IMF: Eurozone in ‘critical’ danger

BRUSSELS (AFP) ― The eurozone is in “critical” danger but can restore credibility with speedy moves towards a banking union, some form of pooled debt and if the European Central Bank pumps in more cash, the IMF said on Wednesday.

The European Central Bank should use more of its special measures to buy government debt and fund banks, the IMF said, all steps that EU paymaster Germany sees as major initiatives only possible in return for a much tighter political and fiscal union.

In a hard-hitting review of policies for the euro area, the IMF warned: “The euro area crisis has reached a new and critical stage.

“Despite major policy actions, financial markets in parts of the region remain under acute stress, raising questions about the viability of the monetary union itself.”

One euro and one pound coins sit on euro notes in this arranged photograph in London. (Bloomberg)

A worsening of the crisis would have a big impact on neighboring European countries “and the rest of the world.”

It warned: “A determined move toward a more complete union is needed now.”

On growth, the International Monetary Fund said the “stark” truth was that eurozone countries had lagged the best performers for 50 years.

The euro is slightly over-valued by zero to 5.0 percent, the IMF estimated, but some countries in crisis needed a much bigger adjustment, of 5.0-10 percent for Italy and 10-15 percent for Spain.

Determined programs for structural reforms to raise competitiveness were vital, the IMF said, warning also of a risk of deflation and suggesting that strong countries in northern Europe could allow wages and inflation to rise.

German Chancellor Angela Merkel on Wednesday defended Germany’s attitude towards getting out of the crisis, adding that though she was optimistic, she could not be certain that the “European project” would work.

Merkel stressed that Germans largely shared the “fundamental principles,” namely “no solidarity without corresponding effort and no guarantees without control.”

The view of the IMF is particularly significant because the fund is committed with the EU to direct bailouts for Greece, Ireland and Portugal, in defining the conditions and auditing the progress of rescue programs.

The IMF stressed that the key to growth was further action to put over-strained public finances on a sound basis, coupled with longer-term reforms to increase efficiency.

“The first priority is a banking union for the euro area,” the IMF said, which could combine a pan-European scheme to guarantee bank deposits and common bank supervision.

The IMF said “welcome” progress was made in this direction at an EU summit in late June but that reform efforts must be urgently sped up.

Moreover, any banking union had to be backed by fiscal integration and “more risk sharing” to prevent a shock in one country from imperilling the entire eurozone, the IMF said.

The “introduction of a limited form of common debt” could be a half-way step towards “fiscal integration and risk sharing,” it said in reference to some form of common bonds for the eurozone.

The IMF also argued that the ECB still had room to reduce interest rates, could announce a big program to buy bonds on the secondary market and mount more operations guaranteeing banks access to cheap funds for several years.

The fund urged EU authorities to make clear that the ECB and the rescue funds would not have priority over private investors in the event of a default.

“A clear commitment to accept equal status ... as in the case of Spain” would boost confidence, the IMF said, referring to a rescue for Spanish banks.

The IMF added that “long-standing structural rigidities need to be tackled to raise long-term growth prospects”, focusing on “improving competitiveness.” This was “essential”, it said.

It added that the economic outlook was bleak, with average eurozone growth of 1.5 percent in 2011, giving way to contraction of 0.3 percent this year and a return to growth at 0.7 percent next year.

Unemployment rates would remain high this year, from 5.5 percent in Germany to 24 percent in Spain, and these differences would persist.

The risk of deflation was low in the faster-growing economies but “significant in the periphery.”

Currencies Direct senior analyst Alistair Cotton said the IMF warning on deflation “has set alarm bells ringing around the eurozone.

“The euro is already under tremendous pressure, and deflation will cause a huge problem for countries like Italy, with high levels of outstanding debt because it raises the real value of that debt,” he said.

The ECB, Cotton added “needs to adapt to changing circumstances” otherwise it faces the “real prospect of being the most conventional of central banks of a failed currency area.”

Spain OKs austerity plan, investors still wary

Tens of thousands protest austerity in 80 Spanish cities

MADRID (AP) ― Concerns over Spain’s attempts to restore market confidence in its economy resurfaced Thursday after a bond auction went poorly and its borrowing costs edged higher ― even as the country’s parliament passed the latest round of harsh austerity measures designed to cut its bloated deficit.

