WSJ : Apple's Next Act for the iPad

Apple's Next Act for the iPad

Apple's AAPL +0.74% next iPhone may hog the spotlight in coming weeks, but don't forget the iPad.

It is tempting to relegate Apple's tablet—its second-biggest business—to a sideshow, given stagnant growth. Unit sales have slipped in the last two quarters year over year and analysts expect a similar trend in the current period.

This is hardly peculiar to Apple. Tablet sales across the globe have slowed significantly, growing only 8.4% year over year in the second quarter versus 58.5% in the same period last year, according to IDC. Still, the recent trend seems like a rapid meltdown for the company that essentially invented the modern tablet market. But if this is a problem for Apple, it is a relatively high-quality one.

The company still has the largest market share in tablets, and takes an even larger share of the profits. IDC estimates that Apple accounted for about 28% of global tablet sales in the second quarter, with Samsung coming next at 18%.

Part of the reason tablet sales have declined is that, compared with smartphones, most tablets carry a higher price tag and have a longer replacement cycle. Analysts now model a three-to-four-year replacement cycle for tablets compared with a two-year cycle for smartphones. It also is worth noting that most tablets—iPad included—sell without the subsidies from wireless carriers that help keep gross margins on the iPhone at around an estimated 50%.

Apple has made clear it isn't giving up on tablets. Nor should it.

The company has essentially locked up the premium corner of the business, as evidenced by lackluster sales of nearly every other high-end tablet. Companies that have managed to take some of Apple's market share have done so at a cost, selling at much lower price points that leave those devices with thin margins.

For instance, Lenovo saw the sharpest unit sales growth during the second quarter in the tablet market, according to IDC. Its best-selling tablet on Amazon.com AMZN -0.40% is currently priced at an about 53% discount to the cheapest iPad with comparable specs.

Apple's premium pricing likely means its market share will continue to decline as more competitors flood into the market's low end. Apple and Samsung saw their combined market share decline in the second quarter, thanks in part to a strong uptick from so-called white-box manufacturers making inexpensive tablets for markets such as China, according to data from NPD DisplaySearch.

But Apple needn't control the market for the iPad be an important—and profitable—business. In fact, the average selling price for the iPad rose nearly 2% year over year in the June quarter despite a 9% decline in unit sales in that time. UBS estimates total iPad gross margins reached 30% in the quarter compared with 25% in the December period.

For Apple, the iPad is about more than just unit sales, as the device also provides an important extension for the company's iOS platform. Revenue from iTunes, software and services grew 14% year over year for the nine-month period ended June 28—Apple's fastest-growing segment in that time.

Morgan Stanley estimates that Apple's platform generates about $1 of revenue per user a month, with gross margins that are now accretive to Apple's overall margin. This means the bigger end-goal for Apple is likely going to be drawing more revenue out of users, rather than just relying on design tweaks to boost hardware sales.

Apple is already rumored to be producing its next iPad for a potential launch this fall, and is also working with IBM IBM -0.43% to develop apps and services geared to businesses. Chief Tim Cook said on the company's most recent earnings call the tablet category is still in its early days, and the company plans to bring "significant innovation" to the iPad.

That may give the pioneering tablet another turn in the spotlight.

>>> BoE's Broadbent: It is possible that weak growth in pay in the UK could cont

BoE's Broadbent: It is possible that weak growth in pay in the UK could continue - Jackson hole symposium 
- Notes that goals for financial stability do not conflict with goals for inflation and growth 
- Have no intention of raising interest rates until the UK can see strong wage growth, wage growth not expected to pick up any time soon despite skills shortages 
- MPC less confident about any forecast of productivity growth over the next few years and meant that output data are no longer sufficient statistics for inflationary pressure 
- Employment has grown significantly faster and nominal pay growth has been much weaker that wed expected: during the first half of 2014, annual growth in average earnings has been around four standard deviations lower than one would have expected, given the level of unemployment and the Phillips-curve relationship between the two during the first twenty years of inflation targeting 

>>> Barron's Summary: Positive on HAS, ANF, AAPL, TRP, BG, HD, PKX; Cau

Barron's Saturday Summary: Positive on HAS, ANF, AAPL, TRP, BG, HD, PKX; Cautious on SHLD, APA 

Cover story: Pressure on PEP to spin off thriving Frito-Lay snack-food business is growing, led by activist investor Nelson Peltz of Trian Partners, who thinks move would help stand-alone beverage business improve margins; some investors, such as Robert Burnstine of Fairpointe Capital, disagree with spin-off idea, noting existing synergies are helpful to both sides of the business. 

Features: Positive on HAS: Toymaker's franchise brands, such as Transformers and My Little Pony, are thriving, and shares could return 20% in a year, including a 3.3% yield, making it a better play than MAT despite their similar price-to-earnings ratios; Positive on TRP: Canadian company offers a good alternative to MLPs, has a number of strong projects in the works, and generates lots of cash; a separation of the pipeline and power-generating assets could put shares as high as $86; Positive on BG: Agribusiness company's new CEO is trying to smooth its volatile performance, and steady earnings gains could boost shares by 15%. 

