Sunday, March 21, 2010

Autonomy Rumoured to Have Identified Acquisition Targets including Listed US Competitor

Autonomy, the listed UK-based enterprise software company, was rumoured to have identified acquisition targets, a Financial Times market report said. The report did not cite sources for the speculation, but noted talk that a listed, US-based competitor is among Autonomy’s targets.

Autonomy’s share price closed 1% down at 1797p on the London Stock Exchange yesterday, 18 March, giving the company a market capitalization of over $6.6 Billion.

Autonomy has been growing via acquisitions; Last year they bought another US listed competitor Interwoven for $775M. The consolidation in the Enterprise Content Management industry has progressed at full-speed and was highlighted in detailed on my blog last year. While it would be very difficult to pull together, could Autonomy give a bear hug to Open Text? We shall see….Let me know what you think?

Q-Cells Declares 2009 Loss of $1.8 Billion; What Went Wrong?

This is worse than once what GM or Enron once announced as Q-Cells was supposed to be the poster child of the solar industry. Over-investing with superficially high feed-in tariffs have created another bubble this time in solar industry in Europe.  Given huge amounts of debt and rising public impatience with job creation,  I do not foresee any EU member continuing generous subsidies to solar industry. In my opinion, both China and the US would become the two manufacturers of solar gear in th world.

So they were the number-one cell producer in the world in 2008. What went wrong?

Leading German cell producer Q-Cells has gone from weakness after weakness over the last 12 months, and someone had to pay. As things turned out, it happened to be the man at the top. CEO Anton Milner quit his job last Thursday, citing a "huge loss of confidence" on account of the company's terrible 2009 results. The company declared a loss of 1.36 billion Euros ($1.84 billion) for 2009, compared to a net profit of 190 Euros (about $257 million) in 2008. It would be difficult to feign surprise at the outcome: the company had cut working hours for about 80 percent of its staff in April, later laid off 500 employees in August, and slashed its 2009 sales outlook no less than three times in six months. The question, however, remains: how did the number-one cell producer in the world in 2008 virtually bleed itself dry? What follows is an attempt to provide some answers.

Cost Structure: Just Not Up to Scratch

On a panel with Anton Milner at Intersolar Munich last May where he was asked to speak on the topic of "Targeting Grid Parity". Milner's talk, however, had little to do with the subject: he dismissed any discussion about cost reductions as a waste of time, claiming that these could safely be taken for granted. Instead, he placed responsibility solely on the shoulders of policymakers, talking about the need for drastic regulatory reform that would enable the European Photovoltaic Industry Association (EPIA) goal of 12 percent penetration by 2020.

Listening to his grand proclamations, one had to wonder whether this was hubris born of self-delusion or just good old-fashioned spin. Q-Cells had already suffered a significant loss in the first quarter of 2009 (391 million Euros, or $529 million), as demand for its cells had slumped even further than that of the global market. The reason? The very issue that Milner had so casually waved aside in his presentation -- cost reductions. More specifically, Q-Cells' inability to drive costs down to the levels of Asian pure-play cell producers such as JA Solar, E-Ton and DelSolar, as well as in-house cell producers like Suntech, Yingli, Trina, and Canadian Solar. The result is that the company is simply unable to price its cells at a competitive level with its Asian competitors: its cell ASP in the third quarter of 2009 trended at around $1.50 per watt, compared to only $1.32 for competitor JA Solar. The company insisted that the "Made in Germany" cachet of their products would result in both a price premium and preference over what it perceived to be potentially unreliable Chinese cells. It turned out to be wrong: making crystalline silicon cells out of wafers isn't exactly rocket science. As a result, Q-Cells ended up losing considerable market share through 2009, and barely earned any gross margin on the cells it did manage to sell.

Complacency: Behind the Eight Ball

The fact is that cost structures for European cell and module producers are by and large simply not competitive with those typically achieved by producers in low-cost locations. Lower labor and utility costs that Asian manufacturers enjoy are only one factor; significant benefits also come from tax breaks and lower SG&A (selling, general, and administrative) costs in the developing world. It turns out that Q-Cells actually does have a manufacturing facility in a low-cost location, namely, a wafer/cell plant with an estimated capacity of 520 MW in Malaysia, where First Solar's CdTe plant is also located. As the chart below indicates, cell conversion costs at the Malaysia fab, once fully ramped, are expected to be 30% lower than those at Q-Cell's German plant in Thalheim.

