As China handset makers upgrade chips, pressure remains on profit margins

Chinese mobile phone makers chasing market share with lower prices in the world's biggest smartphone market will see their margins continue to be pressured as they upgrade to quad-core chips to satisfy demand from users for faster speeds and flashier graphics.
Most smartphones now are equipped with single and dual-core chips, but Chinese handset makers are planning quad-core powered devices as consumers get more picky with the speed of screen swipes, how fast they can download movies, send a photo via WeChat messaging or seal a purchase on Taobao online mall.
"The Chinese handset vendors have now extended their reach and low-price strategy to the quad-core phone segment," Lisa Soh, an analyst with Macquarie, said in a report. "This hurts the hope that the Chinese handset makers can improve margins through moving up product segments."
Already, Huawei Technologies Co Ltd, ZTE Corp, Lenovo Group Ltd and Xiaomi Technology, have unveiled quad-core smartphones running on Google Inc's Android operating system. They are using chips mainly from Samsung, Qualcomm and Nvidia.
Industry executives expect more quad-core models next year as chipmakers such as Qualcomm and Mediatek introduce processors customized with Chinese applications that will make it easier, quicker and cheaper for handset makers to launch new products.
U.S.-based Qualcomm Inc and Taiwan's Mediatek Inc have unveiled the high-end chips with designs that will help Chinese mobile phone makers launch smartphones in a shorter time at lower costs.
On Wednesday, Mediatek, Taiwan's biggest chip designer that sells more than 80 percent of its mobile phone processors to Chinese vendors, launched its quad-core chip and expects its partners to unveil handsets early next year, executives said.
Smartphone sales are booming in China, which has more than 1 billion subscribers. Sales will grow to 165-170 million units this year from 78 million a year earlier, research firm Gartner said, helped by the proliferation of Internet use.
Currently, Samsung is the top smartphone brand in China, but Chinese vendors are fast gaining traction. China's Lenovo, Coolpad and Huawei are now ranked No. 2, 3 and 5 respectively in the Chinese smartphone market, IDC said.
"The only gap between the smartphone versus the consumer in emerging countries is the price," said David Ku, CFO of Mediatek, which expects to ship more than 110 million smartphone chips this year.
Jeff Lorbeck, senior vice president for Qualcomm's product management told Reuters this month that it was likely that some of the quad-core powered smartphones could sell below 1,000 yuan ($160).
"I like to use my phone to buy things online, update my status on Renren (a social networking site) and read what friends are up to on weibo microblogs," said Liu Liang, a 24-year-old financial executive who lives in Beijing and uses a quad-core Samsung Galaxy Note II.
"I haven't bought a Chinese smartphone. But if my friends start recommending me good models and Chinese smartphones step up in their branding, I'll definitely consider one."

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Mother loses legal fight to stop son's cancer radiotherapy

LONDON (Reuters) - A mother in Britain, who was so desperate to stop her cancer-stricken son having to undergo conventional medical treatment that she went into hiding with him, lost a court battle on Friday to prevent him receiving radiotherapy.
The case of Sally Roberts, 37, a New Zealander living in Brighton, southern England, and the plight of her seven-year-old son has made headlines in Britain.
Roberts wants to try alternative treatments first, including immunotherapy and photodynamic therapy for her son Neon. She has been told the boy needs treatment fast but fears the side-effects of conventional medicine.
Doctors treating the boy had warned that without radiotherapy he could die within three months
Judge David Bodey told the High Court in London the life-saving radiotherapy treatment could start against the mother's wishes, the Press Association reported.
"The mother has been through a terrible time. This sort of thing is every parent's nightmare," the judge said.
"But I am worried that her judgment has gone awry on the question of the seriousness of the threat which Neon faces."
The story of the sick blue-eyed blonde boy came to public attention earlier this month when Roberts prompted a nationwide police hunt by going into hiding with Neon for four days to stop him from undergoing the treatment.
The mother's relentless battle in court also cast a light on the dilemmas parents can face when dealing with the illness of a loved one, considering the short-term and long-term risks of a treatment and handling conflicting medical information available at the click of a mouse.
Roberts said in court she had researched on the Internet her son's condition - a fast-growing, high-grade brain tumour called medulloblastoma - and sought advice from specialists around the world because she did not trust British experts.
She feared radiotherapy would stunt the boy's growth, reduce his IQ, damage his thyroid and potentially leave him infertile.
Earlier this week, a judge ruled that Neon could undergo emergency surgery to remove a tumour which had resisted an initial operation in October, despite opposition from his mother, who found he appeared to be recovering after what she said was a "heartbreaking" stay in hospital.
"EXPERIMENTAL AND UNPROVEN"
Surgeons said Neon's operation on Wednesday had been successful but that radiotherapy was needed to ensure no residual tumour was left behind.
Neon's father Ben, who lives in London and is separated from Roberts, has sided with his son's doctors.
But his wife suggested exploring several alternative treatments, including immunotherapy, which mainly consists of stimulating the body's immune system to fight cancerous cells, and photodynamic therapy, which uses a photosensitizing agent and a source of light to kill malignant cells.
The hospital treating Neon slammed "experimental and unproven" methods which entered "unchartered territory". The hospital, which cannot be named, also questioned the credentials of some of the private specialists contacted by Roberts's team.
The court heard that at least one of these could not even correctly spell medulloblastoma.
Radiotherapy is used to prevent cancer from spreading or striking back after surgery but it can damage nerve tissue and healthy brain cells.
Long-term side effects tend to be more common in children, whose nervous systems are still developing.

