OPEC just fired a shot at the U.S. shale industry.
Despite tumbling prices -- the lowest since 2010 -- the cartel surprised the energy industry by deciding to keep pumping oil
at current levels. One motivation is to squeeze higher-cost producers
in North America, including the booming U.S. shale industry that has
reshaped the global energy landscape.
It's a move Tony Soprano would be proud of. OPEC is
betting lower oil prices will force U.S. producers to throw up the white
flag and cut back on production because they won't be able to turn a
profit.
"The gauntlet has been thrown down for Western
Hemisphere producers like Brazil, Canada and the United States," Bespoke
Investment Group wrote in a note to clients on Friday. Related: Nightmare for oil stocks Dot-com bust all over again? The
fear is that OPEC's hard line could cause a pull back in the U.S. shale
industry, sparking job losses and causing panic in the financial
markets.
That's what Russian oil tycoon Leonid Fedun is predicting, although Russia isn't part of OPEC.
"The shale boom is on par with the dot-com boom. The strong players will remain, the weak ones will vanish," he told Bloomberg News on Thursday.
The OPEC move has clearly spooked investors, who sent energy stocks like Halliburton(HAL), Helmerich & Payne(HP) and Schlumberger(SLB) plummeting on Friday. (U.S. markets were closed for Thanksgiving Day on Thursday).
"I think there will be increased scrutiny of the balance sheets of the
exploration and production companies. You'll see some of the weaker
players fall out," said Tamar Essner, energy analyst at Nasdaq Advisory
Services. Related: The real Black Friday deal: cheap gas Credit stress ahead: That scrutiny forced SeaDrill Limited(SDRL) to suspend its dividend earlier this week, causing the offshore drilling contractor's stock to plummet 23%.
Essner "absolutely" expects more drillers and oil servicing companies
to cut or even suspend dividends. Bespoke's baseline scenario calls for
dividend suspensions and bond defaults among more "marginal" named
producers.
Many troubled shale companies will be able to avoid
bankruptcy by selling acreage to boost cash flows though, said Per
Magnus Nysveen, head of analysis at Rystad Energy. No crash just yet: While financial stress could be looming for shale oil producers, experts aren't forecasting a complete meltdown.
"I don't think this will spell the death knell of the U.S. shale
industry. Time and again this industry has proved very resilient,"
Essner said.
Nysveen said the breakeven crude oil price for
U.S. shale producers is around $50 or $55. Despite the recent plunge,
oil is still well above that at the $70 range.
Those crucial
breakeven points have been trending lower and lower in recent years
thanks to technological advances that have made oil producers
dramatically more efficient.
"U.S. production is much more competitive than 30 years ago," Nysveen said.
TUCSON (CNNMoney) -- There are four tech companies controlling the industry's direction: Apple, Google, Amazon and Facebook. Will they still be ruling the tech field in a decade?
"At least three have established very deep moats," meaning that it's almost impossible for newer rivals to overtake them, Internet analyst Mark Mahaney (formerly of Citigroup) said Sunday during a panel discussion at the Techonomy conference in Tucson, Ariz. "Probably Apple, too."
Google(GOOG, Fortune 500)and Facebook(FB) have the richest data sets on their users, but Amazon's data graph is probably the most valuable, Mahaney believes, because it tracks where customers are actually spending their money.
Apple(AAPL, Fortune 500) -- the company with the highest market capitalization in the world -- has the hardest position to defend, several of the panelists said. It can't maintain its stratospheric growth without constantly pulling new rabbits out of its hat, and rivals like Samsung are chipping away at its market.
"Apple to me is the most vulnerable," said Alec Ellison, the head of investment bank Jefferies' technology practice. "It has to maintain this innovation edge."
Streaming video is shaping up to be one of the fiercest battlegrounds. Apple's long-rumored iTV could be its next game-changing breakthrough, but the cable companies are pushing back hard -- and Amazon(AMZN, Fortune 500) and Google are also in the hunt.