Unfortunately, the plant did not come online until mid-2009, and spent the better part of the rest of the year ramping up, meaning that its cost structure was not especially competitive at this time. This was much too late to fight off Chinese competition, even if -- as the industry originally anticipated -- structural oversupply would manifest in 2009/2010 rather than late 2008.

On top of this, the company signed long-term wafer sourcing contracts in 2008 that eventually proved to be an albatross around its neck: when oversupply did come around and cheap wafers were available via the spot market, Q-Cells found itself paying about 20 cents a watt more for wafers than its competitors due to these "legacy effects". Again, the Malaysia plant, which was designed to be an integrated wafer-cell facility, could have offered a measure of relief if it had ramped up in time. As a pure-play cell manufacturer in a market that was witnessing a continually growing Asian presence, it seems obvious that Q-Cells' business model would be extremely vulnerable in an oversupply situation, begging the question as to why it lacked the foresight to bring the plant up to speed sooner than a year and a half after the market turn. Its behavior can only be attributed to complacent thinking, i.e., that its established position in the market would see it through the early stages of such a market environment.
Half-Baked Investments

Common sense dictates that a degree of technology diversification is a sound long-term strategy in PV manufacturing: the industry is still far from mature, and it remains uncertain which technology will eventually emerge as dominant. Investment in alternative technologies by a crystalline silicon-based firm therefore acts as a hedge against its core competence.

However, Q-Cells' actual strategy in this area has bordered on the ridiculous: over the past three years, it has spent huge sums of money investing in practically every PV technology under the sun. The list goes on and on: string ribbon (33% stake in Sovello/EverQ), CdTe (Calyxo), CIGS (Solibro), amorphous silicon (Sontor, now Sunfilm AG), flexible cells (VHF), the decision to source 30% of its 2009 feedstock needs from upgraded metallurgical silicon (UMG), and a planned $3.5 billion thin film manufacturing complex in Mexico. Essentially, this amounts to placing a bet on every single horse in the race, regardless of each of their prospects. Considering that a return to abundant polysilicon supplies and "normal" polysilicon prices by 2009-2010 was widely predicted by analysts back in 2008, the company's bet on UMG at the time was particularly suspect. Similar myopia was exhibited in the case of the string ribbon investment, whose value proposition hinges almost entirely on the cost of polysilicon. Both of these investments have backfired badly: Sovello, its string-ribbon JV with REC and Evergreen Solar, is on the verge of bankruptcy, and UMG has become practically worthless in a $50/kg polysilicon environment. Sunfilm, meanwhile, has been accorded a book value of zero, and the company has maintained pin-drop silence as to the status of the Mexican thin film plant. This cavalcade of half-baked investments has left deep scars on the company's balance sheet (to the tune of EUR 158 M for asset write-offs for Sovello and Sunfilm alone) -- and betrays a troubling lack of fiscal and strategic discipline.

Not Out of the Woods Yet

Looking forward, the company has taken a number of measures to rectify the situation. It is likely that most of the German production lines will be shut down permanently in favor of a Malaysian ramp (thus nullifying any "made in Germany" advantage the company had previously claimed). Administrative and overhead cost reductions are also underway. Expensive legacy wafer contracts will roll off as the company sources its feedstock needs from the spot market (composed mostly of Chinese producers). And finally, it is also in negotiations to sell its stakes in Sovello and Sunfilm.

Still, it is difficult to shake the sense that the restructuring changes at Q-Cells have come too late in the game. Chinese producers have continued to expand capacity and lower costs aggressively in recent months; by the end of 2010, JA Solar should be able to convert a wafer into a cell for about 20 cents per watt, which may be out of Q-Cells' reach in the near future, and further price drops are on the way in the second half of 2010. Moreover, internal confusion still abounds as to Q-Cells' future place in the solar value chain. While Milner was hell-bent on growing the utility-scale project business of subsidiary Q-Cells International (QCI), interim CEO Nedim Cen has spoken of a "de-risking" strategy that favors residential system sales and module production, although how tabbing and stringing cells will contribute to a fundamental turnaround for the company is anybody's guess.

