The problems plaguing the Big Three American auto makers in 2008 have been well-documented. The push for flashy SUVs that guzzle gas but impress at the suburban strip mall caused Ford, GM, and Daimler to shift production towards these bigger cars, but these divisions have become huge drains on profits in recent quarters. Consumers have responded to the explosion of oil and gas prices and stopped buying trucks and sport utility vehicles, looking instead toward more fuel-efficient and hybrid vehicles.
Europe drank the renewable energy Kool-Aid long before it reached America, and the big car companies have already focused their European and international production on smaller cars that consume less gasoline. As the global economy sags, these economical cars have continued to sell, and results abroad have been the lone bright spot for Ford, GM, and lower-profile players in the auto manufacturing industry. (more…)
In the battle for supremacy in the aircraft business, there are only two real players - Boeing Company (NYSE:BA) and Airbus (EPA:EAD). These two companies compete for market share in commercial and military planes, with demand far exceeding each company’s manufacturing ability, and both have a long order backlog. Some of Boeing’s customers, for example, will wait as long as five years before the planes they ordered are delivered. And while they fill these orders, both companies must keep innovating. As oil prices continue to soar, and airline companies like Delta and American Airlines struggle with tight margins, planes that fly faster, fit more passengers, and consume less fuel are at a premium.
And so each company has designed its own new super-plane - for Airbus, the A380, and for Boeing the 787 Dreamliner. The Airbus plane has already debuted (its first flight was in October 2007), while Boeing continues to get hit by production delays, and the Dreamliner is optimistically scheduled for release in third quarter 2009.
These days, times are tough in the middle market of the retail business. Luxury companies like Louis Vitton are doing just fine, as the rich keep spending regardless of the economic climate. And discount retailers like Wal-Mart are benefiting big-time from tight budgets in the lower and middle classes as consumers look to cut costs on discretionary items as their gas and food bills soar. But the middle men - companies like American Eagle Outfitters, The Gap, and Tween Brands - are suffering as their customers choose low cost alternatives, or make do with last year’s wardrobe.
It’s been years since AMD has been a leader in any market. First, it challenged Intel in the battle for semiconductor supremacy - and lost, badly, watching helplessly as Intel’s superior technology reached 75% dominance of the microprocessor market by 2007. As Intel surged, AMD swooned, and made a fateful decision to diversify its business. The purchase of ATI Technologies in 2006 burdened the books to the tune of $5.6B - and investors punished the stock, which has dropped nearly 90% in the two years since.
In the health insurance industry, the margin for error is slim. Companies like WellPoint (NYSE:WLP) and UnitedHealth Group (NYSE:UNH) must pay particular attention to a single metric that separates the winners and losers in this massive market. This statistic is the benefits expense ratio - also called the medical loss ratio - simply, the cost of providing health care to members divided by the revenues from the premiums paid by these members.
Amgen (NYSE:AMGN) made its reputation as one of the premier firms in the biotechnology industry with its blockbuster anemia drugs, Aranesp and Epogen. Worldwide sales of anemia drugs made up around half of Amgen’s $14.8B revenue in 2007 and an even larger percentage of its profit - Epogen, its original bestselling medicine, brought in revenues of $2.5B, while Aranesp sales hit $3.6B. But these impressive totals obscure falling demand for the drugs - in the the second quarter of 2008, for example, sales in the United States plunged 26 percent. (more…)
Southwest Airlines (NYSE:LUV) reported earnings today - and for the 69th straight quarter, the airline turned a profit. Its quarterly net income increased 15% from a year ago, to $321 million. These results are worth a closer look, considering the rest of the major airlines lost a combined $6 billion in the second quarter. How does Southwest stay in the black as the rest of its peers bleed red? The secret - it hedges its fuel prices better than anyone in the business
It seems curious at first when a bank reports losses of $9B, as Wachovia (NYSE:WB) did today, and its stock price isn’t punished. It’s even more counter-intuitive when the company’s stock price goes up, as it did after Wachovia said it lost $8.9B in the second quarter of 2008. Despite the sour news, Wachovia was up over in 15% this afternoon on the New York Stock Exchange. Why are investors rewarding the beat-up bank with a share price boost? A closer look at Wachovia’s recent history helps solve the WB mystery and explains why its investors are still riding high.
For decades, video game companies have relied on a tried and true business model - spend on development of new titles, sell them to customers at high prices, and then roll out one sequel after another to capitalize on popular franchises. But the game is changing, literally, for the companies that make video games. The growth of the internet means that users want to download games right to their computers - and what’s more, they don’t want to pay for them anymore.
But companies like Shanda Interactive Entertainment (NDAQ:SNDA) and The9(NCTY) have figured out a way to monetize the new, play-for-free market. These Chinese video game makers no longer charge for their premier titles - they allow users to download them free. Then, once users get hooked, they can pay for upgrades to the game - clothes and accessories for their avatar in a role-playing game, for instance, or increased abilities for their character that will help them make it through more challenging levels.
These Massively Multiplayer Online games (MMOs) have taken the Chinese market by storm. The9 licenses the World of Warcraft to the Chinese market with brilliant success - the game reached 1 million concurrent users in April 2008, meaning a million players were logged on and playing the game at the same time. Meanwhile, Shanda was the #1 market player in the Chinese online-gaming market by 2007 revenues, relying on its two popular MMO role playing games Mir 2 and Woool. Shanda moved to the play-for-free, transactions based model for its games in 2006.
Innovation has always been at the heart of the video game business - new consoles with better graphics, games with more realistic characters, and creative ways to control players are staples of the industry. But a fundamental change to the business model of gaming is more than innovation - it is evolution. If the current trends continue, the Chinese market could lead the world into a new era of game play.