The ruling conservative Popular Party used its majority in Parliament to push through the measures, which include a rise in sales taxes and a wage cut for civil servants.

As dusk fell, tens of thousands of government workers, trade union members and disgruntled Spaniards began marches and rallies in 80 cities throughout Spain. Large crowds gathered in Barcelona and Bilbao, while leading Spanish newspaper El Pais estimated on its website that more than 100,000 had attended the rally in Madrid.

The government also published details of the 100 billion euros ($122.9 billion) financial assistance agreement between Spain and the Eurogroup aimed at shoring up the country’s struggling banks.

The Economy Ministry statement said the precise bailout amount “will be known once a bank to bank scan is complete,” and that the loan mechanism will be available until Dec. 31, 2013. It also said the interest rate will be variable.

Demonstrators protest against austerity measures announced by the Spanish government in Madrid on Thursday. (AP-Yonhap News)

Marchers in Madrid carried Spanish flags bearing black bows for mourning and banners saying, “No to the cuts” and “You have ruined us.”

Isabel Urbelz, a 54-year-old civil servant, said she was angry with the government because it had cut her Christmas bonus.

“I am indignant, I’m angry. Why can’t they cut elsewhere?” she said.

The vote in parliament followed an auction of medium-term Spanish bonds, where the government had to pay substantially higher interest rates to unload 2.96 billion euros ($3.62 billion) in bonds maturing in 2014, 2017 and 2019. Its target range was 2 billion euros to 3 billion euros. Demand was roughly two times the amount on offer for each issue. But that was down from earlier auctions.

And the interest rate on the five-year debt rose sharply to 6.46 percent, from 5.54 percent at the last such auction on July 5. The Treasury provided no comparable rates for the other maturities.

In the secondary bond market, where issued debt is traded openly, the interest rate, or yield, on benchmark Spanish 10-year bonds ― a measure of investor worries about the security of a country’s debt ― was at 6.95 percent Thursday, up 0.05 percentage points on the day.

The Spanish government, led by Prime Minister Mariano Rajoy, introduced the latest round of spending cuts and tax increases to shave 65 billion euros off the government’s budgets by 2015. Some specific measures were left to be addressed later, such as speeding up the phasing in of an increase in the retirement age from 65 to 67.

The austerity package was unveiled by Rajoy last week after finance ministers from the other 16 countries that use the euro agreed the basic terms of a bailout of up to 100 billion euros to strengthen Spain’s banking sector and gave the government an extra year to reach deficit-reduction targets.

The eurozone finance ministers are scheduled to hold a conference Friday to give final approval for the bank bailout package.

Treasury Minister Cristobal Montoro pulled no punches as he launched the debate in the morning. A day after saying “there is no money” to pay civil servant wages because recession and a jobless rate of nearly 25 percent are sapping tax revenue, he said Thursday that Spain simply cannot go deeper into debt.

“It is time to call a spade a spade,” he told lawmakers from the podium. “Financing public services with more deficit and more debt will doom us.”

Socialist opposition leader Alfredo Perez Rubalcaba accused the government of acting as a puppet to Brussels with so much belt-tightening at a time when so many people in Spain are out of work.

“Catch a plane to Brussels and tell them these cuts are a barbarity,” Perez Rubalcaba said.

