Google acquired a whopping 57 companies of various assets through September, according to an SEC filing. With three months left to go in the year, anyone want to guess what else is on the radar?
Google (NASDAQ:GOOG) spent more than $1.4 billion to purchase 57 companies of various sizes and persuasions, blasting apart the company's previous record of 48 acquisitions from 2010.
The search engine provider revealed in a 10-Q filing with the SEC that it paid $941 million in cash for three deals that included:
ITA Software - A flight reservations software company for $676 million.
Zagat - A restaurant review guide in April for $151 million.
Daily Deals - An online daily deals service for $114 million in September.
Google paid another $502 million in the aggregate for 54 other smaller companies, according to Google.
On August 15, 2011, Google announced a bid to acquire Motorola Mobilityfor $12.5 billion, but that isn't likely to close until 2012, due to current regulatory scrutiny.
Google isn't done with M&A either. The company spent that much and picked up that many assets only through September, which means that it acquired more than 6 companies a month to date. With 3 months left in the new year, it's possible Google could tack another 10 or 15 purchases before 2012.
Why buy all of these companies and what's the grand plan? Most of the buys have been cloud-based players that bolster the company's local search, advertising, video and social services services.
Ultimately, Google is weaving a fresh tapestry of Web services and applications into its Google+ social network, which it hopes to make the center of the user experience.
ITA has been leveraged in Google Flight Search. Zagat will be used in Google Places for local business search.
Daily Deals, along with loyalty card provider Punch, coupon provider Zave Networksand daily deals aggregator DealMap will likely be used to fortify the Google Offers deals and Google Wallet mobile payment services.
Google's YouTube arm bought video producer Next New Networks, which is being used to help fashion new channels on YouTube, as well as Flick for social sentiment analysis and Green Parrot Picturesfor video processing.
COMMENTARY: Google's recent acquisition of Motorola Mobility was its largest by far, but let's look at the search giant's major acquisitions over the past 11 years. Here are the highlights of the major ones:
In total, Google has acquired 102 companies with Motorola Mobility being their biggest one to date. Google paid $12.5 billion for the company, but it still awaits regulatory approval.
Other big acquisitions include DoubleClick in 2007 ($3.1 billion), YouTube in 2006 ($1.65 billion), as well as buying a 5% stake in AOL in 2005 ($1 billion).
Of all the companies Google has bought, 74 were based in the United States, 6 in Canada, 5 in Germany, 4 in the UK, 2 in Australia, and 2 in Israel.
In 2001, they bought only two companies. In sharp contrast, last year that number peaked at 26 and this year, they have already acquired 18 different companies. That’s 44 companies in 20 months. Someone said recession?
Those were the highlights. And here’s the “big picture.”
Click Image To Enlarge
Courtesy of an article dated October 27, 2011 appearing in eWeek.com and an article dated September 3, 2011 appearing in IntoMobile
That the U.S. military is taking a major role in renewables deployment isn’t news that much anymore. Still, a recent announcement shows how big that commitment is.
Project SolarStrong is a multi-year project worth more than $1 billion under which developer SolarCity will install, own, and operate rooftop solar systems on up to 160,000 privatized military residences on as many as 124 military bases across 33 states. The project would double the current number of residential rooftop solar systems in the U.S.
There’s another component of the project that’s worth noting – a large infusion of private capital in a renewable energy project that enjoys government aid through a federal loan guarantee. But the financing is entirely from private sources.
That’s the kind of news that gets lost in the current climate of budget austerity and allegations of waste when a project goes bad.
In September 10, 2011, the Obama administration authorized the US Renewables Group (USRG) to provide the first installlment of $344 million in financing for Project SolarStrong. Ed Feo, managing partner of US Renewable Finance said.
"This will be the first time that long term debt has been successfully deployed to finance a residential distributed generation project at such a large scale, resulting in a lowered cost of capital for the project that will enable an unprecedented expansion of U.S. residential solar power."
The U.S. Department of Energy’s Loan Guarantee Office has offered a conditional commitment for a partial loan guarantee to USRG Renewable Finance for the project, which covers up to 80 percent of a loan provided to a qualifying renewable energy project. USRG Renewable Finance will provide the financing in partnership with Bank of America Merrill Lynch.
Click Images To Enlarge
The project will be financed entirely by private capital. It calls for installing a total of 371 megawatts of solar PV systems on military housing. SolarCity, which currently employs more than 1,200 people in 11 states, will create new jobs and help jumpstart the renewable energy industry in up to 22 additional states, some of which have very little solar generation capacity today.
SolarCity said it will seek out veterans to hire and train or family members of active duty military service members to install and maintain the solar systems.
The SolarStrong Project will have the added benefit of helping the Department of Defense (DOD), the single-largest energy consumer in the U.S., secure its energy needs from domestic renewable sources that are independent from the utility grid, at no additional cost to taxpayers. DOD has a stated goal that 25 percent of all energy consumed by 2025 shall be supplied from renewable sources.
The project will be rolled out over five years, starting with a four megawatt installation at Hickam Air Force base in Hawaii, with construction currently underway. SolarStrong is expected to sell electricity produced from the projects through long-term electricity sales agreements or lease solar systems through long-term lease contracts.
The SolarStrong projects will likely include installing solar on other privatized buildings on military bases, such as community centers, administrative offices, maintenance buildings and storage warehouses.
Some interesting news at a time when public-private energy partnerships have gotten a bad name.
COMMENTARY: SolarCity has had a big year, first with news that Google is creating a $280 million fund to finance its residential solar projects, and now with the announcement that it will double the amount of residential solar photovoltaic installations in the U.S.
In September 7, 2011 press release, SolarCity unveiled plans to double the total number of residential solar installations in the U.S. through installation of solar power on 160,000 military homes. Lyndon Rive, SolarCity’s CEO said.
“We’re extremely grateful to the Department of Energy’s Loan Programs Office, in addition to our partners, U.S. Renewables Group and BofA Merrill Lynch. Without this group, we would not have been able to make the economics of this project work. Now the solar industry has a debt model that can make distributed generation affordable on a massive scale.”
Aaron Gillmore, SolarCity’s vice president of solar development said.
“Thanks to the Energy Department’s leadership and resolve, we can now bring an unprecedented opportunity to privatized military housing across the U.S. We believe the SolarStrong model will deliver the most affordable solar option available to military housing, and provide a template for financing large-scale residential solar projects well into the future.”
According to SolarCity CEO Lyndon Rive, the $344 million loan from the DOE to finance the first installment of Project SolarStrong has a "very low risk profile," since the DOE guarantee only kicks in after solar systems have been installed and produce electricity. The deal is part of a DOE loan program that guarantees up to 80% of a loan from a private lender--in this case USRG Renewable Finance and Bank of America Merrill Lynch--for a renewable energy project.
SolarCity has already begun work on a SolarStrong project at Hickam Communities at Joint Base Pearl Harbor-Hickam in Hawaii, where its installations will provide solar power to over 2,000 military homes. Rive explains.
"It works similarly to any traditional homeowner. A system gets installed on the roof and produces electricity. If a person isn't there, it will backfeed the meter and build credits with the utility."
SolarCity expects to roll out the rest of the installations over the next five years. And this will, presumably, bring the Department of Defense closer to its goal of moving to over 25% renewable energy generation by 2025. Rive says.
"The military wants to adopt clean power, but they don't want to pay more for it. We needed to come up with a product or value offering that allowed them to save money and at the same time use clean energy."
It's unfortunate that the Solyndra bankruptcy which stuck American taxpayers with a $535 million bill, has put a tarnish on all federally-guaranteed loan programs. This has now become a political hot potato. Politicians may fight all they want, but the facts remain: solar power is just plain good for the environment, reduces our dependancy on fossil fuels and creates a lot of jobs which we drastically need. Troops returning from Iraq and Afghanistan stand to gain, as they will get first priority when it comes to the new SolarCity jobs created by Project SolarStrong.
About SolarCity
Founded in 2006, SolarCity is the nation's leading full-service solar provider for homeowners, businesses and government organizations—the first company to provide solar power system design, financing, installation and monitoring services from a single source. It now serves more than 15,000 customers in Arizona, California, Colorado, Delaware, Hawaii, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas and Washington D.C.
SolarCity's customers include thousands of homeowners, more than 75 schools and universities, government agencies such as the U.S. General Services Administration (GSA) and Department of Homeland Security, national landmarks such as San Francisco's Grace Cathedral, and well-known corporate clients, including Intel, British Motors, and eBay.
SolarCity pioneered the groundbreaking SolarLease and solar Power Purchase Agreements (PPAs) which can make it possible for homeowners and businesses to switch to clean, solar power for less money than they currently pay for electricity.
SolarCity is privately-owned and it does not publish its financials.
Courtesy of an article dated October 27, 2011 appearing in EnergyBizand an article dated September 8, 2011 appearing in Fast Company
Breaking the world record pumpkin weight has become an annual event. So, it's no surprise to learn that the record was indeed broken again this year. What is a surprise, was the weight, a record smashing 1810.5 pounds!