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Instant View - Third quarter GDP revised down, public finances worsen

LONDON (Reuters) - The Office for National Statistics released revised third-quarter GDP figures and November public sector finances data on Friday.
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KEY POINTS
- Biggest quarterly increase in GDP since Q3 2007
- Biggest quarterly increase in industrial output since Q2 2010
- Biggest quarterly increase in services output since Q3 2007
- Biggest quarterly increase in gross operating surplus of corporations since Q3 2010
- Highest household savings ratio since Q3 2009
- Highest level on record of public sector net debt excluding financial sector interventions as a share of GDP, at 68.5 percent
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ECONOMISTS' VIEWS
HOWARD ARCHER, IHS GLOBAL INSIGHT
"The modest revisions to the GDP data do not fundamentally change the story of an economy that is likely to have been essentially flat overall in 2012, with the quarterly performances distorted since the second quarter by a number of factors, notably including the Queen's Diamond Jubilee and the Olympics.
"It currently looks touch and go as to whether the economy can avoid renewed contraction in the fourth quarter as it faces the unwinding of the Olympics boost.
"News that service sector output only edged up 0.1 percent month-on-month in October reinforces (the) belief that the economy is having a difficult fourth quarter, but at least services output was marginally positive and that gives a small boost to hopes that the economy will avoid renewed contraction.
"While it really makes little difference whether the economy grows marginally in the fourth quarter, is flat or contracts marginally, it would be good for confidence if the economy could avoid a GDP decline and avert headlines of a 'triple dip'.
"With economic recovery likely to remain fragile and limited, we believe there is still a very real possibility that the Bank of England will ultimately decide to give the economy a further helping hand with a final 50 billion pounds of QE (quantitative easing)during the first half of 2013. However, this seems unlikely to happen before the second quarter, if at all."
ROSS WALKER, RBS
"We had 0.9, it looked quite a close call between 0.9 and 1.0. But, with the monthly industrial production numbers showing small downward revisions, we thought it would probably be trimmed. I suppose the Q3 number reinforces the weakness.
"The more significant figure is the October services sector output number. This is the first official estimate we have for any Q4 month. It is not a great number but it is positive and it is better than the decline that had been expected.
"On the basis of all the published data it looks like the fourth quarter will be broadly flat, rather than negative - based on the published data.
"I think the Bank of England's policy is on hold in terms of QE, probably the focus is more on the Funding for Lending Scheme.
"They could easily come back to it, but I think it is probably a second half of next year story once Mr Carney is in place, and his nine member committee. You could get a slight change in emphasis or focus when he comes in. We don't expect more QE, but if it comes it is a second half of next year story."
TOM VOSA, NATIONAL AUSTRALIA BANK
On GDP: "Not entirely surprised, that was our forecast. The partials that we'd had from retail sales, from industrial production, all pointed to this. To some degree this is old news and 0.9 or 1.0 percent doesn't really matter, it's still very strong growth."
On public finances: "It does make us wonder how the Chancellor is going to meet his borrowing targets when in reality borrowing tends to be running now a little bit above where we were last year.
"They must be hoping for a very big increase in revenues in January, which given the weakness of corporation tax and the reduction in financial sector pay I find very difficult."
PHILIP SHAW, INVESTEC
"There's a lot of data being released and there's no single overriding trend. We're not surprised to see GDP revised down a touch but what matters a lot more are prospects for the fourth quarter and because of last week's construction data, we're more optimistic that a decline will be avoided.
"Current account again, it's reassuring to see that there's been a narrowing of the deficit over the third quarter. Effectively, as earnings from direct investment have bounced back after two quarters of weakness. Nonetheless, one would still reach the conclusion that imbalances in the economy remain."
Public finances: "It's another month of disappointing deficit data and it's pretty clear now that barring unexpected positive developments, that the underlying deficit will widen this year, compared with 2011-12.
"We wouldn't say that the releases as a whole have that many implications for economic prospects.
"Although we suspect that the GDP figures will be a bit better than expected over the next quarter, perhaps next couple of quarters, it is clear that the underlying pace of growth will remain weak for some time to come.
"I think what's important here is whether the Bank of England's Funding for Lending Scheme has a positive effect on credit flows that the housing market picks up and that we see a sustained recovery in business investment as well."
DAVID TINSLEY, BNP PARIBAS
"The headline GDP figure is a shade disappointing, but 0.1 percentage point is not a big deal in the grand scheme of things. The fact that the service sector output rose in October is at least as important.
"It does suggest that, while some of the production data has been weak in the fourth quarter, the service sector momentum looks, at the outset of the quarter, to be holding up."
Public finances: "The data continue to show a worrying slippage against the government forecasts.
(To achieve the OBR forecasts) there has got to be either some improvement in the numbers or back revisions, or at the end of the financial year the under spends of government departments needs to be quite significant. All that we will see in due course but for now the figures still look like they are worse than OBR was expecting."
JAMES KNIGHTLEY, ING
"All in all, the UK appears to be ending 2012 not in particularly great shape and as such we suspect the Bank of England has more work to do with further policy stimulus likely in early 2013, especially if the worst fears over the U.S. fiscal cliff materialise."
Public finances: "For the financial year to date (2012/13), income tax revenues, corporation tax revenues and VAT revenues are all down on the same period for financial year 2011/12.
"This highlights the weak state of the UK economy and the fact that austerity measures are failing to generate the improvement in government finances that were hoped for.
"Government cash outlays are down as well, but this is purely down to lower interest costs resulting from the plunge in yields, helped by BoE purchases and the UK's relative safe haven status."
ALAN CLARKE, SCOTIABANK
"I actually think the monthly services (figure) was the most important one. That makes it all the more likely that the UK did not slip into a triple dip recession at the end of the year.
"The chances are that we could grow by 0.3 percent, maybe even more, because we had stonkingly good construction data and some growth in services, although clearly that could change in November and December.
"Notwithstanding the drop in industrial production, I think we probably grew. So it has been a great end to the year."
Public finances: "The public finances are going in the wrong direction. But we know that there is all sorts of jiggery pokery going on with the transfer of coupons by the ONS (Office for National Statistics), probably next month. So, it is very hard to read too much into that data."

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Budget deficit worsens, credit rating at risk

