JimPinto.com - Connections for Growth & Success™
No. 144 : 14 February 2004

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

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Invensys's "defining moment" - expensive re-financing

There are those who wonder why I keep harping on Invensys. It's because the tale takes new twists and turns with amazing rapidity. There is new news almost every day, unmatched by any of the dull and dreary machinations of automation companies anywhere. It's almost funny - if it wasn't so disappointing for shareholders, and agonizing for the Invensys employees.

This past week, Invensys CEO Rick Haythornthwaite admitted that he had been struggling to impose financial and operational controls, and the company was near to financial collapse. It faced repaying a $500m (£273m) banking facility this year and £800m in 2005, plus a pension fund deficit of £600m. Facing a June default deadline, Haythornthwaite happily announced a re-financing of all the companies debt - leaving the banks laughing all the way to the, uh, bank.

Haythornthwaite announced a £2.7 billion refinancing package which includes £450m of fresh equity, a £625m high-yield bond and a £1.6b 5-year credit facility. Appliance and Climate Controls will be "re-absorbed" into the Group, and only Lambda, Hansen, APV Baker and Powerware (total worth £250m) will still be sold. There was no mention about how and when the pension liabilities will be funded.

In a letter to employees titled "The Defining Moment", "Slick Rick" blithely suggested that Invensys could now "put the difficulties of the past behind, and start to plan for a more certain future." He then announced the removal of Leo Quinn, and initiated a search for a new COO who would insert financial and operating controls. Evidently, he hadn't been doing that.

The news emerged that the financial deal was sweet primarily for the investment bankers, lawyers and other advisers who will earn up to £108m for "arranging" the refinancing package. It turns out that this is one of the biggest fee bonanzas in the City of London. The fees from this transaction alone are equivalent to 12% of Invensys's market value, and more than the total received from selling Baan.

Deutsche Bank, the lead underwriter, gets £50m-£60m, the largest chunk. Morgan Stanley, the financial adviser, takes most of the £10m-£12m "corporate finance advisory fees". Morgan Stanley, Cazenove and Deutsche take most of the underwriting £20m-£25m in fees. Once the bankers are paid, large checks will go to the lawyers, accountants and public relations advisers. Reminder: all this gets paid out first, in cash, out of the proceeds of the new financing.

In an amusing editorial entitled "Sliced Bread best thing since Invensys?" (see weblink below) the bankers, lawyers and accountants were described as laughing over the Invensys deal, as they carved up the magnificent fees between them. The best joke of the whole price-gouging exercise was the assertion from Happy Haythornthwaite that 4% of the total was "about average" for this kind of deal. A press release inadvertently revealed that the bankersí code word for Invensys was "Bread plc". Of course, the long-suffering employees and shareholders of Invensys, BTR and Siebe did not find that funny.

Having demonstrated his naivetť, Rick Haythornthwaite brazenly paved the way for his own departure. He said, with a straight face, "I'm in for the medium haul. I don't want to be a lifer. I will get Invensys back on its feet and make sure I've got a successor in place." This translates to, "I'm out of here as soon as it doesn't look too bad." ,p. Of course, now Heavyweight Haythornthwaite can craft his resume to describe how he saved Invensys from the jaws of death. There must be some companies and boards out there who will blithely hire him as their new savior. They're probably members of the same club that took up with Allen Yurko, who initiated the Invensys debacle. And those same simpletons have probably welcomed Lord Marshall, the daddy of the entire Invensys disaster, to sit on a Board or two.

Meantime, the employees of Invensys anxiously await the new COO (CEO as soon as Haythornthwaite exits) who will implement the "financial and operating controls" that Haythornthwaite couldn't handle. The Invensys weblog has a long list of "vice presidents, bean counters, managing directors, general managers, sales directors" that are recommended as the first to go.

Upon news of the "defining moment", the sounds of happy hurrahs burst through from the employees of Appliance and Climate Controls, once again blithely basking in bountiful bosom of Invensys. Hurrahs? Oh, come on - I've got to end this on a funny note....