Chris Stevens of New Richmond, Wi. brought his 1810.5 pound pumpkin, to the Stillwater Harvest fest in Stillwater, Minnesota, on October 9, 2010.
The 2009 world record breaker was Christy Harp with a 1,725 pound pumpkin. The new world record beat it by a whopping 85 pounds!
After a one year respite, the annual event of breaking the world record weight for giant pumpkins was renewed.
Christy Harp brought a 1,725 pound pumpkin to the Ohio Valley Giant Pumpkin Growers (OVGPG) Giant Pumpkin Weigh-Off on Saturday, October 3, 2009.
Cristy's new world record pumpkin, beat the previous record of 1689 pounds in 2007, held by Joe Jutras from North Scituate, Rhode Island.
COMMENTARY: That's what I call a fucking huge pumpkin.
During a recent webinar from Covario, over 100 digital marketers were asked what the main goal of their Facebook page is. The results aren't surprising. In general, driving sales is the No. 1 priority of digital marketers’ social media programs. However, 45 percent of the respondents said driving engagement and brand awareness is their top priority.
This is important because as much as we'd like to be able to benchmark advertisers based on their ability to drive sales via Facebook, that data typically isn't available to the public. Therefore, competitive benchmarking must be done on advertisers’ behalf to drive soft metrics like fans and engagement relative to their overall brand presentation on Facebook.
Covario recently benchmarked the top 100 advertisers (using the latest Advertising Age ranking of total ad spend) based on a series of factors to measure their Facebook presence, also known as Facebook presence score (FPS).
Coca-Cola ranked No. 1 on the weighted model at the core of the study. The model looked at the advertiser's reach (i.e., number and growth of followers), engagement (i.e., monthly posts, likes, comments and applications), technical construction (i.e., brand name usage, link to a brand website, use of the word “official,” etc.) and reputation (i.e., particularly negative user sites found when conducting Facebook searches for a brand).
FPS scores ranged from 0 (worst) to 100 (best). Coca-Cola won with an overall score of 100, two points higher than second-place finisher Hyundai. Rounding out the top five brands were MTV (Viacom), Disneyand Bayer.
Within a brand's overall FPS, reach is the most highly weighted factor at 40 percent. Engagement is next at 30 percent, followed by technical considerations (20 percent) and reputational factors (10 percent).
It's not surprising that Coca-Cola topped the list. It has a huge Facebook fan following of more than 34 million. That's combined with a solid engagement strategy, which includes offering enthusiasts more than 25 different apps to enjoy as well as biweekly posts that are garnering an average of 236 comments and 1,749 likes each. Plus, Coca-Cola's Facebook page is technically optimized and there are no negative pages showing up in search results for the brand.
The top engagement score was earned by Wal-Mart. While the popular retailer has only 25 percent of the reach of Coke, it's really engaged its fans. Wal-Mart receives an average of 7,390 comments and 726 likes per post. That's much higher than all other advertisers.
Of the bottom 10 ranking companies, eight are banks or financial services firms, which all had low engagement, reach and reputation scores. It makes sense. Banks and financial services companies haven't engaged in social media as aggressively as other leading advertisers because of the regulatory nature of communications in that industry. It's also not in their best interest to create a forum for customers to post negative comments.
Insights
Since any brand can create a Facebook page — encompassing enthusiasts and detractors alike — the key to success is how well it interacts with its fans.
Covario found that several advertisers have done a great job of building their fan base, but then do little to engage them after acquisition. At the same time, there are advertisers who do a great job with engagement but they have lower-than-expected reach. These are squandered branding opportunities.
Even though Facebook is a bit like the Wild West — anyone can ride into town and try to rustle a brand away — there's still a great deal of brand equity you can control. Here are some tips to help your brand's FPS:
Post and comment frequently. Let your fans know you're genuinely listening to them.
Engage your enthusiasts. Develop relevant content for them to enjoy, such as apps, videos, contests and promotions.
Let them know that it’s really you. Clearly designate your page as your brand’s official Facebook page to avoid any confusion with nonofficial pages.
Post your rules of engagement. Use your page description to let fans know that you want them to treat other fans (and your brand) with respect.
Optimize. To ensure that your page shows up in Facebook’s on-site search results, include your brand name in the URL, title and description of your page.
Janice Smithers is senior media strategist for analytical insight services at Covario. Janice can be reached at [email protected].
COMMENTARY: I think brands really need to put a "human face" to represent their brand. I recall the old saying that goes like this, "Fans don't engage with brands, they engage with people." If you can afford to do so, use a well known celebrity, sports personality, or even a fictitious figure like Tony The Tiger (Kellogg's) otherwise got out in front, and add your picture to your home page. The president of the company or a suitable representative would be my choice. This adds the human touch to your brand. It shows that the buck stops with you. Talk to your fans, illicit responses, run surveys and polls, offer free goodies for information. Don't hit too hard on the selling. If you have good products, and this is why you have accumulated so many fans, they will buy from you out of loyalty. If you do those things you cannot go wrong.
Courtesy of an article dated October 27, 2011 appearing in eM+C
Rajat Gupta, center, former Goldman Sachs director, exits federal court in New York on Wednesday.
Rajat Gupta, once one of America's most-respected corporate directors, was indicted on six criminal counts in an insider trading case that prosecutors said was motivated not by quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships.
WSJ legal reporter Ashby Jones stops by Mean Street to discuss former Goldman Sachs director Rajat Gupta's indictment on charges of leaking inside information.
The Charges Brought Against Raj Gupta
The U.S. accused Mr. Gupta of passing along nonpublic information to disgraced hedge-fund titan Raj Rajaratnam, gleaned from Mr. Gupta's role as a director at Goldman Sachs Group Inc. and Procter & Gamble Co. Mr. Gupta and Mr. Rajaratnam, the billionaire trader sentenced this month to an 11-year prison term, were good friends whose regular discussions of business included the illegal tips, according to federal prosecutors, the Federal Bureau of Investigation and securities regulators.
The two also were partners in investing, supporting each other's funds with money, the government alleges. Authorities say their relationship was so close that Mr. Gupta passed along tips about corporate secrets almost as soon as he received them.
Janice Fedarcyk, the FBI's assistant director in charge in New York, said Wednesday.
"His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of 39 seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
Mr. Gupta was charged with five counts of securities fraud and one count of conspiracy. He faces up to 20 years in prison on each fraud charge. Bail was set at $10 million, secured by his Westport, Conn., home. He was ordered to surrender his passport. A trial is scheduled for April 9, 2012, before U.S. District Judge Jed S. Rakoff.
According to the indictment, Mr. Gupta allegedly called Mr. Rajaratnam 16 seconds after the end of a Goldman board meeting on Sept 23, 2008, where he learned about a $5 billion investment in the bank by Berkshire Hathaway. Galleon generated an $840,000 profit in subsequent trading, prosecutors said. The indictment says Mr. Gupta tipped Mr. Rajaratnam again on Oct. 23, 2008, roughly 23 seconds after a Goldman board meeting where he was told the investment bank would suffer its first quarterly loss as a public company, saving Galleon several million dollars in losses.
Mr. Gupta is also accused of calling Mr. Rajaratnam from Switzerland on Jan. 29, 2009, with information about P&G's coming earnings release. At the time, Mr. Gupta was in Davos at the summit for World Economic Forum, for which he was a board member, according to an online picture of him at the event. Goldman declined to comment. A P&G spokesman said the company "is not a party" to the charges and had cooperated with the investigation.
Preet Bharara (below), U.S. Attorney for the Southern District of New York, speaks at a press conference following the conviction and sentencing of Galleon Group chief Raj Rajaratnam. Mr. Bharara's office is responsible for the arrest and conviction of 51 individuals involved in the insider trading case against Galleon Group's Raj Rajaratnam.
This is what U.S. Attorney Prett Bharara said in a press release following the 11-year prison sentence handed down to Raj Rajaratnam.
“Two years ago, Raj Rajaratnam stood at the summit of Wall Street, commanding his own financial empire. Then he was arrested, tried, and convicted by a jury. Mr. Rajaratnam stood convicted 14 times over of felonies, his empire exposed as a web of fraud and corruption that entangled many. Today, Mr.Rajaratnam stood once more and faced justice which was meted out to him. It is a sad conclusion to what once seemed to be a glittering story. We can only hope that this case will be the wake-up call we said it should be when Mr. Rajaratnam was arrested. Privileged professionals do not get a free pass to pursue profit through corrupt means. The message is the same for everyone no matter who you are or how much money you have — obey the law or face the fate of those who don’t.”
U.S. Attorney Preet Bharara said this about Mr. Gupta in a statement following the reading of the charges gainst Raj Gupta in Federal Court.
"Mr. Gupta became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam."
Raj Gupta's Attorney Reacts To The Federal Charges
Gary Naftalis, Mr. Gupta's lawyer, called the government allegations "totally baseless." He said Mr. Gupta "has always acted with honesty and integrity." Mr. Gupta "did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."
The charges come amid distrust of business and Wall Street, symbolized by the Occupy Wall Street movement that began blocks away from the federal courthouse where Mr. Gupta was arraigned.
