Archive | December, 2006

He is gone

30 Dec

Saddam is gone and I felt that he deserved it. Despite the facts that injustices in his trial or it is used as political tool, I just think that it is already so obvious that he was wrong. But then again, without fair trial, it is another barbaric act.

Despite my drive to be open-minded and to treasure freedom and fairness, I wonder, if the years spent in a controlled environment has implanted my mindset. If so, how to change? And, how to change the mindset of the whole nation who may not even want to change?  

Good intention => good food?

21 Dec

I always believe in good intention. I believe that when we have good intention, even if things go wrong, they won’t go really wrong. But lately, I realised good intention is – in Howard’s term – necessary condition but not sufficient condition to prevent things to go wrong.

“If you think you can make the planet better by clever shopping, think again. You might make it worse.” The leader in the Economist started with this statement. They criticised that Fairtrade campaign makes things worse. The energy wasted to ensure that what poor people grow will be bought would reduce efficiency. The resources to grow food locally can be used for greater good. I’m usually skeptical about the publication point of view on globalisation and I am not sure about the calculation of energy and resources, but the arguments do make sense.

I went to a talk by Fairtrade representative few weeks ago. Basically the campaign is to have consumers to buy products that produced responsibly. It means with fair price, and the workers are fairly treated. In many poor countries, many labourers are children and they are badly abused. We can boycott this unfairness by boycotting the products. Well, it was with good intention, but I was not convinced. What happened to those poor kids when they lose the bad job and have no more mean to feed themselves. And when I saw the price, I got more discouraged. They cost arms and legs; they are sort of luxury producs that not everyone , even in rich countries, can afford.

This whole situation got me thinking, good intention to help something that is so apparent in front of my eyes does not always good in the longer period or in broader term. It’s more complex than what it seems initially. It makes me question my views on some globalisation practices. I think I need to update myself. Hehehe.

Christmas Dell-light?

19 Dec

After a difficult year, Dell has shown signs of recovery. Investors’ confidence has returned, but Dell’s ability to relive its past glory is still doubtful

In his traditional Sunday blessing last year, Pope Benedict XVI criticised that consumerism had polluted the true spirit of Christmas. But for Dell’s nearly 79,000 employees, consumerism is exactly what they need to stay employed. Dell’s glory has passed; this time Dell needs Christmas magic to boost its sluggish sales.

Starting as a one-man show computer supplier in 1984, Dell has grown into a multibillion-dollar business empire by staying close to its core business model: a combination of direct selling, low price and ultra-efficient supply-chain management. Using this formula, Dell weathered the dot-com bubble burst in 2000 and had even captured more market share while its rivals were struggling to get back on their feet.[1] For that, Dell was rewarded handsomely by Wall Street. Three years after the burst, Dell’s share price was almost double its initial price.

But as the rivals improved, in 2005, Dell’s earnings started to fall behind. Dell’s CEO, Kevin Rollins, tried to convince the investors that the $80 billion medium-term sales target set in February 2005 was still achievable[2]. But Wall Street, so used to Dell’s five-star performance, was not forgiving.

Dell’s inability to satisfy investors’ expectations is clearly reflected by the share price movement. Currently trading at around $26, Dell’s share price is 10% lower than five years ago, as shown in Figure 1. In 2002, this was unthinkable; Dell seemed unstoppable. It expanded its PC business and ventured into other more lucrative markets like notebooks, servers and printers. Indeed, the shareholders enjoyed two significant rises before the shares took a nosedive.

The first happened in 2003 when Dell’s revenue growth hit 17%. By late 2003, the price jumped up by two-quarters to $35. It was then stagnant for a year because investors were holding back as the overall technology market was declining. At the end of 2004, Dell’s strong performance again sent the shares up, to $43, its peak performance since the dot-com bubble burst.

Figure 1 Five years share price

Source: Big chart 

Yet, this was short-lived. In mid 2005, Dell’s failure to achieve targets caught investors by surprise, and the share price slumped back to $35. Dell blamed it on a pricing error made in the PC price war. “We drove it too hard,” Mr Rollins said. However, Dell still failed to lift the profits in the next four quarters. Predictably, the share price took a dive and halved to around $20, a five-year low.

