Emerging Technology

Odds shorten on August rise… Ford challenges its suppliers… Dymocks pitches for Borders… Anxious times in Sydney property… iPhone’s slow sales… Economy roundup…

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August interest rise on the cards

Currency market traders have swung behind the view that the Reserve Bank of Australia will lift interest rates at its August meeting, after stronger-than-expected consumer price index figures for the June quarter.

The market has now priced in a 78% chance that the RBA will lift the cash rate by 0.25% to 6.5% when it meets on August 7, more than twice the 36% chance it rated before the CPI data was released.

Yesterday’s headline CPI growth figure, of 1.2% for the June quarter, was 0.2% above market predictions. The underlying quarterly inflation rate, a more accurate measure of inflation over the longer term, increased by 0.9% for the June quarter and 2.75% for the year, a result at the top end of the RBA’s inflation target band of 2–3%.

A survey of 12 leading economists by the Australian Financial Review revealed an overwhelming consensus that interest rates will rise in August. Only ANZ’s Cherelle Murphy and AMP’s Shane Oliver bet against a rise.

Five of the economists surveyed also believe there will be a follow-up rise later in the year or early next year.

– Mike Preston

Ford challenges its suppliers

Ford Australia president Tom Gorman, in a speech in Melbourne yesterday, challenged SME car part suppliers to Ford Australia to improve performance or perish as the company accelerates integration of its global supply chain.

Gorman told the Australian-British Chamber of Commerce that as Ford Australia increasingly integrates its operations with those of its global parent, suppliers will have to diversify and become more globally integrated if they are to keep supplying Ford, the Australian Financial Review reports.

“The door is now open for suppliers if they can barge through the door and prove they are competitive on cost, quality, innovation and timing,” Gorman said.

About 70% of the parts that go into Ford’s Falcon and Territory models are sourced from local manufacturers, many of which are located in the northern suburbs of Melbourne and regional Victoria.

The acceleration of Ford Australia’s integration with its global parent means many SMEs in the sector will have to consider whether they need to scale up their operations to compete on a global scale, a spokesman for a key industry group says.

“It is an opportunity and a threat for SMEs: Ford is now offering these businesses the chance to go global, but for many of them that will mean big changes to either increase in size or become a second or third-tier supplier globally instead of a first-tier supplier in the local market,” he says.

– Mike Preston

Dymocks in pitch for Borders

Australia’s two largest book chains are in a battle to secure Borders from its US parents.

Both Dymocks and rival Angus & Robertson are bidding for the US chain, which would boost their market share in Australia and New Zealand.

And there are unconfirmed rumours that Woolworths may be eying Borders as well.

Angus & Robertson is owned by Pacific Equity Partners and includes the Whitcoulls chain in New Zealand. PEP last year acquired newsagency chain Supa News and is keen to cement a significant share of the book and magazine retailing business both in Australia and New Zealand.

Borders is selling its profitable overseas interests to focus on its lesser-performing North American operations. It is said to be reviewing early bids.

Dymocks has 84 stores and about 18% of the Australian market, about 2% less than Angus & Robertson. Privately owned, the company has property and agricultural interests as well and would be able to fund and acquisition of a business the size of Borders, which has 24 giant stores in Australia and New Zealand.

The sale is being handled by KPMG, which is scheduled to give bidders an information memorandum tomorrow.

Inside Retailing Online

Anxious times in Sydney’s top end

The top end of the Sydney residential property market is not comfortable with the prospect of a Rudd government. Buyers and sellers are concerned about the impact of a union-friendly government and the stability of the economy under the ALP.

Although it is the voters from the other end of the market likely to be instrumental in bringing about a change of government, I doubt they will like the new regime for long. I expect interest rates will go up under a new government, which will add years to the already slow recovery of the NSW property market.

The market in Sydney remains top-heavy. It’s still very much like a city within a city. As inner city and North Shore properties surge ahead, an oversupply in the mortgage belt keeps a lid on prices in the outer suburbs.

The election is the only factor likely to take the some of the heat of this market. The market will definitely experience a bit of a shudder in the weeks leading up to the election. No one will sell on election day and you expect the market to be very quiet in the weeks after, whatever the outcome.

– Peter Kelaher. This is an edited version of a featue that first appeared in Eureka Report.

Slow sales dim iPhone’s gloss

The hype around the iPhone launch could be backfiring as reports emerge that sales of the iPhone may not be meeting the market’s lofty pre-launch expectations, reports ITWire.

Apple’s share price slid 6.1% after AT&T released figures showing that just 146,000 subscribers had activated their new iPhones in the first two days of sales at the end of June.

Some people are saying that the lower-than-expected number could be partially attributed to activation problems, others believe initial sales have been disappointing and tapered off now that the hype has died down. Analyst firm CIBC World Markets has issued a research note suggesting that sales had declined in the past 10 days. It is now predicting that Apple will respond by releasing a 3G version by November.

– Jacqui Walker

Taxpayers prop up government businesses

Close to half of government-owned businesses failed to achieve commercial rates of return in 2005-06, a new Productivity Commission report has revealed.

The report, released today, says 13% of businesses operated by state or federal governments in sectors such as health insurance, transport, water and electricity did not make a profit in 2005-06, while 27% recorded a profit decline.

On the whole, however, government-owned enterprises performed reasonably well, increasing profits by 61% and making dividend payments to owner governments of almost $5.6 billion.

Water utilities in particular struggled in 2005-06, the report showing they comprised more than half of unprofitable government businesses that year.

– Mike Preston

Sensis moves into social networking advertising

Telstra’s digital media group Sensis has signed a deal with global advertising network VideoEgg to advertise on tickers displayed with user-generated content on about 70 sites, including Bebo.com. Flixter.com and Dogster.com.

Sensis told the Australian that the deal will give local advertisers, including Telstra and Adidas, access to the 20 million videos viewed each month by Australians who visit about 70 social networking sites that use the VideoEgg technology.

– Jacqui Walker

Government IT contracts loom

If you’re in IT outsourcing, get ready to pitch to the Federal Government. About $600 million a year worth of business is about to go up for grabs.

Long-standing infrastructure contracts are set to expire over the next two years, according to the Federal Government IT Infrastructure Outsourcing Report 2006-07.

Government business advisory firm Intermedium told ITWire there are 23 Federal Government agencies with major IT infrastructure contracts that have almost run their course. These agencies will need to go to the market by mid-2009 to meet their IT infrastructure requirements. Seven of them have contracts that expire in 2007, seven in 2008, and nine in 2009.

Intermedium says there are significant opportunities should arise for specialist suppliers, because of the discernible trend in Federal Government away from whole-of-agency, single supplier outsourcing, towards strategic outsourcing.

– Jacqui Walker

Economy roundup

After an early rise, Australian sharemarkets slumped this morning, a drop in prices for key metals such as copper, gold and nickel knocking the benchmark S&P/ASX 200 down 0.9% or 55.3 points on yesterdays close to 6285.2 at 12.30 pm.

The drop in metals prices has also caused the Australian dollar to lose some of the strength it picked up on yesterday’s interest rate speculation. Its 12.30 pm price of US88.35¢ was down on yesterday’s US88.64¢ close.

– Mike Preston

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