Top Innovators Weathering the Financial Storm

HEWLETT-PACKARD

only FOR WOMEN: Fashion designer Vivienne Tam flanked by President (PSG), Hewlett-Packard India, Ravi Swaminathan (left), and Senior Vice-President Global Marketing, Hewlett Packard, Satjiv S. Chahil

Hewlett-Packard unveiled four new laptops, including a special edition stylish notebook PC designed by U.S.-based renowned fashion designer Vivienne Tam. HP has about 33 percent market share in India's laptop segment.

Addressing a press conference here, HP's Senior Vice-President (Global Marketing) of Personal Systems Group (PSG) Satjiv S. Chahil said: "We continuously work to ensure that our HP Pavilion line appeals to new markets and segments. Vivienne's fresh and authentic design speaks to an intrinsic part of a digital lifestyle-personal expression." According to HP India's President (PSG) Ravi Swaminathan, the company plans to strengthen its market leadership position with an aggressive 'go-to-market' strategy by increasing its retail footprint across 650 cities and expanding retail partner network to over 10,000 by this year-end.

HP Vice President in an interview today on CNBC indicated that HP PC business remains robust, and touted Gartner report that shows growth of at least 15%.

HP shares are down 23.5% year to date. Innovation Index Group has a BUY recommendation on HP with a 12 month price target of $50 to $60.

PROCTOR & GAMBLE

Mr. A.G. Lafley, CEO of P&G, said: "The reason P&G has grown so consistently for so long is that we're a company that sticks to the fundamentals. We build brands that improve consumers' lives. We deliver superior value day in and day out. We manage cash and costs with unrelenting discipline. And we invest in innovation as the primary driver of profitable organic sales growth.

"While the economic environment remains volatile and uncertain, I am confident that P&G can and will continue to prosper over the long term. We are committed to ensuring P&G will continue to be a company you can count on."

P&G's net sales for the fiscal year ended June 30, 2008 increased nine percent to $83.5 billion, with organic sales up five percent - in the middle of the Company's four to six percent target range. Diluted earnings per share were $3.64, up 20 percent - or double the Company's ten percent target. P&G's free cash flow was $13.0 billion for the fiscal year, or 106 percent of net earnings - well above the Company's 90 percent goal.

P&G sales have nearly doubled for each of the past three decades - from $10 billion in 1980 to more than $80 billion today with earnings growth increasing from $640 million to $12 billion over the same period. Over the past five years, P&G has delivered 11 percent compound annual total return to shareholders, nine percent over the past ten years, and 16 percent over the past 20 years. The Company's dividends have also increased every year - more than nine percent a year, on average - over the past fifty-two years, and have been paid without interruption since the Company was incorporated 118 years ago. P&G recently announced a 40 cents dividend.

P&G shares are down 15.8% year to date. Innovation Index Group has a BUY recommendation on P&G with a 12 month price target of $75 to $85

APPLE

JP Morgan is upgrading Apple to Overweight from Neutral. Apple's model is far more diverse than previous vintages, and they think the staying power has been underappreciated. With its market share momentum likely intact, Apple in firm's view offers strong relative downside protection to the looming earnings reset that they expect to impact IT Hardware companies in coming weeks and again early next year.

- Diverse model provides staying power. There has been considerable investor concern lately over the Apple model losing steam, particularly if the consumer vertical rolls over. JPM estimates that the company's total model exposure is about 70-75% consumer, but they think that Apple's brand and market share momentum offer meaningful buffers to potential macro-driven pressures on the consumer.

- Retail expansion could sustain share gains and international momentum. JPM thinks a major force behind Apple's growth story will be its diversifying revenue streams. They expect Apple's penetration of the international markets to be measured in years and supported by the increasing build-out of the retail stores overseas.

- iPhone could lead to the enterprise or other content-rich devices. Firm thinks the iPhone could be a stepping stone to penetrating the enterprise. Also, they could envision the iPhone pushing Apple deeper into the set-top box market as the convergence of voice, web, data, and content continues.

- Expect numbers to come down across the sector, but Apple likely has a backstop beyond the first round. For Apple, they are revising their below-consensus revenue and EPS estimates. Looking to fiscal 2009, revenue and EPS estimates are $36.98 billion and $5.27, versus the Street consensus of $40.26 billion and $6.02.

- Apple trades at 18.8x JPM's calendar 2009 EPS estimate, versus the peer group average of 11.1x. With macro pressures showing no signs of dissipating, they believe it is time to play defense, and they think Apple can avoid having a major problem with the "E" in the price-to-earnings multiple moving through the coming year. Firm expects the company's model to limit a series of major earnings cuts from unfolding in coming quarters, and they think this should support a valuation gap in Apple's favor.

Apple announced new aluminum shell, more powerful laptops on October 14, and reduced the price on updated laptops to under $1,000. Apple is poised to see a robust growth in its sale of notebooks during the holiday season owing to competitive pricing and better features.