Live sports and premium scripted programs are the video Holy Grail, according to Nielsen executive Steve Hasker. Whoever gets access to them gains a huge strategic advantage.
Which brings us to the industry's dark horse: Microsoft(MSFT, Fortune 500).
Microsoft has been left out of discussions of the Internet's Big Four because it dominates in the enterprise, not the home. Consumers don't have the same deep engagement with Microsoft's products as they do with their Facebook page or their iPhone. But Microsoft is finally, belatedly, trying to claw its way in.
It cannonballed into the gadget market with Surface, and it's using Windows 8 as a "one platform" link to tighten the ties between products in its vast lineup. Microsoft is quietly striking content deals that morph Xbox from a video-game console into a home entertainment hub -- one thatcould go head-to-head with Apple.
"We share Microsoft's excitement about Xbox," Nielsen's Hasker said. "Can they segue to own the consumer across all kinds of different experiences? That to us looks like the most interesting piece of real estate they have in the home."
Microsoft has another advantage: It's no longer in the U.S. government's crosshairs. Microsoft's consent degree -- the set of restrictions that emerged from its bruising late-'90s antitrust battle -- expired last year.
Google has taken Microsoft's place as the antitrust lightning rod. The Department of Justice is preparing what looks like a sweeping case against the company, which could end up curbing some of Google's expansion plans. Apple, too, has faced some antitrust rumblings, while Facebook risks getting smacked down for its caviler privacy practices.
Even with those threats, Techonomy's panelists agreed that it's hard to see any of the current big four losing its leadership spot. But they also acknowledged that predicting the future of tech is a fool's game.
A decade ago, Mark Zuckerberg hadn't yet dreamed up a little venture called Facebook.
Samsung had already filed claims against earlier iPhones and iPads.
It coincides with calls from a judge for "major reforms" to US patent law.
Judge Richard Posner, who previously oversaw a legal dispute involving Apple and Google's Motorola unit, said that protection available to software patents was "excessive".
Patent wars
Samsung's legal move is the latest in a long running battle with Apple.
The US firm has claimed that the Galaxy device maker copied the look and iOS system software found on its tablets and handsets.
Although several of Apple's claims have been rejected, it recently scored a major victory when a California-based jury ruled Samsung should pay it over $1bn (£620m) in damages.
Samsung has had its own courtroom successes, including a ruling in August that Apple had infringed two of its wireless communication patents in South Korea. It resulted in an order for the iPhone maker to pay 40m won ($35,000; £22,000) in damages.
The US lawsuit involving the iPhone 5 dates back to April when a complaint about other devices was filed in the Northern District of California. The case is due to go to trial in March 2014.
It involves two so-called Frand patents - technologies Samsung has an obligation to licence on "fair, reasonable and non-discriminatory" terms because they are recognised as being essential to data transmission standards. In other words, if Apple agrees to pay what is deemed to be a fair rate then Samsung will be obliged to let it use the technologies.
Apple is trying to ban several Samsung handsets from sale in the US
The other six disputed innovations are feature patents, and in theory Samsung could force Apple's products off the shelves if it does not remove the functions from the devices.
Patent consultant Florian Mueller listed details of the disputed patents on his blog earlier this year, noting that Samsung owned about 30,000 US patents in total. Several of these include 4G LTE technologies which the Seoul-based company has hinted could be the basis of further lawsuits.
'Excessive protection'
HTC, Motorola, Microsoft, RIM and other tech firms are also involved in ongoing US lawsuits.
Legal experts have expressed concern at some of the tactics being used, including Judge Richard Posner who threw out a case involving Motorola and Apple in June, rebuking both firms.
"Nowadays most software innovation is incremental, created by teams of software engineers at modest cost, and also ephemeral - most software innovations are quickly superseded," he wrote.
"Software innovation tends to be piecemeal - not entire devices, but components, so that a software device (a cellphone, a tablet, a laptop, etc) may have tens of thousands of separate components (bits of software code or bits of hardware), each one arguably patentable.
