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The lowly computer a victim of modernity
  Written By: Financial Times
  Article Date:
November 03
, 2008



What is a computer? Difficult question. Processing power has become so abundant that running shoes now calculate distances jogged, cars tell drivers where to turn, while unsupervised robots can trim a garden's herbaceous borders.

So the idea of a personal computer sitting in the house or office as the route to all digital activity seems almost quaint.

The direction of software development suggests that a range of devices will soon be able to mesh online, with a person able to access their photos, music or documents from whatever piece of kit happens to be closest to hand, perhaps a phone, if not a lawn mower.

That technological idyll does not bode well for makers of computers. Apple, designer of TV boxes and iPhones, does not even refer to itself as a computer manufacturer any more.

A decade ago, corporate buyers of IT equipment began to realise that they did not need souped-up machines for business uses that mostly involved moving numbers and words around. Consumer needs for speed and functionality were met not long afterwards.

That, for the past five years, has made PCs mostly low-margin commodity items, as selling prices have come down. It also left laptops as the main source for PC makers' growth and profits.

Yet laptops, too, are now under attack. The rise of low-specification netbooks - small, cheap and designed mainly for web surfing - has exploded since Taiwan's Asustek Computer launched its Eee PC and sold 350,000 of them in the fourth quarter of 2007.

This week Hewlett-Packard got in on the act with a sub-$500 (Dh1,837) machine, joining Dell and Lenovo. Consultants IDC forecast netbook sales of 21m next year, over a 10th of the worldwide laptop market.

When price becomes the dominant feature of any competitive market, profits do not last long. Because of this, asking computer manufacturers what they actually make becomes a rather more existential problem.

In one bound it was free - although at a price.


Unlike Royal Bank of Scotland, Lloyds TSB and HBOS, Barclays has avoided the UK government's bank recapitalisation programme.

Yet it is paying well over the odds for the 7.3bn (Dh43.3 bn) it is raising in the race to raise its capital ratios.

First, whereas its peers pay 12 per cent on the government's preference shares and can redeem them at any time, Barclays is locked into paying 14 per cent until 2019 on the 3bn of securities issued to Qatar Holding and Abu Dhabi's Shaikh Mansour Bin Zayed Al Nahyan, Minister of Presidential Affairs.

At least the coupon is tax deductible, which lowers that cost to about 10 per cent. Yet factor in associated warrants, which allow investors to get extra stock, and Barclays reckons it will end up paying about 13 per cent for this money.

Then there is 4.3bn of convertible notes which have to convert by June. These carry a 9.75 per cent coupon. Including fees and commissions, the overall cost to Barclays of this quasi-equity will top 16 per cent in the first year, Collins Stewart estimates.

This is a heavy price to pay for "self-determination", as Barclays describes its actions. It would prefer expensive money from supportive strategic shareholders than to have to swallow government diktats about executive pay and bank policy.

John Varley, chief executive, hints that avoiding such circumscriptions gives the bank more flexibility to resume paying its dividend; the implication is that it can begin payouts again sooner than its partly nationalised peers.

Yet if Barclays thinks having this freedom enhances its investment case, it had better think again. Investors have already made up their minds.

The 18 per cent fall in Barclays' share price yesterday signals that, in its quest to go it alone, it has already given away far too much.