Wednesday, November 30, 2005

Internet Phone Providers Fall Short on 911

WASHINGTON - Vonage Holdings Corp., the nation's largest provider of Internet phone service, and several smaller companies could be barred from signing up new customers in many markets because they failed to meet a deadline to provide reliable emergency 911 service to all subscribers.

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AT&T Inc. also didn't meet the deadline.

The Federal Communications Commission had given providers of Internet-based phone service 120 days to comply with its order requiring enhanced 911, or E911, in all their service areas.

The deadline to show the government where E911 is available was Monday. House and Senate lawmakers had urged FCC Chairman Kevin Martin to give companies more time and more tools to speed deployment, but no extension was granted.

In its compliance report to the FCC, Vonage said only 26 percent of its customer base had full E911 services. The company — which has more than 1 million subscribers — said it was capable of transmitting a callback number and location for 100 percent of its subscribers, but it still was waiting for cooperation from competitors that control the 911 network.

Vonage should have two-thirds of its customers with full E911 capabilities in the next 30 days, the company said.

AT&T told the FCC that 65 percent of its customer base had E911 service. AT&T offers Voice over Internet Protocol, or VoIP, to about 57,000 customers through its CallVantage service.

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SunRocket, which has more than 50,000 subscribers nationwide, said it had equipped 96 percent of its customers with full 911 services.

Citing public safety concerns, the FCC in May ordered companies selling VoIP to ensure that callers can reach an emergency dispatcher when they dial 911. The dispatchers also must be able to tell where callers are located and the numbers from which they are calling.

VoIP providers were told that if they failed to meet the deadline they could no longer market their service or accept new customers in areas that didn't have enhanced 911. They will not have to disconnect current customers who don't have full 911 service, as some providers had feared.

The FCC wouldn't discuss possible enforcement actions against offending companies. "At this stage, the agency is focused on the compliance filings by VoIP providers," spokesman David Fiske said.

Voice over Internet Protocol shifts calls from wires and switches, using computers and broadband connections to convert sounds into data and transmit them via the Internet. In many cases, subscribers use conventional phones hooked up to high-speed Internet lines. But the service can be mobile, making it difficult to ensure the call goes to the correct local emergency center.

There are about 3.6 million VoIP users in the United States. Of those, about half get their service from cable TV companies that already provide enhanced 911 capabilities. Other providers offer a 911 service that directs emergency calls to a general administrative number, but those lines haven't always been staffed around the clock.

The order applies to VoIP that uses the public phone network to place and terminate calls.

Tuesday, November 29, 2005

Merck to Eliminate 7,000 Jobs, 5 Plants

TRENTON, N.J. - Drugmaker Merck & Co., squeezed by Vioxx lawsuits, tumbling revenues and other troubles, is eliminating 7,000 jobs and five production plants and revamping manufacturing in the first phase of a global reorganization. The long-awaited announcement Monday drove Merck shares down more than 4 percent.

The restructuring of manufacturing, supply chain and research operations, meant to lower pretax costs by $3.5 billion to $4 billion through 2010, includes immediately starting to cut 11 percent of Merck's work force, with 60 percent of the reductions in manufacturing. The rest of the job cuts — the third round announced since October 2003 — are to be spread across the company, with about half in the United States.

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By the end of 2008, Merck also plans to close one basic research site and two preclinical development sites, close or sell five of its 31 manufacturing plants and reduce operations at some others. It will also streamline manufacturing and outsource more of it, and reduce supply costs, with the latter effort expected to produce about half the savings.

Analysts said the move is part of an emerging trend in an industry that for years never had to worry about cutting costs, given gross profit margins well above 70 percent and limited pressure on prices until recently. Pfizer, Wyeth and a number of smaller companies have announced a restructuring and job cuts in the last year or so.

"This is in response to a very challenging environment," said Morgan Stanley managing director Jami Rubin. "I would expect broader cuts to be announced within the sales force, marketing, general and (administration) as well as R&D over the longer run."

In December, then-chief executive officer Raymond V. Gilmartin announced several similar changes aimed at cutting Merck's costs by $2.4 billion through 2008. Merck also eliminated 5,100 jobs through buyouts and layoffs in 2003-04 and an additional 825 this year.

