Closer Look : Circuit City Bankrupcy

Circuit City Bankruptcy
November 10, 2008

Circuit City (NYSE: CC)
Circuit City Stores, Inc., the second-biggest US electronic retailer, specializes in consumer electronics, home office products, entertainment software, and related services. It sells through its stores in the United States and via Web sites, www.circuitcity.com and www.firedog.com.

InterTAN Canada Ltd., the company’s Canadian subsidiary, runs more than 770 stores under the trade name The Source. It operates differently from Circuit City in that its stores are considerably smaller on average in terms of floor space, employ fewer staff and carry less inventory, recently delivered stable or improving performance, as noted by Circuit City in its quarterly report. For the second quarter ended Aug. 31, The Source had a profit of $4.9-million (U.S.), up 133 per cent from $2.1-million a year earlier. Net sales were $147.3-million, up 11.2 per cent. [LINK]

Major Competitors
*Bestbuy
*Walmart
*Costco Wholesale Corp.
*Online retailers such as Amazon.com

History

1949
Samuel Wurtzel opened Ward's—Richmond, Virginia's first retail television store.

1959: Company is operating four Wards stores, now selling both televisions and other home appliances, in Richmond, with annual sales of about $1 million.

1961: Company goes public.

1974: Wards opens its first consumer electronics superstore, called The Wards Loading Dock.

1977: Company begins converting its audio stores to full-service consumer electronics stores under the name Circuit City.

1981: Expansion of superstore concept begins but under the name Circuit City Superstores.

1984: Company changes its name to Circuit City Stores, Inc.; firm begins replacing regular Circuit City stores with Circuit City Superstores.


1987: Revenues reach $1 billion for the first time.

1989: Company's superstores begin selling personal computers.


2007 March 29:
The company lays off 3,400 (9%) employees to hire lower-paid replacements. Shares closed at $19.23 [LINK]

2008 February 29:
Circuit City operates 682 superstores and 11 other stores in 158 U.S. media markets.
[LINK]

2008 July 03:
Blockbuster Inc. withdrew its bid to buy Circuit City for $1.35 B. The company’s stock dropped to a 17-year low of $2.32. [LINK]

2008 November 03:
Circuit City closed 155 stores of its more than 700 retail chains with lays off about 7,300 (17%) of its nearly 43,000 employees. [LINK]

2008 November 10, 2008:
The company filed for Chapter 11 bankruptcy protection with the US Bankruptcy in Richmond, Virginia. It listed $3.4 billion in assets and $2.3 billion in liabilities. The current stock price is trading at $0.11 [LINK]


The company's biggest creditors are its vendors: Hewlett-Packard has a $118.8 million claim followed by Samsung ($115.9 million), Sony ($60 million), Zenith ($41.2 million), Toshiba ($17.9 million) and others. Smaller creditors include GPS navigation system maker Garmin, Nikon, Lenovo, Eastman Kodak and Mitsubishi. [LINK]

Stores will be open for the holiday season.


Reasons for Bankruptcy
In court documents, Chief Financial Officer Bruce H. Besanko said three factors led to the bankruptcy filing: erosion of vendor confidence, decreased liquidity and the global economic crisis.

The company said it decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products during the holiday period.

2007 CE Retailers Market Share
Best Buy = 25%
Wal-Mart = 15%
Circuit City = 9%
[LINK]
Future Plans

Circuit City said it has received $1.1 billion in new, debtor-in-possession financing with which to continue operations on the remaining stores.

There are no valid reports on takeovers by best Buy or any company. Nevertheless, speculation remains in the market and analysts are predicting that this holiday season will project limited results for Circuit City as buyers decide on issues such product warranty and gift cards.



The International Council of Shopping Centers lowered it’s already meager forecast for a 1.7% growth in holiday sales to a 1% growth rate for November and December. [LINK]


Comments


“We recently have taken intensive measures to overcome our deteriorating liquidity position. The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively. In the meantime, our stores remain fully operational, and our associates are focused on consistent and successful execution this holiday season and beyond.” [LINK]
James Marcum
Chairman / acting CEO
Circuit City


"At the end of the day I think it's really about an inventory position. If they can get inventory into the stores, I can think they'll remain competitive."