Apple shares are down 48.6% year to date. Innovation Index Group has a BUY rating on Apple, and is now updating the 12 month price target in the range of $160 to $190.

IBM

JPMorgan upgrades IBM as a stock that is a 'sturdy ship' in rough economic waters

A JPMorgan analyst upgraded International Business Machines Corp. saying the company's diverse and steady revenue streams make the stock a "sturdy ship" in the worsening economic environment, the firm said Wednesday.

Mark Moskowitz raised his rating to "Overweight" from "Neutral" because IBM has diverse revenue sources that offer relative stability. He also said at least half of the company's revenue comes from annual payments on long-term services and software contracts.

IBM represents a "flight to quality" for investors" due to its broad services, hardware and software reach," the analyst wrote. IBM 3Q profits jumped 20% from last year in large part due to services contracts.

IBM shares are down 15.3% year to date. Innovation Index Group has a BUY recommendation on IBM with a 12 month price target of $125 to $150.

These four innovators present attractive buying opportunity at the current price points.

Innovation Index Reports

• Introducing The Innovation Index
• Annual Report 2007 - The Innovation Index gains 66%
• Measuring Business Innovation Success
• Innovation Index Group BUY Recommendations
• Q1 2008 Report - Innovation Index ahead of S&P 500
• Q2 2008 Report - Top Innovators Deliver
• The Innovation Index Fund FAQ
• Top 50 Innovative Companies in the world
• Annual Report - Chapter One - Total Innovation Activity
• Annual Report - Chapter Two - The Top Innovator
• Annual Report - Chapter Three - The Innovation Insights
• Innovation and Stock Performance Correlation
• Future earnings guidance, A leading indicator
• Smart Investing In Tough Economic Times
• To Sell Or Not To Sell - You Decide
• Creativity and Innovation Best Practices
• Creativity and Innovation Case Studies

About The Innovation Index

The Innovation Index introduced in December 2006 is a weighted stock price index of the top 20 Innovators in North America.

The Innovation Index returned 66% in 2007 based on performance model, and would have returned 174% over the previous five years (2002-2006) based on historical model*. This assumes equal investment in each stock of The Innovation Index as of December 31, 2001. An average of $100 invested in The Innovation Index on December 31, 2001 returned $454 as of December 31, 2007. By comparison, $100 invested in S & P 500 returned 28% or $129, $100 invested in NASDAQ returned 34% or $136, and $100 invested in the Dow Jones Index returned 30% or $131 through December 31, 2007. The Innovation Index beats the S & P 500, NASDAQ and Dow Jones Index by more than seven times over the past six years.*

Alphabetical list of the Top 20 Innovators of The Innovation Index for 2008 and their stock ticker symbols:

3M Company - (NYSE: MMM)
Amazon.com, Inc. - (NASDAQ: AMZN)
America Movil - (NYSE: AMX)
Apple Inc. - (NASDAQ: AAPL)
AT&T Inc. - (NYSE: T)
Best Buy Co., Inc. - (NYSE: BBY)
Cisco Systems, Inc. - (NASDAQ: CSCO)
Costco Wholesale Corporation - (NASDAQ: COST)
eBay Inc. - (NASDAQ: EBAY)
General Electric Co. - (NYSE: GE)
Google Inc. - (NASDAQ: GOOG)
Hewlett-Packard Co. - (NYSE: HPQ)
Intel Corporation - (NASDAQ: INTC)
International Business Machines Corp. - (NYSE: IBM)
Merck & Co., Inc. - (NYSE: MRK)
McDonald's Corporation (NYSE: MCD)
Microsoft Corporation - (NASDAQ: MSFT)
NIKE, Inc. - (NYSE: NKE)
Research In Motion Limited - (NASDAQ: RIMM)
The Proctor & Gamble Company - (NYSE: PG)

The Innovation Index will analyze the positions and standings of the Top 20 Innovators at the end of each year. For 2008, there will be no further changes in The Innovation Index.

Disclaimer: The Innovation Index Group, Inc. invests in the stocks comprising The Innovation Index.
*Past Performance Does Not Guarantee Future Results

The Growing Global Indian Innovation

Indian Americans are the top entrepreneurs among immigrant groups in the United States, and in setting up the largest number of engineering and technology companies over the past decade. Indian Americans account for 26 per cent of tech firms founded by immigrants as a whole. Eglis Milbergs, president of the Center for Accelerating Innovation, in this article touts the Duke University study wherein the biggest concentration of Indian entrepreneurs was found in California, Texas and New Jersey.

Ajay Singh Niranjan of The Great Human Capital believes that a brave new world beckons Indian Innovators and Entrepreneurs, and lots of opportunities exist for innovation and entrepreneurship to thrive in India, especially in areas such as technology, health care, education, rural marketing and social services.

In this article, Wipro's Innovation process is outlined in an interview with K.S. Viswanathan, chief-executive of sales at Wipro India.