Richard T. Clark, who took over as CEO in May, said Merck's revenue and legal troubles didn't play a role in his strategy, which is meant to create a more efficient, competitive business. Meanwhile, he said, the Whitehouse Station, N.J.-based company must maintain sales of its top drugs, launch new ones and better integrate late-stage research and manufacturing to reduce the time to launch new products.

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"We need to execute flawlessly all of those ingredients in order to turn this around," Clark told The Associated Press in an interview.

Merck has slipped from the world's third biggest pharmaceutical company to No. 5, by revenue, in recent years. It is facing thousands of lawsuits and tens of billions of dollars in potential liability from its recalled painkiller Vioxx, a weak pipeline of new medicines and the loss of patent protection, in June, for its blockbuster cholesterol fighter Zocor.

Zocor now generates about 20 percent of Merck revenues and is the world's second-biggest drug. With coming competition from generic drug makers, Merck expects Zocor sales to drop to $2.3 billion to $2.6 billion in 2006, from $4.2 billion to $4.5 billion this year.

Tony Butler, senior pharmaceutical analyst with Lehman Brothers, said Vioxx, Zocor and an industry cost-cutting trend were behind the move.

"There's not a company that's not swept up in this wave of cost analysis," Butler said.

Henry L. Miller, a plaintiff's attorney from Newtown Square, Pa., who has two Vioxx cases pending, said it would be hard to draw a connection between that litigation and the restructuring, however.

"If every company the size of Merck that had lawsuits filed against it went out and started closing plants, nobody would be doing any business," Miller said.

The first federal Vioxx liability trial is to start in Houston on Tuesday. Merck has won once and lost once in state trials in New Jersey and Texas.

Merck employs just under 63,400 people, including about 8,000 in New Jersey, 15,000 in Pennsylvania and a total of 31,000 in the United States. Vacant jobs and ones held by temporary workers will be cut first and full-time workers will get severance packages, but no buyouts are planned, Clark said.

Willie A. Deese, head of Merck manufacturing, said the company won't name facilities being closed, sold or scaled back until workers are notified in the next couple of days. He said the new supply strategy will transform Merck's manufacturing and enhance shareholder value.

Merck shares fell $1.42 to close at $29.56 in heavy trading on the
New York Stock Exchange — down about two-thirds from its value five years ago.

Health care analyst Hemant Shah of HKS & Co. in Warren, N.J., said it's hard to tell if the reductions are the right size, because Merck still has to market existing drugs and new medications in what he called a "lackluster" pipeline. Medications in their final stages of development include drugs for insomnia, diabetes and nausea caused by chemotherapy, and vaccines for rotavirus, shingles and cervical cancer.

Restructuring costs from the changes are expected to total up to $2.2 billion through 2008, much of that through accelerated depreciation of closed facilities.

Further details are expected at Merck's Dec. 15 annual business briefing.

Merck reiterated its earnings-per-share forecasts of $2.04 to $2.10, including one-time charges, for 2005 and $1.98 to $2.12, with one-time charges, for 2006.

Monday, November 28, 2005

Holiday sales, jobs to drive stocks

NEW YORK (Reuters) - U.S. stock investors will take some cues this week from holiday sales, which jumped 22 percent over the post-Thanksgiving weekend from a year ago, according to the National Retail Federation.

Wall Street also will scrutinize Friday's November jobs report for signs of whether the Federal Reserve will end its interest rate hikes soon, analysts said.

"Consumers may or may not have cut back on retail spending, given the high cost of energy," said Tim Ghriskey, chief investment officer of Solaris Asset Management.

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U.S. crude oil futures prices have slid 17 percent from their peak of $70.85 in late August. But they are still high enough that winter heating and driving costs are a concern to consumers -- and retailers.

After five straight weeks of gains, the three major U.S. stock indexes are poised to extend the rally into December.

Stocks often go up in December in the time-honored year-end rally. But any sign of inflation could keep the Fed raising rates and derail the market's gains, analysts said.

"Historically, the fourth quarter is very strong ... and you take a little bit of a pause the week after Thanksgiving," said Anthony Chan, managing director of JP Morgan Asset Management. "But I think the data will be supportive enough that you'll be able to counteract those seasonal movements. I don't see any land mines out there."

