Competitive Intelligence

Sydney Australia: 2-Day CI Workshop

Today and tomorrow, I’m in Sydney Australia doing a two-day workshop on Competitive Intelligence to a mixed group of participants, chiefly interested in building new or improving existing CI functional processes inside their firms. We’ve got a very diverse group, but they tend to fall into three categories – high-technology, banking/finance and a third “everything else”… not atypical, but for my first trip to Oz, it’s been an interesting introduction to the region’s economy. It’s widely believed elections will be called here and one of the subjects sure to be on the minds of voters has to do with the outsourcing trend that’s taken the world by storm and which Australia is both benefiting and suffering from, depending on whom you ask.

Anyhow, here’re my slides if anyone’s interested, otherwise, I’m having a great time here (getting out a bit to see the countryside over the weekend); but I hope to avoid the fate of the survivors on the upcoming TV series “Lost” that I just heard will be premiering next month – a crash-landing at sea on a flight from Sydney to LA, I believe…

- Arik

Dairy Queen’s "MooLatte" Product Moniker Controversy

Over the past few weeks, Dairy Queen’s been running into a few rough spots with its new MooLatte coffee/ice-cream treat. The commercial to launch the drink was bashed by most marketing savvy ad critics; but, the more potent criticism has been the stunning resemblance between the words "MooLatte" and "mulatto":

The Houston Press, an alternative weekly in the New Times chain, agrees that the name of Dairy Queen's new frozen drink, the MooLatte, sounds so much like "mulatto" as to call into question the mental competence of Dairy Queen's corporate leadership. That the Minneapolis-based company would deliberately allude to the hoary stock character of the "tragic mulatto" in naming a drink of light brown hue is too ghastly a possibility to consider. But could DQ really be so dim as not to notice the similarities between "MooLatte" and "mulatto"? Houston Press staff writers Richard Connelly and Craig Malisow have laid out compelling evidence that it is.

Malisow, working under Connelly's close direction, placed a call to Dairy Queen spokesman Chad Durasa, whose name appeared on an Aug. 3 press release inviting residents of the Lone Star State to "bring your favorite cow" to Dairy Queen on Aug. 24 to receive a free MooLatte. Malisow's ensuing Ali G-style interview, as related in the Aug. 12 Houston Press, was so extraordinary that I felt compelled to ask both Connelly and Malisow whether any of it was made up. They assured me it was genuine. Here it is...

But, you'll have to visit Slate.com for the full interview - it's pretty good stuff... In searching around the DQ site this week, the MooLatte product line appears to have pretty much disappeared from view, as the company tries to figure out how to handle this, I’d reckon.

For me, having tried the Mocha MooLatte (more than once), I thought it rivaled the Starbucks Mocha Frap (Venti only for me, thanks)… but it wasn't until later that, I learned both drinks have somewhere around 700 calories, and all of ‘em of the bad-for-you variety. It seems DQ's otherwise deft move to expand the customer base by adding caffeinated beverages to the product mix may ultimately fail to impact the Starbucks horde to defect to the Brazier.

- Arik

Blockbuster Gunning for Netflix Movies-by-Mail Market

Blockbuster jumped into Netflix's highly-profitable movie-by-mail sandbox last week, pushing its 25,000-title DVD rental library to Internet users and leaving fulfillment to the USPS. Blockbuster says it will begin offering an online movie-rental service beginning in 2005, and in addition to undercutting Netflix's subscription price, Blockbuster will offer two free in-store movie rental coupons per month, to try and juice their differentiation strategy.

Blockbuster’s entry represents at least an intensification on the initial Netflix counter-attack, which began in May and offered subscribers unlimited rentals with no late charges, but still required them to return movies to the stores from which they had been rented.

Can Blockbuster turn a buck in this new market? Netflix has diversity cornered in its eclectic rental library and in being first to market but with earnings of $2.8 million on $120 million in revenue for the second quarter, Blockbuster will need to compete on more than stocking big-name, new releases - it'll have to diversify its library, while moving to spark a price war.

The Blockbuster Online service will provide subscribers with unlimited DVD movie rentals in the mail, with up to three out at a time and no return dates or late charges. A monthly fee of US$19.99 will be charged, which undercuts Netflix's $22 monthly price to new customers.

The Blockbuster deal also includes two free in-store movie rental coupons per month. To promote the new service, Blockbuster has formed marketing alliances with MSN and AOL, which it claims will help it reach 75 percent of U.S. Internet users.

The online-rental service is part of a series of initiatives being implemented by Blockbuster in a bid to transform itself from a neighborhood-based movie rental business into an "anywhere anytime" entertainment operation that eventually will enable customers to rent, buy or trade movies and games, new or used, in-store and online.

In May, Blockbuster launched a store-based subscription service called "Movie Pass." The unlimited rental, no late-charge program requires customers to pick up and return the DVDs to the company's stores rather than get them by mail.

The Blockbuster Online service is expected to be fully integrated and combined with the store-based subscription programs in 2005, the company said. "If a customer is in our store and wants to return a movie they rented online, we'll be able to accommodate them," says Shane Evangelist, Blockbuster vice president and general manager of Blockbuster Online. "If a member rents primarily in-store, but wants a hard-to-find title we don't typically carry in-store, he or she will be able to go online and get it. It's a matter of maximizing convenience and choice."

With total revenues of just US$280 million industry-wide last year, the online subscription business represents only a small percentage of the $8.2 billion U.S. movie-rental market. "However, the online-rental business is growing, and Blockbuster believes it has the potential to appeal to several million U.S. households," the company says.

"The research we have seen from Kagan World Media suggests that the online-rental market will have 6.5 million customers in the U.S. by 2008, up from 2.5 million today," Evangelist told NewsFactor. "The reason the market is so small right now is that online movie rental is a new kind of business, and the service providers need to educate potential customers."

Netflix's success in the home-delivery DVD rental market has led other established retailers to offer a similar service. For example, Wal-Mart Stores has a low-cost unlimited offering, letting customers pay just $15.54 a month for up to two DVDs at a time or $18.76 a month for the three DVDs that Netflix and Blockbuster offer.

"There are also some smaller players in the market," Evangelist told NewsFactor. "But there are high barriers to entry. To become a major player, companies need to make a significant investment. Online movie rental is very capital intensive, as there is the cost of product, buying the customers, and also setting up the service infrastructure."

Blockbuster has set up 10 delivery centers across the U.S. so it can provide next-day delivery to its online customers, Evangelist said. "The way the service works is that you go to our Web site, select your three movies, and then we mail you the first one," he explained. "Once you have viewed the DVD, you mail it back to us in a pre-paid envelope, and we will then send you the next movie. Next year, once we have integrated the online service and the in-store subscription program, we will be able to use our stores to provide same-day delivery to online customers."

Blockbuster is the world's largest video and DVD rental chain, with nearly 9,000 outlets. U.S. media giant Viacom is in the process of selling off its 81 percent stake in Blockbuster.

"It is good for consumers that the DVD online-rental market is getting more competitive," Gale Daikoku, a retail analyst with GartnerG2, told NewsFactor. "It is about time that this happened. Netflix has been under pricing pressure since it put its prices up in June, and now Blockbuster has come in to undercut it.

However, Daikoku warns that Blockbuster's plan to integrate its mail-order service with the in-store program may face difficulties. "The in-store business model and customer experience is really very different from the mail order," she told NewsFactor. "Subscribers will expect to be able to drop off at the stores DVDs that they rented online, or even pick up DVDs from the stores that they had selected on the Web site. But will the I.T. system integration work properly? Will there be confusion about Blockbuster's various subscription programs?"

It seems to me this move can't have been exactly unexpected on Netflix's part - I mean, with all the barriers to entry, who else but Wal-Mart and Blockbuster are really in it to win it? There's one other company that has the infrastructure to make it work and possibly even overcome the Blockbuster advantages: Amazon.com.

- Arik

Viagra vs. Cialis & Levitra: Battling Ad Strategy Leaves Cialis Gaining on Viagra's Still-Solid Market Lead

There was an interesting article by Michael Stephens on AlterNet's MediaCulture about the battle of ED drugs on TV between Viagra, Cialis and Levitra:

Since the FDA's approval of Cialis and Levitra in 2003, television has become clogged with ads for ED (erectile dysfunction) drugs. In opposition to the "We are the Champions" Viagra ad that uses the Queen song to celebrate that triumphant feeling of getting free Viagra with every seventh prescription refill, the Cialis ad asks men the worrying question, "If a relaxing moment turns into the right moment, will you be ready?" Levitra's launch campaign included a partnership with the NFL and tried to entice men away from Viagra with a sex-as-sport pitch. This approach failed miserably, illustrating the difficulties of selling new ED drugs in the wake of Viagra's overwhelming market lead. Although Cialis and Levitra have been on the market for almost a year, Viagra still retains 75 percent of the $2 billion ED drug market, Cialis has managed to capture 14 percent and Levitra 11 percent.

After it received FDA approval in March 1998, Viagra had five straight years of being the only clinically tested ED medication available and immediately cornered the world market. Having no other similar products from which to differentiate itself, apart from a few herbal remedies of the "Horny Goat Weed" variety, Viagra didn't need to create an image for itself. Viagra's original advertising consisted of endorsements from spokesmen like Bob Dole; older respected men who basically said, "It's here. It works." Enthusiastic reviews from Hugh Hefner and other aging playboy types didn't hurt, either. Soon, Viagra was being used by all sorts of people, many of whom didn't even suffer from ED. Several years later, Viagra is so sure of its universal recognition and consumer brand-loyalty that it can joke about the high price of Viagra, while surreptitiously gloating over its market supremacy in the "We are the Champions" ad.

