Ericsson Buys Redback Networks for $2.1 Billion

By Keith Regan

Ericsson will acquire Redback Networks, which makes routers used by telecom carriers to direct data traffic, for US$2.1 billion. Ericsson said the purchase would be part of its strategy to "help telecommunications carriers lower costs and upgrade networks for broadband, telephone, video and mobility services."

Telecommunications gear maker Ericsson (Nasdaq: ERICY) said Tuesday it would buy Redback Networks, which makes routers used by telecom carriers to direct data traffic , for US$2.1 billion.

Sweden-based Ericsson said it would pay $25 in cash for each of share Redback stock, an 18 percent premium over Tuesday's closing price.

Back in Demand

Ten-year-old Redback competes with Juniper Networks (Nasdaq: JNPR) and Cisco Systems (Nasdaq: CSCO) . After a roaring start during the dot-com era, Redback is finding its data routing gear in demand again as telecom companies widen their offerings to focus on data as well as voice.

Ericsson said the purchase would be part of its strategy to "help telecommunications carriers lower costs and upgrade networks for broadband, telephone, video and mobility services."

Plans call for Redback to retain its management team and operate as a wholly-owned subsidiary of Ericsson. It will also continue its own research and development efforts, focusing on new video and mobility technologies.

"This agreement is about accelerating market growth," said Redback President and CEO Kevin DeNuccio, a former Cisco executive who helped lead Redback out of bankruptcy in 2004. "We believe Redback now will have the global reach and financial resources to accelerate its own routing technology innovation and grow market share faster than our traditional routing competitors."

Ericsson CEO Carl-Henric Svanberg said his company is buying a market leader with technology that outpaces that of its rivals. "Redback has always had a well known technology advantage over its larger routing competitors in broadband services edge routing," he said. "We believe the combined strengths of both companies in mobility and IP routing will create significant value for customers and shareholders."

Seeking Growth

Although the price tag on the deal seems high, Ericsson said the future potential represented by Redback's technology and Ericsson's strong relationship with many carriers -- for whom it is a top provider of mobile network gear -- make it a smart play. It also argued that building similar technology to Redback's would take it, or its rivals, several years of development time.

With the buy, Ericsson also gains new customers, such as Verizon Communications (NYSE: VZ) and AT&T (NYSE: T) at a time when more carriers are seeking to build networks that can seamlessly carry voice, data and video, and extend all three offerings to mobile devices.

Redback counts 15 of the top 20 telecom companies worldwide among its customers.

The move makes Ericsson far more of a rival to Cisco Systems, whose gear is still responsible for moving some two-thirds of the world's Internet traffic.

Ericsson said the deal would decrease earnings this year, but it is getting a company on a strong revenue growth run. Redback's sales were on pace to be up nearly 80 percent this year, with analysts on average forecasting growth of 23 percent for 2007 and 31 percent for 2008.

The Yankee Group predicts the worldwide market for Internet Protocol edge routers will top $5 billion annually within two years, and Ericsson said it believes as many as 2 billion users of wire-line and wireless phone networks around the world are primed for an upgrade of their networks to all IP-based routing.

European Invasion

Despite its strong growth, Redback would have been hard pressed to survive on its own, according to Lehman Brothers analyst Jeffrey Kvaal, particularly amid a strong trend toward consolidation in the gear industry.

"Ericsson's global footprint and carrier relationships will provide support to this growing revenue stream," he said.

The purchase comes a month after France-based Alcatel completed its takeover of Lucent Technologies (NYSE: LU) , creating the world's top gear-making firm in the process.

Nokia (NYSE: NOK) and Siemens (NYSE: SI) are also merging their networking business lines in a bid to expand their offerings.

With Redback, Ericsson is extending a buying spree of its own. A year ago, it paid $2.1 billion to buy Marconi, a purchase that enabled it to begin offering fixed-line network products alongside its own wireless gear.

Multi-service edge routers are being sought after by telecom companies because they can help them deliver more services to customers, Gartner (NYSE: IT) analyst Jennifer Liscom explained.

"Edge routers can help telecom operators deliver bundled offerings of broadband voice, data and TV from a single core network," she added.

Ericsson is seeking renewed growth and recognizes that video and mobile data services are where sales expansion is most likely to come.

