduled to begin on ABC in March.
Discovery and Harpo said the new venture involved no additional cash investment, but that Ms. Winfrey would contribute her Oprah.com Web site to the company. This is not Ms. Winfrey’s first foray into television programming. She was an initial investor in the Oxygen cable channel in 1998, but she soon cut many of her ties to that company.
Asked about the difference between Oxygen, which was sold to NBC in October for $925 million, and the latest venture, Ms. Winfrey said Oxygen “did not reflect my voice.” That assertion is subject to interpretation, however; Ms. Winfrey was host of a 12-part series called “Oprah Goes Online” on Oxygen. The show was sort of a primer on the Internet. She also was frequently referred to as a co-founder of the channel in news reports at the time.
“I was not a participant in the development of the channel,” she said. “That’s why after a couple of board meetings I took myself off the board.”
With the Oprah Winfrey Network, “I will have editorial control,” she said. “I have a vision for what we want to accomplish with this network.”
David Zaslav, president and chief executive of Discovery Communications, said that he and Ms. Winfrey would immediately begin a search for a chief executive for the Oprah Winfrey Network.

Reuters Sports Summary

Reuters Wednesday, January 16, 2008; 8:18 AM
Baseball tells Congress it's nearing steroids accord
WASHINGTON (Reuters) - Former Senate Majority Leader George Mitchell told Congress on Tuesday that Major League Baseball's players and owners must come together "in a well-planned, well-executed and sustained effort" to remove steroids from the national pastime. In reply, Baseball Commissioner Bud Selig said that he may be able to reach an agreement with the players' union within the next few months on Mitchell's call for independent testing of players for banned drugs.
Surging Hawks clinch win over depleted Nuggets
ATLANTA (Reuters) - The Atlanta Hawks built a 25-point second half lead and held off the short-handed Denver Nuggets to record a 104-93 home victory on Tuesday, with Joe Johnson scoring 22 points. The Nuggets played the game a day after team mate Nene underwent surgery to remove a testicular tumor and were without Kenyon Martin, who was suffering from a staphylococcus infection.
Pride follows first-ball trauma for Okajima
TOKYO (Reuters) - For a player whose first pitch in Major League Baseball was smashed out of the ballpark, Boston's Hideki Okajima has a lot to smile about. The Red Sox relief pitcher still winces about his rude introduction to the majors in 2007 but he still had the last laugh, ending the season with a World Series title.
Capitals rally to complete season sweep of Senators
WASHINGTON (Reuters) - The Washington Capitals rallied for a 4-2 victory over the Ottawa Senators on Tuesday, the home team completing a four-game season-series sweep of the Eastern Conference leaders. The Senators are 29-8-4 against every other team in the NHL but were swept by Washington for the first time since the 1995-96 season.
Tennessee fires offensive coordinator Chow
NEW YORK (Reuters) - Tennessee fired offensive coordinator Norm Chow on Tuesday after the Titans struggled through the season with the NFL's 21st-ranked offense. The 62-year-old was let go after his offense totaled just nine touchdown passes this season. The Titans made the playoffs for the first time since 2003 but lst in the first round to the San Diego Chargers.
Normal service resumes after tennis ruckus
MELBOURNE (Reuters) - Police defended their use of pepper spray on rowdy tennis fans and the sport's big guns kept on blasting at Melbourne Park as the Australian Open got back on track on Wednesday. As the fallout of Tuesday night's crowd trouble settled, Rafael Nadal, Serena Williams and Maria Sharapova all blasted their way into the third round of the year's opening grand slam, helping to refocus attention back on the tennis.
Denver's Nene undergoes surgery to remove tumor
NEW YORK (Reuters) - Denver Nuggets forward Nene has undergone successful surgery to remove a testicular tumor, the team said on Tuesday. The 25-year-old Brazilian was granted an indefinite leave of absence from the team last Friday after a mass was discovered during an examination.
Iraq Paralympians take peace message to Beijing
BAGHDAD (Reuters) - Fakher al-Jamali has lost nine athletes, referees and coaches to suicide bombs and gunfire by radical Islamists and U.S. soldiers. Their deaths make the 2008 Paralympic Games in Beijing more than a sporting event for him.