LONDON (Reuters) - Britain's budget deficit worsened in November, data showed on Friday, increasing the risk it will lose its top-notch credit rating and overshoot this year's borrowing forecast.
The data - which showed public sector net borrowing, excluding financial sector interventions, hit 17.5 billion pounds last month - is gloomy news for Britain's coalition government.
Deficit reduction and preserving Britain's credit rating have been top goals for the coalition of Conservatives and Lib Dems, which came to power in June 2010, just after the country's budget deficit peaked at 11.2 percent of GDP.
Last year, the budget deficit totalled 8 percent of GDP, and the government's own budget watchdog forecasts it will take until 2017 before it falls below 3 percent and the government manages to run a surplus on cyclically-adjusted non-investment spending.
Chancellor George Osborne had originally planned to meet this goal by the next election in 2015, but far weaker than expected growth since 2010 now makes that look impossible.
While other official data released on Friday showed Britain's economy may avoid a forecast contraction in the last three months of 2012, analysts say the borrowing numbers could see the country's credit rating revised early next year.
"The disappointing November public finance data fuel mounting expectations that at least one of the credit rating agencies will strip the UK of its AAA rating in 2013," said Howard Archer, chief UK economist at IHS Global Insight.
Standard & Poor's last week joined Fitch and Moody's and put a negative outlook on its triple-A rating for Britain. The latter two agencies - which have had a negative outlook since early this year - will review their ratings in early 2013.
Last month's public sector net borrowing figure of 17.5 billion pounds exceeded economists' expectations. They had forecast it would come in just below the 16.3 billion pounds reached in November 2011.
Borrowing since the start of the tax year in April is now nearly 10 percent higher than at the same point in 2011.
This calls into question forecasts issued earlier this month by the government's budget watchdog which estimated borrowing will fall 11 percent to total 108.5 billion pounds in the 2012-13 tax year.
Some of the fall in borrowing forecast by the Office for Budget Responsibility (OBR) was due to money expected from the auction of next-generation mobile phone frequencies and a deal with the Bank of England to return interest paid on its bond holdings - cash that will not boot the public finances until early 2013.
But even disregarding this, some economists think Osborne, the finance minister, may struggle to hit the OBR's targets.
Archer expects an overshoot of some 14 billion pounds, while economists at Barclays see an overshoot of 6.5 billion pounds, assuming the radio spectrum auction brings in the 3.5 billion pounds pencilled in by the OBR.
WEAKER GROWTH
Britain's economy shrank for nine months between late 2011 and mid-2012, but revised figures from the Office for National Statistics showed on Friday that growth rebounded by 0.9 percent in the third quarter of 2012, a little less than the 1.0 percent first estimated.
There was slightly brighter news from Britain's dominant services sector, which grew 0.1 percent in October after a 0.6 percent decline in September.
This was better than many economists had expected, and raises the prospect that the economy will avoid a return to contraction that the OBR and the Bank of England have predicted.
"It's not a great number but it is positive," said Ross Walker, an economist at Royal Bank of Scotland. "On the basis of all the published data it looks like the fourth quarter will be broadly flat, rather than negative."
Another bright spot was third-quarter current account data, which showed Britain's deficit with the rest of the world narrowed more than expected to 12.8 billion pounds, equivalent to 3.3 percent of GDP, from 17.4 billion in the second quarter.
However, economic growth will need to translate into stronger tax revenues and lower spending on social benefits if the government is to meet its budget goals.
November's budget overshoot was driven by a 6.3 percent year-on-year rise in central government spending, while tax revenues grew just 0.6 percent.
The closure of a North Sea oil field earlier this year has done major damage to corporation tax revenues, but Barclays economist Blerina Uruci said she was more concerned about signs that spending by government departments was rising more than expected.
"It could suggest difficulties with delivering efficiency savings as austerity fatigue sets in," she said.
The OBR said it expected to see underspending by government departments towards the end of the fiscal year, as well as stronger future growth in income tax and sales tax revenues.
Business minister Vince Cable sought to play down worries about the state of public finances, saying more austerity than planned could tip the economy back into recession.
"The fact that there has been a temporary increase in borrowing I don't think is a matter for criticism," he told BBC radio. "The government ... have been flexible, just accepting that when the economy slows down you are going to get bigger deficits (and) the government has to borrow to cover them."
However, the Labour Party said Friday's data showed there had already been too much austerity.
"By squeezing families and businesses too hard, choking off the recovery and so pushing borrowing up, not down, (Prime Minister) David Cameron and George Osborne's economic plan has completely backfired," said Labour legislator Rachel Reeves.

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Stalin's birthday marked in Russia and beyond

