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Steve Jobs resigns as CEO of Apple

Wed, Aug 24 2011

• Apple Share Crunch Overdone, Nomura analyst says
• Ode to Steve Jobs
• Apple's loss may be Samsung's gain
• Apple suppliers fall in Asia, rivals up

1 of 9. Steve Jobs stands beneath a photograph of him and Apple-co founder Steve Wozniak from the early days of Apple during the launch of Apple's new ''iPad'' tablet computing device in San Francisco, California, January 27, 2010.

Credit: Reuters/Kimberly White

SAN FRANCISCO/LOS ANGELES (Reuters) - Apple Inc began a new era on Thursday without Steve Jobs as chief executive, a momentous shift that surprised investors, but barely dented confidence in the near-term outlook for the stock.

In announcing that he could no longer fulfill his duties, Jobs stepped away from his CEO duties and cleared the way for Tim Cook to take over leadership of one of the world's best known and valuable companies.

Cook, 50, must now convince investors that Jobs' vision and spirit have been institutionalized within Apple, a company that revolutionized entertainment and communication with its iPod, iPad and iPhone devices. Jobs, who has been on medical leave since January, will stay on as chairman.

"Investors are coming to the realization that this is a natural transition. It may have already been built into Apple's valuation," said Hendi Susanto, a Gabelli & Co analyst.

Apple's shares were down less than 2 percent in early trading on Thursday, showing more resilience than when the departure was initially announced late Wednesday.

"Over the course of last year, investors have become more comfortable with the idea of life after Jobs," said Bill Kreher, an analyst with Edward Jones. "I think it is encouraging that he will remain with the company as chairman but the real story is that Tim Cook has emerged as a capable successor."

Jobs, who has fought a rare form of pancreatic cancer, is deemed the heart and soul of a company that became the most valuable in the world for a brief period this year.

"I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple's CEO, I would be the first to let you know. Unfortunately, that day has come," Jobs wrote in a brief letter announcing his resignation.

While it is unlikely that his departure as CEO will derail Apple's ambitious product-launch roadmap in the near term, there are concerns about whether the company will be as creative without its founder and visionary at the helm.

Jobs' battle with pancreatic cancer, which has stretched over several years, has been of deep concern to Apple fans, investors and the company's board.

Over the past two years, even board members have confided to friends their concern that Jobs, in his quest for privacy, was not being forthcoming with directors about the true condition of his health.

Wall Street also wanted a clearer picture of plans at Apple.

"I think a lack of clarity of its succession plan in the past has been a distraction so we appreciate that this plan represents a smooth and orderly transition," Kreher said.

Jobs, 56, has been on medical leave since January 17, with his duties being filled by Cook, who was chief operating officer.

Jobs had briefly emerged from his medical leave in March to unveil the latest version of the iPad and later to attend a dinner hosted by President Barack Obama for technology leaders in Silicon Valley.

But his often-gaunt appearance had sparked questions about how bad his illness was, and his ability to continue at Apple.

Cook, a former Compaq executive and an acknowledged master of supply-chain management, has taken over the helm in each of Jobs' three health-related absences.

One Silicon Valley CEO, who declined to be identified because of the sensitive issues involved, said the tone of Jobs' statement indicated his health may be worse than feared.

The Apple chieftain has earned a reputation for commanding every aspect of operations -- from day-to-day running to broad strategic decisions -- suggesting he would not give up the job if he had a choice.

"It's really sad," the CEO told Reuters. "No one is looking at this as a business thing, but as a human thing. No one thinks that Steve is just stepping aside because he just doesn't want to be CEO of Apple anymore."

"It feels like another shoe is going to drop."

Brand research company Millward Brown said Apple's brand, which it values at over $153 billion, should remain intact.

"Steve Jobs resignation from Apple is sad for him as it presumably presages more illness. However he has left the Apple Brand in rude health so that the company is still poised for future growth," global brands director Peter Walshe wrote.

"The future direction is mapped out, the successor is in place (also a designer by background), and consumers rate the brand uniquely 'creative', 'fun' and 'adventurous.'"

'ARTISTS' TOUCH'

While Jobs did not give details on the state of his health, oncologists who have not treated the Apple founder said he could be facing several problems tied to his rare form of pancreatic cancer and subsequent liver transplant.