Viswanathan states that "We (Wipro) have three types of innovation: technology innovation, process innovation and delivery innovation....At the apex end, we have an IT management council, where normally all decisions about breakthrough innovations or quantum innovations are taken....To assist the IT management council, we have an IT innovation council, where we go through four gates before an IT project gets done."

At Wipro, 5% of the total revenue of $3 billion comes from innovation projects according to Viswanathan. And to top it off, Azim Premji, CEO, gets involved in key innovative projects. Viswanathan says "Azim Premji has said that so many dollars of revenue per year are earmarked for innovative projects, largely for quantum innovations and those that lead to process innovations."

Arun Kottolli, a Management Consultant who maintains his own blog provides key advantages towards investing in India. Kottolli affirms that "India has now regained its innovative spirit. As a result, creativity can be seen in all walks of life in India. Indian companies have discovered the benefits of innovation and creativity.....Creativity in India can be seen in diversity of its languages, classical arts and music, literature, folk arts, construction etc."

One key metric: IBM, GE, Microsoft, Cisco, Intel and sixty other top innovating companies have already setup their R&D centers in India.

Kottolli believes that Indians tend to opt for cost effective innovation.

Kottolli is a prolific blogger, and in another article, talks about the Indian Style of Innovation and Intellectual Property Creation.

Innovation at Infosys is grounded in the intellectual capital and the processes to rigorously train the employees:

-->The company’ key competitive advantage has been the intellectual capital of its employees. - Infosys Annual report 2006

-->In India Infosys took that idea (from GE) to heart and created the world’s largest employee training facility.

In a separate article, Kottolli writes that the "Indian automobile industry has demonstrated resounding success of Indian innovation. Bajaj Auto created DTSI technology and designed Pulsar bike, Maini Group’s Reva, Mahindra’s Scorpio, Tata Motors created Sumo, Safari, Indica, 209, 407, and a slew of trucks."

John Hagel recently visited India, and wrote an article on the Innovation and Talent in the Indian IT Industry.

"As JSB and I have written, there is an opportunity to pursue “innovation blowback” strategies, using the Indian market as a catalyst for breakthrough innovation in products and services that can then be used to support global attacker strategies designed to challenge incumbents in the more developed Western economies.

The Indian IT services industry could fuel enormous growth for the Indian economy by more aggressively supporting these innovation blowback strategies.

Ultimately, the opportunity would be to become leaders in the formation and orchestration of creation networks. This would require mastering open innovation management techniques to attract and mobilize talent, focus the innovation initiatives across multiple participants and accelerate commercialization and learning from these initiatives.

There’s no shortage of opportunities at both the product and process level to drive the growth of Indian IT services companies."

Gautam Ghosh, a key blogger on Management Consulting, provides a reason on why Indian IT companies have not fully embraced product innovation: "Because software exports are not taxed and services within the country are, the incentive for developing IT products and services for Indian firms is low for the Indian IT service providers."

Bottomline:

When I visited India in 2006, I was "wowed" by the growth of local innovation on all industry fronts: pharma, healthcare, autos, equipment, manufacturing, financials, retail, education, IT and more – not just the BPO and KPO industries. The solid growth in Indian economy is fueling entrepreneurship, innovation and creativity from Indians in every industry. This growth is even attracting MNCs to establish their R&D, manufacturing and entrepreneurship centers in India. My favorite story is that of a Taxi Driver in India who drives an indigenous Tata Indica and conducts all the routes and business logistics by simply using SMS and click-to-talk on mobile phone. I was amazed as to how efficiently the Taxi business of over 100 taxis effectively ran using the mobile phone as a communications, logistics and business device. The Taxi Driver uses click-to-talk to signal to the Taxi dispatch service that his current route is coming to a close; the Taxi dispatch service locates the nearest new customer request to the current physical location on where the Taxi driver is; the Taxi dispatch service leverages GPS and Location software; the Taxi Driver gets an SMS from the Taxi dispatch service prompting him on where to go next with a link that provides a map if needed; the Taxi Driver goes to that location and finds the passenger; now, he simply uses Click-to-talk to signal that he has picked up the passenger and he is on the next route. Wow!

Living in Bay Area, one always has a strong awareness of the top Indian entrepreneurs in Silicon Valley and even in the U.S. Now, we are seeing the growth of entrepreneurship and innovation from Indians in India and all over the world.

I am planning to create a report on the top 10 Indian Innovators from around the world. The names of Azim Premji, N R Narayana Murthy, Lakshmi Nivas Mittal, Anil and Mukesh Ambani, Ratan Tata, Kushal Pal Singh, Sunil Mittal, Ramesh Chandra, Kumar Birla and Gautam Adani immediately come to mind. However there are many more. Vyomesh Joshi at Hewlett Packard who manages HP’s multi-billion dollar imaging business must be considered in this list. The criteria at a minimum should be the innovators creating lasting companies or business units of at least $1 billion in annual revenue, real disruption in the marketplace, establishing a global brand and currently in active role (or within the last year). I would call upon the many aforementioned writers to co-create and get inputs on this report on the top 10 Indian Innovators.