Hossa hat-trick helps Atlanta thrash Detroit 5-1
DETROIT (Reuters) - The Atlanta Thrashers crushed the NHL-leading Detroit Red Wings 5-1 on Tuesday to record their first win in Joe Louis Arena and move atop the Southeast division standings. Marian Hossa notched his seventh career hat-trick, stealing the spotlight from NHL goal-scoring leader Ilya Kovalchuk. Hossa potted the game's first three goals while Kari Lehtonen sparkled in the Atlanta net, stopping 46 shots.
Waffle serving a distant memory for Tour rookie Johnson
PALM DESERT, California (Reuters) - A little more than a decade after grudgingly serving breakfast to former world number one David Duval in an Augusta restaurant, Britain's Richard Johnson has finally established himself on the PGA Tour. The 35-year-old earned full playing privileges on the world's most lucrative circuit by leading the 2007 Nationwide Tour money list and will launch his 2008 campaign at this week's Bob Hope Classic.

The Hillary-Tyra Show

By Sarah Wheaton
She already made an appearance this week on “Meet the Press.” And she can’t very well do “Oprah.”
But Senator Hillary Rodham Clinton has found another daytime television outlet where she can express her grrrl side. After campaigning in New York on Monday, she taped an interview with Tyra Banks for her syndicated talk show.
According to the excerpts sent out by the Clinton campaign, the women talked about Mrs. Clinton’s choking up in New Hampshire.
“This woman said, ‘Well, how do you get up in the morning?’ It just struck me, how do any of us get up in the morning?” Mrs. Clinton recounted. “How do we keep it together, how do we do what we have to do, and there was such a moment where it wasn’t sort of me on one side of the table running for office and everybody else out there.”On what to call former President Bill Clinton if she is elected, Mrs. Clinton ruled out “first mate” and “first laddie,” and proposed a reality show to come up with a substitute.
In a variation on the theme, Ms. Banks also asked Mrs. Clinton to weigh in on which existing reality show she would like to compete on (as if the contest for the White House is not enough of a media spectacle), asking her to choose among “America’s Next Top Model,” “Dancing with the Stars” and “American Idol.”
“In my dreams I would be on America’s Next Top Model,” Mrs. Clinton replied. “But in reality I would have to choose my limited talents, and, of them, dancing is better than singing.”
“You do not want me to sing,” she added — something made apparent in a widely circulated YouTube video that captured her off-key rendition of “The Star-Spangled Banner.”
As The Hotline Wake-Up Call pointed out this morning, Mrs. Clinton’s appearance represents a bit of a departure from the program’s other topics this week:
Be sure to tune in to “The Tyra Banks Show” this week for “The Dangers of the Hook-Up” (today); “Sex SOS: Can My Sex Problem Be Solved” (1/16); “5 Ways to Get Over Being Dumped” (1/17); and “Hillary Clinton” (1/18).
The segment airs Friday on “The Tyra Banks Show.”

Bill Gates Bids CES Farewell

The Microsoft chairman promotes interactivity and even tries rapping in a music video for his final Consumer Electronics Show keynote
by Jay Greene
In his annual and last ever keynote speech for the Consumer Electronics Show in Las Vegas, Microsoft (MSFT) Chairman William Gates speculated on the future of technology during the next decade. He believes screens, from television sets to mobile phones, will go high-definition, and they will connect seamlessly. And he said that consumers will increasingly use so-called "natural user interfaces," such as speech recognition and touch-screen technology. "People are very interested in a simpler way of navigating," Gates said.
But things really got interesting when Gates wondered aloud about what his last day at Microsoft would be like before he steps away from day-to-day duties in July to work full time at philanthropy. That led into a self-deprecating video where an awkward Gates tries rapping Jay-Z's Big Pimpin'as the artist runs the soundboard. "It was great," Jay-Z tells Gates, before turning to the camera and whispering, "not so much."
Gates calls Bono off-stage during a concert to beg for a job playing with U2, only to be denied. Stephen Spielberg shoots down Gates' audition reel. Jon Stewart rejects Gates' request to co-anchor The Daily Show. And both Hillary Clinton and Barack Obama turn down his pleas to serve as their running mate. In the video, Obama isn't even sure who's calling him. "Bill?" Obama says into the phone. "Bill Clinton?"