Viagra's reputation makes marketing Johnny-Come-Lately competitors like Cialis and Levitra an unusually tough challenge. As Robert Krell, president of pharmaceutical advertising company Krell Advertising says, "It's a monumental task for a new drug to take the lead away from the first drug to market". This is especially true in the case of Viagra. Since Viagra is already a potent and unfailing remedy for impotence in the popular imagination, alternative drugs are fighting an uphill battle against their own apparent redundancy. Why reinvent the wheel? A significant dimension of the marketing challenge that faces the makers of Cialis and Levitra is that they must re-establish the problem of impotence – a problem that many consumers see as already having been solved by Viagra – in order to offer their products as a cure. Impotence, however, is such an unpopular topic, that it is almost impossible for advertisers to refer to it without alienating the very consumer base they are trying to reach.

Levitra has now dropped the sporty, macho tone of its first campaign and created a new ad featuring an attractive brunette who addresses the camera confidentially to tell us a "secret" about her man: He has erection problems. But not to worry, "For him Levitra works," she confides, "just look at that smile." This ad eschews innuendo for a direct discussion of sexual performance, a daring but risky approach, which also limits the ad to evening slots. Whether or not this change helps Levitra's market share remains to be seen; what is significant is that the new ad focuses on the positive concept of sexual performance rather than the negative concept of impotence. Instead of a guy who can't even get his football in the hole, we are presented with a desirable woman whose Levitra-enhanced man has evidently pleased her and himself. This ad suggests that Levitra is about making a good thing better, not helping desperate men to "stay in the game." It also introduces the element of female approval, for although the woman tells us to look at her man's smile, it is her smile that counts.

Cialis differentiates itself from both Viagra and Levitra by offering a 36-hour window of efficacy. This beats Viagra's and Levitra's four-to-eight hour period, and allows Cialis to focus its advertising on timing rather than performance. The first series of Cialis ads showed a couple in bathtubs in a romantic, natural setting. and asked if the man was "ready" for this opportune moment. Like the ball-throwing Levitra ad, this Cialis ad uses fear as its basic motivator, but the fear has been shifted from the stark question of ability – can you do it? – to the less threatening question of preparedness; will you be ready when the time is right? This ad presupposes the existence of drugs like Viagra and Levitra, but implies the limitations of the time frame they offer: In a spontaneous moment of desire, do you want to have to pop a pill and wait an hour for it to take effect? In France, Cialis is already known popularly as "le weekender," a buzzword that suggests Cialis's potential to ultimately threaten Viagra's primacy in the market with its superior convenience.

My prediction based on this analysis is, there's a real competitive threat from Cialis to Viagra's market hegemony based on this differentiation and, ultimately, the ad strategy behind it.

- Arik

MicroStrategy vs. Business Objects: Both Claim Victory

The U.S. District Court for the Eastern District of Virginia found Business Objects guilty of misappropriating MicroStrategy trade secrets and slapped a cease and desist order on the San Jose company in the wake of an October 2003 trial.

One of the documents mishandled by Business Objects provided a detailed description of how MicroStrategy planned to compete against Business Objects, the leader in the business intelligence space after acquiring Crystal Decisions last year for $820 million.

Business Objects thought of the trade secret ruling in a somewhat more positive light. In its own statement, the software maker said the court found that a former Business Objects employee had misappropriated two documents, not the hundreds of files MicroStrategy had alleged were mishandled.

Business Objects further said the court issued a "very narrow" injunction ordering Business Objects not to use or distribute the documents and that it shot down MicroStrategy's request for attorneys' fees.

The same court also found in favor of Business Objects, rejecting MicroStrategy's earlier claims of patent infringement of U.S. Patent No. 6,260,050. It had earlier thrown out MicroStrategy's claim of tortious interference.

Here’s a quick summary at Out-Law.com on what actual ruling Business Objects was found guilty of, plus reactions by each parties counsel:

These were a “Competitive Recipe”, detailing MicroStrategy’s plan for dealing with its rival in the market, and a volume discount schedule, detailing thresholds at which MicroStrategy would give customers a discount.

The court therefore granted an injunction against Business Objects, prohibiting the company from possessing, using or disclosing the two trade secrets identified by the court.

The court refused to grant legal expenses to MicroStrategy and, in another ruling, dismissed a claim for patent infringement put forward by MicroStrategy.

Business Objects welcomed the judgment, commenting that the court had found only two cases of misappropriation out of the hundreds of examples put forward, and at the end of the day had issued only a “very narrow” injunction.

“This is an important victory for Business Objects, its employees, customers and shareholders," said Susan Wolfe, senior vice president and general counsel of Business Objects. "These decisions by the Court in Virginia confirm what we have maintained all along - that MicroStrategy's allegations and claims against Business Objects were essentially meritless."

“We are pleased with the court's decision,” responded MicroStrategy Vice President, Law and General Counsel, Jonathan F Klein. "Business Objects misappropriated our trade secrets, and the court issued an injunction prohibiting their use".

"Business Objects' suggestion that its misconduct involved only a single employee and two documents is contradicted by the court's extensive factual findings," he added.

A further patent infringement case between the parties is still ongoing.

MicroStrategy was a bit dumbfounded by the positive light Business Objects was throwing on the ruling:

MicroStrategy differed on its view of the decision, with company general counsel and VP for law Jonathan Klein saying he was "very pleased" that the ruling "validated our original purpose in bringing these claims."

Klein said the court's 61-page ruling details how internal MicroStrategy documents - including e-mails, presentations, sales reports and competitive intelligence focused specifically on Business Objects - were circulated widely among Business Objects employees, including some of its top executives.

"When I saw Business Objects' announcement this morning, I thought they could not possibly have read the same ruling I did," Klein said. Business Objects representatives were not immediately available for comment.

In the second decision, the court issued a formal order on a ruling it made last year. The ruling granted summary judgment in favor of Business Objects, rejecting patent infringement claims made by MicroStrategy.

Business Objects and MicroStrategy compete head-to-head in the business intelligence market, particularly in the area of reporting and analytics applications. Business Objects is the larger of the two companies, with sales of $560.8 million in the last calendar year, compared with $175.6 million for MicroStrategy.

Whatever your take on the outcome, the two are going to keep slugging it out over this last patent issue and we’ll see where all the dust settles. In the meantime, if you’re in the BI software business, it’s apparently time to review your non-compete/confidential-disclosure agreements… at least if you’re competing with these two.

- Arik

2004 Summer Olympiad Opens in Athens – U.S. Basketball Taken to the Woodshed

As the 2004 Summer Olympics opens in Athens this weekend, the biggest competitive story I found in the coverage was of the U.S. basketball team taking a whupping by none other than Puerto Rico with a stunning 92-73 loss that broke the 24-0 Olympic record the U.S. has been running since professionals started playing back in ’92. Pride always goes before the fall:

I didn't need to see Puerto Rico rout the United States to know that the world is playing great basketball; didn't need to see the United States shoot 35 percent to know that the team we've sent to the Olympics has no outside shooter, and maybe only an outside shot at the gold medal.

As compelling as "the world is catching up" angle may be, yesterday's loss was as much about Puerto Rico wanting to get the United States off its back - on a number of levels - as it was about the world catching up.

This was about a veteran Puerto Rican team wanting to win a gold medal and beginning the journey by beating a team that had beaten it like a drum. The game was more about that than about a continental shift.

Puerto Rico's 40-year-old center, José Ortiz, all but cautioned the United States team that this had better be the last time the Americans play a team for chumps. No one was saying it quite that bluntly, but that's what happened. "I'm not saying that they did not take us seriously," Ortiz said. "But they should understand that this kind of tournament is very intense, and also the rules are different."

Which rules? He smiled. The biggest rule is respect. "Don't take other teams lightly," Ortiz said. "That's my advice."

United States basketball players still believe they own the franchise. The reality is that they own half the franchise - the pizazz half. The rest of the world plays good, solid basketball.

That is the difference between the National Basketball Association and the rest of the world - and the gap that the United States team will have to bridge in the next 48 hours.

The world may play higher-quality basketball than the United States - if you define quality by playing textbook basketball. The United States, embodied by the National Basketball Association, plays more spectacular basketball. That's what the N.B.A. sells: spectacle. That's what the world buys, and why it loves the N.B.A.

The greatest cheers for the United States yesterday came on breakaway dunks and flashy passes and steals that ended with dunks.

That won't win a medal.

Everyone thought a 95-78 loss to Italy last month humbled the United States.

The team was shocked, but not humbled. These elite players come out of a culture of stardom that only intensifies as they get older. Before the game yesterday, when it was time for team photos, a mass of photographers gathered in front of the United States team. Only one photographer turned to snap the Puerto Rican team, until the United States team walked off.

Whether they've earned it or not, the United States players are still the glamour attraction, and for all those who will use yesterday's game as some type of measuring stick, the world is not catching up.

The United States lost to Puerto Rico, a proud team that had never beaten the United States in Olympic competition and lost by 25 points to the United States on July 31.

If Kevin Garnett, Jason Kidd, Tracy McGrady, Shaquille O'Neal and Kobe Bryant were playing, this might not have been much of a game, probably not much of a tournament either. The reason there is so much of a buzz around these Olympics is that those players are not in Athens, meaning that the United States is vulnerable.

This is a young American team, the youngest since the United States started using professional players, in the 1992 Barcelona Games. Allen Iverson, at 29 the oldest player on the team, has been through that arrogant phase, the phase when you think you can walk on water and dunk over anyone. His toughest job as this team's captain will be convincing his teammates that they can lose, in embarrassing fashion, that the sun doesn't rise in their backyards.

They've inherited a mantle of greatness that they did not earn.

Iverson has been worried about the cockiness of his young teammates.

