Profits dip again for Apple, while iPhone sales beat record

Apple’s profits fell for a second consecutive quarter, even as the company enjoyed record iPhone sales for the April-to-June time period.

For its fiscal third quarter ended June 29, Apple reported sales of $35.3 billion, with net profit at $6.9 billion. That translated to earnings of $7.47 per diluted share. Apple’s revenue marked a record for the June quarter, ticking up 1 percent from the $35 billion Apple posted in last year’s third quarter. Still, profits fell 22 percent year-over-year, down from $8.88 billion in 2012. Apple also reported a drop in profit during its fiscal second quarter of 2013.

Apple’s performance for the third quarter topped analyst expectations. Analysts were looking for the company to earn $7.32 a share on $35 billion in revenue.

With a tiny increase in revenue but a drop in profit, you’d rightly conclude that Apple’s gross margin dropped: For the quarter, it was 36.9 percent, versus 42.8 percent on the year-ago quarter. That’s because Apple’s most popular products now have lower margins than the top-sellers a year ago.

Apple says international sales accounted for 57 percent of its revenue for the quarter.

The company also says it has issued $18.8 billion in cash to shareholders through dividends and buybacks.

While Apple generally keeps a tight lid on future product announcement, company officials did reiterate a point made during its second-quarter earnings announcement in April—that the company plans to roll out new products starting this fall and into the next year. “We are laser-focused and working hard on some amazing new products,” CEO Tim Cook said in an statement accompanying Apple’s earnings announcement.”

Apple says it sold 32.2 million iPhones—a record for the June quarter. That’s up from 26 million iPhones in the year-ago period. For the U.S., iPhone sales rose 51 percent year-over-year, Apple says.

“iPhone 5 remains by far the most popular [phone], but we’re also very happy with sales of iPhone 4 and 4S,” chief financial officer Peter Oppenheimer told analysts during a Tuesday conference call. Those older phones, of course, are lower-margin devices, since Apple charges customers $200 or $100 less for those phones, respectively, compared to the iPhone 5.

Oppenheimer said that iPhone sales remain ahead of expectations, and that Apple is particularly pleased with the iPhone’s strong year-over-year growth in both developed and emerging markets. Apple says that ComScore shows the iPhone holds the top spot in the U.S. market for the three month period ending in May, with a 39 percent share. And the iPhone is the top-selling smartphone in Japan, and the top or second-best selling smartphone in most markets IDC tracks.

With government, business, and education, iPhone holds a 62.5 percent share of the U.S. commercial market.

Cook suggested that Apple is at least open to the notion of trade-ins for smartphones. “I like the environmental aspect of it,” he said, though he stressed that Apple hasn’t announced any plans on that front. Cook pointed out that “residual value of iPhone stays high, and there’s so much demand around it. So that makes the trade-in program very lucrative.”

The picture was less rosy for iPad sales, but Apple has a perfectly reasonable explanation for the 14 percent drop in tablet sales from last year’s third quarter. A year ago, Apple introduced the third-generation iPad and enjoyed a full quarter’s worth of sales to the tune of 17 million units. This quarter, sales fell to 14.6 million iPads.

Still, Apple has plenty of reason to remain bullish on the iPad. Oppenheimer said that the iPad ranked tops in a 2013 U.S. tablet satisfaction survey by JD Power and Associates. And during the quarter, the company inked a deal with the Los Angeles Unified School District, the second largest district in the U.S., to roll out iPads to 640,000 students.

In fact, the iPad got the bulk of the credit for a strong quarter of sales to U.S. schools. According to Oppenheimer, the last three months generated the highest quarterly revenue ever for Apple’s U.S. education institution business.

Mac sales also fell in the quarter, down 7 percent from last year to 3.8 million units. Still, Oppenheimer pointed out that the 3.8 million Macs sold beat Apple’s own expectations. And Apple’s sales still were ahead of the total PC market, which saw sales contract by 11 percent according to estimates from research firm IDC (which is owned by the same company that owns Macworld). By Apple’s math, the Mac gained market share during the quarter.

The Mac was one of the few product lines to see any changes during the quarter, with Apple updating its MacBook Air lineup at the beginning of June by adding new Intel processors. Company executives had little to say about any impact those new laptops had on overall Mac sales, but Oppenheimer did call it the most successful MacBook Air launch to date, adding that customer response was great.

But during the call, executives implied that there were better things to come. Oppenheimer noted that June’s Worldwide Developers Conference included previews of both the Mac Pro and the next version of OS X, code-named Mavericks.

The iTunes Stores—which includes the App Store, Mac App Store, iBookstore, and the music, movies, and TV sections of iTunes—generated $4.3 billion in billings, Oppenheimer said, culminating in the best week and best month ever for App Store. That translated to quarterly revenue of $2.4 billion, up 29 percent year over year. Total quarterly revenue from iTunes, software, and services generated $4 billion in revenue.

Oppenheimer said that Apple now has over 320 million iCloud accounts, and 240 million Game Center accounts.

As for brick-and-mortar retail efforts, the Apple Store saw revenue of $4.1 billion for the quarter, virtually unchanged from the year-ago quarter. Oppenheimer reported that Apple saw 16,000 visitors per store each week.

For the quarter, Apple had an average of 405 stores, with average revenue per store at $10.1 million—down $1 million from the year-ago quarter. Apple opened six stores across five countries during the quarter, giving it 408 stores around the globe; 156 of those outlets are outside the U.S.