Showcasing Mobile Computing
While stars routinely show up in Gates' CES keynotes, the number of A-list celebrities— which also included Matthew McConaughey, George Clooney, and Al Gore—made it feel like a grand finale, which it was. After having done 11 CES keynotes—the first came in 1994—Gates said this one would be his last. In November, Gates presided over his final shareholder meeting as chairman (BusinessWeek.com, 11/14/07).
Gates didn't spend much time showing off new products. But he and Microsoft Entertainment and Device Div. President Robert Bach did highlight a handful of Microsoft services that reflect how computing is moving away from traditional desktop PCs and into the living room, car, and telephone. Last year, Microsoft bought TellmeNetworks (BusinessWeek.com, 3/15/07), and Bach showed how the service will one day work combining mobile phones and global positioning systems. From a Tellme application, consumers can simply say "movies" to find the nearest theater to them at that moment. From there, they can buy tickets by just saying the number they want and the specific showing.
Gates also showed how natural user interfaces will evolve with Surface, Microsoft's computer in a table (BusinessWeek.com, 11/14/07) that responds to users' touches and gestures. Surface is debuting as a virtual concierge in hotels, but Gates hopes it will soon be used in retail stores. For example, Gates showed how an outdoors-shop customer could use a Surface table to customize a snowboard and transfer an image of his creation to a mobile device simply by placing it on the table.
Letting TV Viewers Select Camera Angles
Bach demonstrated speech recognition in Ford's (F) new cars featuring Sync technology from Microsoft. Rather than navigating a portable music player by hand, drivers can simply say the name of the song and have it start playing. And they can say the name of a contact and have their Bluetooth connected phone start dialing. Ford expects 1 million of its cars on the road with Sync by 2009.
Gates explained how Mediaroom, the Internet-based television platform (BusinessWeek.com, 11/6/07) that Microsoft created for telecommunications companies to sell will work with TNT and Showtime to let users select their own camera angles when viewing sports. For example, a Nascar fan could maintain a constant view from his favorite driver's car or plug into a certain ringside shot in a boxing match. For now, though, Mediaroom is mainly used for TV services in other countries.
Then the speech ended much the way it started, with a celebrity cameo. This time, Bach challenged Gates to a game of Guitar Hero, the hot video title where gamers compete by seeing who can play a guitar riff most accurately. Bach brought out the reigning Guitar Hero title-holder as his ringer, playing Guns N' Roses' Welcome to the Jungle. Of course, Gates isn't allowed to lose. He brought out Slash, who played his original licks. And then Gates stepped off the CES stage for good.
The AP contributed to this report.

How techies can broaden their soft skills

Tips on improving your soft skills from the author of 'The IT Careers Builder's Toolkit'
IT Careers and Training Alert Newsletter By Linda Leung, Network World, 01/16/08
Last time, we mentioned that now more than ever, employers are asking for soft skills and business knowledge of their tech hires. Jeremy W. Hill, senior national accounts manager at national staffing company Sapphire, says: "In year's past, it was more common to have requirements for just a 'heads-down techie' with X skill set. Though our clients still do request specific certifications and skills, we are seeing an increase in requests for individuals with multiple proficiencies." What are these soft skills and how do you improve yours?
According to Hill: "Soft skills are also called 'people skills' or 'client-facing skills.' They refer to an individual’s ability to work well with others. There are various components that comprise soft skills. Some are innate such as optimism, friendliness and whether or not someone has an outgoing nature, while others are skills that can be taught or improved upon, such as developing effective communication, organization, and social graces."
It's an unfortunate reality that techies are often viewed by their non-techie peers as lacking in the soft skills department. According to Matthew Moran, a business and technology consultant, and author of "The IT Careers Builder's Toolkit", tech pros who immerse themselves in intense technology training often overlook developing their relationship-building skills, though employers value those skills as much as technical know-how. IT pros who lack the ability to adequately describe to their business colleagues how projects are progressing are viewed with mistrust by their business counterparts who may think that they have something to hide, Moran adds. Moran says he often cites findings from a 1999 KPMG study - findings that are as true today - that business leaders say IT pros can't verbalize what they are doing that means anything to them.
Moran suggests the following four ways to help IT and the business improve their relationships:
* Departmental immersion - Companies could align a techie with each business unit, ensuring that the techie is totally immersed in that business unit day-to-day. This would allow the technology expert to fully understand how technology is used in business and what works and what doesn't. Although this would require much effort upfront, the results could be tremendous.