TBILISI, Georgia (AP) — People across the vast territory where Josef Stalin once imposed his terror have marked the 133rd anniversary of the dictator's birth, some in hatred but others in reverence.
In Moscow, several hundred Russian Communists led by their leader Gennady Zuyganov laid flowers at Stalin's grave at the Red Square Friday, while smaller rallies were held across Russia and several former Soviet republics.
Leftists in neighboring Belarus said they found a Stalin statue that was buried after denunciation of his personality cult in 1956, but refused to specify its whereabouts because they fear authorities will order its destruction. Authorities in Stalin's hometown of Gori, Georgia, they will reinstall his statue that was removed in 2010.
In southern Ukraine, several ethnic Crimean Tatars trashed a small street exhibition on Stalin. The entire Crimean Tatar population of Ukraine was hastily deported in cattle trains on Stalin's orders in 1944 for their alleged collaboration with Nazi Germans during World War II. Of the 200,000 Crimean Tatars, almost a fifth died of starvation and diseases, and the survivors were allowed to return only in the late 1980s.
According to the prominent Russian right group Memorial, Stalin ordered the deaths of at least 724,000 people during the purges and repression of the 1930s, while millions died as a result of the forced labor system in Gulags, the Soviet prison system.
But, some people believe he was a strong and valiant leader whose grip on the nation was needed for security and his popularity in Russia has been climbing amid Kremlin-backed efforts to defend his image.

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Margaret Thatcher in hospital after operation

LONDON (Reuters) - Former British prime minister Margaret Thatcher, the country's first woman elective leader, is in hospital recovering from surgery to remove a growth on her bladder, a source close to the family said on Friday.
After experiencing pain in her bladder earlier in the week, he 87-year-old went to hospital where she underwent a minimally invasive operation, Tim Bell, a public relations executive who once served as image maker to Thatcher, said.
"The operation was completely satisfactory. She's now recovering in hospital and as soon as she's recovered she'll go home," Bell said.
Known as the "Iron Lady," Thatcher, who stepped down in 1990, embraced free market policies, challenged trade unions and privatised many state-owned companies during her 11 years in power, polarising British voters.
Britain's only woman prime minister, who led her country in a war with Argentina over the Falkland Islands in 1982 and was close to the late U.S. President Ronald Reagan, was forced to step down by her own party.
Thatcher suffered a series of mild strokes in late 2001 and 2002, after which she cut back on public appearances and later cancelled her speaking schedule.
She was hospitalised in 2010 for tests relating to a flu illness.

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Waiting on fiscal cliff compromise, stocks inch up

NEW YORK (AP) — The stock market ended higher Thursday after flipping between small gains and losses throughout the morning. Uncertainty about the "fiscal cliff," just days away, was top of mind for many traders.
The Republican-controlled House pushed ahead with a bill aimed at averting the "fiscal cliff," but President Barack Obama has threatened to veto it and Democratic leaders in the Senate vowed to let it die.
Many traders now expect that the Republicans and Democrats won't reach an agreement before Christmas. The political haggling kept markets muted, and trading volume was low.