Unlike most US judges, Richard Posner maintains a blog where he discusses the law
"The result is huge patent thickets, creating rich opportunities for trying to hamstring competitors by suing for infringement - and also for infringing, and then challenging the validity of the patent when the patentee sues you."
The judge said that 20-year-long patent protection made sense for pharmaceutical drugs which require development costs running to hundreds of millions of dollars, need extensive testing and subsequently remain on the market for decades.
He said such factors did not apply to software, adding that a firm that invented a new technology would benefit from being the first to use it and would also gain a reputation for innovation.
"My general sense... bolstered by an extensive academic literature, is that patent protection is on the whole excessive and that major reforms are necessary," he wrote.
The tech news site Ars Technica, which was first to report the blog, noted that Judge Posner did not have the power to shape US patent policy, but added that his views were likely to be discussed by
Apple has asked a court to ban eight Samsung mobile phones in the US.
The phones include the Galaxy S 4G, Galaxy S2 AT&T model, Galaxy S2 Skyrocket, Galaxy S2 T-Mobile model, Galaxy S2 Epic 4G, Galaxy S Showcase, Droid Charge and Galaxy Prevail.
It comes in the wake of Apple's US court victory over its rival, which saw the South Korean company ordered to pay $1.05bn (£655m) for copying patents.
Apple shares rose 1.88% to $675.68 in Monday trading on Wall Street.
The company has asked the US District Court in San Jose, California, for a preliminary injunction on the Samsung products, while a permanent injunction is sought.
At the same time, Samsung has also asked the court to delete an injunction on its Galaxy Tab 10.1, after the jury in the recent court case found it did not infringe Apple's design patent for the iPad tablet.
Judge Lucy Koh had issued an injunction on the tablet on 26 June.
Earlier on Monday, Samsung sent a memo to staff hitting out at what it called the "abuse of patent law".
Shares in Samsung fell 7% in Seoul trading, their biggest one-day fall in almost four years.
On 24 August, a US court ruled that Samsung had infringed Apple patents for mobile devices in one of the most significant rulings in a global intellectual property battle.
Samsung said it would be appealing against the verdict.
"We initially proposed to negotiate with Apple instead of going to court, as they had been one of our most important customers," the company saidits memo to staff.
"However, Apple pressed on with a lawsuit, and we have had little choice but to counter sue, so that we can protect our company."
It said that the US court's verdict contrasted "starkly" with decisions made in other countries, including the UK, the Netherlands and Germany.
"History has shown there has yet to be a company that has won the hearts and minds of consumers and achieved continuous growth, when its primary means to competition has been the outright abuse of patent law, not the pursuit of innovation," the memo said.
"We trust that the consumers and the market will side with those who prioritise innovation over litigation, and we will prove this beyond doubt."
Sales worries
Analysts said investors were worried that the ruling could see certain products taken off the market.
Frost and Sullivan says investors are worried the verdict could undermine the Android technology used in smartphones
"An adjustment in the next few days is unavoidable as the damage amount was much bigger than market expectations, and there are further uncertainties, such as the possibility of a sales ban," said John Park, from Daishin Securities.
In a separate move, the giant chipmaker ASML said Samsung would be investing $975m in its research programme into next-generation chipmaking technology and in buying a 3% share in the company.
Intel Corp and TSMC have both recently signed similar investment deals into the co-investment programme, whose aim is to tie in ASML's customers and develop new technology designed to lead to cheaper products.
Jury ruling
A nine-member jury in San Jose, California ruled on 24 August that Samsung had infringed Apple patents for mobile devices.
It was the the most closely-watched of many similar patent disputes being contested in courts around the world between electronics manufacturers.
In recent weeks, a court in South Korea ruled that both Apple and Samsung had copied each other, while a British court dismissed claims by the American company that Samsung had infringed its copyrights.
By the time Samsung's lawsuit is heard in court the iPhone 5 will have likely been superseded
Apple is trying to ban several Samsung handsets from sale in the US
Unlike most US judges, Richard Posner maintains a blog where he discusses the law
