General News


Margin squeeze in market

hurts Dick Smith

Michael Evans
January 25, 2011

WHEN your business is turning over $1 billion a week, a few issues in a small part of your portfolio exposed to discretionary spending is a nice problem to have.

With his supermarket and liquor businesses motoring on in a cosy duopoly, the boss of Woolies, Michael Luscombe, went out of his way yesterday to point out the electronics industry has bigger problems than those being emphasised by Gerry Harveys’ situation.

The Harvey Norman boss may argue the lack of a GST on online goods makes for an unfair playing field. But Mr Luscombe, who counts Dick Smith in the Woolies portfolio, pointed out that the hotly contested consumer electronics industry has a big problem with profit margins.

What is more, he underlined the threat to bricks and mortar retailers in the industry, saying the economics of selling goods online makes good sense.

Dick Smith, the one-time wunderkind of the Woolies empire, was the focal point of investor concern yesterday, reporting a rise in sales turnover but a fall in margins from heavy discounting that is eating away at the profits.

The high Aussie is making goods cheaper and combining with tough competition to hit margins. ”The Australian dollar means everything’s cheaper to buy,” Mr Luscombe said.

”There is intense competition to sell those products in the Australian market place and that has driven prices down even further and it’s just meant that the profit that you made out of selling a TV is less than you made even last year.

”The selling price is down by around 30 per cent. More and more they are only sold on special. There’s no doubt we are all finding it difficult to get that growth margin.”

Dick Smith is steadily building an online sales portal, he said, because ”that’s where people want to shop”.

Sales are up 75 per cent for the half, he said. And the economics are better. ”You don’t have to carry the stock. To sell one TV online you need one TV in stock but to sell one in 400 stores you need 400. So the mathematics of the working capital are far better. It’s the way that a lot of people want to shop.

”No doubt when the Aussie dollar returns to [the] historical level with the US dollar it will become less attractive to do it overseas.”

Mr Luscombe’s other discretionary business, Big W, faces a similar story from price deflation. ”We’re not getting the dollars out of [customers]. We are selling things much cheaper than last year, 6 or 7 per cent.”

Sourced & published by Henry Sapiecha

Internet Armageddon

is all my fault:

Google chief says….

Asher Moses and Ben Grubb

January 21, 2011 – 4:55PM

Wow, what a title...Google's vice-president and chief internet evangelist Vinton Cerf.
Google’s vice-president and chief internet evangelist Vint Cerf.

The “father of the internet” says the world is going to run out of internet addresses “within weeks” – and it will be all his fault.

Google’s chief internet evangelist, Vint Cerf, who created the web protocol, IPv4, that connects computers globally, said he had no idea that his “experiment” in 1977 “wouldn’t end”.

“I thought it was an experiment and I thought that 4.3 billion [addresses] would be enough to do an experiment,” he said in group interview with Fairfax journalists.

The protocol underpinning the net, known as IPv4, provides only about 4 billion IP addresses – not website domain names, but the unique sequence of numbers assigned to each computer, website or other internet-connected device.

The explosion in the number of people, devices and web services on the internet means there are only a few million left.

The allocation of those addresses is set to run out very shortly but the industry is moving towards a new version, called IPv6, which will offer trillions of addresses for every person on the planet.

“Who the hell knew how much address space we needed?” Cerf said.

“It doesn’t mean the network stops, it just means you can’t build it very well.”

Google’s leadership shake-up

Cerf said Google’s surprise leadership shake-up was essential because the search giant was beginning to move too slowly.

Today the company announced that Google co-founder Larry Page would take over as chief executive from Eric Schmidt, who has become its executive chairman. Until this point Page and co-founder Sergey Brin ran the company with Schmidt as a “troika”.

“‘As we got larger it was harder for us to move as quickly as we would like so I think this is part of the whole practice of speeding up decision processes,” he said.

“Quick rapid execution is absolutely essential, especially in a highly competitive world like this.”

Recent ex-Googlers who left the company to join Facebook, including former Google Australia engineer Lars Rasmussen, have said Google has become too unwieldy as it has grown.

Schmidt gave similar comments in a blog post today, saying that, as Google had grown, managing the business had become “more complicated” and the trio had been “talking for a long time about how best to simplify our management structure and speed up the decision making process”.

Cerf said Schmidt, 55, had been chief executive for 10 years – “a nice round number” – and Page, now 37, was ready to lead the company well into the future.

“Larry and Sergey are 10 years older than they were when they thoughtfully hired Eric to be the CEO … so everybody’s growing up,” Cerf said.

“He was the only guy that stood up to them – these were two young, smart, incredibly brilliant guys who literally had just dropped their PhDs to go start this company.”

It has long been held that Schmidt was brought on at Google to counter the lack of business experience of Google’s founders, and Schmidt alluded to this in a tweet today.

“Day-to-day adult supervision no longer need!” he wrote after the leadership change announcement.

Taking on Facebook

Cerf would not be drawn on whether Google was developing a social networking site to compete with Facebook, as has been rumoured. But he said “our interest is less in the social networking aspect as it is in the patterns of behaviour”.

“We really don’t care about you personally we care about the patterns that you make. If we can match the patterns that you make with the patterns that the advertisers are trying to get in front of you, you benefit as well as the advertisers,” he said.

“This is quite independent of the sort of things that go on in Facebook, which is more about personal information and personal interactions.”

Praising the NBN

Cerf heaped praise on the National Broadband Network, saying Australia was making a long-term investment that would “serve you incredibly well in ways that even I can’t figure out”.

“The idea of being able to export your talents without having to export your people … this is a very attractive proposition,” he said.

“I honestly envy the political will to make this kind of long-term investment.”

Google as ISP?

But despite Google’s work in building municipal Wi-Fi and experimental fibre broadband networks in the US, he said it was unlikely Google would ever become an ISP.

“The intent is that as we build these [networks] out we will then turn them over to some other parties to operate and to make openly accessible,” he said.

“This is not our business model. Our purpose was to document what the costs and problems are … we’re not in the business of building physical infrastructure except for our internal operation.”

Asked whether recent privacy breaches at Sydney University and Vodafone – both of which kept detailed customer records online – highlighted the pitfalls of moving toward hosting everything in the online “cloud”, Cerf said the cloud was not at fault.

“Just because it’s sitting in an enterprise server doesn’t mean that you’re any better protected than you would be in the cloud,” he said.

“When you’re in the cloud business you better be good at protecting and securing your systems otherwise you lose all your customers.”

Sourced & published  by Henry Sapiecha

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