"You can come in and think you're invincible and that nobody can beat you, and all you got to do is step out on the basketball court," Iverson said last week. "You need a lesson like that, that you're not invincible."

Any team that has Allen Iverson as its voice of reason is a compelling team indeed.

After its loss to Italy, the United States responded by defeating Germany, routing Serbia and Montenegro and beating Turkey twice.

I'm curious to see how the players will respond to yesterday's loss, especially with a game tomorrow against a Greek team that beat Australia by 22 points yesterday and will be playing in front of a frenzied crowd. Going into this tournament, Larry Brown, the coach of the United States team, said he wasn't sure his players had learned the lesson of humility. They haven't.

After yesterday's game, a dejected Brown questioned his team's desire.

"I think they played so much harder than we did," he said of the players from Puerto Rico. "The first day we got together as a group, we talked about respecting our opponents, realizing that these guys have played together, realizing that the game has gotten better all over the world and try and understand how important it is for them to represent their country and play the right way.

"The only thing we can do is find out what we're made of.

"This is a great opportunity for a group of guys to get together and figure out what it means to truly be a team. I'm anxious to see if we'll be able to do that."

He'll have plenty of company.

Otherwise, Daniel Gross had an interesting piece on Slate.com last week about predicting medal counts based on past success and future economic factors affecting competitiveness of athletes:

The countries of the former Soviet bloc, some of which have seen declines in living standards in the past 15 years, have continued to excel. The model projects impoverished Belarus, which won 17 medals in Sydney in 2000, to win 15 medals in Athens—the same number as prosperous Canada. The Soviet-era sports bureaucracies may have crumbled in Russia and its former republics, but the infrastructure that produced world-class wrestlers and gymnasts hasn't dissolved entirely.

The model foresees little change at the top. As they did in 2000, the United States (70), Russia (64), China (50), and Germany (45) are expected to take home the greatest number of medals. But look closely, and each Olympic titan is projected to take home substantially fewer medals than it did in 2000. And none is expected to fall further than the United States. What's more, the top 30 Olympic nations are projected to lose about 10 percent of their total. Meanwhile, the rest of the world—a large assemblage of Olympic also-rans—is expected to increase its medal take by 50 percent. As we were exerting our hegemony in the Middle East and Central Asia, were we (and our coalition partners) losing it in the high-jump pit and the swimming pool?

If so, there are two possible explanations. One is the pre-9/11 Thomas Friedman explanation. With the continuing flow of information, resources, and people all over the globe, those who excel at sports are increasingly able to train and compete against world-class competition. Kenyan distance runners receive scholarships to colleges in the United States, inner-city American fencers compete against aristocratic Europeans, Israel produces a world-class judoka, and Italy fields a competitive baseball team. The world today is a happy playground in which specialization and excellence are identified, developed, and rewarded.

The second is the Patrick Buchanan explanation: Lazy white FirstWorlders are about to be overwhelmed and outrun by hungrier, darker Third World residents. The model projects such big losses for established Olympic powers—and such big gains for nobodies—largely because of the influence of GDP growth. In the past four years, France and Germany have had comparatively little growth compared with, say, India and Mexico. So, France and Germany are projected to lose medals, while India's total is expected to rise from one to 10 (!) and our neighbor to the south could win 11 medals, up from six in 2000. We may think the rich are getting richer. But the poor are getting richer at a more rapid pace. "What's tended to happen is that the developing economies' share of the global economy is increasing over time, and perhaps these countries are becoming keener on participation in the Olympics," said Hawksworth.

Hawksworth produces another warning that echoes what one hears these days in economic circles: Look out for China. China may do better than expected in part because "with the Olympics coming up in Beijing in 2008, they seem to be setting a national priority," said Hawksworth. "They're kind of challenging the U.S. and Russia as the Olympic superpowers."

- Arik

Heads Roll at HP as Fiorina Pink Slips Three Top Execs from Enterprise Server & Storage Business

Reinforcing perceptions of a weaker-than-expected tech-spending rebound, Hewlett-Packard has given top enterprise server and storage executives, Peter Blackmore, Jim Milton and Kasper Rorsted, their walking papers in the wake of a $208 million third-quarter operating loss for the division; meanwhile Dell racked up quarterly net profits rising 29 percent compared with a year ago to $799 million on stronger server sales. Earnings per share struck a record 31 cents, up from 24 cents a year ago.

Dell's server sales were the real boost, after introducing a new, eighth-generation of PowerEdge servers, which features stronger processors and enhanced systems-management software. Sales gained across the Americas, Europe, the Middle East and Africa and in Asia-Pacific and Japan. "Global product shipments increased 19 percent, sharply faster than for the rest of the industry," Dell said. Profitable growth in China during the period included a 41-percent jump in server shipments. Across the Americas, Dell's sales grew 16 percent and it added nearly two points to its leading United States market share, with shipments increasing at more than twice the average of other companies.

On the other side of the tracks, heads were rolling, as execution in such a high-margin business is also the key entry point for up-selling and cross-selling all manner of sundry and kindred products and services to the same customers:

Chairman and CEO Carly Fiorina said Mike Winkler will replace Peter Blackmore as executive VP of the Customer Solutions Group; Jack Novia will replace Jim Milton as the group's senior VP and managing director for the Americas region; and Bernard Meric will replace Kasper Rorsted as the group's senior VP and managing director of Europe.

Winkler has served as chief marketing officer and will retain that role. Novia was senior VP and general manager of the HP Technology Solutions Group. Meric was senior VP of the Imaging and Printing Group for the Europe, Middle East, and Africa region. An HP spokesman said he wasn't aware of any other planned changes.

"It's pretty clear that heads will roll," says Jonathon Eunice, an analyst with Illuminata. "If you're a customer with certain personal relationships with some of the people inside that organization, you'd better brace for change. Anyone with responsibility within that organization is at risk."

Executives on the hot seat could include Ann Livermore, an executive VP who earlier this year was placed in charge of the Technology Solutions Group, which includes Enterprise Servers and Storage, and Bob Shultz, senior VP and general manager of the Network Storage Solutions business unit, Eunice says.

"Execution issues cost us, and we are therefore making immediate management changes," Fiorina said in the statement.

Solid results by the company overall "were overshadowed" by the Enterprise Servers and Storage Group's performance, where revenue was down 5% year to year and down about 15% compared with the second quarter, she said. The segment suffered an operating loss of $208 million, after revenue declines of 8% year over year in its Business Critical Server business and 15% in its storage business.

Fiorina pointed to three issues that led to problems, resulting in shortfalls in revenue of about $400 million and operating profit of about $270 million. The company "executed poorly" on the migration to a new order-processing and supply-chain system, which led to missing some sales opportunities. The problems also required the company to take special measures to ensure deliveries, including fulfilling some direct orders by its channel partners and expediting orders with air shipment, which led to erosion of gross margins.

Second, there were channel-management issues in Europe, including overly aggressive discounting and a transition to centralized claims process. The channel claims process has been resolved, Fiorina said.

The company also experienced declines in average selling prices in its storage business.

New introductions within HP's storage business in May, as well as those planned for September, are expected to strengthen the company's position in that business, Fiorina said.

Overall, the Enterprise Servers and Storage unit should return to profitability in the fourth quarter, she said.

The company reported earnings of $586 million, or 19 cents per share, on revenue of $18.9 billion in the quarter ended July 31. That compares with earnings of $884 million, or 29 cents per share, on revenue of $20.1 billion in the previous quarter, and earnings of $297 million, or 10 cents per share, on revenue of $17.3 billion in same quarter a year ago.

The company said revenue in personal systems grew 19 percent year-over-year, and sales in imaging and printing rose 8 percent. The company's enterprise servers and storage posted a 5 percent revenue decline, but sales in HP services and software grew 12 percent and 17 percent, respectively.

"Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage. We therefore are making immediate management changes. We are also accelerating our margin improvement plans in this business. With these changes, we expect our server and storage business to return to profitability in the fourth quarter," said Fiorina.

So, where's the problem - can we blame it on logistics (e.g., the SAP implementation)? Or culture...?

Chuck Kokoska, president of The Computer Specialists (TCS), a Whitesboro, New York-based HP Gold partner, said he has seen a number of problems with shipping delays for a wide range of products, including servers and storage. "I don't know if this will solve the problem," Kokoska said. "There seems to be a major gap between the direction from upper management and the implementation at middle management. The problem pervades the entire organization. There has to be a fundamental change to move back toward the Compaq spirit of 'can-do' vs. the HP spirit of 'we'll think about it.' "

The irony of HP's computer woes was not lost on analysts. HP prides itself on its consulting services division, which helps businesses deploy technology and had third-quarter sales of $3.5 billion, a 12 percent increase over last year.

"HP likes to promote its own internal IT environment and execution as an example of what's possible with customers using their own technology," said Frank Gillett, a Forrester Research analyst. "The bottom line is, yes, it is embarrassing."

HP faces competitive pressure at both the high and low ends of its lines of business. In PCs and inexpensive servers, it competes against Dell and its efficient manufacturing and direct distribution. In larger systems, it competes against IBM's full line of products and its massive consulting business. And top storage competitor EMC saw its earnings rise 33 percent in its most recent quarter. "The industry rap about HP is that they're stuck in a difficult spot," Gillett said. And, in a slow growth market with so many different wars to fight, companies like Dell will continue to take share away from companies like HP.

Hopefully everyone's philosophical about it. I found this presentation of Blackmore's from a year ago introducing the "Darwin" reference architecture, alongside the company's new "Demand More Accountability" ad campaign featuring the Charles Darwin quote below:

It is not the strongest of the species that survive nor the most intelligent, but the one most responsive to change.