The company plans to open nine new stores during the September quarter, giving it 27 new openings during the 2013 fiscal year. It’s not just about new stores, however: Apple says that it relocated four of its stores to more appealing spots; it will complete 23 such relocations before the end 2013 fiscal year in September.

China has been a particularly critical part of Apple's business in recent years, but that took a hit in the third quarter. “China was weaker” in this quarter, Cook acknowledged, but maybe not as weak as it might seem at first blush, he argued. “Our sell-through in China was only down four percent from the year-ago quarter, when you normalize for channel inventory,” he said. Hong Kong drop was worse, though mainland China was up five percent year over year, “but that’s a lower growth rate than we have been seeing,” Cook added.

“I attribute that to many things, including [the fact that] the economy there clearly doesn’t help us there or others,” Cook said.

Still, China drove $4.9 billion of revenue—about 14 percent of the company’s earnings—Cook pointed out. “And a few years ago, that was within the hundreds of millions. We have a very strong market there.” He added that year-to-date, iPad sales are up 48 percent in China year over year, and half a million developers in China are working on iOS apps. He also said that Apple would double its number of retail stores in China “over the next couple years.”

Cook said that Apple will continue to work to boost iPhone and iPad sales, “both of which are currently lower then where we would like or need them to be. We’re doing that very cautiously, because we want to do it with quality.” He added that, “over the arc of time, China is a huge opportunity for Apple, so don’t get discouraged over the 90-day cycle with economic factors.”

Apple’s not done returning cash to investors. The company’s Board of Directors has announced another cash dividend, this one at $3.05 per share of common stock, payable on August 15 to any shareholder as of August 12.

For the next quarter, Apple is predicting revenue between $34 billion and $37 billion, with gross margins between 36 and 37 percent. That sales figure would put Apple’s performance in line with the $36 billion in revenue it reported in the fourth quarter of 2012. For the coming quarter, Apple also predicts operating expenses will be between $3.9 billion and $3.95 billion, with a tax rate of 26.5 percent.

That may dissatisfy some sections of Wall Street, where the focus is on growth and new products, but Apple’s Cook told analysts on Tuesday that he doesn’t think the company’s goals diverge from investors’ focus on profits.

“We’re here to make great products, and we think that if we focus on that and do that really well, the financial metrics will follow,” Cook said. “We don’t look at those two things as mutually exclusive.”

IBM misses revenue expectations again

IBM has reported second quarter revenues of $24.9bn, missing market estimates of $25.39bn but earning per share of $3.91, which is 14 cents better than analysts forecast.

Profit was also down at $3.23bn, a drop of 17% compared with the same period in 2012.

Last quarter, IBM's revenues and profit fell short of analysts' forecasts for the first time in eight years.
IBM raised its full-year earnings per share by 20 cents to at least $16.90. This excludes the $1bn in charges for its "workforce rebalancing", which includes layoffs.

In the first half of the year, software revenue was up 4%; services revenue down 4%; systems and technology revenue down 12%; business analytics revenue up 11%; and cloud revenue was up 70%.
As a result of the poor first quarter, the company cut jobs and focused on data analysis and cloud computing in an effort to stabilise its business.

More than 3,300 jobs were lost. IBM expects the savings in wages to start taking effect in the third quarter.
Although many technology companies have been hit by the global decline in PC sales, IBM insulated itself from the trend by selling its PC division to Lenovo for $1.75bn in 2005.

Like a pinball, Zimbra bounces again, now to Telligent from VMware

Telligent has acquired Zimbra from VMware in order to give its enterprise social networking suite an enterprise email and calendaring component.

For Zimbra, it’s the second time it’s been sold since 2010, when VMware acquired it from Yahoo. Zimbra was an independent company when Yahoo bought it in 2007 for $350 million.

The deal is the latest move by VMware to divest itself of enterprise collaboration products. VMware, a virtualization specialist that several years ago started building a collaboration suite via acquisitions, sold one of those pieces, SlideRocket, to ClearSide in March.

VMware had acquired SlideRocket, a cloud application designed to let users post and share slide presentations, in 2011.

VMware also bought enterprise social-networking provider Socialcast, and has said it is developing a cloud file-sharing product now called Horizon Suite.

In its statement Monday, Telligent said that once the deal closes, the merged company will be called Zimbra, which will be positioned as a provider of a “unified collaboration suite.”

The new Zimbra will receive investments from Intel Capital, NXT Capital Venture Finance, BDCA, Hall Financial Group and VMware, Telligent said.

With this move, Telligent is taking an interesting tack on its enterprise collaboration strategy, opting to add an email and calendaring component that other enterprise social networking providers don’t have.

In this manner, Telligent becomes a more direct competitor to bigger communication and collaboration vendors like Microsoft, IBM and Google. It has traditionally competed more directly with enterprise social vendors like Jive, Socialtext, NewsGator and Tibbr.

In the statement VMware COO Carl Eschenbach said VMware is focusing on the “software-defined data center, hybrid cloud and end-user computing opportunities” and that it will provide a “smooth transition” for Zimbra customers and partners. A VMware spokesman added via email that the Zimbra sale “marks the completion of VMware’s divestitures associated with realignment actions announced previously” in January.

Telligent founder and CTO Rob Howard said in an interview that the new Zimbra will be able to offer both traditional collaboration capabilities like email and calendaring via the Zimbra software, along with the Telligent enterprise social networking functionality and real-time communication tools for IM presence and text video and audio chat. In addition, Zimbra integrates with a variety of third-party tools, including with Cisco IP telephony systems, he said.

“We now have the ability to capture all of the [workplace] interactions people have,” Howard said.

