Jason Stipp: I am Jason Stipp for Morningstar and welcome to the Friday Five. It's a tough market out there, especially over the last few weeks, and a lot of companies have taken some hits; some unexpected, some not. Here with me to talk about five of those is Morningstar markets editor, Jeremy Glaser. Jeremy, thanks for joining me.
Jeremy Glaser: You're welcome, Jason.
Stipp: So what do you have for the Friday Five this week?
Glaser: Jason, this week we are going to see hits given by AIG, taken by China, another hit for BP, Microsoft taking a mighty blow, and finally we will take a look at some of Facebook's current woes.
Stipp: So it certainly seems like AIG giving anything like a hit to anyone is unexpected. Tell me a little bit about that one?
Glaser: It's kind of amazing for a company that's in such dire straits it, was for so long, is able to dictate the terms of a deal, but the purported deal for Prudential to buy their Asian insurance business fell through this week when AIG was unwilling to accept a lower offer that Prudential offered. It's surprising that AIG was able to stand up to them, but they believed that they can get more value for it out in the marketplace elsewhere as they walked away from the table, something that I don't think Prudential was expecting and a lot of market watchers didn't see coming either.
Stipp: So what does this mean for Prudential then if they were sort of taking a hit off of this deal falling through?
Glaser: It's probably going to end up being a net positive for them. There is a lot of concerns at least from the regulatory side that Prudential was going to have trouble getting this deal done, and expanding that quickly could have its problems. Shares actually rose once the deal came out, so it might have been an ego hit, but hopefully for shareholders it will end up for the best.
Stipp: So moving into the global scale, in China there was some news out in factory orders that maybe was a little bit unexpected. They've been such an engine for growth for a long time, but what's the deal with China?
Glaser: Exactly, we've expected Asia to really be the engine of economic growth. Europe is obviously much slower, and even the United States is doing well but is not doing as well as some of their Asian counterparts. We saw factory orders, while still expanding, are expanding at a lower rate than they were before, something that nobody really saw coming, and it points to the fact that this recovery worldwide is still very fragile, and we are going to have to carefully watch these data points to see if it's a trend or just a blip.
Stipp: Sure, as there could be a lot more unexpected things to come on that front.
One company that probably has taken more hits than any other in the last few weeks is BP. What's the story there and how expected and unexpected has the damage been in your opinion?
Glaser: Certainly, BP has been taking a lot of hits from the oil spill in the gulf. Now some of them are self-inflicted. I think the CEO is saying that he wishes that the spill would end, so that he could get his life back, might not have been the greatest PR moment. He has since apologized for that, but with the failure of the top-kill effort to try to contain the oil leak and now with other things happening, it's not clear they are going to be able to do it any time soon. And as that oil flows, the reputation of BP continues to decline, the amount of money they are going to have to pay out to get this pulled up continues to increase, there could be a lot more hits down the road for BP.
Stipp: So moving over to the tech sector, Google in a way doing something to Microsoft that a lot of companies probably wouldn't think about doing. What's the story there?
Glaser: Somewhat out of the blue, Google announced that they are dropping all Microsoft products from within Google; so people who work at Google will either work on Mac desktops or on Linux desktops instead of using Microsoft's Windows.
Google and Microsoft are obviously bitter rivals, so it makes sense that Google doesn't want to write a huge check to them every time that they are buying new software licenses, but it's still somewhat unprecedented for such a large organization to completely drop Microsoft altogether; something that would have been unthinkable just a few years ago and it's kind of body blow to Microsoft as they had to then defend their security and defend other parts of their desktops as being valid part of the corporate environment as Google moves away from them.
Stipp: So something that a lot of people are doing in the corporate environment is going on to Facebook, maybe to the chagrin of their supervisors, but Facebook has been in the news a lot lately over the privacy issues. I guess you could call it a blow, but I don't know if people really stopped going to Facebook because of this?
Glaser: I'm not sure that many people have really completely cut Facebook out of their lives yet, but CEO Mark Zuckerberg certainly looked like he was under the heat when he was at a conference this week. Talking about privacy, he got so overheated he actually had to take off his trademark hoodie sweatshirt in order to take some of the questions.
I think with Facebook in general, they are in a pretty good position now and are still keeping their user base. But it's important to remember that just because they are in that position doesn't mean they are always going to be there and they need to be cognizant of what users want and their people's concerns.
The Internet is littered with people who used to be top-of-class like Yahoo or AltaVista or Lycos or any of the other major players that have completely disappeared. I think you see Microsoft getting kicked out of Google. It's not inconceivable that Facebook getting kicked off its pedestal, if enough users become concerned; that could be even a bigger blow than the ones that we've seen over the past couple of weeks over these privacy issues.
Stipp: Well, at least today based on a lot of the pictures that I see, privacy probably isn't top of mind for a lot of Facebook users, but we'll see how it turns out. Thanks for joining me, Jeremy
Glaser: You are welcome Jason.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.