Click UK Guardian - Invensys chief hails rescue deal

Click Hoover's Online - Sliced Bread best thing since Invensys?

Click UK Independent - Two years, three plans, £2.7bn needed

Click UK Independent - New chief for Invensys as full woes emerge

Click Invensys weblog - latest news and views

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The new face of the silicon age

Lots of interesting stuff in the February 2004 issue of WIRED. The cover shows a mysterious, artistic Indian face and that lead story is summarized here, with my own editorial extensions.

1 in 10 US technology jobs will go overseas by the end of 2004. There are stories of US programmers on unemployment, pumping gas, declaring bankruptcy. They were laid off because they can't compete with people who work for one-sixth of their wages. ,p. In the next 15 years, more than 3 million US white-collar jobs, representing $136 billion in wages, will move to places like India, with software leading the migration.

Current top 5 US Employers in India
US Company Employees in India
General Electric 17,800
Hewlett-Packard 11,000
IBM 6,000
American Express 4,000
Dell 3,800

Many Indian software companies proudly announce that they have a Capability Maturity Model Level 5 rating from Carnegie Mellon's Software Eng. Institute - the highest international standard a software company can achieve. Only about 70 companies in the world have earned this, and 50% of those are from India. This proves, say the Indians, that most Indian software is not just cheaper, but better.

I dug into this interesting point. My own view is that the CMM Software certification (something like ISO 9001) was developed specifically to fill a need, which the Indian companies flocked to attain. Many other large software companies in the US and Europe have not felt it necessary to get this certification. That is why Indian companies represent such a high fraction.

Indians point out that Americans have long enjoyed the fruits of dynamic capitalism, and must now get used to the concept that free enterprise, innovation and diligence works for non-Americans too. They feel that Americans are being hypocritical by whining about it.

This situation brings a 20-year deja vu - two decades ago, the threat was Japanese autoworkers. The predictions were equally alarmist then - the "hollowing out" of America. And there were the same calls for trade sanctions, and "Buy America" campaigns.

A century ago, 40% of Americans worked on farms. Today, farming employs only about 3%. But US agriculture still out-produces all but 2 countries. Fifty years ago, most of the US labor force worked in factories. Today, only about 14% is in manufacturing. But the US manufacturing economy is still the largest in the world - about $1.9 trillion in 2002.

We've seen this scenario before - always with a happy ending. The only difference this time is that it is software instead of steel. Accountants, financial analysts, and other number crunching jobs are next. Because, to export sneakers or sweatshirts, companies need an intercontinental supply chain. To export software or spreadsheets, all you need is the Internet.

What makes this latest upheaval so disorienting for Americans is its speed. Agriculture jobs provided good livelihoods for 80 years before the rules changed, and working in the factory became the norm. Factory jobs lasted about 40 years before the twin pressures of overseas competition and laborsaving automation rewrote the rules again.

Software jobs - the type of knowledge work that was supposed to be the future - are facing the same sort of realignment after only about 20 years. The upheaval is occurring fast. Not across generations, but within individual careers. The rules are being rewritten while people are still playing the game. And that's why it seems so unfair.

Therein lies the opportunity for Americans. It's inevitable that some things will be done overseas. But that still leaves plenty to do. The US must exercise its vast educational systems and infrastructure to innovate, invent, develop, market and sell.

In the US over the next few years, it seems clear that the white-collar jobs with any lasting potential won't be classically high tech. Instead, they'll be high concept and high touch.

Click Wired - The New Face of the Silicon Age

Click Job shift creates India tech boom

Click Jim Pinto - Exporting jobs to stay competitive

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Living Machines - Dick Morley's "Beast on Wheels"

The same Wired issue, February 2004, had an exciting series of articles on "Living Machines" (some of this summarized here). This section included Dick Morley's discussion of the future automobile - a "beast on wheels". Too see the beautiful picture, you'll need to buy the magazine.

Technology and biology are converging fast, transforming everything, redefining life as we know it. Through scientific advances the non-living world is becoming very much alive. Everything around us is starting to have a lot in common with plants and animals. Life isn't the exception, but the rule.