Such problems include possible hormone imbalances or a recurrence of cancer that is harder to fight once the body has already been weakened.

"Steve Jobs is the most successful CEO in the U.S. of the last 25 years," Google Inc Chairman Eric Schmidt said in a statement.

"He uniquely combined an artist's touch and an engineer's vision to build an extraordinary company."

Nokia CEO Stephen Elop said in a statement: "Steve Jobs is a visionary in the computing industry. We look forward to both Steve and his team having a positive impact on our industry for many years to come."

Elop was appointed last year to lead Nokia's fightback against Apple, whose iPhone posed a challenge that the world's biggest cellphone maker has yet to meet.

Analysts again expressed confidence in the Apple bench, headed by supply-chain maven Cook.

"I will say to investors: 'Don't panic and remain calm -- it's the right thing to do. Steve will be chairman and Cook is CEO," said BGC Financial analyst Colin Gillis.

Nomura's Global Technology Specialist Richard Windsor agreed, although he said rival smartphone makers would be quick to take advantage of any Apple weakness.

"This looks like a pretty smooth transition with the slight risk of a dent to its image if the next product launches are not perfect. Its competitors are waiting to pounce and here we think that HTC has the most to gain," he wrote.

Apple previously did not have a chairman, but had two independent co-lead directors.

(Additional reporting by Bill Rigby, Alexei Oreskovic, Sarah McBride and Jim Christie in San Francisco, Lisa Richwine and Nichola Groom in Los Angeles, Peter Lauria, Paul Thomasch, Liana B. Baker and Tiffany Wu in New York, Tarmo Virki in Helsinki and Georgina Prodhan in London)

(Editing by Andrew Callus and Maureen Bavdek)

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An man gestures before a computer screen in a file photo.

Credit: Reuters/Brian Snyder

SAN FRANCISCO/BOSTON (Reuters) - Online data tracking service comScore Inc siphons confidential information including passwords, credit card numbers and Social Security numbers from unsuspecting users, according to a lawsuit filed on Tuesday.

The proposed class action lawsuit, filed on behalf of two plaintiffs who downloaded comScore software, also says comScore scans all files on users' personal computers and modifies security settings, among other allegations.

The lawsuit against comScore, one of the leading companies that measures and analyzes Internet traffic, seeks an injunction against several alleged practices, as well as damages under U.S. electronic communications privacy laws.

ComScore collects data from people who get free software and chances to enter sweepstakes in exchange for their participation. It sells that information to more than 1,800 businesses around the world, including Best Buy Co, Facebook, Microsoft Corp and Yahoo Inc, according to comScore's website.

Concerns have surfaced about comScore's data collection practices in the past, though the complaint filed on Tuesday by Chicago-based law firm Edelson McGuire appears to be the first such legal action taken against the company.

The lawsuit says comScore's software scans all accessible files on a user's computer, as well as all files from other users on the same network, and transmits information about those files back to the company.

"We have reviewed the lawsuit and find it to be without merit and full of factual inaccuracies," said comScore spokesman Andrew Lipsman. "ComScore intends to aggressively defend itself against these claims."

Privacy advocates have grown more concerned about data collection, inadvertent or not, as people increasingly transfer tasks from shopping to banking onto the Internet.

Last year, Google Inc was criticized for its Street View cars, which roam city streets for mapping purposes, because they accidentally collected reams of data from open, unsecured Wi-Fi networks.

URGE TO PURGE

ComScore warns visitors to its premieropinion.com website that its software monitors all Internet activity, including filling a shopping basket, completing an application form or checking online accounts.

"We make commercially viable efforts to automatically filter confidential, personally identifiable information such as UserID, password, credit card numbers, and account numbers," the warning says.

"Inadvertently, we may collect such information about our panelists; and when this happens, we make commercially viable efforts to purge our database of such information."

In a 2008 blog post, comScore chairman Gian Fulgoni said the company obtains consent from people before installing data collection software, and that it does not disclose personally identifiable information to its clients.

ComScore data is routinely cited in media reports about consumer preferences and social networking website use, among other topics.

The company's biggest customer is Microsoft, which accounted for about 11 percent of the $175 million it took in last year. Media companies like News Corp are also clients, according to the lawsuit, as is Reuters parent company Thomson Reuters Corp.