Last month, the company said it would cut as many as 400 jobs at its Swedish headquarters in a cost-cutting measure. Those cuts still left the company with more than 50,000 employees worldwide, including those employed by the Sony Ericsson joint venture, which makes mobile phone handsets.

(c) www.technewsworld.com

Japan's Hoya snaps up Pentax for $770 million

 

Hoya, a Japanese maker of optical glass, plans to buy Pentax for about 91 billion yen ($770 million) in shares, gaining access to profitable markets such as medical gear and optical lenses.

The deal, announced on Thursday, will take Hoya into business areas it would otherwise have been difficult to enter or develop itself, such as endoscopes, advanced digital cameras and lenses used in DVD players, where it will take on rivals such as Olympus and Fujifilm Holdings.

"This is a positive surprise," said Hisashi Moriyama, an analyst at JPMorgan Chase in Tokyo. "It's also positive for Hoya because it will help it enter oligopolistic markets with high-profit margins."

It will be one of the biggest deals in Japan's precision equipment industry since a merger between Konica and Minolta in 2003, and it also eases concerns over possible takeovers of technology companies such as Pentax that have patents and experienced engineers.

Hoya will swap 0.158 shares for each Pentax share, giving a 10.5 percent premium based on Wednesday's closing price, or a valuation of 709.4 yen per Pentax share.

The companies plan to complete the integration on October 1, 2007, and the new company will be named Hoya Pentax HD. It is set to be headed by Hoya President Hiroshi Suzuki.

Based on the companies' earnings last year, the new firm would have combined annual sales of about 500 billion yen and operate like a holding company with existing Pentax units positioned under it.

Hoya, which is more than half-owned by foreigners, is said to control about 85 percent of the global market for mass blanks, used in chipmaking, and more than half of the LCD photomask market. Photomasks are used to make liquid crystal displays.

As a market leader in these key materials, and with solid earnings growth, Hoya has been a favorite pick among investors. Its market value now comes to $16.6 billion, a Goliath compared with Pentax's $745.45.

But Pentax, a pioneer in cameras used by professionals, is also a major player in other profitable industries, such as optical lenses and medical equipment. Pentax President Fumio Urano will become chairman of the new company's board.

"The most attractive part about Pentax was its medical business," Hoya's Suzuki said during a press conference. "We see this as a friendly and equal merger."

The market for endoscopes--small cameras used to look at internal organs--is led by Olympus, which has a global share of about 70 percent. But Pentax and Fujifilm, the only other makers, have been increasing their efforts to expand their market share.

Trading in Pentax and Hoya shares was halted on the Tokyo Stock Exchange after the Nihon Keizai business daily reported the deal.

Prior to the halt, Pentax shares rose 7.5 percent, and Hoya shares rose 0.5 percent, both outperforming the benchmark Nikkei average, which rose 0.22 percent.

At the latest prices, the deal values Pentax at $6.04 a share, or $770.86 million in all. That equates to about 33 times forecast earnings, a premium to the sector average of 25, according to Reuters Estimates.

Hoya was advised by UBS Securities Japan, while Pentax was advised by Morgan Stanley Japan Securities.

(c) news.zdnet.com

Samsung Telecommunications America Celebrates $4 Billion In Sales, WiMAX In The News

4G is WiMAX, Samsung and Sprint-Nextel ink a deal to bring WiMAX to the centerstage.

So it looks like Samsung Telecommunications America (STA) is sitting pretty with $4 billion in revenue over the last 10 years. Not bad. Samsung and the mobile WiMAX standard for wireless broadband networks go hand-in-hand. Samsung is using this opportunity to note their significant dominance in the market and their development of GSM/GPRS/EDGE as well as other 3G CDMA networks which they are currently testing.

To solidify their actions, Samsung recently inked a deal with Sprint-Nextel to supply the service provider with equipment for its U.S. WiMAX network and broadband technology. The benefit of WiMAX to customers are low latency, a greater broadcast capacity at 2mbps per customer, and more. This should equal more high-def quality for cellphones and less lag between distances when viewing online content such as music videos, or streaming audio.