- Arik

Tale of Two Cars: Once-High-Flying Saturn & Mitsubishi See Red in Struggle for Traction

Two of my least favorite car companies have fallen on some hard times of late, but perhaps its just karmic justice? I own a Mitsubishi – a ‘97 Galant LS, inherited from a software company I used to own – and, despite its 189,000-odd miles, it’s on its third transmission and has never really been a great car for the 20-something-thousand bucks it cost… I’ve put at least another $10 grand into that car and I only keep it around as a spare, these days.

Then, there’s Saturn, a personal beef for me that goes back more than a dozen years when, fairly fresh out of college, I was sold on Saturn as a company, a product and a philosophy. I eagerly awaited the day I would strut into the showroom and buy a brand new Saturn (whatever-it-was) and join the club! Except, when I walked in to test-drive one of the new models (at Saturn of Eau Claire Wisconsin, so we’re clear…), I got treated like gum on the bottom of the salesman’s shoe, who apparently didn’t take me for a serious buyer and essentially told me to buzz off. Since that day, I’ve sworn I’d NEVER buy a Saturn, if they were the last car company on Earth!

So, it is not without some schadenfreude that I read a pair of New York Times articles last week detailing both companies’ recent troubles in sustaining themselves in business.

For Saturn, it was the recall of some 246,233 (pretty much all) Vue sport utility vehicles when it was discovered in June that, in two rollover tests, the National Highway Traffic Safety Administration was unable to provide a rollover rating because the vehicle's rear suspension system collapsed.

That’s a “different kinda car” alright! Not once, twice:

General Motors, the world's largest automaker, took steps on Thursday to mitigate problems both under the hood and in its financial reports.

John M. Devine, G.M.'s chief financial officer, said at an industry management conference here that the company would recall all the Saturn Vue sport utility vehicles it has made since their introduction in 2001. The announcement came a week after regulators said the vehicle's suspension had broken during new federal rollover tests.

"When we see something, we fix it - we jump on it right away," Mr. Devine said. "If you look at our quality record, we're not pleased with this and we're working very hard to make sure it doesn't happen again."

Adding to this costly recall news, GM (alongside Ford and Chrysler) has spent a ton of money elsewhere this year trying to cover healthcare costs, a huge disadvantage to competitiveness, all while Toyota seems to be the real engine of growth in the American auto industry:

G.M. had more recalls in the first four months of the year than in all 2003. In a securities filing, it said Thursday that it had spent $400 million more than expected in the first half of the year to cover the cost of recalls.

The Vue was developed before a new government rollover test. Regulators have begun tests on new cars and trucks in an effort to reduce rollover-related fatalities, which now stand at more than 10,000 a year. They tested two versions of the Vue and the suspensions broke on both vehicles, halting the tests.

"It's a very aggressive test that went beyond, frankly, what we had tested," Mr. Devine said, adding, "The fix is to beef up the suspension system, and we're doing just that."

Consumer advocates had called for G.M. to initiate a recall.

"I think General Motors made the right decision," said Joan Claybrook, the president of Public Citizen. "It was the only decision."

Mr. Devine also reiterated how tough financial conditions were for domestic manufacturers, particularly because of high health care costs. Total costs for the Big Three automakers - G.M., the Ford Motor Company and the Chrysler division of DaimlerChrysler - reached $8.5 billion last year. G.M., the company with the most retirees, accounted for more than half of that.

"We in the U.S. have a serious competitive disadvantage that we have to deal with," Mr. Devine said.

High health care costs have limited the Big Three in slowing the advance of foreign competitors chipping away at market share. The president of Toyota, Fujio Cho, said on Wednesday that his company had been expanding so rapidly that its North American managers, especially those with training in its quality processes, were stretched thin, leading Toyota to make its regions more self-reliant on their own quality experts.

"Instead of having ample time to work with a small American management team, we are now rushing to add managers to handle new plants in Texas, Tennessee and Mexico," Mr. Cho said in a speech.

The Vue had been one of the bright spots in GM’s product portfolio, but these latest tests by NHTSA might sideline that success:

Rollovers have been an area of increasing scrutiny because of surging sales of S.U.V.'s and pickup trucks, which are more prone to roll over than passenger cars because of their higher ground clearance.

This year, the traffic safety agency has been conducting its first rollover tests on a track. Previously, the agency used a mathematical formula, factoring in a vehicle's specifications, to predict rollover risk. Congress ordered the agency to devise a track test after nearly 300 people died in rollovers of Explorers equipped with Firestone tires in the late 1990's.

In the new tests, conducted at speeds of 35 to 50 miles an hour, vehicles are driven through as many as 10 maneuvers known as fishhooks. The maneuver simulates the kind of jarring swerve that might happen when vehicles drift off the road and then the drivers overcompensate while trying to recover.

The suspension of the four-wheel-drive Vue failed at 45 m.p.h., according to the agency's summary; the summary said the two-wheel-drive Vue had "a similar rear suspension failure" but did not say at what speed.

Several S.U.V.'s and pickup trucks have tipped up on two wheels during the new tests, indicating an imminent rollover risk. Vehicles do not actually roll over on the test track because they are equipped with metal wings, known as outriggers, to protect the test drivers.

Sales of the Vue were up nearly 17 percent in the first half of the year, according to the Autodata Corporation, as consumers appeared to consider smaller, more fuel-efficient S.U.V.'s in light of higher gas prices.

For G.M., the world's largest automaker, the Vue test results are the latest problem in what has been a difficult year for recall-related issues. The company recalled more vehicles in the first four months of this year than it did in all of 2003, costing it $200 million more than it expected in the first quarter.

Meanwhile, in Mitsu territory, the "turnaround" continues:

With American sales of Mitsubishi, once one of the hottest car brands, in a free fall, the company's executives are trying to engineer a turnaround.

It could not come too soon for dealers and employees. "June was a terrible month. I sold 10 cars," said Maria Prendergast-Lunn, general manager of Auddie Brown Mitsubishi in Florence, S.C., 80 miles from the major metropolitan center of Columbia. A year ago the dealership sold 75 Mitsubishis a month.

Sales started picking up this month, but even so Ms. Prendergast-Lunn expects the dealership to sell only half the number of vehicles it did a year earlier. "I'm hoping to end July with 35 or 40 sales," she said.

Other dealers are struggling as well. The market share of Mitsubishi Motors North America, the United States unit of the Japanese automaker, has been halved in just a year, to 0.8 percent last month from 1.5 percent in June 2003, according to the Autodata Corporation. In June, the company's sales dropped 45.7 percent, to 12,301.

Mitsubishi announced last week that it would lay off 1,200 employees, or about a third of its work force in Normal, Ill., site of its American plant, where it produces the Galant sedan, the Eclipse sporty coupe car and the Endeavor sport utility vehicle.

Mitsubishi has also decreased its advertising. For years it pitched the brand to young consumers with cheap financing and emotional eye-catching ads set to the music of Average White Band, Iggy Pop and Republica. That strategy created some of its trouble because it suffered a high default rate on the loans. Analysts say that Mitsubishi needs to write off about $1 billion in bad loans.

"We were a brand on sale," said Finbarr J. O'Neill, the American company's chief executive, in a telephone interview. Mr. O'Neill, the former chief executive of Hyundai Motor America, was hired last September to succeed Pierre Gagnon who was blamed for the aggressive financing.

"Now we need to establish natural demand for the products," Mr. O'Neill said.

The American sales slump has been a big factor in the struggles of the Japanese parent company, but not the only factor. Mitsubishi has also suffered from a cover-up of defects in its cars and trucks for decades.

In April, Mitsubishi's minority owner, DaimlerChrysler, decided not to invest any more money in the troubled carmaker, and Mitsubishi had to scramble for money to cover its debts. The Phoenix Capital Company, a Tokyo-based investment firm, bought a third of the company, replacing DaimlerChrysler as the controlling partner.

The parent company's financial and quality problems make Mr. O'Neill's battle to reverse the fortunes of Mitsubishi tougher. The American unit has only two new models coming in the next several months, a redesigned Eclipse sport coupe and a small truck built by Chrysler.

"It takes time to get all of this done," Mr. O'Neill said, "and we also are under financial pressures."

He added: "We are doing what we need to do. I just wish I could speed up time."

Mr. O'Neill is familiar with time-consuming turnarounds. When he took over as chief executive at Hyundai in 1998, the brand was on the skids. It was selling fewer than 100,000 units a year, and dealers were disgruntled. Over the next six years, Mr. O'Neill pushed hard to solve the company's quality problems, offering one of the industry's longest and most extensive warranties. This year, Hyundai's sales have had double-digit increases, and the brand has snagged top spots on quality surveys.

At Mitsubishi, Mr. O'Neill is using some of the same strategies. Earlier this year, he introduced a 100,000-mile warranty on vehicles, and he is promoting it this summer.

"I want to get rid of any objections that people may have had with our cars," Mr. O'Neill said.

He said the company also had to focus on "what is Mitsubishi's reason for existence?" His answer is to cast Mitsubishi's vehicles as performance-driven alternatives to some of the country's most respected brands.

"I like to think there's a little bit of Evo in all of our cars," Mr. O'Neill said, referring to the Lancer Evolution, a small but powerful car that has won at the World Rally Championships and is a favorite among young adults who "tune" their car's engine for higher horsepower and performance.

Advertising for the redesigned 2004 Galant midsize sedan introduced earlier this year, pits the car against the Toyota Camry in a high-speed crash avoidance test. The cars follow two semi-trucks from which two men are throwing everything from bowling balls to barbecue grills in front of the two fast-moving cars. Each car swerves to miss the obstacles. Finally, two old cars fall out of the back of the semis and the Galant and the Camry swerve to miss them. The Galant deftly maneuvers around them while the Camry is left in the dust.