Charles Munger, vice chairman of Berkshire Hathaway Inc., whose investment in Goldman during the heat of the financial crisis in 2008 was the focus of one of Mr. Gupta's alleged leaks said.
"There is a lot of insider trading—and some of that goes to high places."
The company had its own trading controversy this year after one of its top managers bought shares of a company in advance of an acquisition by Berkshire, though no charges have been brought.
The Galleon Group Web of Insider Information
The accusations indicate a new twist in an insider-trading investigation that has so far focused primarily on those who profited directly from stock tips, but is now examining a culture where prosecutors say secrets are swapped freely among powerful business figures.
Click Image To View Interactive of Galleon's Web
How Raj Gupta Surrendered To The FBI
The 62-year-old Mr. Gupta, the former managing director of consulting firm McKinsey & Co., surrendered to the FBI on Wednesday and was arraigned in a New York federal court, wearing a dark suit and light-red tie.
According to childhood friend Anand "Bill" Julka, who said he has spoken recently with Mr. Gupta, he believed it was auspicious to surrender on Diwali, a major holiday popularly known as the "Indian festival of lights," Mr. Julka said.
"He believes he is innocent and the gods will protect him if humans fail."
A representative for the Manhattan U.S. attorney's office declined to comment on the timing of the charges.
The Raj Gupta Case Is A Huge Gamble For The Federal Government
The charges against Mr. Gupta represent a gamble for the government. Manhattan U.S. Attorney Preet Bharara's office debated whether to bring charges, people familiar with the matter say. The government doesn't have wiretapped recordings of Mr. Gupta passing inside information about the trades at issue by Mr. Rajaratnam—making the case potentially more difficult for prosecutors. A loss at trial could detract from a run of victories against insider-trading defendants, lawyers say.
Mr. Gupta is the 56th person charged with insider trading by federal prosecutors in New York over the past two years; 51 have been convicted or pleaded guilty. Many of those resulted from the government's probe into the Galleon Group, which was founded and led by Mr. Rajaratnam.
Mr. Gupta's motives, and that he wasn't paid for any alleged tips, could be important if he goes to trial, because insider-trading law generally requires the government to prove that tippers received some benefit to prosecute them for leaking inside information.
But Jonathan S. Sack, a securities lawyer in New York, said based on Supreme Court case law, the Justice Department won't have to prove that the benefit Mr. Gupta received was direct or financial in nature. Prosecutors have indicated they will argue it was partially intangible.
Federal prosecutors said in the indictment.
"Gupta benefited and hoped to benefit from his friendship and business relationship with Rajaratnam in various ways, some of which were financial."
The Securities and Exchange Commission—which had brought an administrative proceeding on insider-trading charges against Mr. Gupta in March but later dropped it—separately brought a new civil lawsuit against Mr. Gupta on Wednesday. Mr. Gupta hasn't responded to the SEC's complaint, but he previously denied the regulators' allegations in March.
Anil "The Consultant" Kamar
The broad cases against Mr. Rajaratnam, Mr. Gupta and Anil Kumar—a former McKinsey partner who has pleaded guilty in the probe—also are an embarrassment for the global consulting giant, people familiar with the company say. Though not all of the charges involve information gleaned from McKinsey clients—those against Mr. Kumar did—the consulting firm prides itself on client confidentiality, and any concerns about the firm's discretion could create a risk for consulting contracts, the people say. Mr. Gupta led McKinsey from 1994 until 2003.
Anil Kumar, a former McKinsey & Co consultant, leaked insider information to Raj Rajaratnam of Galleon Group about secret merger talks between Advanced Micro Devices and ATI Technologies. Mr. Rajaratnam made $23 million from that insider information. Mr. Kumar was given a $1 million bonus for those efforts
Mr. Kumar earned several million dollars a year as a senior executive at McKinsey. He had a grueling work schedule, traveling some 30,000 miles a month, consulting for corporate clients across the globe.
In 2003, Mr. Rajaratnam, who was fast on his way to becoming a billionaire, told his business school classmate that he was underpaid.
Kumar said he was told by Mr. Rajaratnam,
“You work hard, travel a lot; people made fortunes while you were away and you deserve more.”
Mr. Kumar would later depict himself as a reluctant felon, initially rejecting Mr. Rajaratnam’s offer. But after they devised an elaborate scheme to hide the payments — opening a Swiss bank account and then transferring funds from it into a Galleon account in the name of Mr. Kumar’s housekeeper — he began moonlighting as a private consultant to Mr. Rajaratnam.
At first, Mr. Rajaratnam asked Mr. Kumar general “big picture” questions about the technology industry but soon became “quite specific,” pressing him for details about individual companies, Mr. Kumar said.
Says Kumar,
“Mr. Rajaratnam kept asking for that information, and I felt that I owed him something, given how much money he was paying me.”
After Mr. Rajaratnam told Mr. Kumar that his insights were not detailed enough and had little value to him, he suggested an alternative arrangement where they would share trading profits when Mr. Kumar’s tips made money. Mr. Kumar rejected this proposal, preferring a straight-up fee similar to how he was paid for his work at McKinsey.
Mr. Kumar testified,
“I was a consultant at heart. That seemed like an even bigger crime to me.”
In 2006, Mr. Kumar agreed to another compensation scheme: Mr. Rajaratnam would pay him a year-end bonus based on his annual performance. Mr. Kumar proved his worth that year, providing him with details about secret merger negotiations between Advanced Micro Devices and ATI Technologies.
When the companies announced the deal in July 2006, Mr. Kumar got a call from Mr. Rajaratnam,
“That was fantastic. We’re all cheering you at the office right now. You’re a star. You’re a hero.”
Mr. Kumar’s tip about the deal helped Mr. Rajaratnam generate about $23 million in profit buying ATI stock, his single largest illegal gain.
In December, Mr. Rajaratnam told Mr. Kumar that Galleon was paying out big year-end bonuses and said,
“'I want to give you $1 million'. I almost fell off my chair.”
The insider-trading probe prompted the firm to tighten internal security involving confidential information, a former McKinsey official said. McKinsey declined to comment.
The Motives Behind Raj Gupta's Association With Raj Rajaratnam
A Kolkata, India, native who later moved to Delhi, Mr. Gupta arrived in the U.S. to attend Harvard Business School. His character was shaped by the death of his parents in his teenage years, said Mr. Julka, the childhood friend.
According to Mr. Julka, who owns an information-technology firm in Cleveland.
"Suddenly, he became the head of the family. It made him very compassionate. He was a lot more mature than all of us."
Mr. Gupta set up the American India Foundation and also was the founding chairman of the Indian School of Business in Hyderabad. He was viewed as a master networker, establishing relationships with former President Bill Clinton, Microsoft Corp. founder Bill Gates, and Hank Paulson, the former Goldman CEO and U.S. Treasury secretary. Mr. Gupta and his wife were among the list of invited attendees to President Barack Obama's first state dinner, according to list released by the White House.
The ability to cultivate contacts, along with their South Asian heritage, was a quality he shared with Mr. Rajaratnam, 54, a Sri Lanka native. They shared a mutual friend in Mr. Kumar, a McKinsey consultant who later testified for the U.S. in Mr. Rajaratnam's trial.
Messrs. Gupta and Rajaratnam had vastly different personal styles. The square-jawed Mr. Gupta was quiet and distinguished; the portly Mr. Rajaratnam was rougher around edges, and enjoyed practical jokes, people who know them said. Though Mr. Gupta had a more public persona, Mr. Rajaratnam was far richer, people familiar with the matter said.
They established a rapport, according to associates, and Mr. Gupta often would have lunch with Mr. Rajaratnam in the hedge-fund manager's office, ordering in Indian or Chinese food.
Mr. Gupta's stature and power in business circles far exceeded his personal wealth, which paled next to Mr. Rajaratnam's $1 billion net worth, people close to the situation say. Starting around 2003, he hoped to enter super-wealthy circles through his investments with Mr. Rajaratnam, people close to the situation say. He invested more than $2 million in two of Galleon's offshore hedge funds, one named "Captains" and the other named "Buccaneers," according to the SEC complaint.
Both Mr. Rajaratnam and Mr. Gupta invested "many millions" in the GB Voyager Multi-Strategy Fund, a master fund that invested in numerous Galleon hedge funds. Mr. Gupta saw the venture as a springboard for more business ventures with Mr. Rajaratnam, according to the SEC complaint.
The two formed another fund, the Voyager Special Opportunity Fund, and they signed up a number of South Asian business leaders to invest. They also organized Taj Capital Partners, later known as the New Silk Route fund.
It was in the ensuing years that Mr. Gupta allegedly leaked Mr. Rajaratnam inside information.
After the May conviction of Mr. Rajaratnam, friends say, Mr. Gupta seemed worried and nervous about his own future. Mr. Julka recalled.
"He was distraught. He seemed upset."
In a visit to Mr. Gupta's home in August, Mr. Julka said he congratulated him on the SEC's decision at the time to drop its civil case.
Mr. Gupta told him it was "too early" for kudos, Mr. Julka said, adding that the U.S. has "a right to indict me still."