"Every time someone makes a speech, you get another move in the market," said Ben Fischer, founder and managing director of NFJ Investment Group in Dallas. "Everyone's just tracking it on a very short-term basis."
The Dow Jones industrial average fell as much as 36 points before ending the day higher, rising 59.75 points to close at 13,311.72. Other indexes followed similar patterns. The Standard & Poor's 500 rose 7.88 to 1,443.69. The Nasdaq composite index rose 6.02 to 3,050.39.
In Washington, the Republicans offered in their "Plan B" to raise taxes on the wealthy, but Democrats complained that it would not address the steep budget cuts that are automatically set to occur for military and domestic agencies.
If the Republicans and Democrats don't work out a compromise before the end of the month, the U.S. could go over the "fiscal cliff," a reference to big tax increases and government spending cuts that would automatically kick in if no budget deal is in place. Some economists fear that would push the U.S. back into recession.
But even a successful compromise is no guarantee that the market will soar. The market already assumes that a budget compromise will be reached, Fischer and others said, evidenced by its more-or-less steady increase since mid-November.
A compromise "doesn't make everything better," said Tim Biggam, market strategist with the brokerage TradingBlock in Chicago. "It just stops things from getting worse."
Biggam predicted that the economy's growth next year will remain anemic. Problems that the headlines over budget impasse have pushed out of the public consciousness, like the European debt crisis, still need to be resolved, he said.
"All the fears that we were worried about not too long ago," he said, "have not gone away."
Also at the forefront for many traders was the news that NYSE Euronext, the parent of the New York Stock Exchange, planned to sell itself to IntercontinentalExchange, an upstart and lesser-known exchange operator based in Atlanta.
NYSE Euronext's stock surged $8.20 to $32.25. The boost at IntercontinentalExchange was much more modest, with the stock rising $1.79, or just more than 1 percent, to $130.10. That signals traders think the proposed deal could be more beneficial to NYSE Euronext than to its potential buyer.
Even without the complications of the budget negotiations, the U.S. economy has been difficult to read, a pattern that continued Thursday.
The government said the U.S. economy grew at an annual rate of 3.1 percent over the summer, higher than the previous estimate of 2.7 percent. But growth is likely to slow in the current quarter and early next year.
The government also reported that the number of Americans applying for unemployment benefits rose last week, a disappointment after four straight weeks of declines. The four-week moving average of jobless claims, a less volatile measurement, fell.
The yield on the 10-year Treasury note was unchanged at 1.80 percent. World markets were also mixed. Major stock indexes in Britain and Japan edged lower, while France and China rose.
A slate of companies reported earnings, with varied results:
—Darden Restaurants, the parent of Olive Garden and Red Lobster, fell $1.34 to $45.47 after the company reported sharply lower profits. New ad campaigns meant to attract younger customers haven't done as well as the company hoped.
—Rite Aid, the drugstore chain, soared 16 percent, rising 17 cents to $1.21, after the company reported its first quarterly profit since 2007. The pharmacies filled more prescriptions, and an influx of generic drugs helped profitability.
—Scholastic slipped 50 cents to $28.79 after reporting lower profit and revenue, with demand fading for its popular "Hunger Games" trilogy.
—CarMax shot up 9 percent, rising $3.13 to $37.97, after reporting higher profit and revenue. Sales of used cars helped push results higher.