Despite predictions that email is on its way out, Telligent believes it is and will continue to be a key part of enterprise communications and collaboration systems, albeit one that is ripe for innovation, he said.

At its customer conference in September, Telligent plans to show the first integration points between its software and Zimbra, including single sign-on and the availability of Telligent activity streams within the Zimbra interface.

Telligent also plans to continue meeting with Zimbra customers over the coming months in order to gather feedback that it will use to plan the next major Zimbra release, due in the first half of next year.

After that, Telligent expects to start delivering even broader and tighter integration between the two platforms, and more innovative features, leveraging the Telligent enterprise social analytics and recommendation engine, for example.

The deal, which was closed on Friday, had been in the works for several months, so Telligent has been in communication with Zimbra employees, partners and customers already, Howard said.

Constellation Research analyst Alan Lepofsky said he was surprised that the new company will be called Zimbra, since the email and calendaring suite lags in market share behind rivals like IBM’s Notes/Domino, Microsoft’s Outlook/Exchange and Google’s Gmail/Apps. Telligent, on the other hand, has become a successful enterprise social collaboration software provider.

Despite his misgivings about the brand name choice, Lepofsky thinks the fusion makes sense. “I think Zimbra fits better with Telligent than it did with VMWare, as Telligent’s primary focus is communication and collaboration, where that was never VMWare’s focus,” he said via email.

Matthew Cain, a Gartner analyst, is skeptical about the chances of success of a Telligent-Zimbra software integration, since it didn’t happen between Zimbra and VMware’s enterprise social networking product Socialcast.

“The Telligent idea of merging email with social, of course, is spot on — but if VMware could not make a go of it with Socialcast, one wonders how Telligent will do any better,” Cain said via email.

He also noted that Zimbra’s saga — from independent company to Yahoo acquisition, and then to VMware and now Telligent — shows just how difficult it can be to get traction in the enterprise email market.

“Despite popular open source underpinnings and a visionary web client, Zimbra never was able to build momentum in the corporate market,” Cain said.

Financial details of the deal aren’t being disclosed.

Updated at 10:28 a.m. PT with new information throughout the story.

Hulu Owners Cancel Auction - Again

The auction for Hulu is off.

A news release announcing the decision was jointly issued by 21st Century Fox, NBCUniversal and Disney on Friday morning. It came after a final bid that reportedly topped $1 billion from DirecTV, one that reportedly topped $900 million from Peter Chernin and AT&T and interest from Time Warner Cable in acquiring a stake.

“Hulu has emerged as one of the most consumer friendly, technologically innovative viewing platforms in the digital era. As its evolution continues, Disney and its partners are committing resources to enable Hulu to achieve its maximum potential,” said Disney CEO Bob Iger.

Speaking at the Allen & Co. retreat in Sun Valley, Iger offered more of an explanation about why Disney and its partners decided to keep the online video site. "We ultimately concluded that, even though we had some very compelling offers on the table, the future of Hulu is bright,” Iger told Bloomberg. "And if the future of Hulu is bright we should hold on to it."

"This had nothing to do with the offers that were on the table -- they were actually quite compelling," he added. "But, again, when we compared them with what we saw the potential of what Hulu could be, particularly because we were aligned in vision, it was smarter for the shareholders of our companies for us to stay in."

ANALYSIS: Why Pay TV Would Have Paid Big Money for Hulu

“We believe the best path forward for Hulu is a meaningful recapitalization that will further accelerate its growth under the current ownership structure,” said Chase Carey, president and COO of 21st Century Fox.
The auction had drawn initial bids bids from Yahoo, Silver Lake Management with William Morris Endeavor, and also a final-round bid from Guggenheim Digital Media, the parent company of The Hollywood Reporter, in partnership with private equity firm KKR. Hulu generated about $695 million in revenue in 2012 via ad sales and through 4 million subscribers who pay for monthly access to Hulu Plus, the company's premium service.
It's the second time in two years that Hulu's owners have considered selling the company, and pulled the plug on an auction. Two years ago, some potential buyers were hesitant over a lack of assurances that Hulu would retain access to TV programming from Disney, Fox and NBCU if those companies were no longer equity owners.

Sources familiar with the process said last-round bidders were disappointed by the last-minute cancellation of the auction. One source said bidders were only told on Friday that the current owners had pulled the plug.

Hulu's library today includes 70,000 TV episodes from about 2,500 series.

DirecTV was interested in making Hulu its TV Everywhere platform and possibly bundling pay TV and Hulu subscriptions.

FULL RELEASE:

21ST CENTURY FOX, NBCUNIVERSAL AND THE WALT DISNEY COMPANY TO MAINTAIN OWNERSHIP POSITIONS IN HULU

Companies Make Commitment to Recapitalize Hulu with $750 Million in New Funding to Propel Future Growth

New York, NY & Burbank, Calif., July 12, 2013 – 21st Century Fox, NBCUniversal and The Walt Disney Company today jointly announced that they will maintain their respective ownership positions in Hulu and together provide a cash infusion of $750 million in order to propel future growth.

Launched in 2008, Hulu is now a leading aggregator of premium online television content from over 400 content partners, and has achieved more than 30 million monthly unique visitors.

“Hulu has emerged as one of the most consumer friendly, technologically innovative viewing platforms in the digital era. As its evolution continues, Disney and its partners are committing resources to enable Hulu to achieve its maximum potential,” said Robert A. Iger, Chairman and CEO, The Walt Disney Company.