For the past week, the Dow Jones industrial average (^DJI - news) rose 1.5 percent, while both the Standard & Poor's 500 Index (^SPX - news) and the Nasdaq Composite Index (^IXIC - news) gained 1.6 percent. For November, the Dow is up 4.7 percent, while the S&P 500 is up 5.1 percent, and the Nasdaq is up 6.7 percent.


Shoppers spent $27.8 billion in stores and online during the three-day weekend, starting on Black Friday, the day after Thanksgiving and the traditional kick-off of the holiday shopping season, according to a survey conducted for NRF, a Washington-based trade group. That was up 21.9 percent from last year's spending, the NRF said.

The NRF's report on strong holiday spending contrasted with figures released on Saturday by ShopperTrak, a retail research group, which estimated nationwide sales on Black Friday alone totaled $8 billion -- down 0.9 percent from last year.

Wal-Mart Stores, Inc. (NYSE:WMT - news), the world's largest retailer, on Saturday estimated that November sales rose 4.3 percent at its U.S. stores open at least a year. Sales on the day after Thanksgiving were better than it had expected at both its namesake discount stores and its Sam's Club warehouse stores, Wal-Mart said in its weekly recorded message.

Recent declines in gasoline prices and other positive economic indicators led the NRF to raise its retail sales forecast last week to a 6 percent gain over 2004, up from an earlier forecast for a 5 percent rise.

But with stores competing to give consumers steep discounts, analysts wonder whether strong sales figures will be enough to make the retailers profitable.

"To drive the 5 (percent) to 6 percent sales growth that people are estimating, it's going to come at the expense of margins and the question is: 'To what extent?"' said Peter Boockvar, equity strategist at Miller, Tabak & Co.

More information on consumer spending for holiday gifts and big-ticket items like washing machines, homes and cars will come from this week's blitz of U.S. economic data.

Weekly store sales are due on Tuesday, while monthly chain-store sales are expected on Thursday.

Existing U.S. home sales are due on Monday, with new home sales and durable goods on Tuesday. Data on third-quarter
GDP growth and the Federal Reserve's Beige Book report will be released on Wednesday. November car and truck sales, plus October personal income and consumption, are set for Thursday.


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But the Conference Board's November consumer confidence number, due on Tuesday, may be the most eagerly awaited indicator of this holiday season.

"This is basically going to be telling us what kind of momentum we have going into the holiday season," Chan said.

A glimpse of the luxury spending sector will come on Wednesday, when jewelry retailer Tiffany & Co. Inc. (NYSE:TIF - news) is expected to report third-quarter earnings.


The November U.S. nonfarm payrolls report "will likely provide the first clean read of job creation since Hurricane Katrina struck on August 29," said Chris Rupkey, vice president and senior financial economist of Bank of Tokyo/Mitsubishi.

Economists polled by Reuters estimate that U.S. payrolls added 210,000 jobs in November, up from 56,000 in October.

Average hourly wages, deemed an inflation indicator, are believed to have gone up just 0.2 percent in November, after a gain of 0.5 percent in October.


Any softness in Thursday's retail sales or Friday's payrolls would back the idea that the Fed will stop raising the fed funds rate when it gets to 4.5 percent, and that could push stocks higher, Boockvar said.

Wall Street also will watch the Institute for Supply Management's monthly manufacturing index, due on Thursday.

"The market is more sensitive now to the economic data than it's been in a long time because of this debate about the Fed being almost done," Boockvar said.

The Federal Reserve's November 1 minutes, released last week, hinted that the central bank was considering how and when to end the interest-rate increases that began on June 30, 2004. Its fed funds rate for overnight bank loans now stands at 4 percent.

But Jeffrey Lacker, president of the Federal Reserve Bank of Richmond and a voting member of the Fed's rate-setting committee, said it was still too early to call when the Fed's tightening campaign would end.

Saturday, November 26, 2005

Retailers Say Crowds Bigger This Year

NEW YORK - The pre-dawn sales frenzy is over — and now the tally begins.

Steep discounts, enticing rebates and expanded hours drew hordes to the nation's retailing meccas Thursday, and merchants saw hopeful signs that consumer spending will be lively for the holidays.

More so than during last year's post-Thanksgiving rush, people jammed stores early, with more than a few testy shoppers scuffling in a rush to grab coveted, limited-quantity bargains.

