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    Wednesday, July 22, 2009

    Reuters - Amazon buying shoe seller Zappos

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    Amazon buying shoe seller Zappos

    Wednesday, Jul 22, 2009 11:54PM UTC

    By Nicole Maestri and Alexandria Sage

    SAN FRANCISCO (Reuters) - made an aggressive move to grab market share in shoes and apparel on Wednesday, announcing a deal to buy online shoe retailer Inc for $927.9 million, mostly in stock.

    Amazon, the world's largest online retailer, should benefit from the fiercely loyal customer base at Zappos, which had about $1 billion of gross merchandise sales last year.

    Zappos is known for its attentive customer service, free shipping and a free returns policy which inspires shoppers to gamble on shoes. The company said Amazon will allow it to continue running its business as it always has.

    Analysts applauded the deal. Bernstein Research analyst Jeffrey Lindsay called it an "outstanding acquisition." But the move also signaled Amazon had fallen short in its online shoe site, launched in 2007.

    "This is, in some ways, Amazon throwing in the towel on footwear because they've tried to compete with Zappos," said Forrester Research analyst Sucharita Mulpuru. "If you can't beat them, buy them."

    Amazon, which began as an online bookseller, has greatly expanded its range of offerings while also allowing third-party sellers to showcase their own items on its site.

    That has allowed the company to post robust online sales in recent years, outpacing brick-and-mortar retailers, even as former online stalwarts like eBay Inc, have stumbled.

    "A big part of the reason why Amazon is interested in us is because they recognize the value of our culture, our people, and our brand," said Zappos Chief Executive Tony Hsieh in a letter on its blog. "Their desire is for us to continue to grow and develop our culture (and perhaps even a little bit of our culture may rub off on them)."


    An irreverent company, Zappos' website calls its executives monkeys and Hsieh joked in his letter that the deal's headline should read "Zappos and Amazon sitting in a tree ...," a reference to a nursery rhyme.

    Zappos has put customers at ease buying shoes online because it guarantees free shipping on deliveries as well as returns. It also places a big emphasis on service, saying its No. 1 core value is to deliver "wow" through service.

    "To WOW, you must differentiate yourself, which means doing something a little unconventional and innovative. You must do something that's above and beyond what's expected," it states on its website.

    Pacific Crest analyst Steve Weinstein said the deal allows Amazon to dominate a big new category.

    "It ( certainly hasn't been as successful as Zappos," he said. In shoes I think Zappos is clearly the brand in the mind of consumers."

    The acquisition is slated to close this autumn, and Amazon said the Zappos management team will remain intact. Zappos said it will be run as an independent entity and its brand will be separate from the Amazon brand.

    "We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster," Hsieh said in his letter to employees.

    Amazon said it will acquire all of the outstanding shares of Zappos and assume its outstanding options and warrants in exchange for approximately 10 million shares of Amazon common stock. It will provide Zappos employees with $40 million of cash and restricted stock units.

    Based on Amazon's closing price of $88.79, the deal is valued at about $927.9 million.

    The Zappos website says the company, founded in 1999, has more than 1,300 employees and stocks more than 3 million shoes, handbags, clothing items and accessories from more than 1,136 brands.

    Morgan Stanley, and Fenwick & West advised Zappos on the deal. Lazard Ltd advised Amazon.

    (Editing by Gary Hill, Steve Orlofsky and David Gregorio)

    Reuters - Microsoft releases Windows 7 code to PC makers

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    Microsoft releases Windows 7 code to PC makers

    Wednesday, Jul 22, 2009 10:1PM UTC

    SEATTLE (Reuters) - Microsoft Corp said on Wednesday it is releasing the code for Windows 7 to PC manufacturers, keeping the software company on track to have machines running its new operating system in the stores by late October.

    The move means Hewlett-Packard Co, Dell Inc, Acer Inc and other computer makers can start to load up new PCs, laptops and netbooks with the operating system, the successor to the unpopular Vista.

    Both Microsoft and the manufacturers are hoping the full launch of Windows 7, scheduled for October 22, will help lift PC sales out of the slump caused by the global economic downturn, and give the holiday shopping season an extra lift.

    Manufacturers have been testing early versions of Windows 7 for several months, but this week marks the release of the "gold code," according to a Lenovo Group Ltd executive, referring to the software industry jargon for the finished product.

    PC makers no longer have to fly discs in helicopters to their manufacturing plants, as the transfer is now done electronically. But it still marks a dramatic day as manufacturers hustle to get new products into stores in time for the release date.

