Business news review for the week from 5 October 2006 to 11 October 2006

Christian Streiff, chief executive of Airbus, the icon of European industrial co-operation, warned that ‘Airbus could take more than a decade to catch up with Boeing’s product development’ on 4th October, 2006. The statement was made after the series of bad news broke out not long after EADS, Airbus’s parent company, issued a 4.8bn Euro profits. Its superior programme, A380, the biggest commercial aircraft ever been built, will have to face two years of delays. This announcement will lead ‘large airlines to consider cancelling their orders. It also raised its estimated cost overrun on the A380 to nearly 5bn Euro’. The reason for the delay is mainly because of the huge technical challenge of building the largest passenger aircraft. It is better for Airbus to learn some lesions from its US rival, Boeing, who also hit development and delivery crisis in the late 1960 while its 747 jumbo was being built, and went on to be a best-seller.
Airbus’s second largest share holder, Britain’s BAE System Plc sold its entire stakes to EADS, who became the single owner of Airbus. The share price of both EADS and Airbus has shaken over the last quarter. However, faith and full support will be restored by EADS because once the A380 programme completes, Airbus should regain the market share they’ve lost over the years. Mr. Streiff said Airbus would announce in January the first planned reforms for its industrial operations in Europe, which are mainly spread across France, Germany, Spain and the UK.
Also on 5 October 2006, Steve Jobs, the CEO of Apple, apologized to shareholders over the way the company booked stock options in the past after an internal probe uncovered accounting irregularities between 1997 and 2002.
(http://www.accountancyage.com/accountancyage/ news/2165708/apple-boss-sorry-accounting)
Backdating, which refers to change the date of offering employee the stock options to ensure gains is not necessarily illegal provided that it is disclosed properly in the financial records. Being aware of this issue, SEC announced that it will probe into the financial statements of listed firms to discover irregularities if any.
The issue has forced the company to postpone the release of its financial results. (http://www.accountancyage.com/accountancyage/news/2171258/apple-bruised-options-scandal)
On 9 October 2006, Sony’s ex-chairman, Mr. Idei, who is still chief corporate adviser to the company, warns that Japan’s consumer industry is dying. (http://news.bbc.co.uk /go/pr/fr/-/1/hi/business/6033527.stm)
The warning comes after a consistent fall of the company’s share price due to the huge expenses generated by the recall of fire-risk laptop batteries by major manufacturers including Dell and Lenovo. Even if without this accident, Sony has already suffered from its cost problems as well as fierce competition from global especially Korean firms for a long period.
The comments by Mr. Idei also include a criticism on Sony’s development strategy of getting involved in Hollywood in 1989 by acquiring Columbia pictures.
Google is buying Youtube, the California-based video start-up for $1.65 billion on 10 October 2006. (Page 19, Financial Times, 10 October 2006)
The deal is a significant event for both companies. For Google, You tube is an attractive objective because of its popularity especially among the young generation. This is ‘the biggest acquisitions in its eight-year history’ (Page 19, Financial Times, 10 October 2006). It is also of the first time for the company to acquire a firm for the purpose to reaching a new technical area rather than develop the technology itself. Moreover, the success of the acquisition represents a competitive advantage for Google among its main competitors especially considering the failure of same kind deal between Yahoo and Facebook, another social networking site. As for Youtube, the benefits are even more obvious. Firstly, although it is extremely welcomed by the youth, it has been losing money from the first beginning-it lacks profitable projects. After the acquisition, Google can offer its clout of advertisers to Youtube to help it turning to profitable. Secondly and even more importantly, the current biggest worries regarding to the company is the copyright problems around the company. Joining Google is like buying an insurance against any legal losses since Google has a very strong team of legal experts as well as a much more solid financial reserve.
On 11 October 2006, supermarket Sainsbury’s announced its recovery was ‘on track’ after reporting better than expected sales growth. The reported like-for-like sales of the firm – which ignore the impact of new stores – excluding petrol rose 6.6% in the 16 weeks to 7 October. Sainsbury’s had a 15.9% share of UK supermarket sales in the 12 weeks to 10 September, according to market research firm TNS, trailing Tesco and Asda. (http://news.bbc.co.uk/1/hi/business/6039354.stm)
The previous supermarket giant has been struggling for years mainly due to the fierce competition from other competitors within the industry, especially from Tesco and Asda, and the failure of the behind-the-scenes revolution introduced by its previous chief executive, Sir Peter Davis. These include investing billions on its IT systems and automated depots which is not compatible with the company’s real needs and could not even effectively deliver goods to the shops, the incorrect pricing policy partly resulting from the cost stated above, and the low level of its product range.
Thanks to a series of reforms conducted by its current chief executive Justin King. Under the new strategic scheme, the firm has been refocusing to deliver value to its traditional middle class customers including ‘relaunched its premium “Taste the Difference” range during the quarter, increasing the number of products by 250 to 1,100’ , ‘opened seven new supermarkets during the period, expanded five outlets and revamped a further 32′, opened 10 convenience stores and added non-food ranges, including CDs and clothing, to a further 31 supermarkets’, managed to keep ‘retail prices were flat in the first half of the year despite rising energy and commodity costs’, etc.