Kakao, Galaxy most searched IT words

Kakao, Galaxy most searched IT words

By Cho Mu-hyun Search words on popular Web portals are useful in finding out what issues and celebrities are grabbing people’s attention. Google Korea revealed Thursday a list of the most searched words in Korea country during the first half of the year in four categories, giving a clear outline of what topics Koreans were looking for most. In the information technology category, mobile messenger service Kakao Talk topped the list after launching a free Internet call service which caused heated debate over network neutrality. Samsung Electronics’ two smartphone products, Galaxy Note and Galaxy S3 took second and third place respectively for their stellar sales. Kakao Story, Kakao Talk’s social network service was fourth after garnering 9.2 million users in a week. Google’s Chrome was fifth for becoming the most used browser in the world. In the most searched news issue, controversial “Nanuen Ggomsooda,” meaning “I’m a petty trickster,” a comedy podcast that takes jabs at politicians was No.1. The Yeosu Expo was second due to the attention it garnered before opening in May. Comedy TV program "Muhan Dojeon," or “Infinite Challenge,” being cancelled due to the MBC union strike was third. The most searched word without categorization was Hwayoung, a member of Korean pop group T-ara, for her accidental exposure of a breast during a broadcast in January. MBC Drama “The Moon Embracing the Sun,” a love story of a fictional king of the Joseon Kingdom, was runner-up. Actress Han Ga-in, who stars in the television drama, was third. In the most searched celebrity category, Hwayoung was in first place for the same January incident while her pop group took fourth place. Teenage singer-actress UI, who came into the spotlight in 2008 for her album “Lost and Found,” took second. Google says her two concerts in Japan in March and May helped her secure that position. Kim Soo-hyun, who plays the imaginary king in “The Moon Embracing the Sun” and rose to stardom via the drama’s popularity was third, the only male among the celebrities.

Man lugs home 57-pound mushroom

A Canadian man hunting for edible mushrooms in southeastern British Columbia stumbled upon an inedible whopper that weighed 57.4 pounds.

Christian Therrien, 62, and son Sebastien were combing through waist-high wild grass last week near Fernie when they spotted the enormous puffball mushroom, the Fernie Free Press reported.

"There was lots of laughing and screaming," Therrien said. "I've found a lot of 5- and 10-pound mushrooms, but when I came upon this one I was shocked."

He took the giant fungus home to weigh it and said he would return it to where he found it so it could release its spores and perhaps create a new generation of jumbo Calvatia gigantea.

Therrien said the mushroom weighed about as much as an 8-year-old boy.

His wife Mimi said she was investigating to see if it might be a world record, the newspaper said.

In any case, Therrien couldn't have hosted a mushroom banquet, as puffballs are only safe to eat when they are very young and small, various agricultural and gastronomy Web sites said. (UPI)

Kakao Story tops Facebook

Kakao Story tops Facebook

By Cho Mu-hyun Kakao Story has topped Facebook to dominate the mobile social network service (SNS) market in Korea only three months after its launch. According to a survey of 13.95 million smartphone users using Google’s Android Operating System (OS) released Thursday by market research agency Nielsen KoreanClick, Kakao Talks’ SNS held 49.1 percent of user time over Facebooks’ 34.5 percent in May. The survey showed that Kakao Story held a meager 18 percent compared to its American counterpart’s 53.2 percent in March. Besides user time, the Korean mobile social network also had better numbers. A total of 9.44 million subscribers logged into Kakao Story at least once in May compared to 4.97 million for Facebook on their respective mobile applications, according to a KoreanClick official. “We secured over 10 million users within 8 days after we launched the service and have around 23 million now,” said a Kakao Talk spokeswoman. “The advantage of Kakao Story is that it is connected to our mobile messenger service.” Kakao Talk’s messenger service, which launched in 2010, has 53 million subscribers worldwide. Other data from Nielsen in May showed that 95 percent of domestic smartphone users are members of Kakao Talk. The company’s Kakao Story launched on March 20 allows users to post multiple pictures in their profiles and offers an SNS that is simpler than its Internet rival. It became the most searched word in Web portals Naver, Daum and Nate within three days. Most SNS that originate on PC platforms, such as Facebook, have trouble being converted to a mobile platform, said the spokeswoman. Unlike its competitors, Kakao Talk’s SNS service originated in mobile form so caught on faster, she added. “We believe that we have the caliber to compete in the global market with global SNS applications like Facebook. We will continue developments of Kakao Talk and Kakao Story to make it a service that gets accepted beyond Korea.” The company plans to expand to the Chinese market and provide a similar combined service in other countries. Kakao talk officials attribute the skyrocketing numbers to the diverse age group that uses the service, which according to one analyst, is more advantageous in sustaining user loyalty. KoreanClick’s data confirms the diagnosis: for Kakao Story, those in their teens, 20s, 30s, 40s, and 50s each accounted for 16.4, 25.5, 28.3, 21.5 and 8.4 percent, respectively. For Facebook, the same age groups held 15.6, 44.4, 15.7, 18.9 and below 1 percent. Kakao Talk also believes that those in their teens, who were drawn to the free chats (similar to short messages provided by mobile carriers) available in its services, automatically added the use to the new SNS. “We have data based on the birthday users put in when they register for Kakao Talk and Kakao Story, and teens make up a large portion of our subscribers.” Bae Eun-jun, an analyst at LG Economic Research Institute, stated in a report that due to the near free data available in smartphones, more people were using short messages or chat compared to expensive voice calls. Bae believes that eventually short messages will lead to communication through pictures, like those used in mobile SNS. Internet firms Facebook, NHN and Daum Communications are eyeing the smartphone market as consumers spend more time on the visual-intensive devices compared to bulky desktops.