COMMENTARY: Everytime I write or comment on any articles about former Galleon Group head Raj Rajaratnam, I find a field strewn with the decaying bodies of his victims, who willingly provided him directly or indirectly, insider information that gained him millions in profits.
The insider trading culture is really what drives the big money bets on Wall Street. It's the idea of winning, no matter what rules or laws are broken. Money acts like a powerful aphrodisiac, and people do crazy things when they fall under its spell. Raj Rajaratnam was a master at dispensing this aphrodisiac nectar by convincing people to work for him so they could feed him insider information.
What I find most interesting is that this lust to make money, and as much of it as possible, as fast as possible, is driven by some very smart and savvy people, who should know better. They are well educated, schooled in business law, SEC regulations, and many of them are graduates of Ivy League schools like Harvard, Yale and Wharton.
What I find ironic is that many of the insiders that fed insider information to Raj Rajaratnam's Galleon Group are from Harvard. Harvard's motto is Veritas, which is Greek for Truth. That's what I call ironic, don't you think?
Space Exploration Technologies Corp. said on Wednesday it has invested about $500 million in commercial-space ventures, shedding light on the closely held company's efforts to develop private rockets and capsules even as congressional skepticism about such projects grows.
SpaceX Chief Executive Elon Musk spoke about its hopes at the National Press Club in Washington in April.
The figure is substantially larger than founder and Chief Executive Elon Musk previously spelled out to lawmakers and goes beyond earlier statements that he has invested $100 million of his personal wealth in the Southern California-based maker of launchers and spacecraft. The nine-year-old company, which is widely known as SpaceX, has said little publicly about its overall spending on design, manufacturing, testing, personnel and facilities.
Testifying before the House Science Committee, Mr. Musk said the company was created "to advance the cause of space" rather than maximize profits. He added that he has retained majority control of the company "to assure that those idealistic goals of SpaceX remain."
The government has invested roughly $300 million in the company, which is considered one of the leading contenders for additional federal financial support.
Wednesday's disclosure comes amid escalating Capitol Hill debate over the projected risks and likely taxpayer costs of funding commercial-space efforts. The White House and the National Aeronautics and Space Administration want lawmakers to appropriate as much as $6 billion over the next five years for such programs, but bipartisan support for slashing that amount has grown partly because many companies are shying away from committing sizable investments of their own.
John Elbon, head of Boeing Co.'s commercial-space efforts, told the panel that government funding is projected to be the "preponderance" of the company's investment in future manned systems.
Boeing and other companies are also seeking congressional help in reducing anticipated private insurance costs for commercially developed rockets, as well as capping potential financial liabilities in the event of a major accident.
Such moves could add substantially to the total taxpayer burden and drew the attention of some politicians.
Rep. Donna Edwards, a Maryland Democrat said.
"Sooner rather than later, the taxpayer is going to have to know how many federal dollars will be required for such legal protections."
Mr. Musk reiterated SpaceX pledges to comply with fixed-price contracts if it wins the competition to take astronauts into orbit. He said he would commit to a price of about $20 million per seat per trip, which could begin as early as 2014. The price is roughly one-third of what Russia is now charging NASA for similar missions.
In the next few months, SpaceX hopes to launch its unmanned Dragon capsule to link up for the first time with the International Space Station and deliver a small amount of cargo, followed by the start of regular cargo deliveries probably in late 2012.
To highlight SpaceX's commercial posture, Mr. Musk said that its approximately $3 billion backlog of launch contracts is about evenly divided between NASA and private-sector customers
In response to questions from committee members, Bill Gerstenmaier, a senior manned-exploration official at NASA, was less certain about anticipated timelines and cost savings. Depending on congressional funding levels, he said the agency believes it could support more than one commercial-space venture to begin transporting astronauts—perhaps as early as 2016—and charging prices equal to or slightly below Russia's prices. NASA has estimated spending between $4 billion and $6 billion to reach that goal.
COMMENTARY: It's incredible what SpaceX's CEO Elon Musk has been able to accomplish in only nine years. However, within the last three years, or thereabouts, SpaceX has accelerated the development and launche of its Falcon 9 multi-stage rocket and Dragon spacecraft. In November 2011, SpaceX will launch the Falcon 9 multi-stage rocket and attempt to dock the Dragon spacecraft with the International Space Station. Elon Musk doesn't just hope to return man back to the Moon, but launch the first space mission to Mars by 2025. A mission to Mars would cost $250 to $500 billion, but if SpaceX were given the funding, I have no doubt that Elon Musk and his space scientists and engineers will get American astronauts there.
If I were Congress and NASA I would definitely approve funding for privately-owned space companies like SpaceX. SpaceX is much more numble and can get a lot more done with taxpayer dollars than NASA ever did. Previous space launches using the NASA Space Shuttle cost $250 million each. SpaceX's claims that it can launch payloads into space at 40% what they cost using the Space Shuttle, so to me its a no brainer. NASA officials are just jealous that they couldn't launch things into space cheaper than SpaceX. What the Russians are charging the U.S. to shuttle our astronauts to and from the International Space Station amounts to a ripoff. The sooner Congress approves funding the better.
When Western companies pulled back from Iran after the government's bloody crackdown on its citizens two years ago, a Chinese telecom giant filled the vacuum.
Huawei Technologies Co. now dominates Iran's government-controlled mobile-phone industry. In doing so, it plays a role in enabling Iran's state security network.
Huawei recently signed a contract to install equipment for a system at Iran's largest mobile-phone operator that allows police to track people based on the locations of their cellphones, according to interviews with telecom employees both in Iran and abroad, and corporate bidding documents reviewed by The Wall Street Journal. It also has provided support for similar services at Iran's second-largest mobile-phone provider. Huawei notes that nearly all countries require police access to cell networks, including the U.S.
Huawei's role in Iran demonstrates the ease with which countries can obtain foreign technology that can be used to stifle dissent through censorship or surveillance. Many of the technologies Huawei supports in Iran—such as location services—are available on Western networks as well. The difference is that, in the hands of repressive regimes, it can be a critical tool in helping to quash dissent.
WSJ's Steve Stecklow has the story of Chinese telecom firm Huawei, which dominates Iran's government-controlled mobile industry. Photo: AP Photo/Kin Cheung
Last year, Egyptian state security intercepted conversations among pro-democracy activists over Skype using a system provided by a British company. In Libya, agents working for Moammar Gadhafi spied on emails and chat messages using technology from a French firm. Unlike in Egypt and Libya, where the governments this year were overthrown, Iran's sophisticated spying network remains intact.
In Iran, three student activists described in interviews being arrested shortly after turning on their phones. Iran's government didn't respond to requests for comment.
Iran beefed up surveillance of its citizens after a controversial 2009 election spawned the nation's broadest antigovernment uprising in decades. Authorities launched a major crackdown on personal freedom and dissent. More than 6,000 people have been arrested and hundreds remain in jail, according to Iranian human-rights organizations.
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This year Huawei made a pitch to Iranian government officials to sell equipment for a mobile news service on Iran's second-largest mobile-phone operator, MTN Irancell. According to a person who attended the meeting, Huawei representatives emphasized that, being from China, they had expertise censoring the news.
The company won the contract and the operator rolled out the service, according to this person. MTN Irancell made no reference to censorship in its announcement about its "mobile newspaper" service. But Iran routinely censors the Internet using sophisticated filtering technology. The Journal reported in June that Iran was planning to create its own domestic Internet to combat Western ideas, culture and influence.
In winning Iranian contracts, Huawei has sometimes partnered with Zaeim Electronic Industries Co., an Iranian electronics firm whose website says its clients include the intelligence and defense ministries, as well as the country's elite special-forces unit, the Islamic Revolutionary Guards Corps. This month the U.S. accused a branch of the Revolutionary Guards of plotting to kill Saudi Arabia's ambassador to the U.S. Iran denies the claim.
Huawei's chief spokesman, Ross Gan, said,
"It is our corporate commitment to comply strictly with all U.N. economic sanctions, Chinese regulations and applicable national regulations on export control. We believe our business operations in Iran fully meet all of these relevant regulations."
William Plummer, Huawei's vice president of external affairs in Washington, said the company's location-based-service offerings comply with "global specifications" that require lawful-interception capabilities. He said.
"What we're doing in Iran is the same as what we're doing in any market. Our goal is to enrich people's lives through communications."
Huawei has about 1,000 employees in Iran, according to people familiar with its Iran operations. In an interview in China, a Huawei executive played down the company's activities in Iran's mobile-phone industry, saying its technicians only service Huawei equipment, primarily routers.
But a person familiar with Huawei's Mideast operations says the company's role is considerably greater, and includes a contract for "managed services"—overseeing parts of the network—at MTN Irancell, which is majority owned by the government. During 2009's demonstrations, this person said, Huawei carried out government orders on behalf of its client, MTN Irancell, that MTN and other carriers had received to suspend text messaging and block the Internet phone service, Skype, which is popular among dissidents. Huawei's Mr. Plummer disputed that the company blocked such services.
Huawei, one of the world's top makers of telecom equipment, has been trying to expand in the U.S. It has met resistance because of concerns it could be tied to the Chinese government and military, which the company denies.