However, the third quarter of 2006 has yielded more positive results. It has been seen as a turning point for Dell that boosted shareholders’ confidence and the shares rose by one-fifth to $25. Still, compared to five years ago, Dell’s share value has dropped to minus 5% while Hewlett-Packard scored a 80% rise and the NASDAQ has enjoyed a 20% increased. These figures suggest that Dell’s problems are more complex than a wrong price tag.

Dell’s problems can indeed be seen in its financial returns. As shown in Figure 2, revenue rose at more than one-tenth in 2002 after the negative growth during dot-com burst. During the next three years, Dell kept growing at a two-digit rate. But Dell could not maintain the momentum. In 2005, the revenue growth was down to 15%. It was almost double the growth of Hewlett-Packard (HP)[4] but still below investors’ expectation.

Figure 2 Year-to-year Revenue Growth Rate – Dell Inc

Source: Dell financial report Even so, Dell was reluctant to change its strategy. In March 2006, after missing the earnings target for the second time, Mr Rollins still proclaimed, “I believe we will prove the model is intact and successful and better than anything in the industry over the next several quarters.” It was proven to be a disaster. The shareholders had enough when Dell’s sales fell short by $20million of the predicted $14.2billion. Earnings-per-share dropped to 22 cents, almost one-third lower than the expected 32 cents.[5] Dell also lost its leadership in global PC sales – Dell’s main source of revenue – to Hewlett-Packard in August 2006.  

In the last quarter, however, Dell changed its focus to maximising profit margin, rather than increasing market share. The net profit was up by almost 10% compared to last year but sales growth dropped even further to disappointing 3% – only one-quarter of the previous year’s.[6] Surprisingly, however, Wall Street had lowered its expectation and took the news positively.

Some market analysts upgraded the share status. Investment bank Goldman Sachs upgraded Dell from its “sell” list to “neutral” citing Dell new pricing strategy as the reason. More confident analysts, such as Bear Stearns and Needham & Co, suggested that the shares were worth buying.[7]

The confidence was on the rise, but does Dell have what it takes to make a comeback and rule again?

Dell’s main problems lay in a few key areas. Firstly, Dell’s cost advantage has been reduced as rivals has improved their process efficiency and reduced their operation cost. Richard Gardner, an analyst in Citigroup, estimated that the previous 10-15% cost advantage over rivals has now narrowed to 5-10%.[8] Dell has been forced to lower its prices further without substantial reduction in cost, thus squeezing its profit margin.

Even so, the low prices did not increase the sales substantially and has been inadequate to sustain growth. Its limited product variation, upgrade incompatibility and unsatisfying customer service have also driven customers away. Consumers shifted to rivals’ various models and price-competitive products. 

Another hitch came from Dell’s inflexibility in direct selling. Customer’s growing preference for retail shopping has left a big hole in Dell’s sales strategy. Furthermore, direct selling is not suitable for developing countries, where the market is growing faster. Despite the rising popularity, the percentage of internet users is still small. In
China, for example, only one-tenth of the 1.2 billion people use internet. It leaves nine-tenth of the market untapped.

In the longer term, Dell income sources may be further squeezed as its sales have relied on the saturated markets: the PC market and in the
US region. Even though it has been venturing into new markets, such as printers and servers, two-thirds of Dell’s revenue is from a combination of PC and notebook selling which have lower profit margins and more saturated market.
[9]

Furthermore, more than two-thirds of its sales depend on the slowing Americas region, especially
North America. As shown in Figure 3, although Dell’s sales in
Asia have doubled in the past four years, the amount is still less than one-eight of total sales. This includes 63% revenue growth in Indian market, indicating slow growth in other countries. Without increasing the proportion from the more profitable markets, Dell may face a bleak future.

Figure 3 Net Revenue by Regions

Source: Dell financial reports  On the bright side, the global PC market is predicted to keep growing at 12% next year, while the US market will grow at 9%, says the IDC’s Worldwide Quarterly PC Tracker published in June.
India, where Dell has captured almost half of the corporate market, is expected to increase by two-thirds to nine million PCs sales next year.
 Also, IDC predicted that in more mature markets, there will be opportunities in notebook sales and new systems sales supported by launch of new operating systems, namely Microsoft Vista and Apple Leopard. Indeed, there is a trend of shifting from PC to notebook computer as people are getting more mobile. This will recreate new demands in the saturated markets.  