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News Summary: NYSE plans a sale, Scholastic slips

A CHRISTMAS MIRACLE?: In Washington, hopes faded that Republicans and Democrats would work out a budget compromise before Christmas. If they don't reach a deal before the end of the month, higher taxes and government spending cuts will kick in.
A BIG DEAL: The parent of the New York Stock Exchange announced that it plans to sell itself to IntercontinentalExchange, a lesser-known exchange operator based in Atlanta.
DYSTOPIA: Shares for book publisher Scholastic slipped after it reported lower quarterly profit and revenue. The company was hurt by fading demand for the best-selling "Hunger Games" trilogy and weaker sales of its profitable education technology.

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Well-timed options trades before NYSE deal raise eyebrows

(Reuters) - A surge in bullish options bets on NYSE Euronext shares ahead of Thursday's announced merger has raised eyebrows among options strategists.
IntercontinentalExchange said on Thursday it planned to buy NYSE Euronext for $8.2 billion, or $33.12 per NYSE share. The deal's value represents a 37.7 percent premium over NYSE's closing stock price on December 19, the companies said.
NYSE Euronext option trading volume on Wednesday was below average. But in the two-week period before the news, overall volume was about 27 percent above normal turnover, with a buildup of call options, according to Trade Alert, an options analytics firm in New York. A call option is a contract that gives the right to buy the company's stock at a fixed price by a certain date.
A total of 51,000 calls and 8,600 puts changed hands during the period from December 6 through December 19.
"It looks to me there may have been some information leakage earlier this month, given the heavy call volume and shift in skew," Trade Alert President Henry Schwartz said.
The U.S. Securities and Exchange Commission, which looks into unusual stock and options activity, declined to comment.
TURN OF THE SKEW
Over the two weeks from December 6 through December 19, there were more than 9,100 new positions in the January $24 calls. Buyers on December 6 were paying a premium of 44 cents per contract for those calls. That cost rose to $8 apiece by Thursday's session - a 1,700 percent increase, Schwartz said.
As of Thursday, open interest in the January $24 strike NYX calls stood at 10,343 contracts, the greatest of any call across all expirations for NYSE Euronext, according to data from Livevol, an options analytics firm in San Francisco.
That open interest has accumulated over the last 14 days, with the NYSE Euronext stock's price ranging from $23 to $24 throughout the December 6 - December 19 period.
"This suggests suspicious activity, given the timing of the announcement of the merger," said Ophir Gottlieb, managing director of Livevol.
Livevol data showed about 9,000 January $24 strike calls were bought for about 50 cents per contract during that time.
"So a $500,000 bet turned into a potential $6.5 million gain in 14 days," Gottlieb said.
In addition, there has been a recent shift in the pricing of NYX upside calls, compared with NYX downside puts. For most of this year, NYX bearish put options were more expensive than call options.
But since early December, the price of the calls outstripped the price of the puts and has stayed that way consistently. This measure, known as the "skew," or the difference in premiums paid between puts and calls, fell to its lowest level of the year on Wednesday, according to Trade Alert's Schwartz.
This inverted skew is unusual and is "typically associated with takeover candidates," Schwartz said. Participants were willing to pay more for out-of-the-money calls compared with out-of-the-money puts that are at a similar distance from the stock price.
"The put-call skew suggests traders were pricing in a higher chance of an upside move in the shares than a downside move in the short term," he said.
When traders buy out-of-the-money calls, which are contracts with strike prices way above the stock's value, they are looking for a big premium to be paid for the takeover candidate, risking the least amount of money for the biggest return.
Underscoring the interest in bullish options, total open interest in NYSE Euronext calls has been rising at a faster clip than outstanding put contracts since December 1. Call open positions rose to 87,000 contracts this month so far from 53,000 contracts on December 1, Schwartz said, while put open interest climbed to 39,000 contracts this month so far from 36,000 at the beginning of December.