On the surface, Q-Cells may appear merely to be the highest-profile casualty of the market shift that affected most companies in 2009. However, it would be disingenuous for the company to blame its turn of fortunes purely on external factors: in large part, Q-Cells has been a victim of its own myopia, complacency, and lack of strategic focus. For a firm that once epitomized crystalline silicon PV, the road back to the top will be slow and arduous -- and much soul-searching lies ahead.

Monday, March 15, 2010

Dealmaking Volume Shifting East; Developing Market Deals Surge.

According to an article in the FT, a new KPMG-backed survey, published today, shows that companies in emerging economies stepped up acquisition activity considerably in to developed markets over the last six months of 2009.

By comparison, the number of deals involving companies from developed markets buying assets in emerging economies fell. There is no question in my mind that world’s economic axis shift eastward is starting to accelerate.  The results underscore the renewed confidence of companies in emerging economies to embark on outbound deals, and how the ongoing impact of recession and lack of credit have curtailed the globe-trotting ambitions of many western companies.

KPMG recorded 102 emerging-to-developed deals in the second half of last year, a bounce back from the 78 deals in the first half of 2009.  Trade buyers in emerging markets had cut deal activity in developed economies at the height of the global economic downturn amid worries over valuations and corporate earnings.

The number of developed-to-emerging deals dropped to 216 in the second half of the year – the fourth consecutive six-month period when such activity has fallen. It suggests that western companies continue to struggle for credit and remain focused on surviving within their home markets.

The latest figures mean that developed-to-emerging deal activity has more than halved from its high point of 463 deals in the second half of 2007, when western buyers flocked to countries such as China because of high economic growth or to outsource production to cheaper locations.

The figures are contained in a six-monthly study of inbound and outbound activity involving 11 emerging markets and 12 developed economies, excluding private equity deals. The emerging economies include India, China, Russia and South Africa, while the developed economies feature the US, UK, Germany and France.

The economy in the BRICs as well as Turkey, Korea, South Africa, Indonesia is rebounding from recession at a faster pace than their developed counterparts in the US and Europe.  It has been a long term trend that corporations have been investing in the developing world but following recession, they will be more aggressively fighting for inorganic growth not only competing among  Global 500 but also against emerging conglomerates from the developing economies. These are once in a life time opportunity for dealmakers with an appreciation for political, social and cultural aspects of business in these territories.

Sunday, March 14, 2010

10 Ideas for the Next 10 Years

I loved Time Magazine's article this week on the most important trends of our times mostly because it offers a fresh perspective on how the society is changing and what it means for successfull marketers.

10 Important Trends:

1. The Next American Century

2. Remapping the World

3. Bandwidth Is the New Black Gold

4. The Dropout Economy

5. China and the U.S.: The Indispensable Axis

6. In Defense of Failure

7. The White Anxiety Crisis

8. TV Will Save the World

9. The Twilight of the Elites

10.The Boring Age
Please check it out and let me know what you think!

Saturday, March 06, 2010

Hewlett-Packard sets sights on bigger targets in 2010, exec says

Hewlett-Packard (NYSE:HPQ), based in Palo Alto, California, intends to target larger companies this year than in the past, according to James Gonzalez, senior director of strategy and corporate development.

“We still want to look at technologies, but we also want to look at companies that can be self-sustaining. We need a company that has traction and that can be self-sufficient,” Gonzalez said on a panel at America’s Growth Capital 6th Annual Information Security and Emerging Growth Conference in San Francisco today.

Last year, the technology giant acquired 3Com for USD 2.6bn and file storage company IBRIX for an undisclosed amount.

HP is receiving fewer approaches from sellers this year than the same time last year and valuations have crept up, Gonzalez noted. Asked about HP’s international strategy, Gonzalez said it will look at services acquisitions on a regional basis, but geography does not influence its search for software and storage targets. HP will look at acquisitions across the business, which includes networking, storage and software, he said.