“We believe the best path forward for Hulu is a meaningful recapitalization that will further accelerate its growth under the current ownership structure,” said Chase Carey, President and Chief Operating Officer of 21st Century Fox. “We had meaningful conversations with a number of potential partners and buyers, each with impressive plans and offers to match, but with 21st Century Fox and Disney fully aligned in our collective vision and goals for the business, we decided to continue to empower the Hulu team, in this fashion, to continue the incredible momentum they've built over the last few years."

Hulu launched its premium subscription service, Hulu Plus, in 2010, which has now surpassed four million subscribers after more than doubling in 2012. Hulu achieved record revenues of $690 million that same year.

Young, Rich and Relocating Yet Again in Hunt for Political Office

Two years ago, Sean Eldridge and his husband, the Facebook co-founder Chris Hughes, bought a $5 million estate in Garrison, about 50 miles north of New York City. It offered 80 acres of rolling fields and a farmhouse once owned by a Vanderbilt. It would also allow Mr. Eldridge, 26, to run for the local Congressional seat if he chose to.

But that seat appeared unattainable, and soon the couple’s gaze shifted north, to the neighboring district on the other side of the Hudson River. In January, they bought a $2 million modern home here overlooking a reservoir, laying the groundwork for Mr. Eldridge’s campaign for their new local Congressional seat, New York’s 19th.

Word of Mr. Eldridge’s political plans has delighted the friends who make up his social circle: Donors to his exploratory committee include George Soros, the billionaire financier, and Sean Parker, the tech entrepreneur behind Napster and Spotify.

But his ambitions have puzzled some residents among the farmers, mill workers and small-business owners who populate this district, which rises through the Catskills and rolls north through cornfields and apple orchards to the Vermont border.

Amy Shields, a mother of three children who lives a few miles from Mr. Eldridge, cannot get over the fact that he has just moved into town and is already planning a run for Congress.

“It’s a little bit presumptuous,” Ms. Shields said. “In a community like this you like to know who your neighbors are. Having ties to your neighbors is important. How can he expect to represent people he doesn’t know?”

Mr. Eldridge and Mr. Hughes are among the most politically active of a new generation of entrepreneurs who gained their fortunes in Silicon Valley. Mr. Hughes, who left Facebook with about $500 million, oversaw online organizing for President Obama’s 2008 campaign and has since bought The New Republic. The two men helped raise tens of thousands of dollars for Gov. Andrew M. Cuomo and his push for same-sex marriage.

But Congressional campaigns, especially in upstate New York, can be very personal contests, built on longstanding relationships and local perceptions. And it may be hard to dislodge the incumbent, Representative Chris Gibson, a well-liked Republican and veteran of the Iraq war who lives in a modest home around the corner from where he grew up.

In an interview, Mr. Gibson, 49, politely deflected questions about Mr. Eldridge. But he hinted at the kind of campaign he might run, noting that his constituents included lifelong friends and relatives. “There are some things money can’t buy,” he said.

Mr. Eldridge’s arrival is being taken seriously by Republicans in Washington, who worry that his sizable checkbook makes him a threat, given the time he has to lay the foundation for his candidacy before the election next year.

Mr. Eldridge is not a newcomer to tough campaigns — though he has never been a candidate. In 2011, he left law school to join Freedom to Marry, a group that pushed lawmakers in the New York Legislature to legalize same-sex marriage.

In an interview, he dismissed any suggestion that his move to the 19th District was motivated by politics. “The Hudson Valley is my home,” he said. “It’s where I work. It’s where I got married.”

Mr. Eldridge said he and his husband, who also own a loft in SoHo in Manhattan, were settling into their new upstate home. He described a routine that includes grocery shopping and dining in Woodstock, the artsy enclave nearby. “We’re very involved in the community,” he said.

Mr. Eldridge’s supporters note that for all the trappings of wealth he now possesses, Mr. Eldridge grew up in a middle-class community in Ohio, where both of his parents were doctors; they say he has a genuine understanding of people of modest means.

And while the 19th District has vast stretches of rural, conservative communities, it is also home to more Democratic-leaning places, like New Paltz and Monticello, that could give his candidacy a lift.

“He clearly has a bright future,” said Mike Hein, a Democrat who is the Ulster County executive.

Catholics Split Again On Coverage For Birth Control

Baltimore Archbishop William Lori gave voice to a letter Catholic groups sent to the administration and Congress to protest insurance rules for contraceptives.

Two prominent Catholic groups are finding themselves, once again, on opposite sides of a key issue regarding the Affordable Care Act.

Three years ago, the Catholic Health Association, whose members run hospitals and nursing homes across the country, backed passage of the health law. The U.S. Conference of Catholic Bishops, which represents the hierarchy of the church, opposed it.

Now the groups are divided over the law's requirement for most employer-based health insurance plans to provide women with birth control.

Both groups say things are different this time around.

Sister Carol Keehan, president and CEO of the Catholic Health Association, said that the administration's final birth control rule wasn't what her organization would have preferred. "But it was a solution that we could make work, because it allows our members not to have to buy, contract for, refer or arrange for contraceptive services," she says.

Under the rule, churches and other houses of worship are exempt. Women who work for Catholic, or other religious hospitals, universities and social service agencies will still get the no-cost birth control. But the religious entity won't have to be involved in providing it. An insurance company or insurance administrator will instead.

But while that's good enough for Keehan, it's not cuttting it withthe U.S. Conference of Catholic Bishops. Last week it hosted what it called a "religious liberty press conference" with representatives of several other faith groups to decry the rules.

Archbishop William Lori of Baltimore read from the letter the groups sent to Congress and the administration urging the rules be overturned. "We stand united in protest to this mandate, recognizing the encroachment on the conscience of our fellow citizens," he said.