    Machines that have Windows 7 installed, or devices that are compatible with it, will simply have the Windows 7 logo on them, a Microsoft executive said. The company will not be splashing the word "capable" around in marketing efforts, after it received complaints at its last launch that some machines branded "Windows Vista Capable" could only run the lower-end versions of the software.

    Few industry watchers expect such problems to hit Microsoft this time around as the company has spent more time making sure PCs will be able to run the new software.

    (Reporting by Bill Rigby; Editing by Steve Orlofsky)

    CNN - Obama: Health care reform central to economic recovery

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    Obama: Health care reform central to economic recovery

    President Obama said Wednesday that health care reform is "central" to successfully rebuilding the U.S. economy after the current economic crisis.

    "Even as we rescue this economy from a full-blown crisis, we must rebuild it stronger than before -- and health insurance reform is central to that effort," Obama said in a nationally televised news conference Wednesday night.

    Spiraling health care costs are bankrupting Americans, causing 14,000 people to lose their health insurance coverage every day, and also will bankrupt the nation if allowed to continue, Obama said.

    "Let me be clear: If we do not control these costs, we will not be able to control our deficit. If we do not reform health care, your premiums and out-of-pocket costs will continue to skyrocket," he said.

    "These are the stakes of the debate we're having right now."

    As he laid out the list of benefits that health care reform offers, he dropped a direct reference to a government-funded public health insurance option.

    Until now, Obama has consistently touted the government-funded public option as competition for private insurers in expanding access to health coverage.

    It was unclear if Obama changed the wording to avoid a label opposed by Republican supporters, or if he was signaling a policy shift toward a compromise being negotiated by the Senate Finance Committee to have health insurance cooperatives rather than a government-funded public option.

    Instead, he promised that his plan would offer "security" and "stability" to sick and healthy Americans.

    "It will prevent insurance companies from dropping your coverage if you get too sick. It will give you the security of knowing that if you lose your job, move, or change your job, you will still be able to have coverage. It will limit the amount your insurance company can force you to pay for your medical costs out of your own pocket. And it will cover preventive care like check-ups and mammograms that save lives and money," he said.

    He also said his program would not add to the deficit over the next decade, addressing concerns from Republican opponents and fiscally conservative Democrats over the costs of the program.

    "Already, we have estimated that two-thirds of the cost of reform can be paid for by reallocating money that is simply being wasted in federal health care programs. This includes over $100 billion in unwarranted subsidies that go to insurance companies as part of Medicare -- subsidies that do nothing to improve care for our seniors," he said.

    Earlier Wednesday, Obama worked the phones, urging lawmakers to embrace health care reform, White House Communications Director Anita Dunn said Wednesday.

    It follows the president's Tuesday meeting with Democrats at the White House, dubbed a "serious working session" where "major progress" was made, Dunn said.

    Officials said Obama will be taking a more hands-on approach with members of Congress in the days and weeks to come regarding the health care debate.

    Tuesday, House Energy and Commerce Chairman Rep. Henry Waxman of California and six other committee members met at the White House for more than two hours -- and during one hour the president was with them, aides said.

    During that meeting the six so-called Blue Dog Democrats gave their list of 10 demands on how they want the bill changed, including ways to cut costs, according to aides.

    Some argued the Medicare advisory council, which advises Congress in setting rates for reimbursement to medical providers under the Medicare program, should be empowered to make changes in cost-related issues. White House aides said they want the panel to be empowered to make cuts in benefits and increases in premiums, and to force those changes, unless Congress rejects.

    While lawmakers say a tentative deal was reached on this point, White House officials would only say the president "agreed with the lawmakers he met with [on] the need to cut costs."

    They refused to confirm there was a verbal agreement because there was "not an actual ink agreement" regarding the council. "The process is still going on," one official said.

    White House aides say the administration is concerned about three centers of serious opposition from House Democrats: the fiscally conservative Blue Dog Democrats who are worried about the cost of a public health care plan; the freshmen and other Democrats from high-income districts who are concerned about taxes for high-income Democrats, and the anti-abortion Democrats who are concerned about federal funding going for abortion services, and whether health care providers can opt out of certain procedures.

    One official said the administration is aware that "if any of these three groups abandon the effort the bill would be impossible to get out of committee, much less pass."

    Aides say the president and lawmakers also discussed the public option versus a co-op option.