The lawsuit does not accuse comScore clients of any wrongdoing. Best Buy, Microsoft and Thomson Reuters spokespeople declined to comment. Representatives for Facebook, Yahoo and News Corp were unavailable to comment.

EMBEDDED

According to the lawsuit, comScore attracts some users by advertising on websites. But the lawsuit also accuses comScore of using subsidiaries with innocuous names to disseminate its software and gain access to millions of consumers' computers and networks.

ComScore software is embedded in free screensavers, games and other applications without proper notice, according to the lawsuit, which was filed in a Chicago federal court.

Once downloaded, comScore software modifies a computer's firewall settings and gains full rights to access and change any file on the computer, the lawsuit says.

It is nearly impossible to disable the software once it is installed, the lawsuit says.

Jay Edelson, an attorney who represents the plaintiffs, said his firm began its investigation of comScore in July 2010.

"We retained multiple digital forensic firms, who each conducted dozens of independent tests," Edelson said.

The case in U.S. District Court, Northern District of Illinois, is Mike Harris and Jeff Dunstan, individually, and on behalf of a class of similarly situated individuals v. comScore Inc, case no. 11-cv-5807.

(Editing by Ted Kerr and Robert MacMillan)

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NEW YORK (Reuters) - After a series of failed takeover attempts and accounting scandals, Computer Sciences Corp is attracting potential activist investors looking to take advantage of a weak share price to push for a breakup.

The $4.5 billion market cap company's shares have dropped 40 percent so far this year to below $30, valuing it at a steep discount to peers.

Its government services business faces an uncertain outlook amid prospective cuts in U.S. government spending, dragging down the value of its higher growth Information Technology services.

Adding to its problems, Computer Sciences is also caught up in an accounting investigation, shareholder lawsuits and a long dispute with the U.K. National Health Service regarding alleged delays in developing healthcare IT systems.

Activist investors are doing the math, evaluating a breakup and other ways to boost Computer Sciences' sagging share price, people familiar with the situation said. But Computer Sciences is aware of the pressure and has been reviewing it options as well, the people added.

Representatives for Computer Sciences declined comment.

Computer Sciences has been a target of multiple takeover attempts in the past and investors and potential buyers have long bet that separating the Falls Church, Virginia-based company's commercial IT services from its government services could boost value.

Its North American Public Sector, which provides outsourcing and consulting services to the Defense Department and other federal agencies, accounts for a little more than a third of its revenues.

The rest comes from data-center outsourcing and developing enterprise software applications. Computer Sciences' revenues totaled $16.2 billion in the 12 months ended July 1, 2011.

The company trades at about 6 times its earnings. Accenture Public Ltd Co, a close competitor in terms of size, scale and reach, trades at about 17 times earnings, said Morningstar analyst Swami Shanmugasundaram.

Shanmugasundaram said the commercial business has a higher growth profile and better margins than the government business, and splitting them up would "definitely" be good for shareholders.

"Because of its growth profile and execution issues ... I do expect CSC to trade at a discount (to peers), but this is too much of a discount," he said.

CSC PROBLEMS

People familiar with Computer Sciences management's thinking said the company believes the two units belong together and it wants to sort out several pending issues before determining its strategic direction.

The U.S. Securities and Exchange Commission is in the middle of a probe related to Computer Sciences' accounting errors, which primarily involve accounting irregularities in Europe's Nordic region.

The issues could "divert management's focus, result in substantial investigation expenses and have an adverse impact on the firm's reputation and financial condition," Computer Sciences has said in a statement.

The U.K. government, meanwhile, is reviewing whether a contract to install next-generation healthcare IT systems in the country should be continued after Computer Sciences allegedly missed deadlines. The company said this week it would likely meet the U.K. health agency in September to discuss the matter.

These challenges could prove a hurdle for any activists looking to buy into the company.

Activists would also have to wait it out if they launched a campaign either against the board, as all 10 Computer Sciences board members have been just reelected for a full year. The current board members have served long terms, with only four of the directors joining after 2007.

FAILED MATCHES

Over the last decade or so, private equity firms, big technology companies and prime defense contractors have looked at the company as a takeover target, but its presence in both the commercial and government sectors proved to be a hurdle.