Lori said later in the news conference that if women want to have birth control as part of their health insurance plans, they shouldn't go to work for religious employers.

"And I think those employers are pretty upfront about that right at the beginning," he said. "So it's always a person's choice, whether he or she wants to sign onto such a thing."

That outrages people like James Salt, executive director of Catholics United, a liberal Catholic group. "The bishops have staked out a fairly extreme position which we refer to as the Taco Bell exemption," Salt said. "They want every Taco Bell to be exempted from this mandate."

Salt doesn't mean Taco Bell, literally. He means any for-profit company headed by someone with a religious objection to the mandate. "They want those for-profit entities to have the right to exempt themselves," he says.

But unlike the fight over passage of the health law in 2010, when Keehan said it didn't provide new federal funding for abortion and the bishops said it did, both sides are trying to play down this split. The bishops noted that the Catholic Health Association had informed them of its decision before going public, and Keehan says she understands that the bishops have a larger agenda to pursue than she does.

"The whole religious freedom questions they are focused on now; that is a much bigger question," she says.

And the Catholic Health Association's endorsement of the rules wasn't really much of a surprise, particularly given its long-standing support of the law. "The CHA thinks it's OK and God bless 'em it's a free country, they're allowed to do that," says Mark Rienzi, senior counsel with the Becket Fund for Religious Liberty, which is representing many of those suing over the rules. "Other people don't think it's OK and that's why there are 60-some lawsuits that are out there and will continue."

In fact, one of the few things just about everyone agrees on is that this is an issue likely to be resolved only when it gets to the Supreme Court.

"Maybe the administration will back down, but they've shown no signs of it yet," says Rienzi. "So I think the bottom line is the relief will have to be through the courts, where it's been for all the businesses. And the fact of the matter is the businesses have been doing outstandingly well."

By that he means that many of the for-profit firms that have sued have at least had the birth control mandate put on hold while their cases are heard. But like the health law itself, this issue still has a long way to play out.

Sallie Krawcheck on trusting Wall Street again

Sallie Krawcheck, former investment bank executive, just bought a network for professional women, 85 Broads.

Can investors trust Wall Street again?

If we mean by "Wall Street" large financial institutions, I'd say that they are no doubt safer today than before the Dodd-Frank law and the new financial regulatory changes, but it is still unclear whether they can make it through a significant downturn like we had in 2008.

If we mean financial advisers, in my experience running Smith Barney at Citi (C, Fortune 500) and then Merrill Lynch, I found that the vast majority of them are good people, looking to do good things and committed to building long-term relationships with their clients. You know, the cartoon representation of so many of them as short-term-focused is wrong.

For example, back in 2007 and 2008, Citi had sold some financial products that we believed would only go down a few cents in a bad market, but which actually [lost most of their value]. Instead of reading investors the fine print, the advisers pounded the management team to partially reimburse their clients for our stupidity. I advocated for that too, the bank eventually relented, and I subsequently lost my job.

Many of the people who were on Wall Street in 2007 and 2008 are still there making big money. How is that possible?

A number of people lost their jobs at Citi, including the CEO, the head of the corporate investment bank, desk heads, and traders.

Related: 101 ways to build wealth

Is Wall Street getting any better at managing risk to avoid catastrophe?

Everybody's learned something, but are we going to have the breakthrough to reduce risk in the system? There's a reason crowdsourced problem-solving works: You put a problem to groups who have different experiences, and they'll often solve dilemmas that the experts couldn't. The chemists solve the physicist's problem.

Part of me wants to open-source bank risk so that we have some sharp college kids in some corner of the world trying to solve it, as opposed to the same folks with the same tools. It sounds fanciful, but there is not a tremendous amount of new thinking on these issues of risk. The problem is, banks will never allow positions or performance information to be made public.

 

What's the next financial risk out there that people don't broadly recognize?

The first one I would point to is bond funds. There is still an incorrect but widely held view that you don't take particularly big losses on bonds unless there's a credit issue. [This is true only if you can hold to maturity.] Bond funds are different. If the economy gets better and interest rates increase, bonds may suffer losses. There's going to be some surprise out there.

Related: Are we at risk of another banking crisis?

You've also raised concerns about money-market mutual funds.

The funds do take on risk. It's a $2.6 trillion market. Lots of individual investors participate. They believe it's cash, in part because the brokerage system puts it into CASH on their statement. And they redeem 100¢ on the dollar in good markets and bad.

But back in 2008, a money-market fund "broke the buck" [couldn't redeem for 100¢]. If we learned anything in the downturn, implicit guarantees not backed by capital are very bad things. What worries me about money funds is managers who take on more risk just to get a tiny bit more return. It's not worth it.

Do you believe high-speed computerized trading gives Wall Street an unfair advantage over individual investors?

It's faster. I would make sure to worry about first things first and second things second, and last things last.

So first things first. How do I want to live? How much money do I need to do it? Can I reasonably get there? Then you've got to go to second things. Do I have the right portfolio to get me there? Am I properly diversified? Third things: Are you in a mutual fund that has an average management fee of 1.2%, 1.3%, when you could be in an ETF that has an expense ratio of 0.3%?

Once you've done all that, then let's start to talk about the fractions of pennies that the institutional traders are getting over individual investors. Most individuals really shouldn't be trading often anyway.

Related: Money-market funds aren't as safe as you think

What about the "flash crash," when computers seemed to cause the Dow to briefly plunge 9%.

It was very scary, but the good news was that there was not a tremendous amount of money lost by individual investors.

