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Peas in a Pod™
Fears that Apple aims to become the Microsoft of the music download
business by using proprietary technology to lock in the dominance of
iTunes have already attracted the scrutiny of Nordic competition
watchdogs. So it is a worrying indication of Apple’s monopolistic
intentions that it is laying legal claim to the word "Pod," threatening
to sue companies that use the word as part of their product names for
infringing its iPod trademark. It is already taking action against the
small start-up that makes the Profit Pod, an infrared scanner used to
record activity on video-arcade machines.

But lest Steve Jobs forget,
Apple did not invent the word "pod." By trying to appropriate it, he
risks alienating millions of people who were once attracted to Apple’s
apparently upstart brand, as well as fanning the fears of European
trustbusters. After all, even Microsoft has not dared to lay claim to
the word "Word."

Sony stumbles
The company that became famous for its iconic Walkman continues to
stumble in the era of the iPod. It was bad enough that Sony failed to
anticipate the appeal of MP3 players and was usurped by Apple in the
music-player market; now it may fall behind in games consoles too.

Howard Stringer, the Welsh-American who took charge of the Japanese
consumer electronics and entertainment giant last year, has so far
ducked the challenge of shaking up Sony’s sprawling empire, opting
instead to muddle along in the hope that its PlayStation 3 (PS3) games
console and its Blu-ray standard for next-generation DVD players will
restore its fortunes. But now Sony has had to delay the launch of the
PS3 for the second time—until next March in Europe, leaving Microsoft’s
Xbox 360 and Nintendo’s Wii a free run at the important Christmas
market. Since the PS3 doubles up as a Blu-ray player—indeed, the delay
is the result of problems in producing the blue lasers at the core of
the Blu-ray technology—the setback is also a blow in Sony’s
DVD-standard war with Toshiba’s HD-DVD.

This risks becoming a rerun of
the VHS-Betamax battle, where Sony’s technologically more sophisticated
format ended up losing out. Stringer’s gamble—that thanks to its
superior technology, Sony’s PS3 would beat its much cheaper rivals, and
that this would propel its pricier Blu-ray format to victory in the DVD
war—was always risky, but now it looks foolhardy. Sony’s once-vaunted
technological prowess looks increasingly dodgy: witness the
embarrassing recall by Dell and Apple of over 5m faulty Sony laptop
batteries, after videos of them bursting into flames circulated widely
on the internet.

As concerns grow that the Blu-ray technology is also
not quite up to scratch, Sony cannot afford to pin its recovery hopes
on products that are late, expensive and potentially flawed. Unless
Stringer embraces root-and-branch reform soon, Sony risks becoming an

Can Europe keep growing?
When the US economy sneezes, the rest of the world catches a cold. Or
so it used to be said. But not this time, we are told. With Germany,
France and Britain all growing faster than America in the second
quarter of 2006, Europeans are feeling in fine fettle.

Trichet, the head of the European Central Bank, seems unperturbed by
the mounting evidence of a US slowdown and the increasing risk of a
recession next year. He is worried instead that Europe’s resurgent
growth will spark inflation, and has signalled that he plans to press
on with interest rate rises. Officially, Gordon Brown also remains
bullish that Britain’s economy is hardy enough to shake off a foreign

But the chances that Europe’s economies can escape unscathed
from an American recession are slim. For a start, many of the factors
that are dragging the US down also weigh on European countries, such as
high oil prices driving up inflation and interest rates, thereby
threatening to prick many countries’ house-price bubbles.

What’s more,
a US recession would soon knock Asia’s export-led economies and thus
deal a double blow to Germany and other European countries that remain
dependent on export growth. Although Britain may initially appear more
robust, it would surely suffer from a simultaneous slowdown in the US,
Asia and the eurozone.

Worse, the ECB’s complacency about the risk of
contagion from America suggests that it will continue to raise interest
rates—thereby also heightening the risk of a dollar collapse, and hence
a growth-choking surge of the euro—until it is too late to prevent a
eurozone recession.

And with deficits in Germany, France and Britain
already around 3 per cent of GDP, there would appear to be little scope
for fiscal stimulus either.

Despite this gloomy outlook, the Dow is back near its record high,
while European and Asian markets have also rebounded strongly.
Optimistic investors appear to be betting that if US interest rates
have peaked, this is positive for corporate profits and doubly so for
share prices.

But this is only part of the picture. If the reason
interest rates are now expected to be lower than was previously thought
is that the economy is slowing, the prospect of recession will hit
companies’ earnings far more than lower interest rates will boost them.
That can hardly be positive for share prices.

Posted 21 Sep 2006 in Published articles

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