On the company's Web site, Mitsubishi also claims that the Galant brakes faster from 70 miles an hour to zero than Camry and Accord and accelerates faster from zero to 60 miles an hour. Automotive Marketing Consultants Inc., which conducts tests to support advertising claims, said its tests had verified Mitsubishi's claims.

This summer, seeking to get people behind the wheel of its vehicles, Mitsubishi is inviting thousands of consumers to re-enact the tests at special "ride-and-drive" events in 10 cities.

The hands-on tactic has become increasingly popular with automakers. General Motors and Audi have offered 24-hour test-drives.

Ms. Prendergast-Lunn credits the new advertising and the new warranty for drawing more buyers in July. "I feel that this campaign is the best that we've ever done," she said. "We've put out the best warranty, and if that doesn't bring people in, I don't know what will."

But branding experts and other dealers say that the warranty and the side-by-side comparisons are going to be a hard sale against well-established brands.

"It's tough to win by contrasting your features against the competition when you are trying to reinvent a brand," said Erich Joachimsthaler, chief executive of Vivaldi Partners, a brand-consulting firm in New York.

"Consumers already have made up their minds," he said, "and it's tough for consumers to 'unlearn' what they think about a brand."

Some dealers also doubt that the comparison strategy will set Mitsubishi apart.

"You just can't go head-to-head with Toyota or Honda," said Ernie Boch Jr., owner of Boch Mitsubishi in Norwood, Mass., who is set to open a $5 million showroom in the coming months.

"Mitsubishi has to understand that it's a niche brand. They have to brand the car. They have to do something better than anybody else."

Whether Galant is better than Camry and Accord, I can’t say – but I can say, despite the Camry recall recently, they can’t be that much worse if, like me, you buy cars planning to drive ‘til the wheels fall off.

- Arik

Bush & Wal-Mart vs. Kerry & Costco

There was an entertaining article by Daniel Gross on Slate.com the past few days about how Bush is to Wal-Mart, as Kerry is to Costco - i.e., the demographics are similar and the customers of each chain would tend to vote for their preferred candidate. Now, I don't know if I buy it, but it's an interesting crossover between competition in politics and competition in business so I thought it a worthwhile read:

Like today's Democratic Party, Costco favors highly trafficked urban and edge-city locations—it has three stores in New York City. And it caters to a decidedly upscale crowd. As John Helyar reported in this excellent Fortune profile, the average salary of a Costco member is $95,333. The company's merchandise mix reflects the fact that its customers shop at discounters by choice, not by necessity. They're New Luxury suckers who like to save on staples, more Jean Chardonnay than Joe Six-Pack. As Helyar notes: "Costco is the U.S.'s biggest seller of fine wines ($600 million a year)." (Needless to say, "Moneybox" has been a member since 2000.)

Costco also has the sort of labor policy that would bring a smile to Barbara Ehrenreich's face. Pay starts at $10 an hour. About one in six employees is represented by a union, and workers receive nice health benefits. Sinegal has a non-zero-sum view of employee relations. Give people good jobs at good wages, and they'll be more likely to work harder, less likely to leave, and less likely to steal. As Helyar reported, Costco's turnover "is a third of the retail industry average of 64%," and "shrinkage"—the amount of inventory lost to theft—"is about 13% of the industry norm."

On the right: Wal-Mart Stores, Inc. Founded in Arkansas (a blue-turned-red state), it grew by spreading into the adjacent South and Great Plains. Like today's Republican Party, it focuses intensely on rural areas and generally avoids cities. (Republican conventioneers won't be able to shop at a Wal-Mart when they visit New York City.) As this Bloomberg story notes, "Sixty-seven percent of Wal-Mart's stores are in the 30 states that voted for Bush and Cheney in 2000."

The company's labor policies are state-of-the-art, for the 1890s. It has been investigated for hiring contractors who allegedly hired illegal aliens to clean Wal-Mart stores and for locking them inside overnight. (One wonders if the Wal-Mart employees who in April were bused in to hear Vice President Dick Cheney sing the company's praises at Wal-Mart's headquarters were similarly confined.) In June, a federal judge certified a class-action lawsuit filed on behalf of female Wal-Mart employees who claimed discrimination. The average wage at Wal-Mart, which has no unions and bitterly opposes raising the minimum wage, is lower than Costco's lowest wage. Turnover at Wal-Mart, according to the Economist, is 44 percent, meaning it "has to hire an astonishing 600,000 people every year simply to stay at its current size."

Costco's customers seem to have more disposable income at least... maybe it's an unintended effect of Bush's tax cut?

Consumers vote by shopping. And so far this year, they're voting more for Costco than Wal-Mart, yet another illustration of the Two Americas shopping theme. Costco's customers plainly have cash to spend. For the four weeks ended Aug. 1, Costco's same-store U.S. sales rose 9 percent; in the 48 weeks ended Aug. 1, they were up an impressive 10 percent. At Wal-Mart, the registers haven't been ringing quite so loudly. In its most recent four-week sales period, same-store sales rose a meager 2.4 percent. For August, Wal-Mart sees same-store growth of between 2 percent to 4 percent—about the same growth rate as the economy, if not slower.

I must confess, I've never been to a Costco before, but then I've led a sheltered life. Still, I've got some pretty rabidly anti-Bush family that are some of Wal-Mart's biggest cheerleaders... but then, we Midwesterners can be cheapskates sometimes too.

- Arik

Toys-R-Us... or R They?

Whether, as John Eyler, chairman and chief executive officer of Toys R Us, said that, the global toy and Babies "R" Us businesses are at "fundamentally different phases in their growth cycle," and that this separation would give the baby business more opportunity to continue its healthy growth, it's still a factor of Wal-Mart's dominance in retail strategy that it could force what was once the preeminent toy retailer of all time to essentially go out of business.

Toys "R" Us Inc., battered by price wars from discounters, particularly Wal-Mart, is considering getting out of the toy business.

The nation's second-largest toy retailer behind Wal-Mart Stores Inc. announced plans Wednesday to restructure its toy business, but said it is considering selling the business outright as part of an effort to dramatically reduce operating and capital expenses.

The $11.6 billion company is also pursuing a possible spinoff of its fast-growing Babies "R" Us, whose 200 stores sell furniture, including cribs and bedding, as well as accessories. The company will begin operating the toy and baby business as separate entities in the meantime.

The Babies "R" Us division has been the company's growth vehicle, and has not been as vulnerable to discounters, Standard & Poor's credit analyst Diane Shand said in an S&P statement affirming its ratings on Toys "R" Us remained on CreditWatch with negative implications.

The company's U.S. toy division, however, has been inconsistent since the mid-1990s, when Wal-Mart ramped up its toy department as it also dramatically expanded the number of stores.

"Traditional toys have decreased in importance, as children are turning to video games, computer software, sporting goods, and music for entertainment at younger ages," Shand said.

Babies "R" Us, which represents 15 percent of the company's total revenues, posted sales of $1.76 billion, up nearly 11 percent, for the year ended Jan. 31. Meanwhile, the Toys "R" Us' U.S. revenues fell 4 percent to $6.48 billion. Toys "R" Us has 683 toy stores in the United States and 579 international toy stores. It also sells through its Internet sites.

The announcement "is extremely positive for investors, as one of the critical pieces to unlocking shareholder value in (Toys "R" Us) is separating its crown jewel, Babies "R" Us," said Mark Rowen, an analyst at Prudential Equity Group Inc.

It is anticipated that today's announcement comes preceeding some very, very weak results:

Toys "R" Us said Wednesday it would delay releasing its second quarter 2004 earnings until Aug. 23. The figures were to be released Monday. In the first quarter, the company's profit declined 48 percent in its fourth fiscal quarter, which ended Jan. 31 and covered a disappointing holiday sales season. Disappointing results continued into the first quarter, with the retailer posting a wider-than-expected loss and lower sales.

Poor holiday 2003 results helped lead to the bankruptcies of FAO Schwarz and K-B Toys.

Toys "R" Us has been retrenching for much of the last year to improve its bottom line. In November, it said it would close 146 freestanding Kids "R" Us clothing chain and 36 Imaginarium specialty toy stores, which sold educational toys, cutting up to 3,800 U.S. jobs.

So, maybe toys "R" not us? After the earnings release in a few days we'll see... but it'll be the coming holiday season, when we'll truly get to find out.

- Arik

Yahoo! vs. Google: Happy Together? (Round Two in Search Engine Wars)

Yahoo! and Google finally buried the hatchet, even as Google approaches its IPO, after coming to terms on a patent dispute going back a couple of years to before Yahoo's buyout of Overture:

As the day of its expected initial public offering approaches, search giant Google has settled two outstanding disputes with portal rival Yahoo! The settlement calls for Google to issue 2.7 million class A shares, which will be worth around $328 million if Google's stock prices at the mid-point of its expected range.

"We are pleased to have resolved these issues and with the terms of the agreement," said Steve Langdon, a Google spokesperson. A Yahoo! representative expressed a similar sentiment.

Google says it will have to take a one-time charge of between $260 million and $290 million in the third-quarter to account for the settlement. That will, the company says, result in its reporting a net loss for the quarter.

The most substantial issue laid to rest was a patent dispute over the business model and technology behind Google's AdWords program - by far the largest contributor to Google's revenues.

Overture Services, now owned by Yahoo!, filed suit against Google in April of 2002 alleging that Google infringed on U.S. Patent No. 6,269,361, "System and method for influencing a position on a search result list generated by a computer network search engine." Overture's patent protects bid-for-placement products as well as Overture's DirecTraffic Center account management system and tools. Google maintained the patent was "invalid and unenforceable."