You first built your name as a stock analyst covering Wall Street. A MONEY reader asks whether banks are a decent investment yet.

Today the markets feel fine, right? The economy feels good enough. If the economy and the markets are in good enough shape, overall banks will be in good enough shape.

One caveat: Individual banks are difficult to analyze. They're very complex. Even when they give out 100-plus pages of 10-K and 10-Q disclosure, it is really impossible to know what's on their balance sheet at any point in time because the banks' individual loans and trading positions can change quickly between earnings reports. And as we've learned, idiosyncratic accidents do happen.

So my advice is, if one wants to invest in financial institutions, own a group of them, or an ETF that owns them, rather than individual banks. That's what I do.

Related: Best advice now for getting richer

You've talked about banks alienating customers with high and hidden fees. Why do they do it?

Banks, having had their earnings reduced, are doing what companies do: looking to replace earnings.

What new fees should bank customers expect?

It's well known that if you transfer a credit card balance, you can get a low teaser rate that will then move up. What is less understood is that when you give a deposit to a bank, there can be a teaser rate that is later taken down.

In this low-rate environment, the numbers are not large. But if you look for a future fee stream, it would be that. The average checking-account agreement is, I believe, 111 pages. You can find the formula for how the leap year affects the calculation of your interest payment. It's harder to figure out the rate they'll actually pay.

Twitter: @sajilpl

Suspected China-based hackers 'Comment Crew' rise again

The suspected China-based hackers known as the "Comment Crew" are back at it again, a development likely to contribute to continued tensions between the U.S. and China over cyberattacks.

 

The security community has had the group under its watch for a number of years, but in February, its activity was exhaustively detailed in a report from computer security vendor Mandiant.

 

Mandiant's report said a specific Chinese military unit called "61398" waged a seven-year hacking spree that compromised 141 organizations. The report added to other long-running research from security companies and organizations into suspected state-sponsored hacking.

 

The Comment Crew laid low for a while following the report but is back hacking again, said Alex Lanstein, senior researcher for FireEye.

 

"They took a little breather, and they started back up," Lanstein said.

 

Following the intense attention in February, the group stopped using much of its command-and-control infrastructure. Instead, they started from scratch, directing malware at new targets.

 

"We didn't see them take control of any of the systems they had previously compromised," Lanstein said. "They started fresh with a whole new round of attacks."

 

The group, while skilled, has made mistakes, many of which were picked up by Mandiant. Continuing analysis of the Comment Crew's methods have also revealed another mistake the group made, which conceivably makes it easier to link together attacks to a single source.

 

Lanstein said FireEye found the Comment Crew made an error when compiling their malicious software programs. When an application, including malware, is written in a programming language, it must be compiled, or translated into machine-readable code.

 

In many instances, the Comment Crew forgot to remove the name of their particular coding project, called "Moonclient," evident when a program was decompiled, or reverted back to its original programming language.

 

Lanstein said the error showed that "you are dealing with humans on the other side of the keyboard," who are prone to make mistakes. "This is a mistake made over and over again," he said.

 

FireEye decided to release information on the error since so much had already been released on the Comment Crew, and it would make little difference now for computer security researchers tracking them since their tactics have changed.

 

"It's more difficult to track them now," Lanstein said.

 

FireEye is due to release a report on Wednesday covering how researchers can track malware campaigns by looking for hacking mistakes, including keyboard layouts, embedded fonts and overuse of bogus DNS (domain name system) registration details.
 

 

Real Estate Sizzles Again In Las Vegas

Las Vegas, the recession's foreclosure capital, is seeing a surge in single-family home prices.

High-paying investors have helped Las Vegas' real estate prices to bloom in a place that once ranked as the country's foreclosure capital.

Thanks to these big-money investors as well as a shortage of supply, single-family home prices in Vegas have increased an average of 32.8 percent from a year ago, according to the Greater Las Vegas Association of Realtors.

The housing market is so tight that Realtors are calling people to try to get them to sell their homes. Agents are always trying to find homes to sell, but right now in Vegas, it's taken on a new fervor.

"Right now, on average, an average listing we have we can say there's no less than 15 offers on a property that we have," says Noah Herrera, vice president of the Greater Las Vegas Association of Realtors.

A normal, healthy housing supply in Las Vegas has enough homes to meet a six-month demand, Herrera says. Right now, Vegas has barely enough for five weeks. One reason, he says, is an influx of big-money investors — Wall Street and hedge funds — who are buying up properties in bulk.

"We have institutional investors that are coming in and taking all of our inventory — overbidding, paying cash," Herrera says.

Another big reason, he says, is a local law that did what other federal laws did nationally after the housing market crash: It made it harder for banks to foreclose. It did that by making mortgage and foreclosure practices more transparent. It also ended things like robo-calling and predatory lending.

"Well, it is a bill that's meant to protect homeowners," says Luis Lopez, an analyst at the Lied Institute for Real Estate Studies in Las Vegas. "To me it makes sense that banks have to show the homeowner that they have the authority to foreclose. It just seems something very basic."

“ We have institutional investors that are coming in and taking all of our inventory — overbidding, paying cash.
- Noah Herrera, Greater Las Vegas Association of Realtors

'The Craziness Is Escalating In Las Vegas'

And many local Realtors say it worked, slowing down foreclosures. In September 2011, there were over 4,000 notices of default in the state of Nevada. In October, after the bill passed, there were 80. And fewer homes in foreclosure mean fewer homes being pushed to the market. And the result is Economics 101: Limited supply plus high demand equals higher prices.

But that may not be a bad thing.