To take the opportunity, Dell must place itself in the faster growing sectors and in the untapped regions with the right strategies. As a result, Mr Rollins and Mr Dell have been experimenting with new strategies.

One of them is the no-inventory showroom. It allows customers to try the products while maintaining minimum inventory cost by shipping the products directly from the warehouse. Mr Rollins claimed that the showroom performed better than expectations. Dell is preparing to export this idea overseas, starting with
Britain. If overseas customers like this new way of shopping, it will open new access to the market Dell initially ignored.  

Sales strategy aside, Dell is now refocusing its attention on its product. It has increased the product mix, and now includes products with AMD processors. New computers also allow better compatibility and easier upgrading, including to the upcoming Microsoft Vista operating system. It is also moving up-market to target less price-conscious computer users. Moreover, Dell is expanding its market to more lucrative software and server sectors. In the LCD market, which is growing at 22%, Dell is still the leader, holding around a 17% global market share even after 3% drop in sales last quarter.[10] 

Dell is also hoping to increase its presence overseas. The new factory in
India opening next year will cut cost of the production, inventory and taxation.
[11] It is said that Dell is trying to buy
China’s second largest computer maker, Founder Technology Group. If the deal is successful, Dell may be in better position to penetrate the Chinese market.

      

There is a growing confidence that Dell is on the right track. After the last quarter results were announced, Bear Stearns analyst, Andrew Neff said, “Following Dell’s results, we sense a heightened focus on striking a better balance of profitability and revenues.”[12]

However, shareholders should be aware that the results of the new strategies are still unclear. If they work, Dell may be able to live up to its reputation as a robust company which has again survived market downturn and competition. But under current fierce competition, unless Dell understand its potential buyers better than the rivals, its glorious days as the super-achiever may be difficult to recreate.


[1] Cnet News. 17 January 2002.

[2] Computer Shopper. 11 February 2005.

[3] Financial Times. 26 August 2005

[4] www. morningstar.com.  Accessed on 16 December 2006

[5] Dell 2006 2nd Quarter Financial report

[6] Financial Times, 22 November 2006

[7] Yahoo News, 10 December 2006

[8] Financial Times, 1 November 2005

[9] Dell Financial report

[10] Digi Times – 18 December 2006 http://www.digitimes.com/displays/a20061218PR203.html

[11] BBC News – 14 September 2006

[12] Associated Press, 22 November 2006

Heavenly meal

17 Dec

its-heavenly.JPG

I had a heavenly meal today. It was a bowl of noodle. Well, more precisely, a bowl of instant noodle. But it was a priceless instant noodle. Well, it had a price – less than 20pence which made it accessible even by the rather-poor. Nevertheless, it was priceless for me because I may never find any here.  

Before I came, I bought around 20 packages of them with the excuse ‘in case I miss home’. I carefully planned how to transport them. I packed them delicately to make sure their fragile body wouldn’t break. Alas, due to the forseen circumstance, i.e. overloaded luggage I left them behind. So, sadly, only six made it to the UK and thus their became more precious.

Today, I assumed that I had done quite some hard work that deserved reward. So, my instant noodle, the Indomie, is perfect reward as the night fell and the weather grew colder.

Sentimental reason aside, the noodle is really good. I have tried many instant noodle including the famous Japanese instant noodles, which cost more than ten-fold of my Indomie, but none taste as good. It’s a must try: Indomie Kari Ayam (Chicken curry). Even though it is called curry, it is different from Indian curry. The spices are different. Well, in this case I should say, the chemicals are different. The taste and smell are lighter than Indian curry and the noodle is bouncy when cook with perfect timing. It’s even better when some onion and an egg are added.

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The funniest preface I’ve ever read

16 Dec

Holiday spirit caught me up faster than it should: I am not in the mood of continuing the assignment.

To avoid the guilty feeling of not having any progress, I sat in front of computer for hours, doing everything but thinking about Dell. Daydreaming, singing along the old songs in iTunes, checking celebrities’ fashion, checking people’s blog, updating my blog, chatting, you name it.

But, the moment of fun came when I decided to reach a library book My Trade by Andrew Marr that have been on the shelf for months. Out of boredom, I read it. I only finished the preface, but I was laughing my ass off. It was hillarious how he stumbled into journalism and even more hillarious how he described it.