* Beware of jargon - The moment you find yourself explaining something to the rest of the business in sentences loaded with jargon and acronyms - stop. Talk to them about what your doing in layman terms. Better still - don't explain why you're using a particular technology to solve this problem but instead explain how your work will benefit the business bottom line.
* The three-point limit - Regardless how many points you want to get across, only discuss three of them, says Moran. The other points can be offshoots from the primary three.
* Respect from the business manager - Communications is a two-way street and business professionals are doing a disservice to their IT counterparts by not talking to them about the bigger picture. Instead of talking to IT about the technologies that could be improved, business managers should discuss their business challenges and encourage both parties to work together to create solutions.
Moran says IT execs shouldn't be afraid to play to their strengths - technology - but also don't shy away from broadening your communication skills, particularly if doing so is a big challenge. "If you can master soft skills you are really bringing value to the business," he says.
We'll revisit this subject soon with additional views from Sapphire's Hill, who will discuss further how IT execs can improve their business and soft skills.
Until then, I'd love to hear from you through the comments mechanism at the bottom of this newsletter. What are your views of this topic? Do you agree that IT execs lack soft skills? How do you communicate with the business?
* * Cisco Press will be posting chapters from the IT Career Builder's Toolkit over the coming weeks. The books is expected to be posted in its entirety in mid-February. Check for updates here.
Linda Leung is assistant site editor at Network World and is responsible for editing many of Network World's e-mail newsletters and news stories for Network World online. She is also editor of Cisco Subnet , the community page for Cisco customers. She can be reached at mailto:lleung@nww.com

Stocks: A Barrage of Bad News

Indexes tumbled Tuesday after word of massive losses at Citi and a slump in retail sales. Intel's earnings miss could pressure the market Wednesday
Some days, it seems the bad news never ends: Your car needs a new muffler, your dog bit the mail carrier, Grandma's cutting you out of the will. Wall Street had one of those days Tuesday.
It started with Citi. After weeks of speculation about the depth of its subprime mortgage losses, Citigroup (C) reported a record fourth quarter loss Tuesday morning.
Then it was the economy. Investors received a reports showing weaker than expected U.S. retail sales in December. The news exacerbated the Street’s recession fears.
And that was all before the opening bell.
Add to those developments some unfavorable news later in the session regarding marquee names like Apple (AAPL) and Boeing (BA), and investors decided to head for the exits, driving major stock indexes sharply lower Tuesday. Retail, oil, and financial stocks were hit particularly hard.
On Tuesday, the Dow Jones industrial average tumbled 277.04 points, or 2.17%, to 12,501.11. The broader S&P 500 index dropped 35.30 points, or 2.49%, to 1,380.95. The tech-heavy Nasdaq composite index fell 60.71 points, or 2.45%, to 2,417.59.
Activity in the broader market was markedly negative. On the New York Stock Exchange, 23 issues declined in price for every eight that advanced. Nasdaq breadth was 23-7 negative.
Wednesday’s session may be equally unpleasant, given a big earnings miss reported after the closing bell Tuesday by semiconductor giant Intel (INTC).
On Wednesday, investors will have to contend with reports on consumer-level inflation, industrial production, capacity utilization for December, the NAHB Housing Price index for January, and the Federal Reserve’s Beige Book report on economic conditions. These reports are likely to reinforce the weak economic scenario, according to S&P MarketScope. And they will no doubt be addressed when Fed chairman Ben Bernanke testifies on the economy before a Congressional panel on Thursday.
Wednesday also brings another batch of fourth-quarter earnings reports, including one from JP Morgan Chase (JPM), a mega-bank that has so far managed to sidestep the ill effects of the subprime crisis.
Boeing shares fell 4.7% on a WSJ.com report that the company, already six months behind schedule on its new 787 Dreamliner jet program, is close to announcing additional delays that could hurt its ability to deliver as many airplanes as promised during the initial year of production.
Apple shares dropped 5.5% on investors’ perception of an “underwhelming” MacWorld, the company’s annual product showcase/technology love-in, according to S&P MarketScope. Apple introduced the MacBook Air, and unveiled new software for Apple TV that allows viewers to rent movies on its iTunes Store directly from their widescreen TV via its AppleTV product. The company says it has sold 4 million iPhones.