"Because the values have gone up so much, it's now causing normal people that were underwater to be able to sell their houses," says Herrera.

And the number of people who are underwater in Nevada — or who owe more on their house than it's currently worth — is a lot. In 2010, it was 70 percent of mortgage owners. Today, it's less than 50 percent.

Clara Padilla Silver is part of that statistic. According to an appraisal, she was underwater $35,000 on her Las Vegas home.

"And we didn't qualify for any kind of modification," Silver says.

Her only option, she thought, was to do a short sale — to sell the house for less than it is worth — even if it damaged her credit. That's what her neighbor was doing.

But then Silver thought about it. "The craziness is escalating in Las Vegas. So I said, 'Let's take a chance. We'll list it for a couple of weeks,' " she says.

And wham!

"We got a cash offer for $233,000" — $50,000 over what she thought the house was worth, she says.

That deal fell through, but a week later, she got a similar offer, one that she expects to close in the next few weeks. But it better happen fast — for the buyers, she says, because when she checks online real estate databases "the value of my house increases by about $1,000 every two days."

That, she says, is the craziness of Vegas.

 

Taylor Swift Sells, Judd Apatow Buys: Celebrity Beach Hotspots Boom Again

Even in such second-home meccas as the Hamptons and Malibu, beachfront property is a rare commodity -- and as the market heats up, prices are skyrocketing, regaining as much as two-thirds of their pre-recession peaks. "There's a confidence in luxury real estate right now. This is the buyer segment's chance to step up," says Betty Graham, president of Coldwell Banker Previews International. "If they have the money and the valued lifestyle, this is the time to do it before it goes higher."

PHOTOS: Back to the Beach: Shorefront Real Estate Booms Once More

Cape Cod

Median Sale Price: In Chatham, Mass. -- where Harry Connick Jr. owns a second home -- the median was $448,000 in March, according to Zillow. That's 46 percent of the all-time-high median of $975,000, established in September 2009.

Ultimate House: An 11,000-square-foot, six-bedroom mansion in Chatham -- a quaint town of 6,100 bounded on three sides by water -- is listed at $25 million and offers a wine cave, elevator and home theater on two acres.

Recent Big Sale: Working through a limited liability company, Taylor Swift is believed to have sold a seven-bedroom house in nearby Hyannis Port in February for $5.67 million, flipping it for an $875,000 profit after buying it four months earlier for $4.8 million.

Hotspot: The year-old Pizza Barbone (390 Main St., Hyannis) serves pies from a 1,000-degree wood- fired oven.

Malibu

Median Sale Price: $1.7 million in March, 68 percent of June 2008's high of $2.49 million.

Ultimate House: A rare find built in 1928, this four-bedroom shingled cottage, listed at $18.9 million, is one of only seven beachfront houses in the gated Malibu Colony enclave with its own pool, plus 60 feet of beach frontage and a guesthouse.

Recent Big Sale: Judd Apatow and Leslie Mann plunked down $10.8 million in April for a 1930s Malibu Colony bungalow previously owned by the late producer Laura Ziskin.

Hotspot: Mr Chow Malibu (3835 Cross Creek Road) recently began weekend lunch service.

PHOTOS: 6 Chic Winter Getaways From L.A.

Laguna Beach

Median Sale Price: $1.22 million in March, 71 percent of October 2008's high of $1.73 million.

Ultimate House: A five-bedroom contemporary residence listed at $41.5 million, one of only five to open directly onto the sand in Irvine Cove, calls to mind a chic resort in Bora Bora. Nearly every room has floor-to-ceiling views of the Pacific.

Recent Big Sale: The Real House- wives of Orange County's Heather Dubrow and her plastic surgeon husband, Terry, sold their Newport Coast mansion in December, without listing it publicly, for $16.45 million.

Hotspot: The Mozza empire expanded to Newport Beach with the 2011 opening of Pizzeria Mozza (800 W. Coast Hwy.).

Lahaina, Maui

Median Sale Price: $484,000 in March, 65 percent of January 2007's high of $743,000.

Ultimate House: Lahaina is one of Maui's most luxurious destinations with several first-class resorts, including the 22,000-acre Kapalua Resort, that offer residences. One property is a new six-bedroom beachfront house, listed at $20.8 million, featuring ipe wood floors, a hand-carved black granite bathtub, meditation garden and three lanais.

Recent Big Sale: After purchasing the nearby island of Lanai in 2012 for $300 million, Oracle CEO Larry Ellison bought inter-island commuter airline Island Air in February for an undisclosed price.

Hotspot: Chef Alan Wong, whose eponymous Honolulu restaurant is a favorite of the Obamas, opened Amasia (3850 Wailea Alanui Drive) last year at the Grand Wailea, where a highlight is the Surf and Turf sushi roll with Wagyu steak and uni.

STORY: Hollywood Reporter Names 10 Most Popular NYC Hotels for Entertainment Biz

The Hamptons

Median Sale Price: $739,000 in Southampton in March, 53 percent of April 2009's high of $1.4 million.

Ultimate House: Sitting on a prime 2.5-acre oceanfront lot, an 8,500-square-foot, six-bedroom 1986-built beauty, listed at $28.5 million, has been revamped meticulously and boasts a media room, soaring wood-clad ceilings, three rock-wall fireplaces and a sunken tennis court.

Recent Big Sale: In March, hedge fund billionaire Steven Cohen, now at the center of an insider-trading scandal, laid out $60 million for a 10,000-square-foot oceanfront property on East Hampton's Further Lane -- the same month he purchased a Picasso from Steve Wynn for $155 million.