Tech Trader: Positive on AAPL: Company has long focused on having users keep photos and music stored locally on its devices, but there are signs it is beginning to prioritize the cloud, which could be a long-term rainmaker if Apple can charge monthly fees similar to those of services such as Spotify or Dropbox. Notes that Apple's stock price has reached a recent high, and has messed up its Cloud offerings in the past but this time could be different. 

Trader: Positive on ANF: Company is doing better than rivals AEO, BKE, URBN, and ARO to change course in difficult teen apparel sector, closing stores and ramping up online operations while adding more independent voices to the board; Positive on OKSB: For investors looking for an out-of-the-way stock to play a rebound in banking sector, company could prove profitable. 

Hedge Funds: Interview with Joel Greenblatt, Manager, Gotham Asset Management (top five long holdings: ENR, SAFM, BG, AXE, CAT; top five short holdings: SUSS, THC, BOBE, KMT, TMO); Interview with Tad Rivelle and Laird Landmann, fixed income investment executives at TCW, who say "There is not a lot of upside to being long rate-and there certainly could be a lot of downside if there is a shock to the market." 

Follow-Up: Positive on HD: Retailer is poised to benefit from boost in housing starts and applications for building permits, and its operating margins are better than those of rival LOW; Cautious on SHLD: Until retailer stops losing money, spinoffs and issuance of commercial paper or second-lien debt won't solve any problems; Cautious on APA: Potential plan to shed international assets and an ease on capital spending haven't boosted the shares, which still trade at a discount to those of rivals. 

European Trader: Though recent merger attempts and other deals in European pharmaceutical sector have led to stocks outperforming the broader European market, rise due to M&A speculation may obscure the failure of many companies to address important structural issues; NVS has probably gone farthest to address problems. 

Asian Trader: Positive on Posco: The worst may be over for Korean steel giant, which has been bogged down by overcapacity, falling margins, a strong won, and a weak global economy; its shares are up 19% over the past ten weeks. 

Emerging Markets: Positive on Grupo Financiero Banorte: Mexican bank has a sizable government and corporate lending business, and is well positioned to expand its commercial and consumer loan portfolio as reforms take root in country. 

Commodities: U.S. orange production and juice sales are both sliding, yet futures prices have gained 5.9% this year, and lower prices are not on the horizon. 

CEO Spotlight: Profile of MAR chief Arne Sorenson, who works to strike the right balance between a global brand and local needs, and who says his biggest imperative is forging a bond with a younger generation to keep the brand thriving. 

Streetwise: Stifel Nicolaus strategist Barry Bannister has increased his year-end target for the S&P 500 by 450 points, to 2300, making him the most bullish analyst on the Street.

(BFW)Roche Agrees to Buy InterMune in $8.3b Transaction-->38% premium

BFW 08/24 16:07 Roche Agrees to Buy Intermune in $8.3b Transaction
BN 08/24 16:05 *ROCHE AGREES TO BUY INTERMUNE IN $8.3B TRANSACTION
MORE: Roche Agrees to Buy InterMune in $8.3b Transaction
2014-08-24 16:17:45.71 GMT


By Andrea Snyder
Aug. 24 (Bloomberg) -- Transaction to be neutral to core
EPS in 2015, accretive from 2016 onwards.
* Transaction to close this year
* InterMune board recommends holders tender shrs to Roche
* Offer represents premium of 38% to InterMune’s closing price
on Aug. 22
* Citi is financial adviser to Roche; Centerview Partners,
Goldman Sachs financial advisers to InterMune
* NOTE: InterMune’s lead medicine pirfenidone approved for
idiopathic pulmonary fibrosis in EU, Canada, under
regulatory review in U.S.
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To contact the reporter on this story:
Andrea Snyder in Washington at +1-202-624-1831 or
asnyder5@bloomberg.net
To contact the editors responsible for this story:
Andrea Snyder at +1-202-624-1831 or
asnyder5@bloomberg.net

>>> Airbus considers sale of Atlas Elektronik stake; could promp

Airbus considers sale of Atlas Elektronik stake; could prompt new bid from Thales
Airbus, the listed European aerospace and defence group, is looking at disposing of its 49% interest in the German submarine equipment company Atlas Elektronik, a newswire report said. Reuters reported that the German Die Welt website said industry sources revealed the sale is under consideration as part of Airbus’s review of its military operations.

A decision will be taken on the matter during the next few months, the report said.

ThyssenKrupp is expected to have first refusal on the stake, the item reported, noting that Airbus (then known as EADS) and the Germany-headquartered conglomerate acquired Atlas Elektronik jointly from BAE Systems nine years ago. Thales of France was an unsuccessful bidder at that time, and could table a fresh bid if Airbus opts to dispose of its stake now, the report said.

ThyssenKrupp, Airbus or Thales did not wish to comment, the report said. It added that Atlas stated the onus to respond to the report was on its owners.

The report did not suggest how much a sale of Atlas Elektronik might be worth, but said the company made EUR 441m sales last year.