The settlement reached today calls for Overture to dismiss the suit against Google and grant the rival firm a fully paid perpetual license to the patent, as well as to several related patent applications Overture holds. Google divulged these terms in an updated S1 filing with the Securities and Exchange Commission today.

The second dispute concerned the number of shares due under a branding and promotion agreement the two struck in June of 2000. In June 2003, Google says it issued around 1.2 million shares to Yahoo! under the terms of the warrant agreement, while Yahoo! contended it was entitled to more shares. Today's settlement sets aside this disagreement, as well.

The issuance of shares brings Yahoo!'s stake in Google up to 8.2 million shares, worth about $996.3 million if Google's stock prices at the mid-point of its range. Previously, Yahoo! owned 5.5 million shares, worth an approximate $668.3 million.

Google is reportedly preparing to make its initial public offering in the next two weeks. Widespread reports citing unnamed sources had pegged the IPO for this week, but glitches are said to have pushed things back. Google has registered to sell 25.7 million shares at a price between $108 and $135 per share. The company is taking bids in a Dutch auction at ipo.google.com.

The Associated Press last week reported that Google was delaying its IPO by a week because of logistical issues with its auction-based process. Meanwhile, Google earlier this month disclosed a legal snafu in the way it had issued more than 23 million shares to employees and consultants. And financial advisers and analysts have expressed concern that Google has overpriced its offering with its estimated selling price of between $108 and $135 a share.

"On the one hand, this clears up some questions for investors, but at the same time, the market has been bad, Internet stocks have been bad, and I think, so far, there's been lukewarm response in investing in Google," said Tom Taulli, co-founder of IPO-tracker Current Offerings.

The underlying question is whether this news, on top of all the other badness Google announced recently, will hurt an already aggressively priced offering. Yahoo! (an early investor in fledgling Google), can't really kick too hard, owning a stake in its most serious competitor - the settlement could net Yahoo as much as an additional $149 million at the high end of Google's expected IPO price range, and leave the company with a 4.1 percent stake in Google. After the IPO, Yahoo will also hold 4.95 million super-voting Google Class B shares, a 2.1 percent stake.

More interesting will be watching to see where the price goes in the day's following the IPO... there's a horde of investment bankers hoping it tanks so the whole Dutch-auction idea falls flat enough that they can get back to business as usual.

- Arik

South Korean Business Sees Gold in Olympic Games

South Korean companies like Samsung and Hyundai are big Olympic sponsors in Athens for the summer games starting next weekend:

Samsung Electronics Co. and Hyundai Motor Co., two of the meet's 32 international corporate sponsors, are poised to use the occasion as an opportunity to let themselves better known to worldwide spectators and TV viewers.

Samsung Electronics, the world's top memory chip manufacturer, is participating in the 2004 event as one of the main sponsors, called Olympic Partners.

The company first became an Olympic Partner in 1997, a year after group chairman Lee Kun-hee joined the International Olympic Committee (IOC).

Since that time it has poured an undisclosed amount of money into the Olympic Games as a sponsor while promoting its mobile handsets and wireless devices at the games.

For this year's event, it will be providing about 14,000 mobile phone handsets to IOC members, officials at the Olympics and reporters. Their handsets will provide real-time information on game schedules, results and other Olympics information using a service called Wireless Olympic Works.

Near the main Olympic Stadium, Samsung Electronics will set up a 1,057 square-meter facility to promote its products, including more than 200 mobile phones, and will provide free international calling services for visitors.

It will also set up large-sized logos and advertisements in stadiums and throughout Athens, which is expected to draw 1.5 million tourists.

It has also set up a 1.8-meter-tall replica of a mobile phone at Athens International Airport. The sponsorship that Samsung Electronics was awarded also allows it to set up advertisements with the Olympic logo on them in Olympic member countries throughout the world.

The company will further participate in the Olympic torch relay, which began June 4 and ends on August 13, taking the torch through 34 cities in 27 countries. Yun Jong-yong, the vice chairman of Samsung Electronics, will run in the torch relay in Athens on August 12.

Company Chairman Lee Kun-hee will leave South Korea Friday to participate in the Olympics' opening ceremony and an IOC meeting on August 13. Including the leadership, more than 400 Samsung officials will be at the two-week event.

Hyundai Motor became a National Sponsor in the automotive category for the Athens Olympics, participating as a sponsor for the first time. It was awarded the sponsorship in 2002.

For the Olympics, the automaker will be providing more than 500 vehicles, including Starex vans and the Equus sedan for athletes, reporters and other officials. It too will set up large advertisements at the event.

...and it's apparently having a deliterious effect on Samsung's operating profits:

While the companies are tightlipped about the exact amount that they paid, Kim said each company has to pay an average of $70 million to $100 million to win sponsorship rights and spends an additional $210 million to $300 million to market their products.

It is notable that such massive marketing spending occurred when Samsung Electronics' ratio of operating profit to sales declined in the information and telecommunications sector in the second quarter.

The company said at an investor relations session on July 16 that its sales and operating profit in the information and telecommunications sector for the second quarter this year were $4.19 billion and $686 million, respectively.

The company's ratio of operating profit to sales was 16 percent, down more than 10 percentage points from the previous quarter's ratio of 26.7 percent. This was the first time the company had a ratio of operating profit to sales below 20 percent since 2001.

Samsung Electronics attributed the decline to the increased marketing spending, which includes those for the Athens Olympics and others as well.

Cho Sin-hyeong, a company official in the media department, said marketing spending was "the main reason behind the decline."

"The spending includes marketing costs for the Athens Olympics, as well as marketing spending in other countries, mainly in the United States," Cho said.

The real argument is whether it's worth it. For Samsung, who's brand value in 1999 was estimated at $3.1 billion, 100th in the world, it finished 2003 at $10.8 billion and 25th place.

- Arik

DuPont Teflon: Does One of the Most Successful Products of All Time Make People Sick?

The New York Times article on DuPont and its potentially humongous liabilities from recent adverse health claims surrounding what has arguably been one of the most successful products in history - Teflon:

Teflon has been hugely successful for DuPont, which over the last half-century has made the material almost ubiquitous, putting it not just on frying pans but also on carpets, fast-food packaging, clothing, eyeglasses and electrical wires - even the fabric roofs covering football stadiums.

Now DuPont has to worry that Teflon and the materials used to make it have perhaps become a bit too ubiquitous. Teflon constituents have found their way into rivers, soil, wild animals and humans, the company, government environmental officials and others say. Evidence suggests that some of the materials, known to cause cancer and other problems in animals, may be making people sick.

While it remains one of DuPont's most valuable assets, Teflon has also become a potentially huge liability. The Environmental Protection Agency filed a complaint last month charging the company with withholding evidence of its own health and environmental concerns about an important chemical used to manufacture Teflon. That would be a violation of federal environmental law, compounded by the possibility that DuPont covered up the evidence for two decades.

DuPont contends that it met its legal reporting obligations, and said that it plans to file a formal response this week.

If an E.P.A. administrative judge does not agree, the agency could fine the company up to $25,000 a day from the time DuPont learned of potential problems with the chemical two decades ago until Jan. 30, 1997, when the agency's fines were raised, and $27,500 a day since then. The total penalty could reach $300 million. The agency is also investigating whether the suspect chemical, a detergentlike substance called perfluorooctanoic acid, is harmful to human health, and how it has become so pervasive in the environment. The chemical - which is more commonly known as PFOA or C-8, for the number of carbon atoms in its molecular structure - has turned up in the blood of more than 90 percent of Americans, according to samples taken from blood banks by the 3M Company beginning in the mid-90's. Until it got out of the business in 2000, 3M was the biggest supplier of PFOA. DuPont promptly announced it would begin making the substance itself.

What's more important than the immediate financial impact is the longer-term consequences to DuPont's image:

At the very least, the Teflon flap could damage DuPont's well-polished image. The 200-year-old company, based in Wilmington, Del., prides itself on its corporate values, and Mr. Holliday is a high-profile advocate of socially responsible business. "In the chemical industry, the critical thing is not only investor perception, but consumer trust," Mr. Pisasale said. "That can be very hard to build back."

In a preliminary risk assessment report released last spring, the E.P.A. said PFOA was a possible carcinogen, but did not advise that consumers stop using Teflon products. PFOA is used as a processing aid in making many Teflon products and and is not present in end products, such as cookware. But some researchers assert that some Teflon products can release PFC's, including PFOA, in the environment and in the human body. They contend that this could account for its wide presence in the environment and in the population.

A spokesman for W. L. Gore & Associates, which makes Gore-Tex, said the material it gets from DuPont does not break down into PFOA, but he conceded that the material could contain trace amounts and that there was still an open question about safety. "Are the downstream folks involved? Sure. We all want to find the sources and pathways here," the spokesman, Ed Schneider, said.

Most disturbing of all are the recently unsealed memoranda of DuPont's legal staff:

The class-action lawsuit, filed in Wood County, W.Va., the home of the Washington Works plant where DuPont has made Teflon for decades, has turned up a series of documents that DuPont had sought to shield as proprietary information. The latest came to light in May, when the West Virginia Supreme Court voted unanimously to unseal several DuPont memorandums from 2000 in which John R. Bowman, a company lawyer, warned two of his superiors - Thomas L. Sager, a vice president and assistant general counsel, and Martha L. Rees, an associate general counsel - that the company would "spend millions to defend these lawsuits and have the additional threat of punitive damages hanging over our head."

He added that other companies that had polluted drinking water supplies near their factories had warned him that it was cheaper and easier to replace those supplies and settle claims than to try to fight them in court. And those companies, he noted, had spilled chemicals that did not persist in the environment the way that PFOA does. "Our story is not a good one," he wrote in one memorandum. "We continued to increase our emissions into the river in spite of internal commitments to reduce or eliminate the release of this chemical into the community and environment because of our concern about the biopersistence of this chemical."