Riverbed, Brocade, F5, Avaya and Polycom have previously been listed as targets for HP. HP retained Morgan Stanley and law firms Fangda Partners and Cleary Gottlieb Steen & Hamilton for the acquisition of 3Com.

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SAP's strategy remains unchanged; company not averse to large acquisition, CFO says

SAP’s strategy will remain unchanged under new co-chief executives Bill McDermott and Jim Hagemann, chief financial officer Werner Brandt said in an investor conference call to discuss the listed German enterprise software business's priorities.

SAP will also continue to seek mostly smaller tuck-in acquisitions. However, if there happened to be a larger acquisition opportunity that would make both strategic and financial sense, the company would not be averse to doing such a transaction, Brandt added, pointing to its successful acquisition of BusinessObjects as an example.

Less than a week after the surprise resignation of its chief executive, German software giant SAP AG said Thursday its chief operating officer, Erwin Gunst, was stepping down and another senior executive, John Schwarz, had resigned.The business-software maker said Mr. Gunst, who had held the job since 2008, was stepping down for health reasons. The company didn't give a reason for the resignation of Mr. Schwarz nor did it name a replacement.

Mr. Gunst will be replaced by Gerhard Oswald, a 30-year SAP veteran who was previously the executive board member responsible for global services and support. The moves come just a few days after the German company named insiders Bill McDermott and Jim Hagemann Snabe co-chief executives after CEO Leo Apotheker resigned Sunday after less than a year at the helm.

Mr. Schwatz was the member of executive board responsible for the company's business-intelligence unit as well as partners and corporate development. He joined SAP in 2008 after it acquired the software company he ran, Business Objects, for $6.8 billion and lead the integration of the two companies. Just last month, SAP said it would create a new industry and solution management board area under Mr. Schwarz.

In a statement, SAP Chairman and co-founder Hasso Plattner said, "We regret that John Schwarz has decided to leave the company. "SAP has long been a leader in the $67 billion market for enterprise software, but the global economic downturn, intense competition and the fast-evolving business software field have threatened to crimp its growth. Last month, SAP, which develops software for corporate payrolls, inventory management and accounting, said its fourth-quarter income fell 12% to $995.3 million.

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SolarWorld AG acquires stake in Qatar Solar Technologies

SolarWorld AG has acquired a 29% stake in the newly founded joint venture Qatar Solar Technologies (QST), headquartered in the Emirate of Qatar. The Joint Venture will establish the first production facility for poly-silicon on the Arabian Peninsula. Partners are the Qatar Foundation (70%) and the Qatar Development Bank (1%).

Qatar Solar Technologies will invest a total of more than USD 500m in the construction of the new production facility with a planned annual capacity of around 3,600 tons of high-purity polysilicon in its first stage of expansion. Start of production is planned for the third quarter of 2012. At the Ras Laffan Industrial City location in the North East of Qatar the Joint Venture has access to an excellent chemicals infrastructure with favorable energy prices. Here a forward integration along the entire solar value chain all the way to the finished solar power module could be implemented. A change of thinking is taking place on the Arabian Peninsula from which a larger and larger market for solar power systems is developing.

Qatar is one of the world’s largest supplier countries for natural gas that has so far been securing its power supply on the basis of natural gas. „With the conversion of natural gas via electricity into solar-grade silicon the reach of the gas virtually increases by a factor of more than 25 for as long as our solar power modules generate, as guaranteed, clean energy from the sun” says Frank H. Asbeck, Chairman and CEO of SolarWorld AG when signing the contract this Monday in Doha in the presence of Her Highness Sheikha Mozah Bint Nasser Al- Missned.

With the project SolarWorld AG is further securing its supply of solar-grade silicon in addition to the company’s own production, its own raw materials recycling activities and its long-term delivery contracts. The technology partner for the construction of the production line is the German company centrotherm photovoltaics AG with which SolarWorld AG has previously cooperated successfully in the development of its manufacturing facilities.