The partnership will also include support from 380 companies already in the WiMAX forum. Samsung Telecommunications America, and Samsung, in general, have marked this upcoming 2007 year as a year where mobile broadband technologies outpace the competition and Samsung will definitely be a part of that driving force.

(C) www.slashphone.com

Emerging Markets Turmoil

by Brian Bremner

The 15% meltdown in the Bangkok bourse following currency-control measures highlights the volatility of developing markets as the dollar swoons

If anyone needed a reminder that investing in emerging stock markets can be a gut-wrenching business, the madness that transpired at the Bangkok Stock Exchange on Dec. 19 surely delivered the message. Thailand's benchmark SET Index plummeted 15%, which qualifies as a crash in just about anybody's book. It was the worst one-day downturn in 16 years.

Other emerging markets in Malaysia, Pakistan, Turkey, and India (which has suffered a severe correction this month) were all down as well in trading on Dec. 19. And all this follows an emerging-market blowout back in May. During the first three weeks of that month, the Morgan Stanley Capital International Emerging Markets Index, which tracks share price trends in 26 developing markets around the world, fell about 14%. That was one of the worst showings since the Asia financial crisis and Russian bond default of 1998. Investors in India were annihilated over a three-day period as Bombay's Sensitive Index, or Sensex, fell nearly 15% during that period (see BusinessWeek.com, 5/23/06, "India's Market Turns Down the Heat").

The trigger to the market meltdown in Bangkok—the SET Index fell nearly 20% and local regulators halted trading at one point—came after Thailand moved to slap currency controls on global investors to discourage speculation in the baht, which is up more than 15% vs. the dollar this year, that has hurt the country's export price competitiveness. The new rules would have imposed a 10% penalty on overseas funds transferred into Thailand in many cases. On Dec. 19, however, the Thai authorities abruptly reversed course after the market meltdown and canceled the new capital controls.

Foreign Investors' Big Impact

Yet the questions raised by the Thai debacle remain. The wider impact of the Thai move in other emerging markets is probably twofold. First, the velocity of money blitzing in and out of developing stock markets can be amplified by the big impact foreign investors have in many of these bourses and the "herd-like" behavior of this crowd when it senses trouble. Second, there are plenty of investors around who remember the savage beating punters took during the 1997 and 1998 Asia financial crisis, which started, after all, with a speculative run on the baht before spreading like a miasma around the region.

However, different forces are now at work compared with the market gyrations in the late spring. Back in May, emerging markets from Russia to Egypt fell fast and furious as a triple-whammy of rising U.S. interest rates, recent pullbacks in the white-hot industrial commodity markets, and rising oil prices cast an unflattering light on Alice in Wonderland stock valuations in such markets as India.

Still, emerging markets bounced back by more than 30% from their lows after it became clear the U.S. Federal Reserve had stopped raising interest rates after 17 consecutive increases. Oil prices moderated as the year went on—and commodity prices picked up, too.

The big worry now is the outlook for the dollar, which has fallen sharply against the euro and some smaller Asia currencies such as the South Korean won and Thai baht. The Chinese carefully control the value of the yuan vs. the dollar, and so do the Japanese with the yen. But these middling and heavy export economies have absorbed bouts of currency appreciation that now has the potential to really slam their exports to the U.S., the biggest economy on the planet.

Risk of Capital Controls

The Thai response shows the risk of reverting to capital controls. The stock market rout is a reminder of just how quickly foreign investors will head to the exits if they are blindsided by an abrupt change in policy. The worry going forward is that other economies such as Malaysia (which did impose similar controls during the Asia Financial Crisis) will follow suit and the exodus of global investors will intensify and create a lasting downward spiral in emerging-country stock markets.

No doubt about it: Some investors have been enriched beyond expectation this year in markets such as the Bombay bourse, still up 45%-plus on the year, and other developing-country stock markets such as Vietnam. And it's hard not to be bullish on economies such as India and China for a very long time to come. Yet playing these markets, the money pros suggest, requires careful stock selection and the ability to ride out world-class volatility. (see BusinessWeek.com, 12/25/06, "Emerging Markets: Dipping a Toe in the Risk Pool").

Dec. 19 was a bracing reminder that emerging-market land can be a very dangerous neighborhood for investors.

