Business this week: 20th – 26th January 2007

Business this week

Jan 25th 2007
From The Economist print edition

Pfizer, the world’s biggest drugs firm, said it would cut almost 8,000 jobs (on top of 2,000 announced last month) and close several manufacturing and research facilities as part of a restructuring effort. The closures include the production site in Brooklyn where Pfizer was founded in 1849. The patent on Pfizer’s biggest-earning drug is due to expire in 2010; a potential blockbuster was cancelled last year; and Pfizer, like its rivals, faces a struggle to come up with new money-spinners and growing competition from makers of generic drugs. See article

MAN, a German truckmaker, dropped its euro10.5 billion ($13.7 billion) hostile bid for Scania, a Swedish rival. The offer had been opposed by Scania’s two largest shareholders, Volkswagen and the investment arm of Sweden’s Wallenberg family, since it was launched last autumn. Ferdinand Piëch, the chairman of VW (which is also MAN‘s biggest investor), pressed for friendly merger talks instead. See article

It’s up to you, New York

A report commissioned by New York’s leading politicians, including its mayor, Michael Bloomberg, gave warning that the city’s status as the world’s foremost financial centre was under threat. It said that up to 7% of the American market in global financial services could be lost to foreign competitors over the next five years. The report proffered various recommendations to help the city avoid this fate, chief of which was clearer guidance on the regulatory structure that has been in place since the Sarbanes-Oxley act.

Citigroup reported that net income had fallen by 12% in 2006, to $21.5 billion. The financial giant also parted company with Todd Thomson, its head of global wealth management, and is replacing him with Sallie Krawcheck, currently chief financial officer. See article

Other big American banks also reported yearly results. Bank of America’s net profit rose by 28% in 2006, to $21.1 billion, boosted in part by its acquisition of MBNA, a credit-card issuer, at the beginning of the year. And net income at Wachovia increased by 17%, to $7.8 billion, as it booked the benefits of integrating two banks, Golden West and Westcorp, it bought recently.

A change of style?

Paul Pressler resigned as chief executive of Gap. The clothing retailer has seen its sales droop over the past two years and is reviewing a number of options for its brands. Speculation has centred on a buy-out of the company. Robert Fisher, whose parents founded Gap in 1969, replaces Mr Pressler in the interim.

Sun Microsystems made a surprise quarterly profit (its first for a year and a half) as sales of its Solaris 10 operating system took off. Sun also laid its differences with Intel to rest by proclaiming a strategic alliance, which includes the use of Intel’s Xeon chips in some of Sun’s servers. The news came at a bad time for Intel’s arch-rival Advanced Micro Devices. The chipmaker confirmed that a price war was damaging its business when it reported a quarterly net loss of $574m.

The share price of Alcatel- Lucent plunged by more than 8% after the Franco-American company forecast that fourth-quarter profit would be flat. Alcatel’s merger with Lucent, completed two months ago, created the second-biggest provider of networking equipment, but there has been a delay in combining product lines, causing some customers to turn elsewhere.

EBay reported solid revenue growth in the fourth quarter in its core auction and sales businesses, partly due to people trading game consoles in the run up to Christmas. Its share price, which has been languishing of late, soared. Revenue at Skype jumped by 164%, but eBay admitted that the benefits of acquiring the internet-calling business in 2005 had yet to be seen.

The price of oil jumped by some 5% after George Bush outlined a plan in his speech to Congress to double the size of America’s strategic reserves by 2027. A few days earlier the price had fallen, briefly, to below $50 a barrel for the first time since May 2005.

Amid all the glad-handing and schnapps at the World Economic Forum in Davos, the prospect was raised of an effort to revive the stalled Doha round of trade talks. A meeting was called between trade officials from rich and poor countries to boost confidence in the process, which led to hopes of a new timetable. See article

Lagging behind

America’s labour productivity growth rate in 2006 was the lowest for more than a decade, according to a study by the Conference Board. Although productivity growth rates were higher in most of Europe and Japan, the report suggested there would be future diminishing returns worldwide from investments in information and communication technology.