In early 2006, Computer Sciences received an offer in the low $60s per share from a consortium of three private equity firms and a large technology company, the sources said.

But Chief Executive Van Honeycutt wanted at least $65 per share and rejected the bid, they said.

Lockheed Martin Corp was also interested at the time, but was not prepared to buy the entire company and its efforts did not gain traction, these people said.

In 1998, Computer Associates -- now known as CA Technologies -- unsuccessfully made a hostile $9.8 billion takeover bid for Computer Sciences.

It is unclear if any of these or other potential buyers would still be interested. Hewlett Packard Co bought Computer Sciences competitor EDS for $13.9 billion in 2008, while others such as Dell Inc and Oracle Corp have different priorities for takeovers, sources said.

The sheer size of a deal would also be a challenge for private equity firms in the near term, sources said.

But if government and commercial businesses were separated in a tax-free spinoff, the two units would attract more buyers, the sources said.

"If the company is really going to earn what Wall Street thinks it's going to earn, it is extremely attractive from a value perspective," a source said.

"That said, the company needs to reposition strategically and the question is: Can they get there on their own?"

(Reporting by Soyoung Kim and Nadia Damouni in New York; additional reporting by Saqib Ahmed in Bangloare; editing by Andre Grenon)

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An online coupon sent via email from Groupon is pictured on a laptop screen November 29, 2010 in Los Angeles.

Credit: Reuters/Fred Prouser

SAN FRANCISCO (Reuters) - Groupon Inc, which more than doubled subscribers this year to 115 million, plans to abandon the use of a controversial financial measure it once touted as a good indicator of performance, two sources with knowledge of the situation said.

The No. 1 daily deals website, which now dwarfs closest rival LivingSocial's membership base, caved to pressure from investors and will stop referring to a metric called Adjusted Consolidated Segment Operating Income (ACSOI) that excludes marketing costs, one of the sources told Reuters.

Groupon, speeding toward one of 2011's most highly anticipated IPOs, plans to file amended S-1 IPO documents next week giving an update of its performance, both sources said.

The phenomenal pace of growth will be unveiled in that filing and likely give its IPO a boost, despite fears about its need to spend heavily to lure new users and worries of another dotcom bubble brewing reminiscent of the late 1990s.

"There are few growth opportunities on the scale of companies like Groupon," said Lou Kerner, vice president in equity research at Wedbush Securities. "That's really what a lot of investors are seeking today."

Founded by Northwestern music major Andrew Mason in 2008, Groupon filed to raise $750 million in an IPO this year. In April, a source said Groupon could raise $1 billion, valuing it at $15 billion to $20 billion.

Social media firms like LinkedIn Corp have had spectacular debuts, stoking interest for offerings by the likes of Facebook and Twitter. But doubt is growing on Wall Street about whether the buzz surrounding the new Web generation is justified, with the hype recalling the atmosphere prior to the dotcom collapse of 2001.

That caution may have led some to question Groupon's use of "ACSOI", which excludes not just online marketing expenses but also stock-based compensation and acquisition-related items.

Other investors question whether Groupon will be able to cut marketing spending in future.

In the first quarter of 2011, Groupon reported a $117 million operating loss, but ACSOI was almost $82 million. That's because some $180 million of online marketing spending -- plus more than $18 million of stock-based employee compensation -- had been stripped out.

Tech blog All Things D first reported that Groupon would drop all references to ACSOI in future IPO filings. The news comes after reports the U.S. Securities and Exchange Commission was taking a closer look at Groupon's IPO -- and ACSOI.

A spokesman for the company declined to comment.

DOUBTS GROWING

Groupon offers discounts on everything from dining to sky-diving excursions. The "group" in its name refers to the fact that many deals are activated only when a certain number of people sign up. Discounts often run from 50 to 70 percent.

It had 50.58 million subscribers at end-2010. That jumped 64 percent to 83.1 million at the end of the first quarter. Since March 31, that number of subscribers climbed about 38 percent to 115 million -- several times LivingSocial's.

Revenue surged to $713 million last year from $30 million in 2009. In the first quarter of this year alone, revenue topped $644 million.

Most of the recent growth came organically rather than through acquisitions, a second source added, noting that Groupon has not bought many companies lately.