Horvers also found it encouraging that the company was able to secure financing. Circuit City said it had lined up $1.1 billion in loans to provide working capital while it is in bankruptcy protection. At the end of the day I think it's really about an inventory position. If they can get inventory into the stores, I can think they'll remain competitive. “ [LINK]
Christopher Horvers, Analyst
JPMorgan

"We have not seen a consumer electronic retailer successfully reorganize in Chapter 11 in our 24 years in this space. Should (Circuit City) ultimately close all of its operations, we assume there's roughly $10.5 billion of annual domestic sales up for grabs. Best Buy should take a disproportionate share of that business."
Gary Balter, Analyst
Credit Suisse

"Don't rule anything out yet. You could go away, you could restructure to something smaller, maybe somebody buys the brand and a couple hundred stores and maybe it ends up a regional player.”
Dan Binder, Analyst
Jefferies & Co

“It's very incongruent for retailers to file bankruptcy before Christmas,''
Burt Flickinger, Managing Director of consultant
Strategic Resource Group, NY






"Consumers will be skeptical about buying a $1,000 or $2,000 flatscreen TV with a warranty at Circuit City. In their mind, there's no guarantee that the company will still be around in the future. Regarding gift cards, if you are buying a $50 gift card for Christmas, where would your comfort level be higher? At a Circuit City or a Best Buy?” [LINK]
Craig Johnson
Retail analyst and president
Customer Growth Partners



"We believe the marketplace has a slot for a higher-end chain with a commissioned sales force." [LINK]
David Schick, Analyst
Stifel Nicolaus & Co.

The company's surivial depends on "whether these folks here like Sony and Hewlett-Packard are going to be willing to work with Circuit City going forward or whether they think they're a lost cause and cut them off permanently." [LINK]
Stephen Lubben, Professor
Seton Hall Law School

Google on the Mobile Market

Google on the Mobile Market

November 9, 2007

What is Google up to? Its stock price trading at more than $741 with $231 billion in market cap, no wonder it is taking the finance and internet world by storm. Google search, as we traditionally conceptualize the company, is no more. It has become a conglomerate with tentacles reaching on the realms of software, advertising and mobile tech.

According to Google's website, the company's mission is to 'organize the world's information and make it universally accessible and useful'. This is the reason why the company continues to procure hip startups or savvy media firms for its organize-the-world portfolio. It has swoop the web 2.0 media-related enterprises ----youtube, doubleclick, picasa, etc.

It is no-brainer ubiquitous mobile communications technology is the future. The IT industry knows this and so does Google. The main problem is the variation of incompatible proprietary solution and market strategies that holds a tight grip on consumers. Telecom carriers has the last say on the apps embedded into their product offerings.

Google visions a ‘universally accessible and useful' communications system through open source. Mash-up of traditional media and communications --- TV, radio, newspaper, advertising and telephone – available through the internet and harnessed by a powerful platform to interface these capabilities at a touch of a button. Google’s recent announcement on its Linux mobile software, Android, allows hardware and software makers to adapt freely. With this latest innovation in mobile software solutions, IT analysts are expecting rapid innovations because carriers will no longer have sole control over their products.

The company has also been on the move to implement an online networking standard, OpenSocial. It allows sites such as LinkedIn or Facebook to create applications for MySpace users. Google has also announced a $900 advertising partnership with MySpace and other websites owned by News Corp.'s Fox Interactive Media. Indeed, Google is creating footprints across market niches online and beyond.

With the 700 Mhz band of spectrum auction on January 2008, the whole industry is highly speculative on Google’s next move. Clearly, the company has showed interest with FCC’s open access framework policy. Ultimately, Google will prove to be an aggressive bidder.

A powerful ‘700 Mhz spectrum + mobile software Android + WiFi ‘ equates to an explosive breakthrough in the history of Information Technology and Communications (ICT) market. It is not impossible to imagine the possibilities of online advertising in an on-demand information mobile super highway. Users can access free information along 700 Mhz frequency and WiFi technologies which includes advertising program by Google. This agenda is akin to internet and television advertising with a mobile twist.

If course, not everyone is happy with such imminent change. Google has amassed quite a number of detractors/critics on its trail namely:

• Microsoft CEO Steve Ballmer said, “[Google] efforts are just some words on paper right now, it's hard to do a very clear comparison [with Windows Mobile].