Another document summarizes the company's strategy for deflecting the PFOA issue and litigation. It offers various suggestions for improving credibility with employees, the community and regulators, such as "keep issue out of press as much as possible" and "do not create impression that DuPont did harm to the environment."

- Arik

Weak Employment Report Puts Recovery in Question

As you've probably heard by now, job growth news was out today and it was awful, leading most to decide the economy has definitely not "turned the corner" and John Kerry to claim it's making a u-turn.

After expectations of Wall Street analysts that the economy would add 240,000 jobs in July, the news fueled a predictable sell-off in securities as we all wondered what was driving prices higher even as people have supposedly less buying power.

Well, rising energy costs, for one, is being driven by fear and uncertainty, not any real supply and demand dynamics. The real question is, will the Fed raise interest rates again?

Sensing that the Fed might now back off additional rate increases, investors Friday bid up prices of Treasury notes and other government securities, which caused their interest rates, or yields, to fall. Ironically, lower rates tied to the weak job growth might help stimulate the economy further. That's because more people could jump into the market for mortgage loans, either to buy a house or to refinance their existing mortgage.

More interesting, the Labor Department's so-called Net Birth/Death Adjustment tabulates July as one of only two months in which there are more companies dying and taking jobs away than creating new jobs. The other month is January, when Labor takes out a massive number of jobs because it assumes a large number of companies die off after Christmas.

As a result of this cyclical phenomenon, it could've been reasonably predicted that, unless there was truly staggering growth in July, job growth would probably be flat at best.

I guess it pays to "run the numbas".

- Arik

"Vote for Change" Concert Tour Will Rock November Ballot Race

The eight-day "Vote for Change" tour begins October 1 in Pennsylvania. It will number up to 40 shows, with several concerts in each of nine key "swing states" taking place at separate venues on the same night, such as Florida, Ohio, Michigan and Missouri. The acts involved - Bruce Springsteen, Dave Matthews Band, R.E.M., Dixie Chicks, Pearl Jam and others - are united in the common goal of voting President Bush out of office in November. Plus, according to CNN/Money, it could raise as much as $44 million in addition to creating a lot of awareness among youth voters... no word yet whether Kerry gets the cash.

- Arik

What can the 9/11 Commission Learn from Toyota? Plenty

Slate.com had a good article by Duncan Watts on lessons for the 9/11 Commission on intelligence gathering, from business in the wake of disaster, specifically Toyota.

It's largely a critique of the recommendation to centralize ultimate responsibility and decision-making in the hands of a Cabinet-level intelligence czar as being historically tempting, but almost always wrong-headed:

When organizations fail, our first reaction is typically to fall into "control mode": One person, or at most a small, coherent group of people, should decide what the current goals of the organization are, and everyone else should then efficiently and effectively execute those goals. Intuitively, control mode sounds like nothing so much as common sense. It fits perfectly with our deeply rooted notions of cause and effect ("I order, you deliver"), so it feels good philosophically. It also satisfies our desire to have someone made accountable for everything that happens, so it feels good morally as well.

But when a failure is one of imagination, creativity, or coordination - all major shortcomings of the various intelligence branches in recent years - introducing additional control, whether by tightening protocols or adding new layers of oversight, can serve only to make the problem worse.

Watts then turns to the 1997 Toyota catastrophe of their only factory making brake valve assemblies burned to the ground and threatened to shutter the company and bring screeching to a halt all 15,000 per day auto production. "Clearly, then, Toyota, along with the more than 200 other companies that are members of the extended Toyota group, had ample incentives to find a solution."

they succeeded, but not in the way one might have expected. Rather than relying on the guidance and coordination of an inspired leader (control mode), the response was a bewildering display of truly decentralized problem solving: More than 200 companies reorganized themselves and each other to develop at least six entirely different production processes, each using different tools, different engineering approaches, and different organizational arrangements. Virtually every aspect of the recovery effort had to be designed and executed on the fly, with engineers and managers sharing their successes and failures alike across departmental boundaries, and even between firms that in normal times would be direct competitors.

Within three days, production of the critical valves was in full swing, and within a week, production levels had regained their pre-disaster levels. The kind of coordination this activity required had not been consciously designed, nor could it have been developed in the drastically short time frame required. The surprising fact was that it was already there, lying dormant in the network of informal relations that had been built up between the firms through years of cooperation and information sharing over routine problem-solving tasks. No one could have predicted precisely how this network would come in handy for this particular problem, but they didn't need to - by giving individual workers fast access to information and resources as they discovered their need for them, the network did its job anyway.

The central truth here is, it's much more important to build networks of informal and social relationships of people to get things done in the event of disaster and that, it's practically impossible to have a contingency plan for every surprise in business or in government. When surprises happen, it's more important to the survivability of the firm (and a nation's security) that its people come together to solve the problems created and get things back to normal as quickly as possible.

And, no centralized intelligence director can force that to happen.

- Arik

Google's IPO: Trouble Ahead?

Not only did Google illegally sell shares...

Google Inc. may have illegally issued more than 23 million shares of its stock to hundreds of employees and consultants, injecting an unexpected legal risk into the online search engine leader's highly anticipated IPO.

The Mountain View-based company disclosed the possible violations Wednesday in a prospectus offering to buy back the affected shares and outstanding stock options for a total of $25.9 million, including interest payments.

... and more than one curmudgeon thinks we should just boycott it altogether, as it's likely to wreck a perfectly good company:

The lead Googlians say they're doing the IPO so investors can cash out, but as soon as that happens they will run the company without regard to the quarterly numbers that made Wall Street's heart go pitter-patter.

So Google will be just like a private company that isn't. And the people who buy the 9 percent of Google that's hitting the public market will be treated like … well, it could be like they don't own anything! That should make for really fun annual meetings.

For more than $100 a share, I say we should let Google keep its overpriced stock. Mark my words: Google is the Netscape of the new millennium. Well, the fall won't be so dramatic—Microsoft only sort of wants Google's head on a stick—but the selling shareholders are getting out while the getting's good. It's possible all the "odd" aspects of the stock offering are just PR stunts intended to more efficiently part fools from their money.

Something else I've noticed is the closer we get to the Google IPO the less useful Google has become. The bad guys have clearly learned to spoof the search engine, so much so that sometimes the first page or two of results are liberally salted with pages from other search engines claiming to be search results. It's also not as easy to find what I want on Google. I can't say why, but I am starting to look at using multiple search engines again. Maybe you really can't decide the relevance of a particular page based on how many other pages are linked to it.

Even the previously useful Google advertising of old now seems, likely as not, to be fill-in-the-customers'-search-term-here ads from eBay and other vendors who really don't have much to offer me.

Unless Google can do something quick to dramatically improve the quality of the results it presents, the search engine is in real trouble. But not to worry—most people won't pay attention during the IPO hype-storm, and no one will understand the real mess Google seems to be in until after a cool $3 billion has left investors' pockets.

Nice work if you can get it. And speaking of work, for the past few years the best and the brightest haven't been going to Microsoft or to other startups (what other startups?) but to Google, where the promise of riches awaited. After the IPO, Google will become a company of haves—new houses, new cars, early retirements—and have-nots—everyone else and most future hires.

That sort of environment is not particularly conducive to cooperation and harmony. I believe it was Apple where at one point the old-timers took to wearing buttons reading "FUIFV," as in "f-you-I'm-fully-vested." I am not sure how Google dealt with this in advance, but many IPOs have littered companies with perpetual underlings suddenly worth much more than their more recently hired bosses. Like I said, a post-IPO company can be a really interesting place to work.

Here's how I see the future: Google's star may continue to rise a bit, but then reality and the reality of being No. 1 and being everyone's target will hit home. Google will start to sink a bit—perhaps a big bit—just as Microsoft's new offering appears on the search scene. By that time, other search engines may have solved their problems, and customers will have noticed that Google isn't nearly as wonderful as it used to be. It's also possible that some third party will out-Google Google and come up with a better search engine, just as Google bested AltaVista (remember them?).

This could mean Google will be a short-lived phenomenon, at least as the Holy Grail of searching that it clearly used to be. Every day I use Google—and I do use it every day—it seems to be less useful to me than the day before.

At least it's doing good things for Silicon Valley...

Unlike Netscape, which went public to almost as much fanfare and celebration nine years ago, Google isn't being brought to a stock market unfamiliar with the Internet or the valley's technological wizardry. Silicon Valley has a history with investors, now. And for all the good—in terms of innovation and jobs—that has been created in the valley, there's some bad feeling, too.

That bad feeling—the slight aftertaste of being taken for a ride—is one reason politicians lump the valley with Enron when it comes to stock options. And it's worth remembering that sentiment when it comes time to consider Google's sale. Google has. The revised filing the company made with the Securities and Exchange Commission includes a section decrying the need to treat option grants as expenses.

So what's the most unusual thing about the Google offering? Unlike traditional stock offerings, Google's early shareholders—its backers, executives and other friends of the firm—can and are selling a great deal of stock. All told, those insiders are offering almost 10.5 million share of stock for sale at between $108 and $135 a share.

The company is selling a bit more, just about 14 million shares. A lot of rich people who acquired their stock at pennies per share are going to be even wealthier. And they are getting that way in a process that's being wildly (and correctly) described as being more open—and therefore more honest—than what's gone on before.

That's important. Because offerings like Google's have a way of starting trends. That could mean more "dutch auctions"—where the final price is set by the bidders—as tech companies try to follow in Google's shoes and do an end-run around the banking establishment and show shareholders the wonders of a disintermediated stock market. Clearly that's what Google founders Larry Page and Sergey Brin say as much in their "owners' manual" to shareholders.