But it was Citi that took center stage Tuesday. The financial giant posted a net loss of $9.83 billion, or $1.99 a share, compared with a profit of $5.13 billion, or $1.03, one year earlier, on a 70% revenue drop. Citi recorded $18.1 billion in pre-tax write-downs and credit costs on subprime related direct exposures in fixed income markets, and a $4.1 billion increase in credit costs in its U.S. consumer business, mainly because of higher current and estimated losses on consumer loans.
Citi's loss of $1.99 per share was almost twice what analysts were expecting. The mean estimates of analysts polled by Reuters called for a net loss of $1.03 a share on revenue of $10.3 billion. Many analysts said predicting Citi's results was especially difficult due to the fallout of the credit crisis.
The bank was expected to report up to $20 billion in mortgage-related losses. The company had warned it might have to write down up to $11 billion In the third quarter, it wrote down $2.2 billion.
"There were things to like and dislike" in Citigroup's results, said Jeff Harte, an analyst at Sandler O'Neill. On the one hand, by raising an extra $12.5 billion through the issue of convertible securities, questions about the adequacy of Citi's capital should end, Harte wrote. However, "credit quality continues to deteriorate," he added.
The beleaguered bank announced additional steps to shore up its balance sheet. As widely expected, the company said it would eliminate 4,200 jobs and cut its quarterly cash dividend by 41% to 32 cents from 54 cents.
And the company raised another $12.5 billion via the private placement of convertible preferred securities, including a $6.88 billion investment from the Government of Singapore Investment Corp.
Among the other investors: A foundation headed by former Citi CEO Sandy Weill, and longtime Citi investor Prince Alwaleed bin Talal. The Saudi investor said his Citi investment shows his belief in the company's long-term success and profitability and stake remains below 4.9% ownership threshold.
The company also announced a public offering of an additional $2 billion in convertible preferred and another offering of straight preferred securities, all in response to public demand. The company also plans to sell non-core assets.
In a conference call with analysts and investors Tuesday, Citi said it saw its U.S.
credit quality deteriorate at an accelerating rate throughout the fourth quarter. The company said deflated home prices, high energy and food costs, and rising unemployment are weighing on consumers’ ability to keep up with their payments.
After the call, Standard & Poor's equity analyst Frank Braden cut his 2008 earnings per share estimate for Citi to $3.58 from $3.74 to reflect his view of rising credit losses in the company’s U.S. consumer segment. “Headcount was not reduced as much as we expected,” he wrote in a note Tuesday, though Citi says that such reductions will be ongoing.
Braden says the $14.2 billion infusion helps Citi's capital base, in his view, but notes the company still maintains $37.3 billion in total direct subprime exposure.
Goldman Sachs analyst William Tanona wrote in a note Tuesday that he believes Citi still has sizeable exposure to subprime mortgages, which could result in additional write-downs “should [the] environment continue to soften.” Tanona says Citi’s higher reserves for credit costs signal tougher times ahead in the U.S. consumer channel, which has accounted for 30%-40% of Citi's recent profits.
The Street is still waiting for more answers from Citi on whether there are more problems on its balance sheet, and exactly which assets CEO Vikram Pandit will dump to help ease its capital crunch.
"Our financial results this quarter are clearly unacceptable," said Pandit in a press release.
And if that wasn't enough drama for one morning, Standard & Poor's Ratings Services lowered its long-term counterparty credit ratings on Citi to AA- from AA, reflecting the company's severe losses.
Some on Wall Street hope more news from the financial sector – even bad news – will help clear up the vast uncertainty surrounding the size of the credit problem. However, Bank of America analyst John McDonald says Citigroup's prospects for profits long-term remain unclear. "Amid increasing credit costs, balance sheet restructuring, capital raises and an uncertain banking and capital markets environment, Citi's core earnings power remains unclear and we believe the stock will continue to trade on its book value," he wrote.
Citi shares fell 7.3% Tuesday.
Meanwhile, another member of Wall Street's mendicant order announced new financing. Merrill Lynch (MER) said it had reached agreements to issue $6.6 billion of mandatory convertible preferred stock in private placements to long-term investors, primarily from Korean Investment Corp., the Kuwait Investment Authority, and Mizuho Corporate Bank Merrill plans to announce fourth-quarter and full-year 2007 results on Thursday.