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Gazprom and GDF SUEZ sign memorandum on additional gas supplies of Russian gas and GDF SUEZ's entry into Nord Stream

Gazprom and GDF SUEZ sign memorandum on additional gas supplies of Russian gas and GDF SUEZ's entry into Nord Stream

Gazprom, the listed, Russian gas company, issued the following statement today, 1 March:

Today in Paris and in the presence of President of Russia Dmitry Medvedev and President of France Nicolas Sarkozy Gazprom Management Committee Chairman Alexey Miller and GDF SUEZ Chairman and Chief Executive Officer Gérard Mestrallet signed a Memorandum on additional supplies of Russian natural gas and on the entry of GDF SUEZ into the Nord Stream project.

The document specifies that the parties have started discussions about supplying to GDF SUEZ up to 1.5 billion cubic meters of additional gas per year from 2015. The supplies will be fulfilled via the Nord Stream.

Alexey Miller and Gérard Mestrallet also expressed their satisfaction with the progress made to finalize the deal under which GDF SUEZ will become a shareholder of Nord Stream AG with a share of 9 per cent in its capital before the start of the gas pipeline construction.

“The Nord Stream is a strategically important pipeline for Europe. The value of the project is difficult to overestimate, as it will be an additional guarantor of energy security for millions of consumers and give them confidence in the future. The Nord Stream is a good example of an offshore gas pipeline complying with stringent international environmental requirements. It has recently received the last approval needed to begin construction this April. Together with our counterparts from GDF SUEZ, we believe that the Nord Stream will not merely strengthen cooperation between our companies, but will also help develop the energy sector of the entire continent and be another factor in the success of the long-term Russian-French partnership in the gas industry,” said Alexey Miller.

“In the framework of Cross Year 2010, the year of Russia in France and of France in Russia, the agreement with Gazprom, our long-term Russian partner and the largest gas producer in the world, illustrates the high-quality relationship developed over the years. Furthermore, GDF SUEZ regards with high consideration this major industrial partnership with Gazprom. By entering Nord Stream AG and increasing its gas purchase from Russia, GDF SUEZ aims at contributing to Europe’s security of supply including North West Europe where the Group is one the major power producers and holds a large portfolio of final power and gas customers,” declared Gérard Mestrallet.


The Nord Stream is a fundamentally new route for Russian gas export to Europe. Going through the waters of the Baltic Sea from the Portovaya Bay (near Vyborg) to the German coast (near Greifswald) the gas pipeline will stretch for approximately 1,200 kilometers. The first Nord Stream string with a capacity of 27.5 billion cubic meters per year is projected to be commissioned in 2011. The construction of the second string of the gas pipeline will allow increasing gas capacity to 55 billion cubic meters.

The Nord Stream project is being implemented by the joint venture Nord Stream AG, set up for the planning, construction and further operation of the offshore gas pipeline. Stakes in Nord Stream AG are currently distributed as follows: Gazprom holds 51%, Wintershall Holding and E.ON Ruhrgas hold 20% each, and Gasunie holds 9%.

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Oce: Canon announces that over 71% of shares have been tendered

Canon announced today that over 71% of Oce shares have been tendered to the Japanese company's tender offer.

Reference is made to the press release of 28 January 2010, in which Canon and its subsidiary Canon Finance Netherlands. (together "Canon") and Océ ("Océ") jointly announced that Canon is making a fully self-funded public cash offer ("Offer") for all the issued and outstanding ordinary shares of Océ (the "Shares") at an offer price of EUR 8.60 per Share.

Canon announces that by the close of the acceptance period on 1 March 2010, over 71% of the Shares were acquired by or tendered to Canon, which includes the 28.3% of the Shares (24,018,597 Shares) already held by Canon.

Canon will announce on or before 4 March 2010 its decision whether the Offer is i) declared unconditional, ii) extended or iii) terminated as a result of the offer conditions not having been fulfilled (paragraph 6.2 of the Offer Memorandum). If Canon declares the Offer unconditional, Canon intends to announce a post-acceptance period (na-aanmeldingstermijn) of up to two weeks.

Océ announces that the Enterprise Chamber in Amsterdam this evening dismissed the requests by Hermes/USS.

Rokus van Iperen, chairman of the Board of Executive Directors of Océ, commented: "We are pleased that this ruling means the process related to the envisaged acquisition of Océ by Canon can proceed."

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