Last month the U.S. Commerce Department barred Huawei from participating in the development of a national wireless emergency network for police, fire and medical personnel because of "national security concerns." A Commerce Department official declined to elaborate.
Building F1, home to the exhibition hall, stands at the Huawei Technologies Co. campus in Shenzhen, Guangdong Province, China, on Thursday, May 19, 2011.
In February, Huawei withdrew its attempt to win U.S. approval for acquiring assets and server technology from 3Leaf Systems Inc. of California, citing opposition by the Committee on Foreign Investment in the United States. The panel reviews U.S. acquisitions by foreign companies that may have national-security implications. Last year, Sprint Nextel Corp. excluded Huawei from a multibillion-dollar contract because of national-security concerns in Washington, according to people familiar with the matter.
Eight Republican lawmakers have called on the Obama administration to reconsider a telecommunications bid by a company with links to China's People's Liberation Army, or PLA.The company, Huawei, wants to supply equipment to cell phone company Sprint Nextel. Huawei's founder and CEO, Ren Zhengfei, is a former PLA member. Lawmakers wrote in a letter that they were concerned that allowing this Chinese company to be a supplier could undermine U.S. national security.
Huawei has operated in Iran's telecommunications industry since 1999, according to China's embassy in Tehran. Prior to Iran's political unrest in 2009, Huawei was already a major supplier to Iran's mobile-phone networks, along with Telefon AB L.M. Ericsson and Nokia Siemens Networks, a joint venture between Nokia Corp. and Siemens AG, according to MTN Irancell documents.
Iran's telecom market, which generated an estimated $9.1 billion in revenue last year, has been growing significantly, especially its mobile-phone business. As of last year, Iran had about 66 million mobile-phone subscribers covering about 70% of the population, according to Pyramid Research in Cambridge, Mass. In contrast, about 36% of Iranians had fixed-line phones.
As a result, mobile phones provide Iran's police network with far more opportunity for monitoring and tracking people. Iranian human-rights organizations outside Iran say there are dozens of documented cases in which dissidents were traced and arrested through the government's ability to track the location of their cellphones.
Many dissidents in Iran believe they are being tracked by their cellphones. Abbas Hakimzadeh, a 27-year-old student activist on a committee that published an article questioning the actions of Iran's president, said he expected to be arrested in late 2009 after several of his friends were jailed. Worried he could be tracked by his mobile phone, he says he turned it off, removed the battery and left Tehran to hide at his father's house in the northeastern city of Mashhad.
A month later, he turned his cellphone back on. Within 24 hours, he says, authorities arrested him at his father's house. He said.
"The interrogators were holding my phone records, SMS and emails."
He eventually was released and later fled to Turkey where he is seeking asylum. In interviews with the Journal, two other student activists who were arrested said they also believe authorities found them in hiding via the location of their cellphones.
In early 2009, Siemens disclosed that its joint venture with Nokia, NSN, had provided Iran's largest telecom, government-owned Telecommunications Company of Iran, with a monitoring center capable of intercepting and recording voice calls on its mobile networks. It wasn't capable of location tracking. NSN also had provided network equipment to TCI's mobile-phone operator, as well as MTN Irancell, that permitted interception. Like most countries, Iran requires phone networks to allow police to monitor conversations for crime prevention.
NSN sold its global monitoring-center business in March 2009. The company says it hasn't sought new business in Iran and has established a human-rights policy to reduce the potential for abuse of its products.
A spokesman for Ericsson said it delivered "standard" equipment to Iranian telecom companies until 2008, which included built-in lawful-interception capabilities. The Ericsson spokesman said.
"Products can be used in a way that was not the intention of the manufacturer."
He said Ericsson began decreasing its business in Iran as a result of the 2009 political upheaval and now doesn't seek any new contracts.
As NSN and Ericsson pulled back, Huawei's business grew. In August 2009, two months after mass protests began, the website of China's embassy in Tehran reprinted a local article under the headline, "Huawei Plans Takeover of Iran's Telecom Market." The article said the company "has gained the trust and alliance of major governmental and private entities within a short period," and that its clients included "military industries."
The same month the Chinese embassy posted the article, Creativity Software, a British company that specializes in "location-based services," announced it had won a contract to supply a system to MTN Irancell. The company said.
"Creativity Software has worked in partnership with Huawei, where they will provide first and second level support to the operator."
The announcement said the system would enable "Home Zone Billing"—which encourages people to use their cellphones at home (and give up their land lines) by offering low rates—as well as other consumer and business applications that track user locations. In a description of the service, Creativity Software says its technology also enables mobile-phone operators to "comply with lawful-intercept government legislation," which gives police access to communications and location information.
A former telecommunications engineer at MTN Irancell said the company grew more interested in location-based services during the antigovernment protests. He said a team from the government's telecom-monitoring center routinely visited the operator to verify the government had access to people's location data. The engineer said location tracking has expanded greatly since the system first was installed.
An official with Creativity Software confirmed that MTN Irancell is a customer and said the company couldn't comment because of "contractual confidentiality."
A spokesman for MTN Group Ltd., a South African company that owns 49% of the Iranian operator, declined to answer questions, writing in an email,
"The majority of MTN Irancell is owned by the government of Iran."
He referred questions to the telecommunications regulator, which didn't respond.
In 2008, the Iranian government began soliciting bids for location-based services for the largest mobile operator, TCI's Mobile Communication Co. of Iran, or MCCI. A copy of the bidding requirements, reviewed by the Journal, says the contractor "shall support and deliver offline and real-time lawful interception." It also states that for "public security," the service must allow "tracking a specified phone/subscriber on map."
Ericsson participated in the early stages of the bidding process, a spokesman said. Internal company documents reviewed by the Journal show Ericsson was partnering with an Estonian company, Reach-U, to provide a "security solution" that included "Monitor Security—application for security agencies for locating and tracking suspects."
The Ericsson spokesman says its offering didn't meet the operator's requirements so it dropped out. An executive with Reach-U said,
"Yes, we made an offer but this ended nowhere."
One of the ultimate winners: Huawei. According to a Huawei manager in Tehran, the company signed a contract this year to provide equipment for location-based services to MCCI in the south of Iran and is now ramping up hiring for the project.
One local Iranian company Huawei has done considerable business with is Zaeim Electronic Industries. An engineer who worked on several projects with Zaeim inside the telecom ministry said.
"Zaeim is the security and intelligence wing of every telecom bid."
Internal Ericsson records show that Zaeim was handling the "security part" of the lawful-interception capabilities of the location-based services contract for MCCI.
On its Persian-language website, Zaeim says it launched its telecommunications division in 2000 in partnership with Huawei, and that they have completed 46 telecommunications projects together. It says they now are working on the country's largest fiber-optic transfer network for Iran's telecom ministry, which will enable simultaneous data, voice and video services.
Zaeim's website lists clients including major government branches such as the ministries of intelligence and defense. Also listed are the Revolutionary Guard and the president's office.
Mr. Gan, the Huawei spokesman, said:
"We provide Zaeim with commercial public use products and services."
Zaeim didn't respond to requests for comment.
Huawei Technologies tenticles reach throughout the world. They do business in 144 countries worldwide. Below are their most recent financial statements:
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COMMENTARY: Don't worry my dissident Persian friends whose internet access has been censored by the government of The Islamic Republic of Iran. The Obama administration has come to your rescue, leading a global effort to deploy “shadow” Internet and mobile phone systems that dissidents can use to undermine repressive governments that seek to silence them by censoring or shutting down telecommunications networks.
Map of Countries Restricting or Censoring Internet Use
The effort includes secretive projects to create independent cellphone networks inside foreign countries, as well as one operation out of a spy novel in a fifth-floor shop on L Street in Washington, where a group of young entrepreneurs who look as if they could be in a garage band are fitting deceptively innocent-looking hardware into a prototype “Internet in a suitcase.”
Financed with a $2 million State Department grant, the suitcase could be secreted across a border and quickly set up to allow wireless communication over a wide area with a link to the global Internet.
The Obama administration’s initiative is in one sense a new front in a longstanding diplomatic push to defend free speech and nurture democracy. For decades, the United States has sent radio broadcasts into autocratic countries through Voice of America and other means. More recently, Washington has supported the development of software that preserves the anonymity of users in places like China, and training for citizens who want to pass information along the government-owned Internet without getting caught.
The new American initiatives, revealed in dozens of interviews, planning documents and classified diplomatic cables obtained by The New York Times, ranges in scale, cost and sophistication.
The new initiatives have found a champion in Secretary of State Hillary Rodham Clinton, whose department is spearheading the American effort. “We see more and more people around the globe using the Internet, mobile phones and other technologies to make their voices heard as they protest against injustice and seek to realize their aspirations,” Mrs. Clinton said in an e-mail response to a query on the topic. She said.
“There is a historic opportunity to effect positive change, change America supports. So we’re focused on helping them do that, on helping them talk to each other, to their communities, to their governments and to the world.”
WATCH: Sascha Meinrath of the New America Foundation opens up the "Internet in a Suitcase" and shows us what's inside.