Despite having a first-class degree and having read an unfeasibly large number of books, it began to dawn on me that I couldn’t actually do anything. I couldn’t sing, act, tell jokes, play any musical instrument, hit, kick or catch a ball, run for more than a few yards without panting, speak another language, or assemble things without them falling apart immediately. I was a scientifically illiterate innocent with the entrepreneurial instincts of a thirteenth-century peasant and the iron determination of a butterfly. Journalism seemed the only option.

And also the fact that, although he crossed out almost every sentence I wrote, Gary is not that cruel afterall. This was what his editor did.

George (the editor) would stop behind a trainee and stand silently as one did one’s best with the white fish catch from Peterhead or a missing car in Aberfeldy. Then he would reach over with one brawny arm and, without uttering a word, remove the paper from the typewriter, scrumple it into a ball in front of the trainee’s face, throw it over his shoulder and – wordlessly – carry on walking. You knew you were getting better when he allowed you to finish the paragraph before he destroyed it.

And he did give a little tips for our production next semester.

…we were taught how to get a simple local story… That meant slowly scrubbing away any natural shyness, banging on vicars’ doors, stopping shopkeepers and pleading councillors for anything – anything. Stray dog? Upset at the Guild? Oldest villager? Proud parents of footballer?

The first few pages are entertaining and encouraging. It can be a good holiday read. 😀

What a deJavu

15 Dec

-movie review- 

As the title suggest, this movie is a dejavu of many earlier movies with familiar plot, familiar bomb blasts, and familiar (weak) theory of “folding space” to reach the past. Even some of the scenes in it are repeated; it was for illustrating the repetition, but it was done too plainly. The suspensioning facts created at the beginning, which I thought may be bring some unexpected twist, were just made to support the predictable dejavu.   

Good points are Denzel Washington is as charming as ever, the bomb blast is powerful, and the injuries look very real.

It is a movie to go if there is nothing much left to do or if you like Denzel.   

In between two giants

15 Dec

Writer’s note: my first analytical feature

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What new US-China relationship means to the rest of the world  

“If your grandmother was still alive, she would not believe what I saw there,” my mother exclaimed after her visit to my grandmother’s hometown in
China last year. The poor village she escaped from 60 years ago has become prosperous. The small slippery mountain pathway she took to collect the heavy firewood for sale has been replaced with an asphalt road. The wooden old house where she had starved day by day has been replaced by two-storey brick house. They do not even need firewood anymore; the houses now are warmed by electric heater. “They are so wealthy now.” my mother uttered in amazement.  Surely, my grandmother never imagined that. At that time, who could? 
 

Well, at least US president Richard Nixon could. He recognised China’s importance and started their relationship by the famous ping-pong diplomacy in 1970s. The political tie had remained cold and full of distrust, weathered through largely due to economic interest. But as China’s economy has grow stronger and the trade value grown larger, there is growing interest to strengthen it. The US is still the largest world producer, accounting for 28% of world GDP, but with growth of 3% or less. China, growing at 10% rate yearly, currently only contributed 5% to the world GDP last year. But, at this rate, China would overtake the US by 2035, global investment bank Goldman Sachs predicted. Both realised that they could either be friends to share the ‘world pie’ or foes for the doom of the both and the world.  

As such, they recently agreed to hold cabinet-level meetings to decipher their differences at the top economic and foreign policy making. Their main discussion is unavoidably on the gluing aspect: trade. There are several issues that yet to be resolved. The first is value of Chinese currency renminbi (RMB). United States demanded China to let RMB to fluctuate more freely. The presumably undervalued RMB is argued to cause unfair trade. It makes Chinese goods unfairly cheap in the US market and reduces American companies’ competitiveness.  

However, some experts argued that cheap RMB is actually good to reduce inflation. Even if American consumers do not buy China products, they will end up buying slightly more expensive products from other countries like Thailand, India or Indonesia. Moreover, cheap China products force other countries to be more competitive, bringing the overall price further down. In this case, cheap RMB helps to limit the inflation in the US and the rest of the world.  In any case, the rising US trade deficit is a growing problem. US consumers’ keenness to consume and sinking ability to export has caused more than $725 billion deficit last year, almost 18% increase from 2004. A quarter of the deficit was with China, which actually a consistent proportion since 1990s.