Several major retailers, including Wal-Mart Stores Inc., Sears, Roebuck and Co. and Macy's, as well as mall operator Taubman Centers Inc., estimated they drew bigger crowds for the official holiday season launch compared with last year.

Lena Michaud, spokeswoman at Target Corp., which had a strong holiday season a year ago, said traffic was at least as heavy.

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Consumer electronics, including MP3 players, laptop computers, and even pricey flat-screen TVs, were the main attraction, but apparel also fared well, helped by the arrival of frigid weather in many parts of the country, according to Marshal Cohen, senior industry analyst at NPD Group Inc., a market research firm.

No single standout was reported among toys, and popular items included electronics-laced items such as Hasbro Inc.'s Idog, Fisher-Price's Dora the Explorer's Talking Kitchen, and Zizzle Inc.'s iZ, according to John Barbour, president of Toys "R" Us' U.S. division, who reported "brisk" business.

"This is the most promotional Black Friday we have seen," said Scott Krugman, a spokesman for the Washington-based National Retail Federation.

The bargains were so good at Wal-Mart Stores Inc., which offered better deals than last year, that things got out of hand.

In Cascade Township, east of Grand Rapids, Mich., a woman fell as dozens of people rushed into a store for the 5 a.m. opening. Several stepped on her, and a few became entangled as a man pushed them to the ground to keep them away.

When the rush ended, the woman and a 13-year-old girl suffered minor injuries.

Tempers flared at a Wal-Mart in Orlando, Fla., where a man allegedly cut in line to buy a bargain notebook computer and was wrestled to the ground, according to a video shown by an ABC affiliate, WFTV-TV.

Discounted notebooks, particularly the $378 HP Pavilion notebooks, were not the only attractions at Wal-Mart, which also sold out of its $997 42-inch plasma TVs and 15-inch LCD TVs, priced at $178, in many stores, according to Gail Lavielle, a Wal-Mart spokeswoman. But apparel and toys also did well, she said.

"We were pleased. We thought people did come to us first," said Lavielle.

Terry Lundgren, chairman, president and chief executive of Federated Department Stores Inc., which operates Macy's, estimated the flagship Herald Square store attracted about 1,000 people for the 6 a.m. opening. "I have also seen a lot of bags," he said. Hot items included cashmere sweaters, down comforters and scarves, he said.

"Today, things look really good. But these next five weeks are really critical," Lundgren added. "You have to wait and see how it unfolds."

At a Best Buy Co. store at CambridgeSide Galleria, in Cambridge, Mass., the line of about 400 shoppers snaked through the indoor mall for the 5 a.m. store opening.

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"The prices are much better than last year," said Shirley Xie, 30, who was with Jen Lin, 35, both from Medford, Mass. The married couple said they were enticed by deals such as a Toshiba Corp. laptop computer with 15-inch screen that was $379.99 after a $370 instant rebate. Xie said a comparable laptop she bought last year as a gift cost about $600.

The couple also bought a SanDisk Corp. MP3 player for $39.99 after a $60 instant rebate available until noon.

At a Wal-Mart store in Strongsville, a suburb of Cleveland, the biggest crowds for the 5 a.m. opening were for portable DVD players, priced at $79.86; 20-inch TVs, priced at $89; and the Garth Brooks limited-edition, six-disc box set, priced at $25.

"It's a little rough but heh," said Lorenzo DeMassino, 31, who bought Game Boy items at the store.

Meanwhile, about 100 people lined up for the 6. a.m. opening in freezing weather outside the Super Target in Apex, N.C., about 10 miles south of Raleigh.

Meredith Carter, 29, from Apex, took the first spot in line when she arrived around 4:50 a.m., about 10 minutes after the veteran Black Friday shopper woke up.

By 6:05 a.m., she was buying one of two items on her list: a Kodak Easy Share digital camera for $89.99, saving about 50 percent. She was then off to find a George Foreman grill, also at half-price.

"I plan to get what I want and go home," she said.

Retailers' spirits have improved in recent weeks as gasoline prices have fallen. In fact, on Tuesday National Retail Federation upgraded its holiday growth forecast to 6 percent from the 5 percent it announced in September.