It looks like a normal suitcase, but it's anything but. Inside you will find a laptop, a small wireless antenna, flash discs, and CDs. Together they can be used to set up a shadow Internet anywhere you like -- say, in a repressive country where the government shuts down communication avenues in times of crisis.
The project is informally called "Internet in a Suitcase," and it is being developed by a team of experts at the New America Foundation, a nonpartisan research group, with funding from the U.S. State Department. RFE/RL correspondent Golnaz Esfandiari spoke to the head of the project, Sascha Meinrath, to find out more.
Internet in a Suitcase is an open-source project, which means that people can download it for free today and start playing around with it. The New America Foundation hasn't been actively involved in any place around the globe in deploying it.
Looks like Huawei Technologies has found its nemesis in countries where free and uncensored internet access is the norm, as it appears to be in most Communist, former Communist or islamic countries. This includes the usual suspects: Iran, People's Republic of China and Syria. Hopefully, Libya will no longer censor internet service with the overthrow of Moammar Gadafi.
AMERICANS are spending less on clothes and eating out and more on household fuel bills and healthcare, according to data from the Bureau of Labour Statistics. Between 2007 and 2010, average annual consumer spending per unit—defined as a family/shared household or single/financially independent person—fell by 3.1% to $48,109. Average prices over this period have risen by 5.2%, so real consumer spending has fallen by almost 8%. The recession and economic slowdown have reduced buying power and consumers are tightening their belts in many ways, though spending on women’s clothes (and belts) fares slightly better than men’s. There are some positive health effects to be gleaned from the data. Real spending on tobacco products fell by 23%, probably because the price of a nicotine fix has risen by 46% between 2007 and 2010. Similarly, people are spending more on fruit and vegetables (up by 9%) and less on sugar and sweets (down by 6.5%). During the good times of 2003-06 consumer spending rose by 8.2%. In that time, Americans boozed more and bought more cushions: spending on alcohol and household furnishings increased by 19% and 13% respectively. Contrast that with 2007-10 when spending on these items fell by over 16%.
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Courtesy of an article dated October 25, 2011 appearing inThe Economist
Amazon CEO Jeff Bezos unveil the Kindle Fire tablet for only $199 back on September 29, 2011
Amazon.com Inc.’s escalating pursuit of Apple Inc. squeezed its profit forecast for this quarter, prompting investors to erase $13 billion from the company’s market value.
Amazon’s operations could lose $200 million in the fourth quarter as costs mount, the Seattle-based company said yesterday. The shares fell 13 percent to $198.40 at the close, the biggest decline since October 2008.
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The company is taking on Apple in the market for tablet computers and sales of digital songs, books and movies.To gain an edge in tablets, Amazon is selling its new Kindle Fire device for as low as $199 -- less than half the price of Apple’s cheapest iPad. At that price, the company will lose $10 per device, research firm IHS Inc. estimates.
“Competing with Apple isn’t easy. It comes at a cost, but the traditional media business they have would wilt on the vine without Amazon making this transition to digital.”
Last quarter’s profit also disappointed analysts, missing estimates by 42 percent -- the biggest negative surprise of any technology business in the Standard & Poor’s 500 Index.
The stock had advanced 26 percent this year before today and set a record of $246.71 this month, raising pressure on Amazon to deliver stronger results.
Bezos’s Stake
Chief Executive Officer Jeff Bezos, Amazon’s founder and largest shareholder, saw his stake lose $2.5 billion in value. He reported holding 88.1 million shares as of Aug. 18.
Amazon’s operating results may range from a loss of $200 million to a profit of $250 million this quarter, the company said yesterday. Analysts were projecting a gain of $512.7 million on average, according to Bloomberg data. Sales will be $16.5 billion to $18.7 billion, Amazon said.
The last time Amazon suffered an operating loss was in the third quarter of 2001, when it fell $68.9 million into the red.
Third-quarter net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents, a year earlier. That missed the 24 cents predicted by analysts.
Technology has fared worse than most industries this quarter in meeting investors’ earnings expectations, with about a third of companies missing estimates.
Amazon added 17 new fulfillment centers this year, and that overhead has weighed on margins, Chief Financial Officer Tom Szkutak said yesterday in a conference call. It’s also building out the infrastructure for its Web services offerings.
“We’ve added a lot of capacity to support those growth rates,” Szkutak said.
Startup Competition
In addition to competing with Apple in a range of markets, including digital music and movies, Amazon is vying with startups such as Spotify Ltd., which offer streaming songs. For now, Amazon’s growth plans aren’t doing enough to spur profit, even as sales climb, Sebastian said.
The San Francisco- based analyst said.
“If they don’t show a corresponding increase in earnings, investors start to scratch their heads.”
Amazon doesn’t deserve a valuation that puts it ahead of Apple by some measures, said Colin Gillis, an analyst at BGC Partners LP. With an operating margin of 30.8 last quarter, Apple squeezes more profitability from sales, even with its own investment in new products, he said. Amazon traded at 119.5 times earnings, compared with Apple’s 14.4 times before today, according to data compiled by Bloomberg.
Gillis, who rates Amazon a “sell” said.
“Ultimately, does this deserve an ultra-premium valuation? No.”
Shipping Costs
The stock’s lofty value reflects investors’ belief that Amazon’s new products will pay off down the road, said Josh Stewart, a Salt Lake City-based analyst at Wasatch Advisors Inc., which oversees about $11 billion in assets, including Amazon shares. The online retailer has historically acted more like a private company, investing for the long term and ignoring quarterly earnings, he said.
Stewart said in an interview.
“We’ve been selling some of our investment going into the quarter because it’s had a run, and it’s a really expensive stock. We own more Apple than we do Amazon.”
Still, Amazon has had unprofitable periods before, as they built up their distribution. And that paid off, he said.
“They realized how important it would be to get the scale early on.”
The company’s soaring shipping expenses also are dragging on profit, Gillis said. More customers are using Amazon’s Prime program, which offers unlimited two-day shipping for $79 a year. The company’s shipping fees generated $360 million in the third quarter, dwarfed by $918 million in shipping expenses.
Sales Gains
Even as profit shrinks, revenue is benefiting from surging Kindle orders, propelled by customers ditching paper books in favor of electronic versions. Net sales climbed 44 percent last quarter to $10.9 billion, in line with estimates.
Sebastian said.
“They could invest less and add more to cash flow today, but that’s leaving room for someone else to take market share tomorrow. As an investor, you have to share their long-term vision.”
The company upgraded its Kindle e-readers and introduced the Kindle Fire tablet to more directly challenge Apple -- something Hewlett-Packard Co and Research in Motion Ltd have struggled to do. The Fire tablet, due next month, has a 7-inch display, smaller than the iPad’s 9.7-inch screen. It will run on Google Inc.’s Android software and offer Wi-Fi connectivity.
Amazon is pricing its devices to spur sales, said Kerry Rice, an analyst at Needham & Co. in San Francisco.
He said.
“They don’t care that the operating margin is 1 percent or 2 percent.”
COMMENTARY: Jeff Bezos is doing it the right way. By minimizing short-term profits today, for long-term profits tomorrow, Jeff is laying the groundwork for capturing market share today then retaining those customers when things turnaround.
Amazon is a highly unusual American corporation, for several reasons:
Amazon unapologetically builds its business for the long-term, without worrying about what short-term Wall Street traders think.
Amazon sacrifices near-term profits for long-term investments, again without worrying about what short-term traders think.
Amazon operates at a much lower profit margin than it could have if it were trying to "maximize near-term returns," which is what many (most) American corporations try to do.
Amazon is investing--and hiring--aggressively for the future, at a time when most American corporations are cutting costs, laying off workers, and hoarding humongous piles of cash.
In other words, Amazon is doing what many more American corporations could and should do: Balance the near-term "profit motive" with a more holistic mission of focusing on the long-term and serving customers, employees, shareholders, and the community at large.
Here's what Ken Sena of Evercore Partners, which tracks technology stocks had to say about Amazon's plunge in profitability in Q3 2011, and its prospects over the long-term:
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Companies that have taken advantage of the lower costs during recessions (labor, inventory and capital assets): Apple, Facebook, Twitter, Forever21, Panera Bread, Kohl's to name just a few, are examples of companies that continued to hire staff and were able to expand and grow in spite of the recession.
In a blog posts dated October 2, 2011 and October 11, 2011, I pointed out that Amazon's increasing returns strategy for the Kindle Fire is similar to what HP has done with printers and what Gillette has done with razors. HP loses or makes low margins on the printers, but generates healthy margins on toner and ink cartridges. Gillette loses money on the razors, but makes it all back on the razor blades. I think that if it can keep its loss on the Kindle Fire to between $10-$15, it will more than make this up by selling content: both digital and hardcover books, movies and music downloads.
Courtesy of an article dated October 26, 2011 appearing in Bloomberg and an article dated October 26, 2011 appearing in Business Insiderand an article dated September 29, 2011 appearing in the DailyMailOnline
Rajat Gupta, former McKinsey & Co CEO and Goldman Sachs director is being accused of providing insider trading information to Raj Rajaratnam, the disgraced and convicted head of Galleon Group
Allegations Against Raj Gupta
Raj Gupta, the former McKinsey & Co executive and Goldman Sachs board member was charged for supplying Raj Rajaratnam insider trading information on March 1, 2011.
