The housing market continued its record pace last month, and roaring demand reaped great rewards for local homebuilder KB Home.
In February, sales nationally of new homes jumped about 9.4 percent from a year earlier to a seasonally adjusted annual rate of 1.2 million.
The sales rate is the second-highest month on record, and was the largest year-over-year percentage increase in four years.
Shares of Los Angeles-based KB Home and Calabasas-based homebuilder Ryland Group Inc. rallied on the news, and each was trading near its 52-week high last week.
Economists were not expecting such a strong show of demand in February.
Christopher Thornberg, a senior economist at the UCLA Anderson Forecast, said the jump in sales activity reflected consumer concern about a future rise in interest rates but mostly he said it’s the result of irrational exuberance.
“It’s no surprise; we’re in a bubble,” he said. “We’ve been saying all along it’s a national housing bubble, it’s just more extreme in California.”
The Anderson Forecast first warned of a looming housing bubble about a year ago, but so far home prices have continued to rise. Thornberg said he thinks the bubble will lose steam by mid-year, although additional spikes in housing activity are likely in the meantime, as interest rates fluctuate.
Last week, KB Home reported a first-quarter net income of $122.7 million, compared with $74.2 million for the like period a year earlier. Revenues rose 22 percent to $1.6 billion.
The company cited higher prices and wider margins for its results, despite losing about 500 home deliveries due to weather delays in California. The number of homes sold by the company rose 11 percent and the average sales price increased by 10 percent, according to Craig Kucera, a research analyst at Friedman Billings Ramsey & Co.
Thornberg said homebuilders will continue to cash in as long as demand stays high. “Of course they’re going to continue making money, they’re selling people a bunch of overpriced homes,” he said. “At some point in time we have to pay the piper.”
Andy Fixmer
SRO for E3
The Electronic Entertainment Expo, the video game industry extravaganza in May and among the biggest trade shows in Los Angeles, has sold out the five exhibit halls of the Los Angeles Convention Center.
“We’ve sold every available inch,” said Mary Dolaher, show director and vice president of the E3Expo. “I’m not sure we could fit any more if we tried.”
About 435 companies have booked exhibit space, taking up 540,000 square feet at $23 per square foot. That’s the largest amount of space sold at the convention center in four years.
Dolaher said exhibitors are increasing their space this year, some even taking up two booths. “It’s a reflection of continued growth in the industry,” Dolaher said. The pending release of the next generation of game consoles has something do with it, too.
Dolaher said about 17 percent of the roughly 65,000 conferences attendees are expected to be from overseas, higher than in past years, which she attributes to the emergence of overseas markets in the video gaming space.
Though the Convention Center has had trouble attracting large groups, E3Expo has booked the center through 2012. Dolaher said Los Angeles is the optimal city for the expo because of the convergence of Hollywood and entertainment with videogame production.
Hilary Potkewitz
New Firms in Town
Morgan Joseph & Co., a middle-market high-yield debt specialist in New York, and Strategic Equity Group, an investment bank in Orange County, have both opened new offices in Los Angeles that cater to mid-size companies.
Morgan Joseph’s president and chief executive, John Sorte, is a former chief executive and co-head of corporate finance at Drexel Burnham Lambert. Paul Huffman III, who headed Morgan Joseph’s Nashville office, was named managing director in Los Angeles. Another managing director, Robert Whyte, will focus on media and communications firms.
In the past two years, Morgan Joseph has completed about a dozen transactions in Southern California and has been an advisor on 80 transactions nationwide.
Strategic Equity, based in Santa Ana, provides buy-side merger-and-acquisition and valuation services including tax and financial reporting requirements.
Michael Ellington, managing director and a former auditor at Ernst & Young LLP, will head up the firm’s new Los Angeles office.
Kate Berry
Then vs. Now
The lofty goal of creating shareholder value doesn’t come easy if at all.
For the past three years, Newport Beach’s Conexant Systems Inc. has been busy breaking up what once was a sprawling maker of chips with five plants, more than half a dozen units, and layers of managers.
During the technology boom, creating shareholder value wasn’t an issue for Conexant. The chipmaker counted a market value of about $20 billion. Then came the crash. By 2002, Conexant had lost nearly all of its market value.
That sent Chief Executive Dwight Decker on a path of selling and spinning off businesses starting in 2002.
What’s left is a maker of chips for modems, fax machines and home networking gear with a market value of about $680 million.
Conexant and its offspring aren’t likely to reach $20 billion in market value again. Even after a massive makeover, investors in the chipmaker still have lost money.
Conexant’s take: It’s still too early for a definitive analysis on the impact the breakup had on shareholders. “This is a longer-term strategy that we need to judge over several years,” said Gwen Carlson, a Conexant spokeswoman.
Orange County Business Journal
Gateway Returns
Could Gateway Inc. impress Wall Street this quarter?
Maybe. At least it seems so from Rod Sherwood, the Irvine-based computer maker’s chief financial officer. Sherwood told Dow Jones Newswires that “in terms of the PC business, we are not seeing weakness at all on the retail side of things.”
Gateway is seeing a “major” opportunity in notebook computers, Sherwood said. Notebooks would pass desktops in terms of sales in the U.S. market.
That sounds better than a few months ago, when Gateway issued a forecast for the current quarter that fell below analysts’ expectations.
Last year, Gateway bought Irvine discount PC maker eMachines for some $266 million, bringing the company from San Diego to Orange County.
Orange County Business Journal