Many shoppers are cautious, though. While gasoline prices have fallen, they are still high, and this winter shoppers will face higher heating bills.

While the day after Thanksgiving officially starts the holiday shopping season, it is no longer the busiest shopping day. Last year, it was Saturday, Dec. 18, a week before Christmas, according to the International Council of Shopping Centers.

Still, Black Friday sets an important tone for the rest of the season. What shoppers find in terms of deals and service "influences where they will shop for the rest of the season," said Federated's Lundgren.

Friday, November 25, 2005

Dollar mixed as markets reassess Fed minutes

NEW YORK (AFP) - The dollar steadied a day after a sharp drop as traders reassessed minutes published by the Federal Reserve seeming to point to an end to the cycle of interest rate rises in the United States.

The euro edged up to 1.1820 dollars at 2200 GMT from 1.1814 dollars late on Tuesday in New York.

The dollar fetched 118.70 yen from 118.72 yen on Tuesday.

Traders were rethinking the slide in the greenback on Tuesday that came in response to market-moving comments from the Federal Reserve in minutes released from its November 1 policymaking meeting.

The minutes revealed that some members had warned against raising interest rates too much, prompting predictions that the Fed may soon bring a halt to its tightening policy, which began in the summer of 2003.

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But Boris Schlossberg at Forex Capital Markets said it may be too soon to call an end to the rate-boosting cycle that has widened the yield gap and lifted the dollar.

"The reaction in the FX market may be a bit premature," Schlossberg said.

"US economic growth continues to impress for the time being with consumer spending remaining strong. The key to near term Fed policy will be the upcoming Christmas season."

Schlossberg said a key retail trade group raised its holiday forecast to show a 6.0 percent rise in spending from a 5.0 percent estimate, suggesting US consumer spending and the overall economy is robust.

He said the Fed could still keep raising its base rate, currently at 4.0 percent: "5.0 percent US rates are not out of the question and in that case the dollar bull run will likely continue," he said.

Mark Vitner at Wachovia Securities said the Fed comments "probably do not reflect as much of a change as has been widely reported."

Vitner said the Fed remains poised to hike interest rates at the next two meetings on December 13 and January 31, "and will likely hike them another quarter percentage point at their March 28 meeting, bringing the federal funds rate up to 4.75 percent by the end of the first quarter."

But he added, "The financial markets have become less certain on this final point, and the federal fund futures now assign only about a 30 percent probability of a rate hike in March as compared to more than 70 percent prior to the release of the minutes."

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Other analysts said the dollar may have peaked for the time being with the market looking ahead to an end to the increases in US rates.

"The Fed could revise its statement as soon as next month's meeting by stating a more specific time limit for the tightening campaign, to lend some finality to the conclusion of the rate hikes," said Ashraf Laidi, chief currency analyst with MG Financial Group.

Financial markets still put strong odds on two more US rate increases, in December and January.

Even if that means US interest rates will top at 4.5 percent, well above the anticipated 2.25 percent in the euro-zone, markets will tend to unwind bullish dollar positions taken during the past two months in particular, said Laidi.

"The combination of renewed acceleration in the US trade deficit, with the looming conclusion of the Fed's tightening campaign, could pave the way for the next dollar decline," he said.

In late New York trade, the dollar stood at 1.3112 Swiss francs from 1.3105 Tuesday. The pound was being traded at 1.7233 dollars after 1.7222.

Thursday, November 24, 2005

Microsoft Seeks to Standardize Office Format

SEATTLE - Microsoft Corp. is seeking to standardize the document format used for its popular Office products, partly in response to concerns that documents stored using its proprietary technology may be difficult to access in years to come.

The company's proposal to Ecma International, a Geneva-based industry group that develops and publishes technical standards, would make Microsoft Office Open XML an international standard.

Alan Yates, general manager of information worker strategy at Microsoft, said the company would then provide a simple, free license to anyone who wants it, making it easy for others — including possibly rival companies — to build products and other ways to access the information.

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The move comes as companies and governments are growing more concerned that electronic information will be hard to access if intellectual property concerns, compatibility problems or other issues come up years from now.

A document stored today, for instance, might not be readable at all 10 or 15 years from now if Microsoft decides to change its formats and computers no longer exist to run today's versions of Microsoft products. Publishing the standards leaves open the possibility that someone else would develop programs then to run today's formats.