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ICE to buy NYSE Euronext for $8.2 bln

REUTERS - In October, Jeff Sprecher, chief executive of upstart IntercontinentalExchange , approached NYSE Euronext CEO Duncan Niederauer with a modest proposal to team up on clearing trades in London.
As the men continued talking, Sprecher grew bolder, instead suggesting that ICE buy NYSE in what became an $8.2 billion deal announced on Thursday.
The deal will link up two powerful derivatives exchange and clearing house operators, but threatens to further reduce the clout of the New York Stock Exchange. While the New York Stock Exchange has stood for 200 years as an iconic symbol of U.S. capitalism, it is almost an afterthought in this deal.
For ICE, the crown jewel of NYSE Euronext is Liffe, Europe's second-largest derivatives market, analysts said. Niederauer had long felt that NYSE's shareholders did not appreciate the true value of the London-based futures and options exchange, and had talked to bankers about how to improve NYSE's stock price, a person familiar with the matter said.
Liffe will help ICE compete against U.S.-based CME Group, owner of the Chicago Board of Trade. Derivatives trading remains highly profitable for the exchanges, and new rules next year will dramatically expand the demand for clearing over-the-counter contracts.
The stock market businesses are less valuable to ICE. The company said it will try to spin off the Euronext European stock market businesses in a public offering, generating speculation it may also have little interest in the NYSE trading floor. Profits from stock trading have been significantly eroded by new technology and the rise of other places for investors to trade, including venues known as "dark pools."
ICE's Sprecher will be CEO of the combined organization, and the NYSE Euronext CEO will be president, a ceremonial title at many U.S. companies. In an interview, Niederauer said he would remain at least through 2014 as an "important senior member" of Sprecher's management team.
Niederauer will also be CEO of the NYSE Group. The combined company will be based in New York and Atlanta, where ICE is headqurtered.
Sprecher and Niederauerhave been friends for years, but the two stopped talking for about six weeks in 2011 when ICE teamed up with Nasdaq OMX Group to make an unsolicited bid for NYSE Euronext. That bid came even as the New York Stock Exchange operator was trying to sell itself to Deutsche Bourse . Regulatory concerns killed both deals.
Without the Nasdaq or Deutsche Bourse's huge equity operations, ICE alone has far less overlapping business and should face easy approvals, antitrust lawyers said.
The deal values each NYSE Euronext share at $33.12, a 28 percent premium to the stock's closing price on Wednesday. NYSE Euronext stock rose 34 percent to end at $32.25 on Thursday. ICE's shares fell as much as 4 percent but finished regular trading at $127.60, up 1.4 percent on the day.
ICE said it would pay annual dividends of $300 million to the companies' shareholders once the deal closes, about what NYSE pays its shareholders now.
IN THE DOLDRUMS
The deal reflected Niederauer's inability to get his company's share price out of the doldrums. Before the latest ICE offer emerged, NYSE Euronext's shares had fallen by nearly a third since ICE and Nasdaq launched their thwarted joint bid.
Further consolidation of exchanges was "inevitable" and ICE was a "great partner," Niederauer said on a call with analysts, so continuing on alone did not make sense.
"We can sit here and keep slugging away and keep working hard, but the bottom line is we had not delivered, in my mind, sufficient returns to shareholders," Niederauer said. NYSE bought Euronext, including Liffe, for 8 billion euros in 2007.
Sprecher incorporated the stalled stock price - and the unrecognized value of Liffe - as part of his pitch.
"The reason that we were prepared to pay $33 a share for a company that was trading at $24 a share was that there is a $33 company in here and the market was just not either seeing it or willing to give credit for," he said in an interview. "We said, 'let's just force the credit.'"