It turns out that many of life's properties - emergent behavior, self-organization, reproduction, co-evolution - can also be observed in nonliving systems. These life properties are already being built into real-world devices. The line between organisms and machines is beginning to blur.

A car takes less care and feeding than any beast of burden, but it's got drawbacks. It doesn't adjust to wet roads or rough terrain. It doesn't repair itself when it's worn or damaged. It makes little effort to protect itself from catastrophe.

Artificial Intelligence makes machines more responsive to their environments. But, AI programs devices to react to specific events, creating machines that cannot cope with unexpected circumstances. Complexity theory brings a different perspective. If a car was designed like a living thing, it would act more like a living thing.

Such a car would have organs (low-powered chips) governed by a small number of rules. The steering column wouldn't physically connect to the wheels; each wheel would be independent, with its own software agents for steering, braking, and suspension. The nervous system connecting these agents would be wireless, automated, and fully electric, with solenoids and servos rather than gears, levers, and hydraulics. Sensory organs would be embedded in the vehicle's skin from bumper to bumper. The latest designs would feed a constant stream of real-world performance data into digital models that would self-evolve into a blueprint for newer models.

All this aligns nicely with the evolutionary path automobiles have taken so far. They're already filled with sensors, processors, and firmware. Vehicles outfitted with GM's OnStar's wireless information service are networked. And GM is actively developing all-electric, drive-by-wire designs. The market may not be ready for a car with a mind of its own, but many experts in applied complexity agree that the plastic-and-steel beast of burden could be "alive" within less than a decade.

Click Dick Morley - Beast on Wheels

Click WIRED - Living Machines

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Pinto editorial - on Democracy

I enjoyed following the recent Iowa democratic caucus process - people discussing and negotiating with each other about who should be the Democratic presidential candidate. The candidate I favored did not win, but I understand and appreciate how the process moved swiftly and smoothly. It was true democracy in action!

There were no Republican caucuses, because Republicans everywhere are supposed to unite behind the current President. But, I wonder what those Republicans do who disagree with the current policies, who are jobless, who have lost family members in the war that they never supported. Because they are Republicans, do they simply wait for the General Election to vote for a new President?

In the age of instant communications - Internet, email, the omnipresent media - how relevant is the current schedule of voting in the US? When a President screws up, what are people supposed to do? There are legislative processes, like impeachment - but these are strictly partisan and ineffective. So, do we simply wait four years to elect a new President?

But then, in new elections, the current President has the advantage. The power of his office, and that of his Administration and his political party, is unleashed mercilessly against any opposition. Everything done in election year is brazenly orchestrated to improve the incumbents election chances.

The President can choose to make headlines at any time, on any topic he chooses - manned missions to Mars, raising terror-alert levels, WMD in the hands of the "axis of evil", doggedly supporting a war that never stops. Loyal party members applaud, and any criticism is promptly dismissed as "partisan politics". And the President hogs the headlines. Except, of course, when Janet Jackson has a wardrobe malfunction during the Super bowl.

Hey - you're right! I don't like George W. Bush! So, do you want to shout me down, tell me I'm not suppose to express my opinion, demand that I get back to writing about automation instead? Why? Because I can't be an engineer AND have a political opinion? Or, because you don't want to hear anyone else's opinion anyway?

Suppose in the meantime George W. Bush launches simultaneous pre-emptive strikes on Iran, Syria and N. Korea? Suppose he decides to spend another $87 billion on another war? Suppose he decides to have another taxcut? Suppose he decides that the deficit should be $1 trillion, instead of the current all-time-record $ 500 billion? Suppose he launches new $100 million advertising campaigns for new constitutional amendments?

So, what am I supposed to do? Wait patiently to vote in the next election? That's more than 9 months away - if someone got pregnant this week, the baby would be born before election day!

You know what? You're right. All I can do now is to exercise democracy in all the personal caucuses I can muster, express my opinion to those who wish to listen, listen to those who wish to express their views, and then make up my mind - and VOTE!