WSJ : Roche to Acquire InterMune for $8.3 Billion

Roche to Acquire InterMune for $8.3 Billion
Swiss Pharmaceutical Giant Makes First Big Buy After a String of Much Smaller Purchases

LONDON — Roche Holding AG ROG.VX +0.04% said it has agreed to buy San Francisco-based InterMune Inc. ITMN +1.11% for $8.3 billion in cash, the biggest acquisition in years for the Swiss pharmaceutical giant after a string of much smaller purchases.

The deal aims to boost Roche's relatively small respiratory business through InterMune's single drug, pirfenidone, a pill that treats a progressive and fatal lung disease called idiopathic pulmonary fibrosis. The drug is approved for marketing in some of the world's biggest markets, but not yet in the U.S.

It is also the latest big deal by a big global pharmaceutical group in a fast-changing industry. Health systems around the world, particularly in the U.S., have started to put pressure on drug companies to keep prices down.

And a number of blockbuster drugs from some of the world's biggest manufacturers have lost or will soon lose patents to expiration. Roche's biological drugs, however, are better protected than some of its rivals' chemical-based pills, partly because their patents expire later, and partly because they are harder to copy.

Roche has so far kept a low profile in the big deal-making that has characterized 2014, despite its large cash generation. Novartis AG NOVN.VX +0.31% and GlaxoSmithKline GSK.LN -0.35% PLC signed a series of asset swaps worth more than $20 billion in April. AbbVie Inc. ABBV +0.44% agreed to acquire Shire SHPG +0.04% PLC for about $54 billion last month.

Roche has picked off a number of smaller companies, all in deals worth less than $1 billion in upfront payments, in recent months. But it hasn't made a big play for another company since abandoning a proposed $7 billion acquisition of Illumina Inc., ILMN -0.05% a U.S. gene-sequencing group, in 2012.

This latest acquisition, which Roche said has been recommended by InterMune board, is the Swiss group's biggest since 2009, when it bought the remaining shares in Genetech that it hadn't already owned, for $46.8 billion.

InterMune's pirfenidone is already marketed in Europe, Canada, Japan and China under the brand names Esbriet, Pirespa and Etuary. Regulators are currently deciding whether the drug can be marketed in the U.S.

Roche's offer represents a 38% premium over InterMune's closing share price on Friday of $53.80 and a 63% premium before takeover speculation about the U.S. biotech company started circulating earlier in August.

The InterMune deal marks a move to diversify away from Roche's core businesses in oncology, autoimmune diseases and accompanying diagnostic tools. Roche has only two marketed respiratory products in the U.S., both in specialist fields: Xolair for severe and allergic asthma and Pulmozyme for cystic fibrosis. One of its pipeline products—lebrikizumab—is also being developed for severe asthma.

The InterMune acquisition also departs from the much smaller-scale deals Roche has focused on recently to build out its oncology and diagnostics businesses. Those include an agreement signed to acquire Seragon Pharmaceuticals for $725 million in July and deals for diagnostics companies IQuum and Genia Technologies earlier this year, both of which were worth less than $500 million each.

Roche is betting big on pirfenidone. InterMune has no other drugs in clinical trials, although it is conducting preclinical research on other fibrosis treatments. A U.S. regulatory decision on pirfenidone is due in late November.

The U.S. Food and Drug Administration rejected the drug in 2010, asking for more data to prove the treatment's effectiveness. The resulting additional trial data could also be presented to regulators in Europe to try and expand its use in a broader range of patients there.

Apart from regulatory risk in the U.S., pirfenidone could soon face competition. German pharmaceutical group Boehringer Ingelheim has a rival drug candidate for idiopathic pulmonary fibrosis called nintedanib, which also is U.S. regulatory review. A decision on nintedanib is expected next February.

Analysts have predicted both drugs could rack up blockbuster sales by 2019. But while both may slow the loss of lung function, they don't cure the disease.

There are about 128,000 U.S. sufferers of idiopathic pulmonary fibrosis, which mainly affects middle-aged and older adults, and more men than women. The disease kills quickly: Median survival time after diagnosis is two to three years.

Roche has ample financial firepower for the deal. Before Sunday's announcement, it was set to move to a net cash position next year, having largely paid off debt it took on for the Genentech buyout.

Roche generates around $14 billion a year in free cash flow, before dividend payments. Roche said it expects the InterMune deal to be accretive to earnings from 2016 onward.

Sisi Says Funds Come From Qatar to Destroy Egypt: MENA

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CORRECT: Sisi Says Funds Come From Qatar to Destroy Egypt: MENA 2014-08-24 15:47:43.464 GMT

By Salma El Wardany Aug. 24 (Bloomberg) -- (Source corrects to show U.S. is not among countries allegedly supporting websites.) President Abdel-Fattah El-Sisi says financing also coming from Turkey, Muslim Brotherhood to fund websites to destabilize the country, state-run Middle East News Agency reports. * El-Sisi made his comments during meeting with editors of Egyptian newspapers and media: MENA

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To contact the reporter on this story: Salma El Wardany in Cairo at +20-224618508 or selwardany@bloomberg.net To contact the editors responsible for this story: Andrew J. Barden at +971-4-364-1057 or barden@bloomberg.net Amy Teibel, Sheldon Reback