The Wall Street Journal-20080119-The Week Ahead - Our Take On Coming Events
Return to: The_Wall_Street_Journal-20080119
The Week Ahead / Our Take On Coming Events
World Economic Forum:
Davos Grows,
As Do Worries
Of Elite Crowd
----
By Marc Champion
Davos just keeps getting bigger.
This coming week, some 2,500 business, political, religious and cultural leaders, as well as a gourmet chef, make the annual trek to the Swiss ski resort to get together in a windowless cement bunker and think big thoughts about the world -- or at least meet a lot of very important people in a very short time. This year, they include more heads of state (27), more cabinet ministers (113), and more chief executives from the world's top 100 companies (74), than ever before.
Maybe that is because in the wake of the credit crisis, the world is looking a little darker and more bewildering than for some years. Of course, most of the Davos crowd got the economy wrong last January -- not a great return on the ticket price of 20,000 Swiss francs, or about $18,200, on top of the 40,000-franc membership fee. But organizers of the World Economic Forum say this year the core topic of the meeting, even more than usual, will be the global economy, how hard it is going to land and how to fix what is broken.
The glitz this year looks likely to be where the emerging money is. Russian brokerage Troika Dialog, for example, is putting on an ice- skating show with Russian skating stars. (CEOs will get a chance to skate with them afterward.) Already there is a buzz among regulars who want to meet people such as Bader Al-Sa'ad, a former college basketball player and investment banker who now runs Kuwait's sovereign-wealth fund, which is currently helping to bail out Merrill Lynch & Co.
There is a bigger tilt toward Asia this year, reflecting where the economic growth still is, even if there are doubts about how long that can last. Among the co-chairs are the CEOs of China Mobile Communications Corp. and ICICI Bank Ltd. of India. Japan's prime minister, Yasuo Fukuda, chairman of the Group of Eight leading nations this year, is the headlining act. He will give the so-called special address next Saturday, near the end of the meeting.
Beyond the economy, the forum is trying to draw attention to growing strains on the world's basic resources, food and water. Rising food prices have driven land- and water-use issues higher on the agenda. Several big companies, including Nestle SA and brewer SABMiller PLC, want to highlight the risk to future economic growth and stability in many parts of the world if water isn't used more efficiently.
In the past, companies have started boutique corporate- responsibility programs at Davos, hoping to make a dent in the 20% of the world's population that has no access to clean water.
About 70% of the world's fresh-water supply is used for agriculture. As hundreds of millions of Chinese, Indians and others move out of poverty, they want to eat meat, says the forum's program coordinator on water, Dominic Waughray. That is accelerating demand for water and land, putting pressure on food-commodity prices that are making water a business issue too.
This being Davos, the forum has invited Alice Waters, superchef from the renowned California restaurant Chez Panisse, to add flavor to the talk about food.
Earnings:
EBay Upgrades Auctions, But Investors Aren't Buying
----
By Mylene Mangalindan
Wall Street is awaiting eBay Inc.'s fourth-quarter results Wednesday, anxious to hear more about the transformation of the electronic-commerce company's main business, online auctions.
Last year the San Jose, Calif., company began remaking its marketplace -- where sellers auction off everything from furniture to used clothes, computer parts and alarm clocks for the best price -- in hopes of winning back lapsed buyers. It simplified the site, improved its search technology so shoppers could find what they're looking for more easily, forced sellers to improve customer service, and cracked down on fraud. As a result, there were fewer product listings in the third quarter, but eBay reported higher rates at which those listings are converted into sales. The company pointed to that higher rate of successful listings as a sign that the strategy was working.
Some investors aren't so sure. Shares of the e-commerce company have dropped 31% since mid-October, reversing all of the stock's gains last year. EBay's shares have fallen on doubts about how successful the auction changes have been, and concern about how new changes to the fee structure could affect revenue and earnings. Ebay currently charges a fee to list the item and another fee when the item is sold. It wants to discount or eliminate the listing fee and raise the amount it collects on the actual sale. The company also faces increasing competition from rival Amazon.com Inc., which has wooed eBay's sellers to its own auction site.