Hotspot: Chef Tom Colicchio's seasonal Topping Rose House restaurant (One Bridgehampton -- Sag Harbor Turnpike), which opened in the fall, has been joined by the debut of its 22-room hotel in May.

 

iOS 7 proves once again that change is the way Apple does business

Apple’s introduction of iOS 7 has sparked quite the discussion about software design—and somehow it has also magically conferred degrees in design to a whole host of laypeople. You don’t have to be a design expert, or even play one on the Internet, to disagree with some of the choices Apple has made. But whether or not you agree, one thing is certain: iOS 7 is coming this fall. And if you’re invested in Apple’s ecosystem, you can either get on this wagon or let it pass you by. I think the smart money is on hitching a ride.

 

This isn’t the first time Apple has turned things upside down for both users and third parties. Let’s take a look back through the archives at some of the changes Apple has made to its platforms over the past 20 years.

Wikipedia

When Apple started shipping PowerPC machines in 1994, it included a 680x0 emulator in the Mac OS so that all code for old Macs would continue to run on the new hardware. Even the operating system initially ran in emulation. But the speed advantage of PowerPC quickly became the hook that caused developers to update their applications for the new processor. Well, quickly for the time, anyway. Things were different back then. For starters, developers used steam-powered compilers that had to be stoked for days. You tell that to people these days, and they won’t believe you. (Possibly because it’s not true.)



While mostly just a cosmetic change, the introduction of colorful iMacs was huge for third-party peripheral makers. If you’re a longtime Mac user, as I am, you probably have a basement, attic, or, at the very least, a drawer somewhere that’s full of candy-colored mice and USB hubs. Nobody wanted to use a beige external hard drive with a lime iBook, and third-party peripheral makers rode that idea all the way to the bank.

 

Apple bought NeXT in 1996 for its NeXTStep operating system, but more than four years would pass before it shipped its own next-generation OS—and several more iterations would come before the OS would be truly usable. Again, Apple didn’t cut off the past completely. The company included two means of backward-compatibility, Classic and Carbon. The Classic environment ran a full version of OS 9 in a virtual environment—similar to the virtual machines we might run in Parallels or VMWare today—to support older applications. Carbon, on the other hand, consisted of a set of libraries that Apple supported on both OS 9 and OS X; applications coded with it could run on both operating systems.

WikipediaOS X's Aqua interface was quite a departure from the classic Mac OS, and required adjustment from users and developers alike.

But applications that used Cocoa, the language that Apple pushed with the introduction of OS X, were the way of the future. Applications coded to those native NeXTStep APIs ran faster, better, and prettier—and boy, they smelled terrific. Companies that dragged their feet in updating applications would lose users while longtime NeXTStep development shops such as The Omni Group would soon experience a boom.

 

The interface change from the Classic Mac look to Aqua is probably the closest analogy to the recent design changes with iOS 7. At the time, OS X commentator John Siracusa said of Aqua:

 

Of course, Aqua is also compelling in that it may compel some people to gag. Like the iMac, Aqua is likely to polarize consumers and competitors alike.

 

Polarizing is a word you hear a lot these days.

 

Much as with the 68000-to-PowerPC migration, in this situation Apple used an emulator, Rosetta, so that legacy applications could run on the new Intel-based hardware. For the most part, Cocoa applications could just be recompiled. At the time the most nervous of the various nellies claimed that developers would simply give up developing for the Mac and would tell people to boot into Windows on their Macs to run their applications. Game over, man! But, again, the opportunity was to make apps that would run faster—not just faster than applications running in Rosetta, but faster than the equivalent versions running on PowerPC.



iOS’s second coming took the form of the iPod touch’s bigger, badder brother: the iPad. Developers had long wanted Apple to provide an upgrade-pricing option for the App Store—and they continue to want that today. But at least some of them have been able to take advantage of hardware changes to entice a few more dollars out of their customers. When Apple shipped the iPad, developers had the option of making universal versions of their apps, but a host of new “HD” versions of games, as well as other dedicated iPad-only apps, appeared. The iPad versions required new graphics and new layouts, but the functionality didn’t have to change much at all.



Sometimes, though, a change doesn’t directly lead to an opportunity to charge customers again. When Apple added Retina displays to the iPhone and iPad, most developers didn’t charge for upgrading their graphics to Retina quality. The same held true with the iPhone 5’s larger screen size. However, if your app lacked such upgrades, it would likely lose out to apps that had them. If you wanted users of new iPhones to buy them and if you wanted to keep making money off your iOS app, you updated.

 

The moral of this story should be obvious, since I’ve now beaten you over the head with it six times. Change is hard, but it’s a mistake to consider platform transitions such as these a slap in the face to developers. This kind of thinking has always been wrong. Transitions are hardly done to spite third parties. Yes, when change arrives, as it inevitably does, developers have to put in some extra work—but that work will be rewarded.

 

Some of Apple’s past changes were purely technological, while others were cosmetic. The reason iOS 7 is so contentious is that it represents a technological, functional, thematic, and visual change. But change is change, and change is opportunity. As Tapbots developer Paul Haddad said:

 

If you are an iOS developer and don’t think iOS 7 is the biggest opportunity in years, you need to find a new job.

 

Without any snark, that really sums it up. Do you want to continue to be in on this platform, or do you want to do something else? iOS 7 isn’t complete yet, and we can hope that some of the eyesores will get refined (straight into a shallow grave). So, yes, let’s nitpick about icon design, and the apps that still have textures, and whatever else seems off. But Apple has set the overall direction. All that’s left for developers to do is to decide what business they want to be in.