After Gupta told Raj Rajaratnam that Berkshire Hathaway was going to invest in Goldman before it was public, Raj made $1 million trading on Goldman stock - in ONE day.
He allegedly gave information about Goldman to Galleon hedge fund manager Rajaratnam at least 3 other times.
Galleon Group's founder Raj Rajaratnam was escorted by FBI agents in New York on October 16, 2009 in what authorities are calling the largest insider-trading case against a hedge fund.
The insider trading trial against Raj Rajaratnam began on March 8, 2011. On May 11, 2011, Raj Rajaratnam was found guilty on all 14 counts of insider trading. The judge said sentencing was planned for the month of September 2011, but dragged on for months because Mr. Rajaratnam's attorney's argued for a shorter prison sentence due to Mr. Rajaratnam's health issues (he has diabetes). On October 13, 2011, Raj Rajaratnam was finally sentenced to 11 years in prison, one of the longest-ever sentences for an insider case.
Here's what the SEC alleges Gupta told Rajaratnam about Goldman Sachs:
Gupta apparently gave information about a call on which Lloyd Blankfein had told him that Goldman Sachs second quarter returns in 2008 would be better than expected. After Gupta called him, Raj bought 5,500 of June $170 call options on June 11 (the share price opened at $167 that day) and on June 11 and 12th bought over 350,000 shares. He sold the call option on June 16th and earned $7 million. He sold more on June 17th and earned $6.6 million.
He also reportedly gave information to Rajaratnam about Goldman's 4th quarter earnings in 2008 -- telling him that Goldman would earn less than analyst-expected $2.50 per share. He told Raj that Goldman would actually lose $2 per share -- just 23 seconds after hanging up with the Board. Rajaratnam avoided losses of $3 million.
Gupta gave information to Rajaratnam about Goldman becoming a bank holding company. On September 22 2008, just after he found out that the Board approved Goldman Sachs becoming a Bank Holding Company, Gupta told Rajaratnam, who then bought 80,000 shares.
Gupta told Rajaratnam that Berkshire Hathaway would make a $5 billion investment in Goldman before he did in September 2008. On September 23 2008, Rajaratnam got another call from Gupta. Gupta told him that Berkshire would invest, and Galleon purchased another 175,000 Goldman shares.
On September 24th, Raj liquidated the Goldman shares he bought because of the Berkshire investment. He made $900,000.
In total, Raj's total gains from the Gupta information (about Goldman) were over $13.6 million.
Here's what the SEC alleges Gupta told Raj about Proctor and Gamble:
Gupta may have told Rajaratnam on January 29, 2009 that P&G would report sales growth lower than expected. All the SEC knows is that Gupta called him on January 29th, that Rajaratnam sold short 180,000 shares of P&G on the same day (he earned $570,000) and that Raj told someone he got inside information from someone on the board so that they could trade on the information too.
Gupta is denied everything, of course.
Gary Naftalis, Gupta's lawyer said that the "SEC's allegations are totally baseless," and his client "has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder."
The SEC's press release of March 1,2011 can be found HERE.
What The Raj Rajaratnam Insider Trading Trial Disclosed About Raj Gupta
On April 13, 2011, jurors involved in the insider-trading case against Galleon Group's Raj Rajaratnam in a Manhattan federal courtroom heard an earful about Rajat Gupta, the former head of McKinsey.
First, they listened to a wiretap on which Gupta confided to Rajaratnam that the Goldman Sachs board, on which he sat, discussed acquiring Wachovia or American International Group (AIG).
Second, the jury watched Goldman Sachs Chief Executive Officer Lloyd Blankfein testify that Gupta violated the company's ethics code for directors for disclosing confidential information to Rajaratnam.
During the trial federal prosecutors called Gupta an unindicted co-conspirator, and the Securities and Exchange Commission filed an administrative action against Gupta for his alleged role in the scandal. Still, nothing explains why Gupta, once one of the world's most trusted advisers to companies, would risk his reputation by sharing confidential information with a hedge fund manager.
After stepping down from the top job at McKinsey, the financial markets were booming, and private equity and hedge fund managers were New York's new elite, so Raj Gupta pursued a second career as a dealmaker. Many of the CEOs he had counseled were finding positions in this lucrative world. Gupta figured he could leverage his own contacts and add to his wealth, says a senior executive at a company where Gupta was a director until March 2011.
He loved gathering Wall Street rumors and analyzing them in his professorial way, the executive says. He liked the idea of doing 8 or 10 deals a year—making introductions among executives and investors, and leaving the math and paperwork to others, says the executive, who didn't want to be named because his conversations with Gupta were private. That's also how Rajaratnam saw him. Rajaratnam told Gupta in a July 2008 wiretapped phone conversation submitted at the trial.
"Your value-added is not to do cash flows. Your value-added is to bring people together, deals together, at the right time to make the call."
Several wiretapped conversations indicate Gupta coveted a role at KKR, one of the largest private equity firms. He knew Henry Kravis, KKR's co-chairman, from his philanthropic work and through some clients. Rajaratnam told Anil Kumar, a McKinsey consultant at the time who has pled guilty to insider trading, in an Aug. 15, 2008, taped call.
"He's enamored with Kravis, and I think he wants to be in that circle. That's a billionaire's circle. … I think here he sees an opportunity to make $100 million over the next 5 or 10 years without doing a lot of work."
Gupta began doing business with a group of men who, like him, had connections in the U.S. and India: Parag Saxena, Victor Menezes, and Rajaratnam. All three had had trouble with the SEC. In 2006 he co-founded a fund called New Silk Route Partners with Saxena and Menezes. Rajaratnam contributed $50 million to the fund, which eventually raised $1.3 billion to invest in ventures in India and other emerging countries.
Some worried about Gupta. Bala Balachandran, a business professor who has known Gupta for three decades, said in an interview last year.
"I told him once, 'If you are in a herd of pigs, you'll also smell like a pig,' "
In 2007, Gupta joined Rajaratnam and a third man to form the GB Voyager Multi-Strategy Fund, contributing $10 million of his own. The $40 million fund "invested in numerous Galleon hedge funds, including those that traded on Gupta's illegal tips," according to the SEC's complaint. Gupta asked Rajaratnam for a 10 percent stake in the Galleon International Fund in exchange for attracting investors, according to a May 28, 2008, wiretapped call between Rajaratnam and Kumar. He never got that, according to testimony at Rajaratnam's trial.
Gupta's dealmaking career never took off. The New Silk Route fund hasn't turned a profit on any of the investments it has made so far, according to Venture Intelligence, a Chennai-based research firm. The Voyager Fund was wiped out in the 2008 financial crisis, costing Gupta his $10 million investment, according to his attorney.
Shoba Narayan, an author who was part of that circle through her husband, a former Morgan Stanley (MS) banker says.
"I think Rajat Gupta got caught in that whole New York milieu where people measure themselves by their net worth, the size of their bonus, or square footage of their house. If he'd lived away from that incestuous Wall Street set, perhaps none of this would have happened."
The man CEOs turned to for his expertise and sound judgment made questionable decisions as he invested with Raj Rajaratnam, the co-founder of the hedge fund Galleon Group. The SEC has accused him of passing confidential information on earnings at P&G and Goldman Sachs, and Warren Buffett's $5 billion investment in Goldman Sachs. Those tips generated more than $17 million in illicit profits or avoided losses for Galleon, the SEC says. Gupta's lawyer, Gary Naftalis, calls those allegations "totally baseless."
Gupta's Educational and Professional Background
The son of a man who fought for India's independence, Raj Gupta was orphaned as a teenager. After graduating from high school, Gupta ranked in the top 20 applicants among hundreds of thousands of Indian youth who took the entrance examination in 1966 for a spot at the elite Indian Institute of Technology in Delhi, according to an interview he gave to the “Economic Times” of India when he became head of McKinsey. He worked his way from lower-middle-class roots in Kolkata to Harvard Business School.
Harvard Business School academic workload was unrelenting for most but not for Gupta, says John Carberry, who lived in the same Boston dormitory and was Gupta’s friend. Carberry, who’s now president of Wellesley, Massachusetts-based F.L. Putnam Investment Management Co says.
“Sometimes we’d still be doing cases at 2 a.m., but he’d be done by 11 p.m. and lying on his bed, watching Johnny Carson, but if you had problems with your schoolwork, he’d always help.”
At a time when students at Harvard Business School were overwhelmingly white, Gupta stood out culturally and intellectually, Carberry says.
“Gupta was unassuming and humble. When he spoke in class, though, everyone put their pencils down and listened. He was the smartest guy in my section, just brilliant.”
Gupta became a Baker Scholar, a distinction earned by the top 5 percent of students in his graduating class in 1973. With his Master of Business Administration degree, he applied for a spot with McKinsey.
Even with his stellar academic record, the firm turned him down. Walter Salmon, one of Gupta’s professors who had McKinsey connections, wrote Gupta a recommendation, and the consulting firm decided to hire him in New York.