And it might even change the way IPOs are done from here on out - which is good news for investors, but really bad news for underwriters and most other Wall Street fat cats:

In the dot-com era, IPOs were run as much for the benefit of the Wall Street underwriters as for the companies. Wall Street firms would set a price at which a company would sell shares to the broad investing public and distribute the shares. In practice, underwriters would dole out many shares to favored executives at client companies, or to hedge funds and mutual funds that threw a lot of trading business to the underwriters. By setting the price for dot-com stocks artificially low and by deciding who could get in on the IPO at the artificially low price, underwriters had a license to make their friends and clients rich in a matter of minutes, when frantic individual investors bid up the shares. (Before Eliot Spitzer came along, these conflicts of interest were known in Manhattan as "synergies.") In exchange for suppressing the offering price and thus depriving their client of needed capital, underwriters in most dot-com IPOs typically helped themselves to a fee totaling 7 percent of the offering.

But Google has largely cut out the underwriters. Its IPO is being structured as a Dutch auction. Any investor can submit a bid for as few as five shares. The underwriters will tally all the bids. They'll start at the top—$150, $200, whatever—and work their way down until all the shares are spoken for. That price then becomes the clearing price, which Google intends to use as the IPO price. There's no penalty for bidding high—if the clearing price is $140 and you bid $200 you'll pay $140. Those who bid under the clearing price get nothing.

Google's IPO price will thus be set naturally by all interested market participants, not artificially by underwriters. Google—and not well-connected investors—will receive the full benefit of investors' enthusiasm for the stock. To add insult to the injury of the chastened investment bankers, Google has decreed that it'll only pay a 3 percent underwriting fee.

In other words, Google has inverted the process. Almost by definition, the buying enthusiasm will peak before the stock starts trading. And today, you and I have the same chance as Warren Buffett, or Ford CEO William Ford, or a hedge fund manager, of getting in on Google's IPO. For precisely that reason Warren Buffett and Bill Ford and hedge fund managers probably won't be bidding. They have no angle, no leg up on the rest of us chumps.

And so most professional investors will likely boycott the offering. This is one of the reasons that TheStreet.com's James Cramer, a brilliant commentator and trader (but not one given to irony), has already dubbed the Google deal a fiasco. As Cramer implies, giving the stiff-arm to the professional investors who comprise a significant majority of the market, and who constantly have money to put to work, isn't an intelligent long-term investor-relations strategy. Professional investors in effect become salesmen for a company's stock. Selling stock without them is almost like Coca-Cola deciding to eschew the wholesale market (McDonald's, Marriott, college dormitories) and focus exclusively on selling six-packs to individual customers.

Google's IPO ensures that individual investors are treated fairly, as was frequently not the case in the 1990s. But it won't ensure that they'll make money. In fact, Google explicitly warns those seeking a quick buck not to bother: "We caution you not to submit a bid in the auction process for our offering unless you are willing to take the risk that our stock price could decline significantly." In fact, because of the auction process, the individual investors who absolutely positively must have this stock on the day of its offering may very well be buying at the top. At least some things never change.

- Arik

Doom 3: Can Carmack's "id" Reinvent Computer Games (as it did with the original, Doom)?

id Software released the much-anticipated "Doom 3" first-person-shooter on the world this week, to largely rave reviews:

“Doom 3,” the newest entry in game developer id Software’s horror hall of fame, is a departure of sorts. You still have hordes of demons after you. And that familiar click-click of the reloading shotgun remains. But over time, things have changed.

With previous id games, from 1993’s original “Doom” through 1994’s “Doom II” and 1996’s “Quake,” you were rewarded for shooting first and worrying about the consequences later. Now -- though you again play a Marine on Mars, facing a horde of demons unleashed from hell by scientific experiments -- you have to be careful not to eradicate a character who might hold a valuable clue to the secret to preventing a demonic assault on Earth.

“The first game didn’t have much depth,” says technical director John Carmack, who co-founded id in 1991 and was made wealthy by “Doom.” “Early on, we were just excited to get the basics, to get people scared or shocked at all.”

The original was groundbreaking. It established the success of the software marketing system known as shareware: The game was available free to download, swap and try, and customers paid to unlock higher levels. Some 20 million wound up playing the game. Subsequent id software games such as “Doom II,” “Quake” and “Return to Castle Wolfenstein” have sold a collective 15 million.

“Every game they have produced has set the standard for that time,” says fan Matthew Wood, 20, of Merritt Island, Fla. Since id announced last month that “Doom 3” -- after several long delays -- was finished and getting ready to ship, “time slowed down for many of us,” Wood says. “I pre-ordered the next day. ... ’Doom 3’ looks scary as hell. I cannot wait.”

“Doom” also popularized the “first-person shooter” concept: Players view the 3-D world through the eyes of the character on screen, wielding weaponry as if it were in their own hands.

Anti-violence activists decry the genre. “Desensitization is the classic problem that comes from these games’ point of view,” says Roy Fox, chairman of the department of learning, teaching and curriculum at the University of Missouri. He worries that children and teens will get access to the game, which is rated M for mature players, ages 17 and older. “It breeds the acceptance of violence.”

The action in “Doom 3” promises to be more intense than its predecessors, with effects and environments reminiscent of such movies as “Alien,” thanks to Carmack’s breakthrough method of realistically tying lighting and textures of objects to the player’s movements. “On a cinematic level, there’s depth and story,” says Carmack, who has already begun work on the next id game, an original title. “I’m extremely excited at how it turned out.”

One of the most anticipated games in years, “Doom 3” will have to battle for Game of the Year honors with “Half-Life 2,” a sequel to Valve Software’s 1998 top game. “It’s kind of a parlor game to discuss which is the most anticipated of the two,” says Dan Morris, editor of PC Gamer.

Together, the games could amount to a renaissance for a PC industry desperate to reclaim some of the glamour from console video games, which have been responsible for the bulk of the $10 billion video-game market. “This is going to swing the pendulum back our way,” Morris says.

In the September issue, Morris gives “Doom 3” the magazine’s highest rating in recent times (94 percent). “Its biggest breakthrough, after the technological side, is that it’s a compelling story,” he says. “The main purpose is not to shock you out of your seat but to draw you into a world and into a drama.”

“Doom 3” not only looks like a scary movie, it was developed like one. For this game, id Software recruited Matt Costello, who penned the stories for classic plot-driven games “The Seventh Guest” and “The Eleventh Hour,” to flesh out a script from which artists created storyboards, just as filmmakers do. “It allowed us to put all the action into the context of the story,” says id CEO Todd Hollenshead. “The players, when they play through the game, they will know where they are, they will understand the environment and will have a sense of purpose. We felt that was important.”

More fun though was Slate.com's piece on the designers behind the games, in this case, profiling John Carmack - dean of FPS genre game design.

- Arik

EDS Pays $135 Million to Buy Its Way Out of a Bad Deal

"EDS remains a tale of two cities," CEO Mike Jordan said in a press release. "Our ongoing business is now fully competitive, with increasing sales momentum reflected in our results as we lay the groundwork for further gains in 2005.

"At the same time, we continue to be burdened by the cleanup of past problem contracts, as exhibited by our lower cash flow guidance on Navy and the charge this quarter to terminate the company's 'other commercial contract.'"

So, just who is this 'other commercial contract' firm getting the $135 big ones? Well, nobody really knows for sure... but there is one top suspect:

EDS has paid $135m to pull out of a loss-making IT outsourcing contract, believed to be with US firm Dow Chemical.

The termination, effective from 1 August, was revealed in EDS's results for the quarter ended 30 June.

The Texas-based outsourcer recorded a 3.5 per cent rise in revenues to $5.24bn and an operating loss of $84m, compared with last year's $184m profit. However, the sale of the UGS PLM unit led to an overall post-tax profit of $270m, compared to $88m for the same quarter last year.

Buried in the earnings report was a one-line announcement that EDS has reached an "amicable agreement" to terminate a "commercial contract".

EDS is keeping tight-lipped on which company the loss-making contract was with but industry sources have named Dow Chemical as the number one suspect.

One source told silicon.com that the reason the name is being kept secret is that as a result of settling amicably EDS will get a shot at some BPO work from the firm in the next three to six months.

Dow Chemical, however, is also keeping tight-lipped and a spokeswoman would neither confirm nor deny it is the company in question. All she would say to silicon.com is that Dow has been in active conversation with EDS and is happy with progress.

Robert Morgan, business development director at outsourcing consultancy Morgan Chambers, said that whichever deal it is, it is likely to be part of a "hit list" of troublesome contracts drawn up by EDS CEO Michael Jordan back in February.

"Jordan ordered a review of accounts and those not performing had to produce a report. He has met with most of the CEOs of those companies to see if it is possible to retrieve the situation or not. Jordan is taking a very personal interest and this hit list has more than a dozen companies on it. This is the only one so far that has been settled like this," he said.

Anthony Miller, analyst at Ovum Holway, said in a statement that the results are a "tale of two halves" with duff contracts pulling down the bits of EDS's business that are improving.

"There's still a huge job ahead, not made easier by EDS first having to explain its credit rating downgrade to all of its major clients and prospects -- not the best way to have to start a sales call," said Miller. "Embattled, certainly, but beaten? Not by a long way."

- Arik

No Pain, No Gain: Post-DNC Kerry vs. Bush Polls

After the carefully scripted Democratic National Convention in Boston last week, the latest USAToday, CNN and Gallup poll shows Senator John Kerry lost ground while President George W. Bush gained in a number of key measurements, and that hasn't happened in a really long time. Fears about terrorism were the likely culprit to overshadow what should've been a double-digit gainer event for Kerry.

- Arik