[Exclusive] PM, Defense Minister: Lying or neglecting?

[Exclusive] PM, Defense Minister: Lying or neglecting?

By Lee Tae-hoon “Everyone knows what the subjects of a Cabinet meeting are,” a top defense official said Friday. He made the remarks as he explained in private how and when he acquired the knowledge that the government was set to endorse a military intelligence pact with Japan during a closed-door Cabinet meeting on June 26. The deputy-minister level official alleged that he and other senior defense officials realized a few days before the meeting that the contentious bilateral deal would be approved on June 26. “I told other officials that it would be wrong (for the Cabinet to approve it without consulting the National Assembly),” he said. “But it was beyond my ability to pull it out of the list of subjects. I had already missed the boat.” The ranking official hinted that Defense Minister Kim Kwan-jin and Prime Minister Kim Hwang-sik should have known about the hasty move since he and his colleagues were also notified of a list of subjects to be approved at the meeting, including the intelligence pact. If his statements are correct, top military officials, including Defense Minister Kim and Prime Minister Kim have been either lying to the public, or neglecting their duty to pay attention to crucial national security matters. Prime Minister Kim claims that he had little time to review the General Security of Military Information Agreement (GSOMIA) before he approved it because somebody brought it up as an urgent agenda item to be deliberated at the Cabinet meeting. However, it is hard to believe that he had no clue of what would happen on June 26 when every senior defense official learned about it days in advance. Cheong Wa Dae concluded Friday that Kim Tae-hyo, a senior presidential secretary who stepped down over the fiasco, and the foreign ministry are the ones to be blamed for the masterminding of a plan to endorse the pact in a covert, corner-cutting manner. This, however, does not fully explain why Prime Minister Kim was so ill-informed of such a critical decision that “everyone in the inner circle knew” and whether he shares no responsibility for the bilateral deal’s secretive passage at the Cabinet meeting. Questions also remain about whether Defense Minister Kim and other security related officials conspired so that Prime Minister Kim would make a fool of himself by endorsing the GSOMIA without realizing the magnitude of its significance. In this regard, Defense Minister Kim refused to answer and his staff even filed complaints to the public relations office of the defense ministry over a reporter’s attempts to meet with the top military chief to check the facts of the matter. The vast majority of Koreans vented their anger when they heard the news on June 27, a day after Kim approved the GSOMIA, that the government had given the green light to the deal without notifying the Assembly and the media about it. It seems they were more upset because they harbored suspicions that the government was deceiving the public, rather than because of the content of the GSOMIA, which many experts claim would be mutually beneficial for Seoul and Tokyo for sharing intelligence on Pyongyang’s military moves. Their anger will not be alleviated unless those who have been lying or neglecting their duty admit to their mistakes and take responsible action over their mishandling of state affairs.

134 killed in southern Russia floods disaster

Flash floods deluged Russia's southern Krasnodar, killing at least 134 people in the region's worst natural disaster in decades, officials and witnesses said Saturday.

President Vladimir Putin inspected the damage by helicopter and held a brief meeting with local officials in Krymsk amid recriminations from residents who accused the authorities of abandoning them.

Television footage showed torrents of brown flood water gushing along streets in the worst-hit town of Krymsk past blanket-covered bodies.

Residents were caught by surprise by the sheer force of the waters, which ripped up pavements and traffic lights and flooded buildings.