Gupta advanced steadily, becoming a McKinsey partner in 1980 and moving to Copenhagen the following year. In 1984, Gupta began overseeing all of the firm’s business in Scandinavia. He moved to McKinsey’s Chicago office in 1987 and became head there in 1989. The office served many of the region’s manufacturing and consumer products companies.
His big leap came in 1994 when McKinsey held elections for a new leader. Gupta won over two other candidates, becoming the first non-U.S.-born managing director of the firm. Raj Gupta, 62, Led McKinsey & Co from 1994 to 2003, serving for three three-year terms, the maximum under McKinsey's rules.
James Kilts, a former CEO of Nabisco Group Holdings Corp. and Gillette Co., says he was impressed when he first met Gupta in Chicago in the late 1980s. Kilts was then an executive atKraft Foods Inc. (KFT), and Gupta advised him about strategy for cheese products.
He sat on the boards of some of the largest multinationals, including American Airlines, Procter & Gamble and Goldman Sachs. He also sat on the boards of the Rockefeller Foundation and Bill and Melinda Gates He raised millions for charity, hung out with the Prime Minister of India, and attended President Barack Obama's first state dinner at the White House. He divided his time between a waterfront home in Westport, Conn., that once belonged to J.C. Penney, a Manhattan apartment, and a Florida getaway.
Raj Gupta's five acre waterfront estate located in Westport, Connecticut
Gupta Surrendered and Arrested
Today, Wednesday, October 26, 2011, Rajat Gupta, was taken into custody by the FBI on criminal charges related to his hedge fund manager friend Raj Rajaratnam, the central figure in a U.S. crackdown on insider trading.
Rajat Gupta, the most high-ranking corporate executive to become embroiled in a push by the government to root out insider trading, surrendered to the FBI on criminal charges of leaking confidential information. Michael Rothfeld joins the Markets Hub to discuss.
In a six-count indictment, federal prosecutors in Manhattan alleged that Mr. Gupta, the former head of global consulting firm McKinsey & Co., leaked details about the companies' financial condition and an investment by Warren Buffet's Berkshire Hathaway Inc. to former hedge-fund titan Raj Rajaratnam. The Galleon Group founder was sentenced earlier this month to serve 11 years in prison for insider trading.
The government is expected to argue that the relationship between the two men, who socialized and invested together, is emblematic of the back-scratching that pervades the corporate world and can sometimes veer into insider trading.
In the indictment, prosecutors alleged that Mr. Gupta invested in at least two Galleon offshore funds and those investments had a value of $2.4 milliion in March 2005. He also allegedly invested $10 million in an investment fund called Voyager Capital Partners along with Mr. Rajartnam, owning a 20% equity interest, prosecutors said.
Preet Bharara, the U.S. attorney in Manhattan said.
"Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders. As alleged, he broke that trust and instead became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam."
Janice K. Fedarcyk, the FBI's assistant director-in-charge and head of the New York FBI office said.
"The conduct alleged is not an inadvertent slip of the tongue by Mr. Gupta. His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of thirty-nine seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
He entered his plea in an afternoon hearing. Bail was set at $10 million, to be secured by Mr. Gupta's Connecticut home. He was also ordered to surrender his passport.
A spokesman for Gupta's lawyer, Gary Naftalis, declined immediate comment on his client's arrest.
On Tuesday night, October 25, 2011, when a source briefed on the case said Gupta would be arrested, Naftalis said in a statement that his client did nothing wrong.
Naftalis said.
"Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."
An FBI spokesman said Gupta, 62, surrendered to agents at his home in Connecticut and he was driven to the New York FBI office, where he was placed under formal arrest at 8.15 a.m. EDT (1215 GMT).
Gupta is expected to appear in court later in the day on charges related to the Rajaratnam insider trading case, the spokesman said. Prosecutors said at Rajaratnam's trial that in 2008 Gupta leaked information about Goldman that he learned from the bank's board meetings.
Rajaratnam was convicted in May by a New York federal jury after a two-month-long trial. On October 13, a judge sentenced him to 11 years in prison, the longest recorded for insider trading.
Possible Raj Gupta Case Defense Strategy
The insider trading trial of Raj Rajaratnam provided some insight into the big discussion points that will come up during the criminal trial of Rajat Gupta.
When he took the stand to testify in the Rajaratnam trial, Goldman Sachs CEO Lloyd Blankfein had an interesting exchange with Rajaratnam's defense lawyer, John Dowd, that might shed some light on one point.
Rajaratnam did not cooperate with the prosecutors who are bringing charges against Rajat Gupta (he was offered a plea deal. Rajaratnam told Newsweek that prosecutors were particularly interested in Rajaratnam's strategic position close to Raj Gupta. They asked him to wear a wire and tape conversations with Gupta, but Rajaratnam said no, acc6rding to Rajaratnam.), but part of his defense suggested that Goldman Sachs might be able to communicate with "tier 1" clients, like Rajaratnam, about big upcoming deals that important clients have exposure to.
When CEO Lloyd Blankfein took the stand to testify, he explained the difference between what Raj Gupta did wrong, and what Goldman Sachs COO Gary Cohn did right, as far as giving information to tier 1 clients.
What Cohn did right was to keep one of Goldman's top clients abreast of matters that affect the firm's business on a regular basis. This might well be part of Cohn's job, to inform clients.
What the Rajaratnam defense tried to establish is that the discussion along the lines of what happened during a board meeting is legitimate for a "Tier 1" client, and that it was a standard inquiry in advance of Rajaratnam's upcoming meeting with Gary Cohn.
Blankfein explained.
"We rank clients, based on who's "more important or less important. I'm not entirely sure what 'Tier 1' means myself, but I know that we rank clients."
Rajaratnam defense attorney John Dowd asked Blankfein if he spoke to such important clients and kept them informed.
Of course they do, and in fact Blankfein visited the offices of Galleon "a long time ago," when he was a Senior Vice President at the firm.
How the testimony helps the Raj Gupta defense teams case is this:
The prosecution is trying to prove that the information that Raj Gupta passed on to Raj Rajaratnam was material nonpublic information. The defense suggests that it's only "confidential," information because it was discussed in the meeting, and not material nonpublic because:
At least one news article reported on the rumor of Goldman's buying Wachovia and;
People were talking about it happening, possibly including Cohn, who might have discussed the report with Galleon during or even before visiting the Galleon offices.
And thus a seed of suspicion was planted in the minds of the jury. But a moment later, we found out there was nothing there.
During the Rajaratnam trial, defense attorney Dowd asked Blankfein.
"And you're not suggesting Gary Cohn did anything wrong, are you?"
Blankfein answered.
"No."
In the following video, Douglas Burns, a formal federal prosecutor, speaks with Sara Eisen on Bloomberg Television's "Inside Track" about Rajat Gupta, the former Goldman Sachs Group Inc. director, who has been charged with feeding inside information to Galleon Group LLC's Raj Rajaratnam. Mr. Douglas provides some very interestuing insights into how the prosecution and defense will present their arguments in the Raj Gupta case.
Click To View The Video
Mr. Burns brings up two very interesting points:
The defense will argue that Mr. Gupta did not benefited financially from the information Mr. Gupta provided Mr. Rajaratnam so there is no "quid pro quo". In an article dated October 26, 2011 in The Wall Street Journal, the issue of no "quid pro quo" is discussed. The idea is that absent some personal gain, there has been no breach of duty to stockholders. But in a previous court case, it defined “benefit” broadly to include “a pecuniary gain or a reputational benefit that will translate into future earnings.” This may present an opening for the defense to clear Mr. Gupta of the alledged insider information charges, but the court could just as easily rule against Mr. Gupta considering the broader definition of "benefit."
The prosecution will argue that the benefit to Mr. Gupta does not need to be financial (see above with regarding the broader definition of "benefit" in "quid pro quo" cases, because insider information was stilled passed along by Mr. Gupta to Mr. Rajaratnam, and the benefit to Mr. Gupta was to gain entry into the "billionaire's club" he so long coveted through his long association with Mr. Rajaratnam.
COMMENTARY: I just love these high-profile insider trading cases, because they are so difficult to prove, but the tapes of telephone conversations between Raj Gupta and Raj Rajaratnam, and the testimony given by Goldman Sach's Lloyd Blankfein, appear to be quite damaging.
The very fact that Raj Gupta had a lengthy association with Raj Rajaratnam going as far back to the 1990's, and that Raj Rajaratnam benefited financially to the tune of $16 million from insider information about Goldman Sachs and Procter & Gamble furnished by Mr Gupta, is pretty hard to deny.
I found it surprising that Raj Rajaratnam refused to cooperate with prosecutor's during his trial, turned down a plea deal to finger Raj Gupta and refused to wear a wire to record further telephone calls with Raj Gupta, makes you wonder if Raj Rajaratnam is doing this out of spite or is it to protect Raj Gupta and make it more difficult for the prosecution to convict Raj Gupta.
This is going to be a very interesting case, and I intend to follow and cover it in my blog just like I did the Raj Rajaratnam and Danielle Chiesi trials.
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