"It gives them the confidence that there is a foundation for documents that is not controlled by just one company but is a real consensus within the industry," Yates said.

It's a similar strategy taken by Adobe Systems Inc. and its widely used PDF format. Adobe publishes details about its format so anyone else can create compatible programs.

In Massachusetts, Gov. Mitt Romney's administration has directed state executive offices to begin storing new records by Jan. 1, 2007, in an open, proprietary-free format called OpenDocument, in response to such concerns.

That's been widely seen as a blow to Microsoft, whose Office line of word processing, spreadsheet and other business applications dominates the market.

Yates said the company is hoping to hear from the standards body in nine to 18 months.

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The proposal is backed by companies including Apple Computer Inc., Intel Corp. and Barclays Capital, the investment banking division of Barclays Bank PLC.

Tuesday, November 22, 2005

Gates: Xbox 360 Key to Microsoft Strategy

SEATTLE - Anyone snagging one of Microsoft Corp.'s new Xbox 360s when it debuts Tuesday will likely see the new video game console as just that — a medium for spending hours playing the likes of "Halo 2" and "Project Gotham Racing 3." But executives at Microsoft see video games as just the beginning.

Xbox 360 is at the center of a strategy that will also eventually tie in elements of Microsoft's new online initiative, called Windows Live, says company Chairman
Bill Gates.

Gates said Monday that he expects Xbox Live, Microsoft's service that allows gamers worldwide to play one another, to eventually work with a Microsoft instant messenger that is slated to become part of Windows Live.

Microsoft already offers limited ways for people on Xbox Live to communicate with those on Microsoft's messaging software, but the new offering — not yet slated for release — would expand that significantly.

Gates said he's also expecting a new Xbox service called Microsoft Points, which lets people pre-pay for things like virtual armor or other game-related items, to eventually work with Windows Live, so people could use a single account to pay for offerings there, too.

"The PC and the Xbox are very complementary," Gates told The Associated Press.

Windows Live is Microsoft's newly launched effort to better compete with free, advertising-financed Web services like e-mail and search technology from competitors led by Google Inc. and Yahoo Inc. (Nasdaq:YHOO - news)

Analyst Rob Enderle said the move to more closely link Xbox Live with Windows Live intends to bolster loyalty to Microsoft products. Microsoft "can tie that stuff together so that you as a customer become wedded to the Microsoft platform for everything you do," he said.

Microsoft also is attempting to more closely tie Xbox 360 to the rest of its universe by trying to make it a conduit for other entertainment activities such as watching high-definition TV, looking at family photos and listening to music.

Xbox 360 can do some of those tasks itself, and it also can function as an "extender" that links to a PC running Microsoft's entertainment-centric
Windows XP Media Center Edition.

"In the living room itself, Xbox 360 is our centerpiece and a product that redefines what goes on there," Gates said.

Microsoft's major console rival, Sony Corp (NYSE:SNE - news).'s PlayStation 3, also is expected to offer alluring digital entertainment capabilities when it debuts next year.

With the new Xbox system, Microsoft also is significantly expanding what people can do — and buy — from Xbox Live itself.

Gates said one big bet is that game companies will use Xbox Live to sell incremental upgrades and additions to existing games, thus extending a game's life.

Analyst Matt Rosoff with independent researchers Directions on Microsoft said efforts to sell game add-ons through Xbox Live are probably more likely to immediately meet success than the grander plans to become a home entertainment hub.

Microsoft — and Gates in particular — have long touted the idea of the high-tech living room and den, but the concept is still too geeky for most people, Rosoff said.

While Gates may spend lots of time thinking about how important Xbox is to his corporate strategy, the Microsoft co-founder said he doesn't have much time to play the game system himself.

"I'm not a heavy gamer, I'm a light gamer — something to do with my job," Gates said Tuesday. "... The people on (the Xbox) team can all kill me within about 60 seconds on Halo, so I try and avoid them."

Gates was staying up a little past his bedtime Monday to hand out some of the first Xbox 360 consoles to consumers in suburban Bellevue. Some retailers, including certain Best Buy and GameStop stores, were opening at midnight to sell consoles the moment they become available.