In Krymsk, some people woke in the middle of the night to find water pouring in, trapping them in their homes. One woman had to spend the night up a tree before being rescued.

Authorities estimated that up to 13,000 people had been affected in the Krymsk district.

"Our house was flooded to the ceiling, we could not open the door because of the water, so we broke the window to climb out," Krymsk pensioner Lidiya Polinina told AFP by telephone.

"I put my five-year-old grandson on the roof of our submerged car, and then we somehow climbed up into the attic. I don't know how we managed to survive,"

she said, adding that they had received no warning or assistance.

"It was like a tsunami!" Putin commented as he was told about the flood by local officials, promising to rebuild the ruined properties.

State television footage showed him speaking with emergency ministry officials, who assured him the flood was not caused by problems at a nearby dam, as alleged by locals.

Officials said at least 123 of the bodies had been recovered in the Krymsk area, including a 10-year-old child, but were unable to explain the scale of the toll there, saying the floods were caused by torrential rains.

Polinina said her elderly neighbor had died after becoming trapped by the flood waters.

"She was paralyzed. She couldn't get out of the house," she told AFP.

"Everything has been destroyed," she added. "We need help pumping water out of the house, we have no drinking water."

The town, which has a population of 57,000, lies about 200 kilometers northwest of the Black Sea resort town of Sochi where Russia is hosting the Summer Olympic Games in 2014.

Krymsk was still without power on Saturday. Water marks indicated that the water rose as high as seven meters.

Officials said the disaster struck as residents slept after the level of the local Bakanka river rose overnight Friday to Saturday.

"Everything happened at night and very quickly," the regional administration said in a statement.

The Russian Internet was meanwhile abuzz with speculation that the flooding was a man-made catastrophe resulting from the opening of a sluice gate at a mountain reservoir. Authorities denied the reports.

A regional environmental group Environmental Watch on North Caucasus said the level of damage on the ground indicated that the rush of water originated at the dam on the local Naberdzhai river, but could not provide details.

Krasnodar region governor Alexander Tkachev called the theory "nonsensical"
and appealed to his Twitter audience to stop spreading "stupid" rumors.

"Some opponents, the opposition, are trying to tell some tales," Tkachev complained to Putin at the meeting in Krymsk, assuring that the dam "is functioning normally."

A Krymsk resident who gave her name as Tatyana told AFP by telephone the disaster struck unexpectedly.

"The water rose very quickly.... It flooded people's ground floors in five to 10 minutes, ripped out pavement kerbs and even pieces of asphalt," she said.

Locals had received no warning from the emergency services, she added.

The resort town of Gelendzhik received five months' worth of rain in 24 hours, the regional administration said.

Russian Railways said it had to suspend train traffic due to "difficult weather conditions" in the area, delaying dozens of trains.

Novorossiisk saw two months' worth of rain in 24 hours.

A team had worked through the night to bring the situation under control at the port, port spokesman Mikhail Sidorov said.

The floods had affected the port's operations and pipeline operator Transneft had informed management that it would halt shipments of crude oil, he added.

Krasnodar regional police said they went on high alert at nightfall to "patrol the streets and protect people's property from looters". (AFP)

Samsung Asia’s most valued tech brand

Samsung Electronics, the world’s biggest chip and smartphone maker, has become Asian consumers’ most valued brand, surpassing long-time favorite Sony and Samsung’s closest smartphone rival Apple.

Citing a survey of 4,800 people in 12 Asian countries by research firm Nielsen and magazine Campaign Asia-Pacific, U.S. broadcaster CNBC reported that Samsung Electronics has climbed to the top this year, from second place in branding last year.

Visitors test media devices installed at Samsung Electronics’ Seoul office in Seocho-dong on Friday. (Yonhap News)

“The brand’s focus on high visibility marketing and advertising, as well as its commitment to developing brand presence in both new and mature markets has helped to give the brand a boost,” said Jolene Otremba, reports editor at Campaign Asia-Pacific, as quoted by CNBC.

Sony, which has been Asia’s most valued brand for four years, slipped to third, while Apple, the iPhone maker that ignited the smartphone boom worldwide, emerged as the second best tech brand, up from sixth in 2011.