• Nokia’s OS Symbian vice president of strategy, John Forsyth said, “Search and a mobile phone platform are completely different things. "It's costly, arduous and at times a deeply unsexy job of supporting customers day by day in launching phones. That's something there's very little experience of in Google's environment.”

• Verizon senior vice president, John Thorne said “The network builders [Verizon or at&t) are spending a fortune constructing and maintaining the networks that Google intends to ride on with nothing but cheap servers"
  
  Verizon spends billion of dollars to construct a fiber-optic network around the US and internet services companies such as Ebay, Google or Yahoo uses it for free.

Have we reached the pinnacle of web 2.0? Is the bubble about to burst? Not quite yet. Google has yet to prove its strategies in action. The past years has been an accumulative effort to gather the best of the best in online technologies. The next five years will be crucial on how information will be rendered ‘universally accessible and useful.'

Good luck, Google.

Google Contemplates to Step into Telecom Territories

Original article was written on August 02, 2007
by Felisita Cheung

The telecom industry is dominated by the likes of Verizon and AT&T Inc. Now, Google is paving its way into the wireless broadband niche as the company shows interest to bid for the 700MHz spectrum.

Ø Google’s Objective
To expand Internet’s reach to more Americans.

Ø Google’s Initial Bidding Price :
$4.6 Billion

Ø Google’sFour Requested Condition from FCC

o FCC Approval

1. Open applications: consumers should be able to download and utilize any software applications, content, or services they desire;

2. Open devices: consumers should be able to utilize a handheld communications device with whatever wireless network they prefer;

FCC Disapproval (unincluded)

3. Open services: third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and

4. Open networks: third parties (like internet service providers) should be able to interconnect at a technically feasible point in a 700 MHz licensee's wireless network.

Ø Google’s Disadvantage
The company acknowledges that it doesn’t have concrete economic and operational advantages over existing national wireless carriers such as infrastructure.

Ø Google’s Fears
What would happen if one or some of the existing national wireless carriers win this valuable spectrum at auction? They would probably use it to protect their existing business models and thwart the entry of new competitors -- both understandable actions from a rational business perspective.

Ø No Definite Decision
Google’s Washington Telecom and Media Counsel, Richard Whitt, wrote a statement, "For our part, we will need time to carefully study the actual text of the FCC's rules…before we can make any definitive decisions about our possible participation in the auction," and “we'll need to see the fine print”

Fine print will be published in several weeks.

FACTS

Ø The Digital Television and Public Safety Act of 2005 (DTV Act) set a firm deadline of February 17, 2009, for the completion of the DTV transition. This mandate requires the FCC to auction commercial spectrum in the 700 MHz Band.

Ø $10- $15 billion is the estimated proceeds from the auction of the sale of the 62 megahertz spectrum, no later than January 28, 2008.
- estimates Congressional Budget Office

Ø Low Frequency
Example: 700MHz compared to Wi-Fi's 2.4GHz
Lower-frequency signals require less power and therefore lower cell density, which translates to lower operational costs for carriers.

Ø FCC Vote on Requirements for 700 Mhz Auction
5-0

Ø Mandate
FCC voted to require "open access" for devices and applications using services delivered in these bands, while not requiring carriers to sell wholesale capacity in the licensed spectrum.

Ø Controversial Upper 32 megahertz:
Two 11-megahertz chunks with large regional licenses will be sold to one bidder.

10 megahertz will go to a commercial operator that will have to agree to work with the public-safety community to offer the nation's fire, police and emergency services workers wireless broadband access.

Ø Lower 30 megahertz
FCC Chairman Kevin Martin’s proposal is to break this lower band of spectrum into several dozen small, local licenses spread across the country. Rural and smaller cellular carriers are likely to purchase this slice, as well as smaller companies like Dallas-based MetroPCS Communications Inc. and Alltel Corp. of Little Rock, Ark., both of which are keen to expand.

Ø Will this open access truly transform mobile access in the US?
The ‘open access ’ networks works only on locations where the company wins and builds infrastructure with the 700MHz licenses. If customers want to use an application/service from another network, the ‘free’ rule does not apply.