To finance the debts, Washington has been issuing bonds. They can be purchased by foreign countries as foreign reserved. China has become US second largest creditor after Japan by invested $1 trillion of foreign reserve in US dollar. This put them at an entangled situation. US need to make sure China will not significantly reduce or pull out its credit, as this will destabilize dollar value.

On the other hand, China need to make sure that US economy can maintain its dollar value. Any negative movement from each side will endanger other countries’ foreign reserve and economy.   However if the trade deficit keeps growing at current level, eventually US economy will not be able to sustain its debts. Economy will slowdown and US dollar value may fall. With so much US dollar on hand, China is clearly in the interest to help the US to balance its trade. Also, low demands from US consumers will slowdown the China export, damping its growth. How can China help US economy?

One way is by helping US to increase its export to China. China’s 1.2 billion people is a fat market and is expanding swiftly as the people get richer. Real consumer spending has grown by 80% in past six years. With its manufacturing competitiveness failing, Washington keens to play on its strength in service and financial sectors. It demands China to open up these underdeveloped markets for international investors. This is a particularly difficult negotiation because of China’s protectionist approach. However, Washington may be able to put more pressure as the deadline for China to fulfil its WTO membership requirement to liberalise its markets draw closer. If the US gets what it wants, this will be good news for countries where financial sectors are strong, such as the US, the UK, and Singapore.

China can also more seriously help securing US income from its intellectual property industries. These industries contribute to more than half of US export and two-fifths of US economic growth. Even though Chinese government has imposed tougher rules, the implementation at local governments is still lenient. Counterfeit goods from computer software to designer bag are still openly sold even at roadside stalls. Then again, the pricing of US products are so high that they are barely affordable by average Chinese. The high price is also mounting the demand for counterfeit products. Unless significant give and take is negotiated, this issue is difficult to be solved in near future.

In turn, China has been promoting its image of peaceful rise. It signed treaty of amity with Association of South-Asian Nations and supported a Central Asia security forum. It also has played the central role in North Korea nuclear armament negotiations including the one after North Korea’s nuclear test in October. That greatly reduced the pressure on the overstretched overseas US army and managed to keep the relative peacefulness in Asia.

A flashpoint, though, is Taiwan. Beijing and Washington have cautiously manoeuvred around this subject. As China develops its ties with other countries, Taiwan is becoming more isolated from international arena. Yet, Taiwan itself is in need of China for yearly $75 billion dollars export. Taiwan president Chen Shui Bian has also committed to the US not to pursue independent from China. Unless there is a radical change in leadership in Taiwan or China, it is unlikely that the situation will change in near future. The tension between China and the US can be temporarily avoided.

Even so, Washington is still increasingly wary of Chinese growing military power and more so of its secrecy. Last year, US ex-defense secretary Donald Rumsfeld accused China of understating its military budget, as much as one-third the estimated $90 billion. China, however, strongly declined such concern. Sha Zukang, China’s ambassador to the United Nations said, “If you read China’s 5,000-year-long history, it’s not difficult to discover that China basically is a peace-loving nation”. Yet, China’s future ambition is still unpredictable. Will it look for only for economic power without seeking hegemony or will it challenge US’s ideology?

The nearer uncertainty, however, comes from the US. The support for free trade, promoted during Clinton era and enhanced during Bush administrations, is getting more divided. There are always winners and losers in free trade. The winners such as big American corporations, which in turn are the donors for the political parties, are delighted by free trade. But, there is growing skepticism about it among the losers. The middle class Americans are increasingly impatient with the stagnant wage and the move of jobs overseas. Democratic Party is finding more socialist voices inside it. Unless the politicians find the ways to nurture the spirit of free trade while safeguarding the losers, protectionism voices may get louder and they may get the upper wind in the next president election in 2008. In that case, it may put strain to US relationship with China and other countries.

However, with current inter-dependency, whoever the next American election winner, it is unlikely for Washington to put any drastic change of approach toward China.So far, relationship of the two giants seems to be going on the safe direction. The two countries are striving to get richer together and along the way pulling the rest of the world with them. But, China’s growing presence internationally is something that Washington definitely keeps an eye on. For now, the rest of the world can only hope that there will be no conflict too large to be contained by the enmeshed trade liaison.