Other tech companies named among the top ten included were Panasonic, Canon and LG Electronics.

By Park Hyong-ki (hkp@heraldm.com)

Battle for Japan’s e-book market to commence

TOKYO (AFP) ― In highly-literate and gadget-loving Japan, e-books are curiously rare ― but battle for the largely-untapped and potentially hugely lucrative market is about to commence.

When e-commerce giant Rakuten unleashes its Kobo e-reader onto Japan later this month, it will fire the opening shots in the scrap for literary territory, hoping for a slice of the $23.5 billion Japanese spend on books annually.

The Kobo is set to be joined later this year by a Japanese version of the Kindle, Amazon’s world-leading e-reader, pitting two of the planet’s biggest names in e-books against each other.

At around $100 for a device ― a price in line with Amazon’s offering in the U.S. ― both firms will be looking to lock customers in to their format with their eyes on the content prize, where the real money is to be made.

“I want to start the reading revolution in Japan and in the world with Kobo,” Rakuten chief executive Hiroshi Mikitani said Monday as he announced the July 19 launch.

The Kobo Touch e-reader (Bloomberg)

“Kobo is a global device, a global platform, which allows anyone in the world to enjoy a variety of content.”

Material in Japanese will initially be limited to about 30,000 titles but Rakuten said it was aiming to grow that figure to about 1.5 million over the coming years.

Japan’s existing e-book market is largely a niche segment, mostly comprising comic books for mobile phone users.

Only a limited number of novels and non-fiction titles have been digitised in Japan, where the unique language protects publishers from foreign competition.

The situation has long frustrated IT-ready Japanese bookworms, some of whom have made their own ebooks by dissecting printed works and scanning the pages for their tablet computers.

But that is about to change.

Late last month Amazon broke years of strategic silence and said it would soon announce Kindle’s launch in Japan.

Sony is also trying to cultivate the market with a slick “Reader” device, supported by its own e-book store with nearly 60,000 Japanese language titles.

That is more than enough to cover best-sellers, but still woefully incapable of keeping up with the 80,000 new books published in Japan every year.

Publishers, already facing falling paper book sales, have so far been reluctant to digitise their books for fear that e-books could kill physical sales.

But with the coming of behemoths such as Amazon, they have been galvanised by fears that a market-rejuvenating platform might slip from their grasp, said Yashio Uemura, communications professor at Senshu University. “The industry is feeling a sense of crisis that, if they do nothing and stay passive... huge foreign IT firms could take the e-book market,” said Uemura.

The sector should more than double to 150 billion yen ($1.9 billion) in 2015, from 67 billion yen in 2010, according to a study by Yano Research Institute, but will still be dwarfed by sales of physical books.

Other research firms have given more aggressive forecasts, amid high hopes for the Kindle.

The market for e-reader devices should soar to a whopping 70 billion yen in 2015 from a mere two billion yen in 2010, Yano Research said.

Amazon’s entry, it said, “could trigger a significant expansion of available digital book titles over the next two to three years”.

Kindle, launched in 2007 in the United States, has enjoyed phenomenal success among English-language readers.

In the U.S., adult e-book sales surpassed those of hardback books for the first time in the first quarter of 2012, according to the Association of American Publishers, jumping 28 percent year-on-year to $282.3 million, compared to $229.6 million for hardbacks, up 2.7 percent.

Uemura is a key member of a new firm, created in April by a group of top publishers and a government-backed investment body, tasked with helping Japanese publishing houses digitise one million book titles in five years.

That means making e-versions of all books that can be purchased in Japan, plus a selection of out-of-print titles.

“In this country, where people love new gadgets, it’s inconceivable that digital content won’t enjoy strong sales,” he said.

Apple will debut mini iPad this year: sources

Apple Inc. plans to debut a smaller, cheaper iPad by year-end, two people with knowledge of the plans said, to help maintain dominance of the tablet market as Google Inc. and Microsoft Corp. prepare competing handheld devices.

The new model will have a screen that’s 7 inches to 8 inches diagonally, less than the current 9.7-inch version, said the people, who asked not to be identified because Apple hasn’t made its plans public. The product, which Apple may announce by October, won’t have the high-definition screen featured on the iPad that was released in March, one of the people said.

