Annex Newsflash 2005-37                            December 28, 2005

A Partially OPEN Client Edition

   

INDUSTRY TRENDS

Updated 12/28/05, 7:30PM MST (adds U.S. Deficits)

A 2005 Year-end Editorial

A Forgettable Year

Leaders' Market Cap Index Down 9%; Decliners Outnumber Gainers 12-to-8; U.S. Deficits Soar to New Record Highs

MAUI, Hawaii, Dec 28 - What kind of a year was 2005?  A forgettable one.  At least that's what one would conclude based on the top IT leaders' stock market performances.  To be sure, there were some highfliers as well as some duds.  But the overall decliners outnumbered the gainers by 12-to-8, for a market cap loss of about 9%, based on the Annex Top 19 Index.  So 2005 was hardly something to write home about or boast over in record books.

Among the gainers, Capgemini, HP and Fujitsu took the top three positions.  Lexmark, EMC and Dell were in the cellar.  

Of the three biggest decliners, Dell is probably the greatest surprise.  Practically infallible until August 2005, this highflying stock which shares the best long-term record with Microsoft, has tumbled sharply since August 2005 (for reasons why, see "A $100B Gain," Dec 2005).

Dell may have led the decline since August, but IBM set the sinking tone with its first quarter report card stunner released in mid-April (see "IBM: Slammed and Dunked," Apr 2005).  Neither Microsoft (down 2%) nor Intel (up 9%), the other two bellwether IT stocks, could pull the sinking trend upward.

As a result, although the Top 19 Annex Index did gain 7% since the mid-April crash, the same as the Dow Jones Index, it is still down 9% for the year.  Meanwhile, Nasdaq is up by more than double those rates (15%) during the same time frame, once again underlying the message that smaller is better in stocks as it is in business (SMB market).

Top Stories of 2005: The Good, the Bad and the Irrelevant

And now, here are the top 10 stories of 2005, starting with that IBM first quarter crash and burn news that set the tone for the big IT stocks for the rest of the year:

N13

4/14/2005

Slammed and Dunked - Analysis of IBM's first quarter business results 

IBM Financial

N04

2/10/2005

Carly's Fickle Fans - Analysis of life and times of Carly Fiorina at HP 

Industry Trends 

N27

8/12/2005

Dell Spooks Street - Analysis of Dell's second quarter business results

Industry Trends

B09

3/10/2005

Octathlon 2005: Accenture Wins the "Gold" - Analysis of Top 7 global IT services firms' 2004 results

Industry Trends

N29

9/30/2005

New "Drang Nach Osten" - Analysis of global investment strategies

Global Trends

B17

7/26/2005

Polaris Eclipses T-Rex - Analysis of IBM's new mainframe strategy [Annex clients click here]

IBM Corporate

N30

10/07/2005

Accenture: A Whopper Quarter - Analysis of the fourth quarter business results [Annex clients click here]

IT Services

N36

11/17/2005

HP: Best Gets Even Better - Analysis of HP's fourth quarter business results

Industry Trends

B20

11/15/2005

IBM Hardware Revival - Analysis of IBM hardware businesses

IBM Corporate

N33

10/27/2005

Fujitsu's Cautious Optimism - Analysis of Fujistu's first half FY05 business results

Japanese Cos

U.S. Trade Deficit Hits All-Time High

On the general economic front, the top story of 2005 was the record U.S. trade deficit.  It rose unexpectedly rose to an all-time high in October, as oil shipments soared and the United States set deficit records with China, Europe, Canada and Mexico, according to a Dec 14 Commerce Department report, the latest available.

The gap between what America sells overseas and what it imports rose by 4.4 percent in October to $68.9 billion, surpassing the old record of $66 billion set in September, the Commerce Department said.

So far this year, the trade deficit is running at an annual rate of $718 billion, by far surpassing last year's $617.6 billion imbalance.   

A surge of Chinese imports pushed America's deficit with that country to a new monthly record of $20.5 billion. Through October, the deficit with China is running at an annual rate of $200 billion, far exceeding last year's imbalance of $162 billion, which had been the biggest deficit ever recorded with a single country.  So it looks like we're going from bad to worse.

China also surpassed the United States as the world's top exporter of laptop computers, mobile phones and other information and communications technology devices in 2004, the Organization for Economic Co-operation and Development said on Dec 12.  China exported $180 billion worth of so-called ICT goods in 2004, compared with U.S. exports of $149 billion.

It will take quite a few months before the OECD collects and reports the 2005 data, but its officials told Reuters in Paris that China was likely to maintain the top spot in 2005 as well.

Nor is China flexing its muscles only in the IT field.  It has placed an order for an unspecified number of Airbus A320 jetliners in late November, right after the Chinese aviation officials had signed a letter of intent to buy 70 Boeing 737s.  This order was valued at about $4 billion based on list prices, and time to coincide with President Bush's visit to Beijing.  The Chinese officials made an oral commitment to buy an additional 80 of the Boeing narrow-body 737s as part of that deal, the Wall Street Journal reported on Nov 29.

Such "mega orders" were obviously timed to please and appease the western governments and public who are getting increasingly alarmed by China's newfound economic power.

Meanwhile, the U.S. also set trade deficit records with most of its major trading partners, including a $12.1 billion imbalance with the 25-nation European Union, a $8.1 billion shortfall with Canada, the country's largest trading partner, and a record $4.8 billion deficit with Mexico.