Other analysts claim that investor concerns are overblown. Internet stocks in general have suffered in the past few months, with the technology-heavy Nasdaq Composite Index down so far this year amid a broader market downturn. "We believe that stock sentiment is atrocious and that (fourth-quarter eBay) results and 2008 guidance will prove to be better than the market expects," writes Tim Boyd, an analyst at American Technology Research, in a recent report.
Focusing on eBay's auction business remains key because it still contributes most of the company's revenue -- about 70% in the third quarter -- despite acquisitions and efforts to diversify into new areas. The growth of the auction business has been slowing for years, so eBay's problems have never materialized as sudden crisis. Instead, it's been more like air being let out of a balloon.
EBay appears prepared to take more drastic steps to reinvigorate its auction business. It discounted listing fees over the past few months and warned Wall Street that it may tinker more with its fees to kick- start growth again. If that's the case, it could affect the company's revenue and market value.
An eBay spokesman says the company will continue to experiment with different pricing models that test the elasticity of supply and demand on its marketplace. EBay recognizes that one point of "friction" for its sellers are the fees to list items, the spokesman said.
For the fourth quarter, eBay has projected earnings of 39 cents to 41 cents a share on an operating basis. In the year-earlier period, eBay posted per-share operating earnings of 31 cents and net income of 25 cents.
Governance:
Siemens Faces
Shareholders
Amid Scandal
----
By Mike Esterl
The annual shareholder meeting of German conglomerate Siemens AG this coming week will be a noisy and uncomfortable affair for board members struggling to put an explosive bribes-for-business scandal behind them.
Europe's largest engineering company has seen its share price soar in the past year, spurred by a restructuring drive that has narrowed its focus and boosted profits amid rising orders for capital goods such as wind turbines and medical scanners.
But shareholders at Thursday's meeting in Munich also will be asking plenty of pointed questions about mounting corruption allegations. Since a dramatic police raid in late 2006, Siemens has identified 1.3 billion euros ($1.9 billion) in suspicious transactions and has been fined 201 million euros by a German court for paying bribes to win infrastructure contracts abroad.
Adding fuel to the fire, Siemens disclosed this past week that the U.S. law firm investigating allegations of wrongdoing had obtained "significant new information" pointing to the possible involvement of management-board members. Ratcheting up the uncertainty, neither Siemens nor the law firm named any names.
The broad disclosure places a big cloud of suspicion over veteran executives. That doesn't include Chief Executive Peter Loescher, who joined the company only in July, and other senior managers recruited from outside the company in recent months. The disclosure also prompted Siemens to recommend postponing the traditional shareholder vote to approve the actions of board members for the most recent fiscal year.
The delayed vote won't short-circuit questions and allegations being aired by investors eager to get to the bottom of the affair as quickly as possible. Thursday "will be a very cacophonic day," said Christian Strenger, a board member in Frankfurt at DWS Investment.
Investors will get the chance to vote on whether to approve the actions of the nonexecutive supervisory board, which vets major decisions of the management board and is similar to a board of directors in the U.S. They also will be asked to re-elect three of the 10 shareholder representatives on the supervisory board, including Chairman Gerhard Cromme.
Those votes are likely to be accompanied by their own fireworks. Mr. Cromme, also the head of Germany's corporate-governance commission, has won praise from many investors for pursuing allegations of wrongdoing at Siemens and replacing top management, while ensuring that the business keeps growing. Many want him and the other two incumbents to remain.
"We think a wholesale board turnover may be unnecessarily turbulent and potentially counter-productive," said Safa Muhtaseb, a fund manager in Philadelphia at Brandywine Global Investment.
But DSW, an association representing German retail investors, plans to argue on Thursday that the entire supervisory board should be replaced to ensure a completely fresh start for Siemens. Some investors question whether supervisory-board members were sufficiently diligent in recent years, when the alleged bribes were being carried out by company executives. Supervisory-board members say they weren't given enough information to spot wrongdoing earlier.
Christoph Niesel, a fund manager in Frankfurt at Union Investment, isn't saying yet how he'll vote. "I know there will be wild discussions, polarized opinions," he said.