(C) www.businessweek.com

Glam Media Gets $18.5 Million And A CNET Chairman

by Natali Del Conte

Glam Media, a fashion and lifestyle Web site, has a trifecta of news today. It has received $18 million in Series C funding, CNET chairman Jarl Mohn is joining the company as an investor and strategic adviser, and there is a new partnership with Hearst Magazines to bring articles from their popular magazines, starting with Marie Claire, to Glam.com.

The funding was led by Duff Ackerman & Goodrich Ventures (DAG), with participation from existing investors Accel Partners, Draper Fisher Jurvetson, WaldenVC, and Information Capital. The money will be used to accelerate the growth of the network on the Web and expand the sales and editorial teams.

The Hearst/Marie Claire deal is a major move on the part of the fashion magazine industry. Typically high-fashion magazines horde their editorial content for their print versions. Magazine Web sites are a hodgepodge of advertising and blurbs. Bringing real magazine content to the online network is a smart move that is a long time coming. Glam Media reaches over 7 million global unique visitors per month and is a top 10 women’s property, according to comScore Media Metrix October 2006 reports. So why has it taken so long?

“From a business perspective, print magazines are an incredible place. Whereas all other offline mediums have been declining, print magazines have not been declining,” said Samir Arora, chairman and founder of Glam Media. “They’ve been steady at about 17 percent of advertising over the last five years and most of their focus is on print, as opposed to online.”

Arora pointed out that online advertising has not been geared towards women in the same way that offline magazine traditionally is.

“In 2004, under 50 percent of ecommerce was targeted towards women and in real life, that’s not the case, it’s more like 80 percent,” he said. “But when you go online, these magazines’ Web sites have largely been places to drive subscription to the print magazine. So whenever there is a medium change, it’s rare that someone that is dominating one medium also dominates the new medium.”

That’s what Glam wants to do and the notion that women-targeted networks should be more than short workouts and bathing suit ads is the right way to go about it, which this woman thinks makes the company a good investment.

[original post: www.techcrunch.com]

McDonald's surprises with strong November

NEW YORK (Reuters) -- McDonald's said Friday that sales at its hamburger restaurants open at least 13 months rose 6.2 percent in November as its breakfast offerings and snack wraps brought in customers.

Two Wall Street analysts had expected a increased about 4.5 percent, according to research notes.Video More video

More than $3 million in fake goods was seized at a Nevada indoor swap meet. Affiliate KLAS reports. (December 6)
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Shares of McDonald's (Charts) closed Thursday at $43.28 on the New York Stock Exchange.

The company competes in the fast-food market with Burger King (Charts), Wendy's (Charts) and Yum's (Charts) Taco Bell.

[original post: http://money.cnn.com]

Home Depot's $200 Million Error

The home-improvement retailer put a price tag on its incorrect accounting for options, but found "no intentional wrongdoing" by current execs  Story Tools post a comment e-mail this story print this story order a reprint digg this save to del.icio.us

The Home Depot Inc. (HD) announced that its incorrect accounting of stock options over the past 26 years resulted in around $200 million of unrecorded expense. But the Atlanta home improvement retailer also concluded that none of its managers had meant to do wrong.

The company's stock price dipped 1% to $39.52 per share in early afternoon trading on the New York Stock Exchange on Dec. 7.

Home Depot, which continues cooperating with the Securities and Exchange Commission and U.S. Attorney for the Southern District of New York's investigation into its stock option practices, said in August that its board had asked a subcommittee to review the matter. The team, with help of independent outside counsel, Hogan & Hartson, sifted through more than 3 million documents and interviewed more than 60 interviews with current and former officers, directors, and employees.

"The subcommittee concluded that there was no intentional wrongdoing by any current member of the Company's management team or its Board of Directors," Home Depot said in a press release late Dec. 6.

Home Depot plans to make the adjustments when it files its Form 10-K for the fiscal year ending January 28, 2007.

Home Depot is still reviewing the potential tax implications related to its accounting of stock options, but doesn't expect that part to have a material impact on its financial statements. The company says its $200 million of errors don't have a material impact either, and points out that the adjustment won't affect its total stockholders equity, which amounted to $27.8 billion as of October 29, 2006.

[original post: www.businessweek.com]