    Reuters - Apple smashes profit forecasts, iPhone shines

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    Apple smashes profit forecasts, iPhone shines

    Wednesday, Jul 22, 2009 10:29AM UTC

    By Gabriel Madway

    SAN FRANCISCO (Reuters) - Apple Inc's quarterly profit blew past Wall Street forecasts thanks to strong sales of Macs and iPhones and higher-than-expected gross margins, boosting its shares 4 percent on Tuesday.

    The company continued to defy the global recession with a solid 13 percent jump in fiscal third-quarter net profit. It sold more than seven times as many iPhones -- 5.2 million units of its latest signature device -- as the year-ago period.

    "The numbers are great. Their gross profits continue to surprise people and there is a return to product momentum ... a return to growth in the Mac business," said Andy Hargreaves, an analyst at Pacific Crest Securities. "And then the iPhone is doing tremendously well and that is a potent combination."

    Apple reported a net profit of $1.23 billion, or $1.35 a share, for its fiscal third quarter ended June 27, up from $1.07 billion, or $1.19 a share, in the year-ago period.

    Earnings per share beat by far the average Street forecast of $1.18 according to Reuters Estimates, and topped even the most bullish "whisper" numbers of $1.30 to $1.35.

    Sales of Macs and iPhones both beat analysts' expectations, helped by product refreshes and lower prices, while iPod shipments were toward the low end of forecasts.

    Apple said it sold 2.6 million Macs, up 4 percent from a year ago, and 5.2 million iPhones in the June quarter, during which the company launched its third-generation iPhone 3GS and cut the price on the second-generation model to $99.

    The iPhone is often thought of as more of a consumer device, but Apple said nearly 20 percent of Fortune 100 companies have bought at least 10,000 units and it is unable to make enough iPhone 3GSes to meet demand -- a shortfall the company said it is working to address.

    Although the smartphone segment continues to grow more crowded with competitors, Chief Operating Officer Tim Cook said on a conference call the company is "years ahead of other people" in its competitive position.


    The install base for the iPhone and the iPod Touch -- which share operating systems -- is now 45 million, Apple said.

    "The iPhone is the biggest driver right now, because the profitability is really high," said Frost & Sullivan analyst Ronald Gruia. "It's been an absolute success."

    Yet there had been some concern about margin pressure heading into the results, given the product price cuts and the trend of higher component costs.

    Although Mac units rose, revenue in the segment fell 8 percent from a year ago as average selling prices came down, a trend seen throughout the PC industry.

    But Apple posted a gross margin of 36.3 percent, above the 34 percent some analysts predicted. That compared with 36.4 percent in the last quarter and 34.8 percent a year ago. The company saw margins at 34 percent in the September quarter.

    Apple said component costs rose, but not as much as expected and it spent less than it planned in several areas.

    "The overall takeaway is that Apple continues to execute in this tough environment," said Kaufman Bros analyst Shaw Wu.

    "They do the hardware, software and service, and that really allows them to have a leg up against competitors."

    Investors have pushed Apple's stock about 75 percent higher this year, well ahead of other big technology issues.

    Apple issued a typically conservative outlook for the current quarter, forecasting earnings of $1.18 to $1.23 a share on revenue of $8.7 billion to $8.9 billion.

    While that was below the average analyst estimate of $1.30 in earnings per share and $9.1 billion in revenue for the fiscal fourth quarter, it had little impact on investors.

    Revenue rose 12 percent to $8.3 billion in the June quarter, versus analysts' average estimate of $8.2 billion.

    Cash and marketable securities totaled more than $31 billion, one of the biggest cash hoards in all of technology.

    The results demonstrated the consumer appeal of Apple's products despite a troubled economy that has dented sales at competitors selling less expensive products.

    Apple reported relative strength in consumer demand, and weakness in education, one of its key markets.

    But iPods were a chink in its armor. Apple shipped 10.2 million iPods in the quarter, down 7 percent on the year. As iPod sales slow down, analysts see alternative catalysts on the horizon, with the expected launch of an iPhone in China and a rumored tablet PC or Internet device in the works.

    Cook said the company hoped to have an iPhone in China within a year.

    Chief Executive Steve Jobs did not make an appearance on the company's conference call, despite rumors that he might. Jobs recently returned from a nearly six-month medical leave, where he underwent an a liver transplant.

    Shares of Cupertino, California-based Apple closed at $151.51 on Nasdaq and rose to $158.34 in extended trading.

    (Reporting by Gabriel Madway; Additional reporting by Doris Frankel and Tiffany Wu; Editing by Edwin Chan and Richard Chang)

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