The two sides negotiated in secret for about eight to 10 weeks, the two CEOs said. In options markets, there were some signs that word might have leaked out, with a sudden upswing in the demand for call options on NYSE, which perform well when a company's share price rises.
ICE started out as an online marketplace for energy trading before Sprecher initiated a string of acquisitions from the London-based International Petroleum Exchange in 2001, to the New York Board of Trade and, most recently, a handful of smaller deals, including a climate exchange and a stake in a Brazilian clearing house.
ICE's current main operations are in energy futures trading and, it has steered clear of stocks and stock-options trading, key businesses for NYSE Euronext.
"This deal is probably not going to generate a lot of concern from an antitrust perspective," said Warren Rosborough, a veteran of the U.S. Justice Department's antitrust division who is now with the law firm McDermott Will & Emery.
In clearing, ICE has a popular U.S. over-the-counter and listed business, while Liffe's operation is strong in futures and based in Europe.
Concerns over a small amount of competing derivatives business could be addressed with straightforward divestitures, Rosborough said. "It's an open question about whether it will generate questions," he added. "If there is a fix, it will be relatively easy fix."
Sprecher said the deal had been "well received" by regulators after he and Niederauer completed a "whirlwind tour" in the United States and Europe ahead of Thursday's announcement. Officials at the European Commission, the Department of Justice and Securities and Exchange Commission declined to comment.
Last year, Justice Department objections blocked ICE and Nasdaq OMX's $11 billion bid on concerns the tie-up would dominate U.S. stock listings. The rival $9.3 billion bid by Deutsche Boerse fell afoul of European regulators.
A combined ICE-NYSE Euronext would leap-frog Deutsche Boerse to become the world's third-largest exchange group with a combined market value of $15.2 billion. CME Group has a market value of $17.5 billion, Thomson Reuters data shows.
Hong Kong Exchanges and Clearing is the world's largest exchange group with a market cap of $19.5 billion.
ICE said it expected to achieve $450 million in cost savings from the takeover. In the first year after the deal closes, additional earnings of 15 percent are expected.
Long-time Wall Street traders saw the potential takeover of the venerable stock exchange by a 12-year-old derivatives upstart as fraught with symbolism.
"It's the end of an era," said a director on the board of a rival exchange who did not have clearance to speak to the press and asked not to be named. "I think ultimately the floor will be closed, because Jeff (Sprecher) has shut every floor he's ever had," the person said.
With the deal still a long way from completed, Sprecher and Niederauer said they planned to keep the high-profile NYSE trading floor running. "The floor has value and in particular, it has a lot of brand value," Niederauer said. "So we are committed. Jeff is committed."
The exchange was prepared to shut down the floor temporarily during superstorm Sandy and trade completely electronically, Wall Street executives said.
Shareholders will have the option of accepting $33.12 in cash per NYSE Euronext share or 0.2581 ICE share or a mix of $11.27 in cash and 0.1703 ICE share, subject to a maximum cash consideration of $2.7 billion.
Morgan Stanley was the lead financial adviser to ICE, with assistance from BMO Capital Markets Corp, Broadhaven Capital Partners, JPMorgan Chase & Co , Lazard Group LLC , Societe Generale Corporate & Investment Banking, and Wells Fargo Securities LLC . ICE legal advisers are Sullivan & Cromwell LLP and Shearman & Sterling LLP.
The main financial advisers to NYSE Euronext are Perella Weinberg Partners and BNP Paribas. Further financial advice to NYSE Euronext was provided by Blackstone Advisory Partners, Citigroup , Goldman Sachs & Co. and Moelis & Co. Legal advisers to NYSE Euronext are Wachtell, Lipton, Rosen & Katz, Slaughter & May, and Stibbe NV.

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