Back at his house in the upscale suburb of Medina, Gates said his three children are too young — the eldest is nine — for much Xbox play.

By contrast, Chief Executive Steve Ballmer has talked about how his older kids are much bigger fans of Xbox, so much so that Gates said the Ballmers have had to limit play time.

"They've had to set strict quotas," Gates said.

GM to Ax 30,000 Jobs, Close 12 Facilities

DETROIT - General Motors Corp., pounded by declining sales and rising health care costs, said Monday it will cut more than a quarter of its North American manufacturing jobs and close 12 facilities by 2008. The United Auto Workers called the plan "devastating" and warned it will make negotiations more difficult, but some Wall Street analysts said GM's actions may not go far enough.

To get production in line with demand, GM will cut 30,000 jobs and will close nine assembly, stamping and powertrain plants and three parts facilities. The job cuts represent 27 percent of GM's hourly jobs and about 17 percent of its overall North American work force of 173,000.

GM's U.S. market share fell to 26.2 percent in the first 10 months of this year compared with 33 percent a decade ago, the result of increasing competition from Asian rivals. GM lost almost $4 billion in the first nine months of this year

"The decisions we are announcing today were very difficult to reach because of their impact on our employees and the communities where we live and work," GM Chairman and Chief Executive Rick Wagoner said. "But these actions are necessary for GM to get its costs in line with our major global competitors."

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GM isn't the only U.S. automaker cutting costs. Last week, Ford Motor Co. told employees it plans to eliminate about 4,000 white-collar jobs in North America early next year as part of a restructuring plan.

GM said the plant closings are part of a plan to shave $7 billion off its $42 billion annual bill for operations by the end of next year. That includes a $3 billion cut in health care costs, $1.5 billion in manufacturing cuts and $1 billion in savings on materials.

The company's shares fell 47 cents, or 2 percent, to close $23.58 in trading on the
New York Stock Exchange. They have traded in a 52-week range of $20.60 to $40.82.

Standard & Poor's Ratings Services, which lowered GM's debt to "junk" status earlier this year, said the company remains on credit watch. S&P said the staff cuts are substantial but may not be adequate considering GM's problems, including a possible strike at Delphi Corp., its largest supplier; an ongoing federal investigation into accounting errors; and an uncertain outlook for its new lineup of full-size sport utility vehicles, which may fall victim to consumer concerns about gas prices.

Goldman Sachs analyst Robert Barry said those headwinds could offset any gains from the cuts.

"We are not confident the restructuring addresses the core issue that GM brings too much supply to the North American market," Barry said in a note to investors.

GM has 77 facilities in North America, including 30 assembly plants, 23 stamping plants and 24 engine and transmission plants, spokesman Stefan Weinmann said.

Wagoner said the job cuts will come primarily through attrition and early-retirement packages to mitigate the impact on workers. GM has an annual attrition rate of about 7 percent, Wagoner said. The average hourly worker is around 49 years old, he said.

Some workers who don't choose to retire could go into jobs banks, which pay laid-off workers their salary and benefits. Wagoner said details about layoffs and early-retirement packages still need to be worked out with the UAW, the
Canadian Auto Workers and other unions.

Earlier this month, GM's U.S. hourly workers agreed to pay more for their health care benefits, a concession UAW leaders said was necessary because of GM's financial status. But the union responded angrily to GM's latest announcement, saying the company needs to design attractive and exciting vehicles instead of trying to shrink its way to prosperity.

"Workers have no control over GM's capital investment, product development, design, marketing and advertising decisions. But, unfortunately, it is workers, their families and our communities that are being forced to suffer because of the failures of others," UAW President Ron Gettelfinger and Vice President Richard Shoemaker said in a joint statement.

The plan will cut the number of vehicles GM is able to build in North America by about 1 million a year by the end of 2008. GM will be able to build about 4.2 million vehicles a year in North America, down 30 percent from 2002. Wagoner said GM's plants are increasingly flexible and will be able to add capacity to meet market demands.

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The decrease could help Toyota Motor Corp. surpass GM in worldwide production, although it's unclear if that could happen, because GM is growing rapidly in Asia, said Greg Gardner of Harbour Consulting, a manufacturing consulting firm. Toyota expects to products 8.1 million vehicles this year, while GM expects to produce 9 million, he said.