In the last election, only 50% of eligible voters voted. So, let me urge you this year. Make your choices - and VOTE!

Click Democracy timeline

Click Core documents of US democracy

Click New-age connected democracy - the second superpower

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Valentine's Day - Symbols of Love

My deadline for this issue was February 14, Valentine's Day. In any case it'll be the weekend and many of you may not receive this until a few days later. But, February is still Valentine's month, and I thought you'd enjoy my latest article - not about automation, not about technology trends, not social or political commentary. It's about "The Symbols of Love".

Most of us are addicted to Love. And those who are not addicted, or have fallen out of love for whatever reason, seem to wish they were still afflicted and long to get back into it.

Chemical, biological, emotional or God-gifted, love is supposed to conquer all. And Valentine's Day is our admission that we're all just a bunch of love junkies.

In February each year, the opportunity (or obligation) to send Valentine cards comes around. Itís supposed to be a tradition dating back to the third century. In this fast-changing world, everything seems temporary. Perhaps thatís why so many people seem to want to follow old traditions.

Hey, I'm a cheapskate. After composing my own little love poem and printing it out with some clipart on my computer, I'm off to Wal-Mart to buy my wife a jar of jellybeans. It helps to keep our romance going.

Click Jim Pinto - Symbols of Love

Click Feb. 2003 Valentine article - The puzzle of Love

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Richard C. Wargo [mailto:rwargo@specllc.com] has some good insights on voting, voter rolls and political parties:
    "The current system (county officials keeping voter records) doesn't work. Ever hear of Cook County, Illinois? There, the dead vote regularly and often. I don't see where the changes (the Help America Vote Act) will really alter the reality. Perhaps there is a way of insuring that only eligible people get to vote and that voting is conducted honestly. But, I don't know of any. Any voting process that includes people will NEVER be untainted.

    "To me, political parties are the most insidious threat to democracy. If you are a party member, you are not allowed to decide for yourself, you have to do what the party "leadership" decides. Jumping to Mathieu van den Bergh's comments (eNews 8 Jan. 2004) on the number of political parties in the Netherlands and the continuing splintering of political parties in Europe: Good! The best size for a political party is one - namely, let each individual vote!

    "American elections are like female mud-wrestling: dirty, slippery, and lots of fun to watch."

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Mitch Carr [mailto:mitchcarr@msn.com] wonders why industrial automationhas the best talent, with the lowest pay and highest layoff record:
    "I left the industrial automation field about five years ago, to get into residential and commercial automation. During this time I have worked with some of the biggest companies in the world (Cisco, Intel, IBM and Microsoft) on some of the most forward thinking projects. Nowhere have I met the level of intellect that is present in the industrial and process controls sector. I have met highly paid CEOs, CTOs, etc. from some very large companies, but the level of expertise was just not there. Yes, there are exceptions - I have met some pools of talent that were superb. But overall, the level of technical superiority just isn't there, compared to industrial and process automation.

    "It is a shame that the best talent, the groundbreaking work, the technical superiority is in the field that is suffering the most with the highest cutbacks, the slimmest of margins and lowest of salaries. Perhaps it is because Automation is not a glamorous industry. We don't make the Internet faster, or the sub-woofer louder. We make machines work. We make turkey bags from 11 layers of plastic film so people don't get sick from spoiled food. We make bolts stronger so airplane engines don't fall off. We make drugs that cure diseases. We make the cheapest gasoline in the world. And yet we earn some of the lowest salaries.

    "Consumers drive prices down, which drives costs down, which drives overheads down, which drives salaries and benefits down. To me, joblessness means that some of our smartest and most talented people are sitting at home watching soap operas. I know talented project managers who are now selling real estate. My neighbor used to build sophisticated head-end servers - and he is now selling custom doors at Home Depot."

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Bob Fritz [rfritz@avtron.com] on safe, nuclear energy:
    "Good to see you advocating nuclear as a path to energy independence. If they would let the engineers be in charge of the problems, instead of lawyers and politicians, a lot of problems would be solved, including energy."

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