Just as Ben Scott, Washington policy director for the advocacy group Free Press, noted, "In 2010, when these networks get built, the incumbents [i.e., Verizon] could freeze consumers out of their no-locking and blocking rights. We have a long way to go to truly realize these principles."

Billion Dollar Mergers in Telecom Industry Increase

Original article was written on February 02, 2005
by Felisita Cheung

America is experiencing waves of mergers in the telecom industry. Verizon Communications Inc. and MCI, Inc. announced the most recent telecom merger on February 14, 2005.

Verizon, the dominant local telephone company in the Northeast, and a top cellular player, has agreed to acquire MCI for a total value of $6.7 billion.

MCI, the no.2 long distance company, recently changed its name from WorldCom Inc. after emerging from bankruptcy and a huge financial debt. Verizon is assuming MCI’s debt, and will pay $4.795 billion of its stock and 488 million in cash. In addition, MCI shareholders will be paid dividends worth $1.463 billion.

The deal comes some two weeks after the agreement between AT&T Corp. and
SBC Communications Inc., a top rival of Verizon.

“When you have a bunch of companies trying you get into each other’s business, and increasing competition from new players, consolidation becomes a necessity, but I think its happening a lot quicker than we expected,” said Brad Wilson, an analyst with Legg Mason.

Indeed, mergers are sprouting left and right, which began about six months ago in the wireless market .Top tier cell phone operator Cingular Wireless LLC purchased AT&T Wireless Services for $41 billion. Then in December, local, long distance and cell phone giant Sprint made a $31 billion bid for wireless operator Nextel Communications.

The consolidation among local and long distance carriers have begun. The acquisition of AT&T by SBC for $16 billion ended the company’s more than 100 years of independence. This merger created America’s largest telecoms firm, with combine revenues of $70 billion and 210,000 employees.

Three of the most recent mergers would reduce the U.S. telecom industry into five dominant players—Verizon, SBC, Bell South Corp., Sprint and Qwest.

America is facing a new era of telecom companies. Traditionally, local and long distance phone companies are primarily focused on local phone service. But the new telecom providers will be national companies that packages voice, video, cell phones and broadband—wireless and wireline.

Apple to Increase PC Market Share with $499 Mac Mini

Original article was written on January 12, 2005
by Felisita Cheung

On January 11, 2005, Apple Computer CEO Steve Jobs finally introduced Mac Mini during his keynote speech at the Macworld Expo in San Francisco. “This is the most affordable Mac ever,” Jobs said. “People who are thinking of switching will have no more excuses.”

Indeed, it is the most affordable and compact Macintosh computer ever. Starting at just $499, Mac Mini includes a processor, hard drive and optical drive. Just two-inches tall and weighing only 2.9 pounds, Apple Computer redefines design and innovation. Mac Mini is an ideal desktop computer for anyone looking to get started with Mac OS X and features of iLife ’05, the latest version of the company’s innovative suite of software for managing digital photo and music collections, editing movies and creating music.

Apple Computer is gaining momentum for its performance in the U.S. consumer electronics market. One notable highlight of the year 2004 is the iPod mania. Americans want more and better iPods. This surge of demand strategically positions Apple Computer to expand its lagging Mac sales. Consumer’s enthusiasm for iPods may well push Mini Mac to the spotlight.

Mini Market Share for Mac Computers

The U.S. PC market is ruled by price. Intense competition and inexpensively made-in-China computers drive the price down, thus keeping the buyers happy. Not so for Apple.

According to W3C, which monitors online activity, Macintosh market share as of December 2004 is 2.7 percent, Linux is 3.1 percent and the rest goes to Windows. Mac computer users mainly include advertising agencies, news bureaus, creative artists, writers and various professional organizations.

Apple Computer needs to capture its market to ensure revenue increase, and iPod can help.

2004 iPod Mania

The year 2004 marks the wild popularity of iPods and Apple’s iTunes music store. This surge in demand helped lure more newcomers into the company’s 84 nationwide retail stores, where consumers can view its showcased computer products. Half of the company’s Mac PCs were sold in retail stores by first time Apple users.

The Future

The low-cost Mac Mini is seen as a good move for Apple which has a small share in the desktop computer market. Analysts speculate that the huge number of iPod users and the new cheap Mac Mini can spark success. Until then, the unveiling of Mac Mini remains Apple Computer’s boldest move.