The Great Debate UK

from Commentaries:

Bon chance getting this deal done, Alcatel-Lucent

It beggars belief that humbled telecom equipment supplier Alcatel-Lucent could be scooped up by a Chinese rival with nothing better to do. Huawei or ZTE seem credible candidates. The question is, why would they ever bother?

That didn't stop shares of Alcatel-Lucent from rocketing up as much as 21 percent on Wednesday on rumors of an unnamed suitor. Momentum was helped by a rating upgrade on the depressed stock by French broker Natixis. The shares later settled back somewhat to trade at 2.75 euros, up 12 percent on the day in Paris.

Why would a Franco-American company that is widely considered a failed example of industry consolidation be doing the same thing over again, but with the added complexity of China in the mix?

The typical explanation for cross-border mergers involving Chinese buyers is to acquire Western branding for goods produced at lower cost in China. But didn't BenQ's 2006 acquisition of Siemens mobile handset business spell the end of that kind of easy cross-border logic?

To begin with Chinese companies seem to be having little problem making inroads with Western phone carriers on their own. Low-cost trumps national identity in purchasing decisions these days, even with former national heroes like Alcatel or Lucent.

Furthermore, cross-border mergers in the telecoms industry have a way of tripping all sorts of national security alarms. It was only 18 months ago that a far smaller deal was blocked by U.S. political opposition when Huawei tried to buy a stake in struggling network gear maker 3Com.

from Commentaries:

Tech results give few clues to economy: Eric Auchard

By Eric Auchard

LONDON, July 24 (Reuters) - Investors have proved all too ready to interpret positive earnings trends from Intel, IBM and Apple as signs of economic recovery and to justify a continued rally in technology stocks.

Now they are taking the wrong lessons in reverse by reading disappointing results from Microsoft Corp as evidence that a nascent rebound in the economy has stalled.

By the same token, it's mistaken to read the best quarterly results in two-and-a-half years for Samsung Electronics, the world's biggest maker of memory chips, as any indicator of progress on the economic front.

Look past the headlines and you'll find factors specific to each of these companies that say little about any fresh demand for technology in this economy.

The truth is that technology companies have done a terrific job of cutting costs and preserving cash flow, even as revenue growth has continued to shrivel or turn negative. (See Reuters analysis).

But demand for new products and services remains scarce, except in isolated pockets. Apple and Blackberry-maker Research in Motion make must-have gadgets that resist economic penny-pinching.

from Commentaries:

Don’t read too much into Intel’s success: Eric Auchard

By Eric Auchard

LONDON (Reuters) - Intel Corp has cheered up investors by once again making forecasts about its financial performance. The trouble with reading too much into its rebound, however, is that this is largely due to productivity gains of its own making, rather than a broader awakening of demand.

To be sure, Intel's revenue, profit and margins surged past all published analyst expectations for the second quarter. Partly, this was merely the "snapback" that occurred after Intel throttled back production to as low as 25 percent of factory capacity in the first quarter, amid a glut of unsold chips and shriveling demand.

Things got so bad that it quit commenting on its outlook for the first two quarters of 2009.

The bigger news was its answer to the question of what was happening in the second half: Third-quarter margins should improve to around 53 percent on revenue around $8.5 billion, and could move up toward historic high levels by year-end. The comments sent Intel shares up as much as eight percent and sparked broad-based buying in technology shares around the globe.

However, there is little here to bolster confidence in other bellwethers of the technology sector reporting this week. Intel is benefiting from healthy demand in China and -- to a lesser extent -- the United States, among consumers rather than businesses. But these are not swing factors for the likes of Nokia, IBM or Google.

from The Great Debate:

China’s Web filtering starts in the West

-- Eric Auchard is a Reuters columnist. The views expressed are his own --

The Chinese government has backed away from mandating filtering software on all personal computers in China, in a move that averts a dangerous escalation in its censorship powers.

But however controversial and unworkable China's plan to require Internet filters on PCs proved to be, Western firms have largely themselves to blame for creating and selling such filters in the first place.

The danger rears its head whenever technology created to solve some specific security problem is put to new and unintended use, not just in repressive regimes like China, Iran or Saudi Arabia, but professed freedom-loving countries in Europe or the USA.

"What is good and what is evil?" asks Mikko Hypponen, chief research officer at Finnish anti-virus software company F-Secure Corp. "It is really a very basic problem that security people face."

A computer password cracker in the wrong hands is considered malicious, of course. But corporate network administrators rely on the same tools to recover lost documents when employees forget computer passwords. Voice recognition software used in corporate call centres to automate and improve customer service can be used by police to wiretap suspects on a grand scale.

On Tuesday, China's official news agency reported that a government ministry had abruptly backed down from requiring that every PC sold in China include a censorship program called "Green Dam-Youth Escort".

from The Great Debate:

How Apple can take bite of business market

-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --

Apple Inc is taking steps to make its computers run on corporate networks, but these moves fall far short of ensuring Mac users win equal standing in business.

Full corporate access for Apple computers inside businesses remains years away. If and when it comes, acceptance is more than likely to be the result of broad trends reshaping the office computer market, rather than Apple's own product genius.

This week, the reigning consumer king of computers, music players and smartphones showed off a new operating system, dubbed Snow Leopard, with a handful of tantalizing features built for business.

The new software, due out later this year, will connect Macs to Outlook e-mail systems running Microsoft Exchange -- the way that most office workers manage their e-mail, calendars and contacts.

In doing so, Apple is addressing a key issue in the classic Mac vs PC debate over whether its machines are practical for office tasks.

Of course, multimedia-rich Macs already predominate among graphic artists and many Web software designers. And Apple computers are popular with small and medium-sized businesses with skeletal technical staffs.

from The Great Debate:

Computer industry hopes lie in the clouds

-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --

No one can easily define it.

But the next phase of the computer revolution is busy being born out of the ashes of the current economic crisis. The new approach delivers computing power as a service over the Web, like an electric utility, instead of making customers buy computers they manage themselves.

It goes by the hazy term of "cloud computing."

Forget your tidy distinctions between hardware and software, networking and storage, the Web and the desktop. Most disappear as they merge into the cloud.

Clouds are located in centralized data centers that can house thousands of pizza-sized boxes, networked computers that can each process millions of transactions. They take advantage of the latest software that go by buzzwords like Web 2.0, virtualization and open source.

Always in search of the next big idea, the technology industry has latched onto the cloud as its big new organizing principle, once more normal corporate spending patterns return.

from The Great Debate:

China Inc. takes stock after overseas buying spree

-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

Abundant liquidity, government support and a strong yuan fueled Chinese companies' overseas buying spree.

But since they went out at the peak of the market and did not have a clear strategy for acquisitions, it should come as no surprise that most of those deals have turned sour. Once bitten, twice shy.

Crisis-ridden companies around the world are hoping that cash-rich Chinese buyers will come to their rescue, but the Chinese are not eager after getting their fingers burnt.

Chinese regulators are now giving more scrutiny to foreign deals, forcing interested buyers to lay out the most pessimistic scenario when seeking their approval.

Bankers said Beijing is skeptical about buying everything except resources, which is seen as important to China's strategic interest and involves few integration challenges.

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