Even the smaller fry in the financial industry are looking for financing. Legg Mason (LM) said Tuesday it has increased its capital base by $1.25 billion through the sale of 2.5% convertible senior notes to an affiliate of Kohlberg Kravis Roberts & Co.
Apart from the Citi news, investors had a fresh batch of economic data to ponder.
U.S. retail sales fell 0.4% in December, and were down 0.4% excluding autos. Meanwhile, November's 1.2% headline gain was revised down to 1.0%, while the 1.8% December ex-auto surge was revised to 1.7%. (October was also revised lower). Declines were broad-based. The data are weaker than expected, notes Action Economics, and will keep downward pressure on Treasury yields and the dollar.
The U.S. producer price index (PPI) edged down 0.1% in December, according to an Action Economics report, while the core rate, which excludes food and energy prices, was up 0.2%, following hefty gains of 3.2% and 0.4%, respectively in November. On a year-over-year basis, producer prices were up 6.3% compared to a 7.2% pace previously. The core year-over-year rate is still posting a 2.0% growth pace, at the top of the Fed's comfort zone, according to Action.
Business inventories rose 0.4% in November, in line with expectations. Sales jumped 1.7%, lowering the inventory/sales ratio to 1.24 months from 1.26 in October and 1.31 in Nov. 2006.
Also, the Empire State index of manufacturing conditions fell to 9.03 in January (median forecast of 8.6) from December's result of 9.80 (revised from 10.3). The headline print was the lowest since May, 2007.
Fed funds futures action on Tuesday showed that investors are betting the Fed will cut interest rates by as much as three-quarters of a percentage point at or by the central bank’s Jan. 30 policy meeting, reports S&P.
February West Texas Intermediate crude oil futures, which hit a $93.12 high
Early in the session, lost $2.30 to $91.90 per barrel as Tuesday's economic data suggest the U.S. is either in -- or headed into – a recession, says S&P MarketScope. President Bush asked OPEC to pump more oil to bring prices down from near record levels.
COMEX February gold futures, which hit a $915.30 high early on, fell 80 cents to $902.60 per ounce.
Among other stocks in the news Tuesday, Genentech (DNA) posted fourth-quarter non-GAAP EPS of 69 cents vs. 61 cents one year earlier on a 9% rise in operating revenue. Its total U.S. product sales rose 7%. The biotech expects 2008 non-GAAP EPS of $3.30-$3.45. Citigroup reportedly said sales of oncology drugs Avastin, Herceptin, and Rituxan came in "light."
Williams-Sonoma (WSM) posted 4.4% higher same-store sales for the 9-week holiday period ended Dec. 31. However, while the company was pleased with its holiday performance vs. the retail segment overall, it is seeing continued weakness in January, and now expects fiscal fourth-quarter revenue of $1.363-$1.385 billion and GAAP EPS of $1.11-$1.14. The company also announced a $150 million stock buyback.
Fair Isaac (FIC) said it sees first-quarter EPS of 37 to 39 cents on revenue of $198-$200 million, below its previous guidance of about 45 cents on revenue of $205 million. The company sees second-quarter EPS of about 44 cents on revenue of about $205 million and fiscal 2008 EPS of $1.80-$1.90 on revenue of $825-$835 million.
European markets tumbled Tuesday, with losses accelerating as U.S. equities slumped. In London, the FTSE 100 index was down 3.06% at 6,025.60. In Paris, the CAC 40 index was off 2.83% at 5,250.82. Germany's DAX index shed 2.14% to 7,566.38.
Asian markets were lower overnight. Japan's Nikkei 225 fell 0.98% to 13,972.63. In Hong Kong, the Hang Seng index tumbled 2.38% to 25,837.78.
Treasury Market
Treasury prices jumped Tuesday as December retail sales unexpectedly declined 0.4%, vs. the Street's mean estimate of a 0.1% rise, and Citigroup's record quarterly loss continue to fuel fears that the U.S. economy is nearing a recession.
The 10-year note was up 19/32 in price to 104-17/32 for a yield of 3.70% and the 30-year bond was up 1-06/32 to 111-27/32 for a yield of 4.29%. Meanwhile, the shorter-dated 2-year note was up 02/32 at 101-12/32 for a yield of 2.52% .