Google’s Chrome Could Reshape PC Experience

Google Inc’s closely watched foray into computer operating systems could speed the development of a new class of cheaper laptops and dramatically advance the netbook paradigm of Web-based computing. Computers running Google’s less-demanding Chrome OS should be even leaner, simpler and more inexpensive than the already no-frills netbooks that have flooded the market in past years. In a sign of things to come, some analysts have begun using terms such as “thin client” and “Web appliance” to describe Chrome PCs, likely a year away from store shelves. Still, whether consumers will grasp and be comfortable with Chrome laptops is the big question. But if they gain traction — likely on second PCs and on portable “tablet” computing devices — they could change the way people use computers. “A lot of stars have to align to make this product really successful, but it’s possible,” said IDC analyst Richard Shim.”For folks to get it, it would have to be inexpensive to attract attention, and usage-specific for consumers to understand it.”

Google recently gave the press its first peek at Chrome, which it will offer for free to challenge Microsoft Corp, whose Windows runs on nine out of 10 computers.

 

Chrome is being designed for speed and ease, and will boast super-fast boot times. It is a browser-based system that runs only Web applications, instead of those installed on the PC. It will not support hard drives. On a Chrome platform, data is primarily stashed online, though some will be stored on the PC via flash memory. That means Web access is a must and widely used programs such as Apple’s iTunes or Microsoft Word in their current form won’t work on Chrome PCs. “Where Chrome OS is interesting is in secondary PCs,” said Gordon Haff, an analyst with Illuminata said last week. “Over time as networks get better, get ubiquitous, get faster, more and more things can be accessed through a browser.” Though it’s too early to say for certain, the cheaper class of laptops might spur yet more price-based competition for an industry struggling to prop up margins in many major markets. Haff estimated a Chrome device would cost substantially less than some current netbook models, after eliminating the cost for Windows and a hard drive. Many netbooks are currently priced in the $300-$400 range.

 

No one is claiming that Chrome is for everyone, but Google argues that because consumers mainly use their PCs for Internet tasks, their software should be rooted in the Web. “Is that a new paradigm? I think it is,” said ABI research analyst Jeff Orr. “It’s pretty much changing the way people use their machine.”

Orr said markets like Western Europe, where netbooks first caught on and which has good broadband connectivity, should be more receptive to Chrome PCs.

 

“The first step is going to be awareness, letting people know that this is an experience that will be different… Beyond that it’s going to be more of a function of building trust.” Google has said it was working with PC vendors including Hewlett-Packard and Acer, and chipmakers such as Texas Instruments and Qualcomm to build Chrome devices. Upward of 30 million netbooks are expected to be sold this year in a category that didn’t exist a few years ago. With low-power processors and limited memory, the devices are mainly good for simple tasks such as Web browsing and email. The vast majority of netbooks run Windows and feature Intel chips, and many have sizeable hard drives. Linux-based systems are available on netbooks, but analysts say consumers have been reluctant to use Windows alternatives. Chrome would certainly represent a change from the familiar Windows environment. It will look like a browser and run from the cloud (a network), where Web applications such as Google Docs and the photo-sharing site Flickr can replicate some of the things that locally installed programs do.

 

Google said Chrome will run on both Intel Corp’s x86 chip platform or ARM chips, which are the standard in smartphones but are starting to turn up in netbooks. Windows PC operating systems don’t currently work on ARM chips, so Chrome could provide a boost to the fledgling ARM netbook category, analysts say. A product that just hit the market provides a glimpse at what a Chrome PC might look like. Boston-based start-up Litl has released what it calls a “Webbook,” a simple laptop with limited storage. The product has generated buzz, but its $699 price tag makes it relatively expensive.

The Litl operating system is focused on the browser. Users keep their content organized on a series of cards.

 

“We decided to do a fresh take on what a computer would be like if it was totally for and of the Web,” Litl founder and Chief Executive John Chuang said in an interview last month.

Bank of America to repay TARP money

Bank of America (BAC) said this afternoon that it plans to repay all of the $45 billion received from the government in last fall’s financial crisis some time before the end of the year.

 

The repayment would be made using resources the banking giant already has and envisions the sale of $18.8 billion in new securities and stock. Many analysts believe the move will help the bank recruit a new chief executive to replace Ken Lewis, who plans to retire at the end of the year.

 

It will remove the compensation constraints imposed by the government on financial institutions that needed government aid to survive the 2008 panic. It will certainly help the candidacy of Greg Curl, the company’s chief risk officer, who developed the plan. He is widely believed to be the strongest internal candidate for Lewis’ job and may be the interim CEO after Lewis leaves.

 

The $45 billion was received under the government’s Troubled Asset Recovery Program, or TARP. About $25 billion was forwarded to Bank of America in October. The remaining $20 billion was extended in January as part of a package designed to help the company complete its controversial acquisition of brokerage giant Merrill Lynch. The package also included a guarantee of $118 billion in assets as well as warrants to buy additional shares. The government will have to sell those warrants.

 
 

The TARP repayment means that Bank of America’s fourth-quarter net income will be reduced by $4.1 billion — the difference between the book value of the preferred shares and the amount it will pay to get them back. At the same time, the banking giant will save $3.6 billion a year in dividend payments to the government.

Investors were initially skeptical of the news, first reported on CNBC, sending Bank of America shares down as much as 4% after hours. But the shares later rose to $15.99, up 2.2% from the close, which may help stocks open higher on Thursday. Bank of America had dropped 1.5% to $15.65 in regular trading. Repaying the so-called TARP money means buying back three series of preferred shares issued to the Treasury Department.

 

The bank plans to use $26.2 billion in excess liquidity to fund part of the repurchase. About $4 billion will come from asset sales. An additional $1.7 billion will come from issuing restricted stock under incentive compensation plans. But the big part of the plan involves the issuance of $18.8 billion in new “common equivalent securities.” The company envisions asking shareholder to approve a proposal to let it convert the securities to common shares within 105 days of their issuance.

 

Many financial institutions that took TARP money last year scrambled as quickly as possible to get it off their books. The managements have objected to government restrictions on compensation and other activities. They’ve complained that talent and business are being drained away by competitors.

 

On the other hand, as Bank of America’s Lewis implied in the company’s news release, without the assistance, many institutions might have simply failed in the financial panic. “We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets,” his statement said.

 
 

Bank of America’s vulnerabilities came from heavy exposure to the crashing real estate market. Merrill Lynch had problems that were so bad that the bank considered trying to walk away from the merger. Bank of America shares had plunged to a closing low of $3.14 in March before the stock market recovery set in. The shares have risen 398% since then.

 
 

The deal would maintain Bank of America’s capital requirements within acceptable — and higher — bounds. Capital is what companies use to cushion blows from losses. Regulators allowed financial institutions were allowed to drop their capital earlier this decade, which made them vulnerable when the credit crunch erupted in 2008. With the extra $20 billion, Bank of America’s Tier 1 common equity ratio — a key measure of capital — could rise to 8.5%, up from 7.25% in the third quarter.

 
 

At 8.5%, B of A would have more than twice the minimum Tier 1 common equity required by the government stress tests in May.  

By hoisting capital levels, the government reduces the risk it will have to step back in and support large banks, which would only spook markets again.