A smaller, less expensive iPad could undercut the ambitions of Google, Microsoft and Amazon.com Inc. to gain traction in the advancing tablet market, said Shaw Wu, an analyst at Sterne Agee & Leach Inc. The new device will probably have a price closer to Google’s Nexus 7 tablet and Amazon’s Kindle Fire, both of which have 7-inch screens and cost $199.

iPad

“It would be the competitors’ worst nightmare,” Wu said in an interview. “The ball is in Apple’s court.”

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment.

Since the iPad went on sale in April 2010, Apple has dominated the tablet market, which is predicted by DisplaySearch to reach $66.4 billion this year. Apple has 61 percent of the market, according to Gartner Inc.

Apple’s rivals are eager to gain a toehold. Google said on June 27 that it will sell a tablet-style device called the Nexus 7. Earlier in the month, Microsoft announced a tablet called Surface that will have a similar screen size as the current iPad. Amazon’s Kindle Fire was released last year.

The entrants’ best chance of success has been to focus on markets where Apple had no toehold, said Jan Dawson, an analyst at Ovum Ltd. The Surface comes in two models that are most likely to appeal to buyers who want to continue using Microsoft’s Windows software, Dawson said. While Microsoft has not disclosed pricing or timing for either, the higher-end version will probably be pricier than the iPad and targeted more at an emerging class of laptop PCs called Ultrabooks, he said. The latest iPad ranges in price from $499 to $829.

Google’s Nexus 7 could stack up well against Amazon’s Kindle Fire, which went on sale in November. The Nexus 7, manufactured by Asustek Computer Inc., has a faster processor and better battery life than the Kindle Fire, as well as a front-facing camera.

Still, competing with a lower-priced iPad will be more challenging, Wu said. Apple benefits from having more than 225,000 apps that have been tailored specifically for the current iPad.

The company also boasts more than 360 retail stores where the device can be purchased and tested by consumers. Google said the Nexus will be available only from its online store, while Microsoft will sell its tablets online and at its smaller chain of 20 stores.

Apple has considered introducing a smaller tablet since the original iPad was released, one person said. That approach has worked for Apple’s iPod, which is the world’s top music player and comes in various sizes and colors.

Yet Apple co-founder Steve Jobs spoke skeptically of smaller tablets before his death in October. He said in 2010 that the iPad’s current size was the minimum required to ensure a good user-experience and enable attractive software applications.

The screen of the small model will have the same number of pixels as those in the iPad before it was upgraded to the so- called Retina Display earlier this year, one person said.

Apple also may be at an advantage profit-wise. The gross margin on the latest iPad is about 37 percent, according to Wu. Apple could earn a similar profit on a smaller iPad because it will probably use the cheaper screen, Wu said. Apple can also charge more for the device without sacrificing sales, he said.

“This isn’t like the old days, when it cost thousands of dollars more to buy an Apple product,” Wu said. “Fifty or a hundred bucks wouldn’t be enough to make someone switch.”

Amazon, by contrast, loses money on every Kindle Fire it sells, with the aim of profiting from sales of books and other digital media. At the $199 price of the Nexus 7, Google’s plan should be to break even on the hardware, in exchange for the opportunity to win advertising and related revenue, said Michael Gartenberg, an analyst at Gartner Inc.

Apple’s plans to release a smaller sized iPad were reported previously in blogs, including DigiTimes.

The stakes are high for Microsoft and Google to succeed at hardware sales. Both companies have risked alienating long-time hardware partners, such as Samsung Electronics Co., by selling their own tablets, Gartenberg said.

“How does Samsung make money in tablets, when Google is partnering with Asus to make a product that makes no money?,” he said.

A failure to gain traction with the Nexus and Surface, respectively, might also undermine the credibility of Google’s Android strategy and of Microsoft’s introduction of the next version of the Windows operating system, Wu said. If Google and Microsoft can’t make a must-have product around their own software, consumers may be harder to convince that hardware manufacturers could do it, he said.

“They’re really sticking their necks out this time, putting their own brands on this front and center,” Wu said.

(Bloomberg)

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