Wagoner said the plan would get GM's North American plants running at 100 percent of their capacity rather than 85 percent, as they do now. In 2004, Toyota had the most productive plants in North America, with six plants that ran at 107 percent of their capacity, according to the Harbour Report, which measures manufacturing productivity.

The plants that are closing make a variety of vehicles. GM didn't target plants where it makes full-size trucks and SUVs, products it's counting on for a comeback. Instead, it's significantly reducing its capacity to produce minivans like the Buick Terraza, mid-size SUVs like the GMC Envoy and mid-size sedans like the Buick LaCrosse. It's also ending production at the Lansing plant that produces the slow-selling Chevrolet SSR, a small pickup.

Wagoner said GM has no plans to kill off any of its eight brands. He added that plants were chosen for closure based on overcapacity of their products in the market, the life span of various products and the state of the facilities.

"Frankly, we've done it in the fairest and most cost-effective way we could do it," Wagoner said.

GM said assembly plants will close in Oklahoma City, Lansing, Mich., Doraville, Ga., and Ontario, Canada. One production line will close and one will remain open in Spring Hill, Tenn. The company is removing shifts at plants in Moraine, Ohio, and Ontario.

An engine facility in Flint, Mich., will close, along with a separate powertrain facility in Ontario and metal centers in Lansing and Pittsburgh.

Wagoner said GM also will close three service and parts operations facilities. They are in Ypsilanti, Mich., and Portland, Ore. One other site will to be announced later.

GM has been crippled by high labor, pension, health care and materials costs, as well as by sagging demand for sport utility vehicles, its longtime cash cow. It could be facing a strike at Delphi, which filed for bankruptcy protection last month. GM spun off Delphi in 1999 and may be liable for billions in pension costs for Delphi retirees.

Last week, after the automaker's shares fell to their lowest level since 1987, Wagoner sent an e-mail to employees saying the company has a turnaround strategy in place and has no plans to file for bankruptcy. Wagoner repeated that Monday, and added that he continues to have the board's support and hasn't considered stepping down.

"I have given no thought to anything but turning the business around," Wagoner said. "I wasn't brought up to run and hide when things get tough."

Wagoner said the job cuts are part of a larger restructuring plan that includes the possible sale of a controlling interest in General Motors Acceptance Corp., GM's profitable finance arm. Wagoner said bankruptcy talk hasn't affected those plans and the company has had conversations with some possible buyers.

Monday, November 21, 2005

Suspect Arrested in Wash. Mall Shootings

TACOMA, Wash. - A gunman opened fire inside a busy shopping mall Sunday, wounding several people in the halls and taking three people hostage in a music store before police arrested him, authorities said.

Witnesses described hearing a noise and then seeing a man walking backward through the mall, firing.

At least six people were injured, one critically, as shoppers and store clerks scrambled for cover.

Tacoma Police spokesman Mark Fulghum said the suspect, arrested about four hours after the shooting began, was a young man but he had no other details about him or his possible motives.

Police were interviewing the victims and hostages, he said.

While the suspect was still inside the Sam Goody music store, employee Joe Hudson was able to pick up the phone and say he and others had been taken hostage. Hudson said little more but could be hearing telling others that he was talking to The Associated Press.

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Authorities got the call about 12:15 p.m. that shots had been fired inside the Tacoma Mall. The caller said there was a gunman, "He was in the mall, walking along, firing," Fulghum said.

State Patrol and police units from nearby agencies clustered around an entrance at the south end.

Inside the mall, Stacy Wilson, 29, of Bonney Lake, heard a popping noise and turned around.

"I saw the gunman randomly shooting. I ran with a group of women to Victoria's Secret," Wilson said. She said they crouched behind a wall in the store, and when the shooting stopped, an employee ran out and closed a security gate at the front.

Wilson said she heard 15 to 20 shots.

"He was walking backward and shooting. I couldn't see his face," she said. "Everyone was running and screaming."


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Betz Dejarnatt, who works at the J.C. Penney store, said workers were herded into dressing rooms and offices, then police took them outside to a parking lot.

Six people were taken to hospitals, most with minor injuries, according to Tacoma Fire Department Deputy Chief John Lendosky. One person was in critical condition at Tacoma General Hospital, spokesman Todd Kelley said.