Despite a sizzling pace of growth, some critics remain wary about piling into a business -- essentially a coupon service -- that can be easily replicated both by startups and existing Web powerhouses. Google has already begun such a service.

And while it shares the spotlight trained on social media companies such as Zynga, it needs resources others don't: a huge sales staff to enlist merchants and handle customer service.

Groupon has spent a lot to lure subscribers and generate revenue growth. It shelled out $208 million on marketing alone during the first quarter of this year, up from $4 million in the same period a year earlier.

"The key question is how much money are they spending per new subscriber, and how much revenue are they generating per existing subscriber?" asked David Sinsky of Yipit, which aggregates daily deals and tracks the industry.

"If you assume that revenue per subscriber has held flat and costs for new subscribers were also the same, then profitability may look better."

(Additional reporting by Edwin Chan; Editing by Phil Berlowitz, Bernard Orr)

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Netflix subscriber outlook panned

Mon, Jul 25 2011

1 of 2. A Netflix disk envelope is displayed in Encinitas, California, July 25, 2011.

Credit: Reuters/Mike Blake

LOS ANGELES/NEW YORK (Reuters) - Netflix Inc, facing a backlash from customers upset over a price hike, warned its subscriber growth would cool down in the third quarter, and its shares fell 10 percent.

The movie rental company, whose stock is up 850 percent since early 2009, set off alarm bells on Monday when it said customer defections would take a bite out of its subscriber count.

Netflix will essentially end the third quarter with the same number, or only slightly more, subscribers as it had at the end of the second quarter. For investors accustomed to spectacular growth, the forecast represented a bitter pill and made clear that customers are sufficiently upset over a recent change to cancel the service.

Those cancellations will largely offset any new subscriber additions in the third quarter, and pressure financial results. Netflix forecast earnings and revenue for the third quarter that would come up short of current analyst estimates.

And that is on top of a second quarter revenue figure that looked light to analysts.

Netflix "came into the quarter as Superman and it looks like they ran into a little bit of kryptonite and lost some of their super power," said Barton Crockett, an analyst with Lazard Capital Markets.

The company forecast third-quarter revenue of between $780 million to $805 million in the United States compared with an average analyst estimate of $846.5 million, according to Thomson Reuters I/B/E/S. It is expecting global earnings of 72 cents a share to $1.07 a share, which is also below the current analyst estimate of $1.09 a share.

Netflix shares fell about 10 percent to $253 after closing at $281.53 in the regular session on Nasdaq, wrongfooting options traders who were betting that the stock would keep chugging higher, and bringing some welcome relief to short sellers.

"It's too early to call on Netflix's future at this point. I have a 'sell' rating on the company based on its high valuation, but I'm not shorting it because it's still a great company," said Brett Harriss, analyst at Gabelli & Co. "There's just not enough margin of safety to buy it here."

NO FLAWS ALLOWED

Previously, Netflix wowed Wall Street with big subscriber additions quarter after quarter, and investors piled in. The company trades at 61 times this year's earnings estimates, a valuation that brings high investor expectations.

While "the business is still healthy," the company's results must be "flawless to support a stock" at those levels, analyst Crockett said.

Netflix sparked a backlash earlier this month when it announced it was raising prices as much as 60 percent for plans that provide DVD rentals and online streaming of movies and television shows. Thousands of subscribers complained on the Netflix blog and Facebook page with many threatening to cancel their subscriptions.

In a letter to shareholders, Netflix said: "We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we're working hard to further improve the quality and range of our streaming content."

By the end of the third quarter, it estimates it will have about 25 million total U.S. subscribers. That is barely more than the 24.59 million it now has.

The company said it expected customer growth to return in the fourth quarter. With the full impact of the price hike, the fourth quarter also could be "our first billion dollar global revenue quarter, driven by strong U.S. performance," the company said.

For the second quarter, the company's revenue rose 52 percent to $788.6 million, but fell short of the average analyst estimate of $791.5 million, according to Thomson Reuters I/B/E/S.

Second-quarter earnings surpassed expectations in rising to $68 million, or $1.26 a share, from $44 million, or 80 cents a share, in the period a year ago.

(Additional reporting by Yinka Adegoke and Jennifer Saba in New York; Editing by Gary Hill and Carol Bishopric.)

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