The fact that this is happening at a time when the U.S. dollar has strengthened defies logic and common sense, and brings the entire Bush administration global policy into question (see "The Worst of Both Worlds," Mar 2005).

The criticism has intensified after the U.S. officials failed to take China to task over its currency manipulation.  Back in April, the Bush administration warned that it would accuse China of currency manipulation if it failed to make substantial changes to its fixed peg between the yuan and the dollar.  In July, China allowed the yuan to rise by 2 percent, the first change in more than 10 years, but it has not budged since.

Washington's appeasement of the Chinese provoked an angry reaction from American manufacturers, some lawmakers and outside trade analysts who have argued for years that China has deliberately undervalued its currency to make its exports cheaper in world markets, the New York Times reported on Nov 29.

Which reminds us of what Winston Churchill once said in reference to those who were advocating similar tactics with Hitler's Germany.  "An appeaser is one who feeds the crocodile hoping it will eat him last," Churchill said.  

Well, when someone is up to his neck in alligators right now, as George W. Bush seems to be on Iraq, domestic spying, and in plummeting polls, for example, crocodile threats in the distant future may not seem like such a terrible threat.  By the time the Chinese get ready to actually do consume the appeaser, someone else is likely to be at the White House.

And on such a "cheery" thought, Happy New Year!

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2005 IT:  A Forgettable Year (Dec 2005);   A $100B Gain! (Nov 2005);   HP: Best Gets Better (Nov 2005);  IBM Hardware Revival (Nov 2005);   Tap Dance Lifts EDS Stock (Nov 2005);  Big Blue Thinks Small Is Big (Oct 2005);  Global Investments: Yin-Yang Pacific Tsunamis (Oct 2005); IBM: Springboard Quarter (Oct 2005); Top Wall St Firms Bump Up Investments  (Oct 2005); Accenture: A Whopper Quarter  (Oct 2005);  Global Investments: New "Drang Nach Osten" (Sep 2005);  HP: Sweet Turnaround (Aug 2005);  Dell Spooks Street (Aug 2005); EDS Ups Its Forecast (Aug 2005);  Capgemini Beats Forecast (July 2005);  Fujitsu: Losses Reversed; Forecast Upgraded (July 2005);  IBM: Polaris Eclipses T-Rex (July 2005);   IBM Bounces Back (July 2005); Accenture: Smashing Records (July 2005); Merrill's New Bull (EDS) (May 2005);  IBM Trumps Trump (May 2005);  Tweaking Big Blue (May 2005); Hurd's First RBI (May 2005); Dell Rings the Bell (May 2005); Stock Buybacks: The Phantom Is Back (May 2005); EDS Misfiring on All Cylinders (May 2005);  HP Surges, Dell Slumps; Lenovo Completes IBM Deal (May 2005);  Fujitsu Revenues Flat, Lower Net (Apr 2005); Capgemini Jettisons Healthcare in N.A. (Apr 2005); HP: From India to Poland (Apr 2005); IBM: Slammed and Dunked (Apr 2005); Hurd Advice: Up Mount Market Cap (Apr 2005); Accenture: Roaring Ahead (Apr 2005);  Fujitsu Unveils New Servers (Mar 2005);  EDS Executive Suite; HP's New CEO (Mar 2005);  An iSeries Revival (Mar 2005); EDS Booster Club Fees Rise (Mar 2005);  An Upside-Down View (Mar 2005);   The Worst of Both Worlds (Mar 2005);  Octathlon 2005: Accenture Wins (Mar 2005);  IBM Global Services: Smaller, Shorter - Better? (Mar 2005);  IBM 5-yr Forecast: Quality over Quantity (Mar 2005); Rumor Lifts EDS', Fujitsu's Shares (Mar 2005); Capgemini: Turning the Corner (Feb 2005);  IBM Servers to Grow Again (Feb 2005);  Carly's Fickle Fans (Feb 2005);  CSC: Gearing Down on Purpose (Feb 2005);  EDS: Grossly Overpriced Stock (Feb 2005);  IBM Historical Update: 2004 Shot in the Arm (Feb 2005); New HeadTurners Series #1 (Feb 2005); IBM: A Crescendo Finale! (Jan 2005); Accenture: Strong Finish, Better Start (Jan 2005); Annex Coverage 2004: IT Services Dominate (Jan 2005)

2004 IT: EDS: The Titanium Stock (and other Wall Street tales) (Dec 2004); IBM PC: Good Riddance (Dec 2004); Fujitsu: Recovery Continues (Nov 2004);  IBM Server Renaissance (Nov 2004);  HP Hits Home Run (Nov 2004); Capgemini: Revenue, Stock Soars (Nov 2004); EDS: Jordan's Swan Song? (Nov 2004);  To Russia with Love and $ (Oct 2004); IBM: Slow Quarter No Longer (Oct 2004); Accenture: Revenues, Profits Up, Stock Down (Oct 2004); Capgemini: A Takeover Target? (Oct 2004); Sellout of America (Oct 2004); Spy Wars (Sep 2004); Outsourcing Boomerang (Sep 2004); EDS to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini Stock Plummets on Unexpected Loss (Sep 2004); HP Savaged by Wall Street (Aug 2004); Moody's Lowers the Boon on EDS (July 2004); HP: Delivering Value Horizontally (June 2004); Accenture: Revving Up a Notch (June 2004); Beware Your CFO! (May 2004)IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

Or just click on and use "financial engineering" or similar  keywords.

Volume XXI, Annex Newsflash 2005-37
December 28, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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