The Business Elite: CFO of the Year – Wisconsin

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Established in 1909, Wisconsin Aluminium Foundry has consistently provided the finest quality aluminium and copper based alloy castings for a wide variety of industries. We spoke to Kory Brockman to find out more about the firm and how he, as CFO, has helped steer it to success.

Wisconsin Aluminium Foundry (WAF) was formed 107 years ago and has been privately owned its entire history. WAF is primarily a jobbing foundry pouring aluminium, brass, and bronze alloys. The firm also has a consumer products division which manufactures and sells high quality cookware, pressure cookers, sterilizers, and metal canners under the Chef’s Design and All-American trademarked brands.

WAF specializes in permanent, semipermanent, low pressure, green sand, and dry sand molding processes. We are known for excellent casting design services and for taking our customers from prototype samples to production castings in a time frame that meets or exceeds their needs. WAF takes great pride in its Quality, Engineering, Manufacturing and Customer Service with the goal of leading the industry and staying ahead of our competition.

As a jobbing foundry, it is critical that our processes are innovative in order to be a leader in this industry. Manufacturing is without a doubt the most competitive business endeavour one can undertake, as competitors are world-wide, and not just in your city, state, or country. Anytime we improve throughput, reduce scrap and rework, or take a different approach to making a casting with less resources, we improve our value in the markets we serve. Customer-driven quality specifications continue to become more stringent, which adds to the daily challenges. Meeting these challenges and overcoming them is key in order to thrive and not just survive.

Additionally, a key means of ensuring consistently strong sales revenue is to make sure all the pieces are in place to support a sales function that strives to be world class. By this I mean the company is perpetually working at reducing the cost of its products, at reducing its lead times, at delivering its products on-time every time, and at developing innovative solutions to producing its products. In our industry, new sales revenue is as much about the sales force finding new casting sales, as it is end users of castings finding us unsolicited. In either scenario, you have to be the best value proposition available to the customer – day in and day out. Economies rise and fall, so you ensure better sales revenue by having a business platform that takes advantage of markets regardless of the direction they are trending.

I have been CFO at WAF since 2009, prior to which I worked for 10 years in the roles of Vice President of Finance and Controller. I have always aspired to grow and learn and take on more responsibility and perform at a high level. WAF presented a great opportunity to develop its accounting systems back in 1999. My educational background and prior work experience gave me the confidence to accept this challenge, and the journey has been both professionally and personally rewarding in many ways.

In my role as Chief Financial Officer at WAF, I am responsible for the accounting and finance operations of the company, as well as oversight of our insurance coverages related to risk management. Through working with our senior executive team, I provide the financial and accounting expertise in support of our company strategies and the metrics that measure and support the strategies once deployed. These responsibilities require me to work closely with my accounting personnel to insure our systems accurately record the data that supports our decision-making processes.

Financing and cash management are key to any successful business, and I communicate regularly with our bank to report performance, discuss forward-looking strategies, and insure adequate credit to support the business both now and into the future. I also accomplish these activities in a fun and positive manner, as employee morale is critical to our goals and aspirations as a business. In addition, I am also heavily involved in tax matters, employee benefits, union contract negotiations, budgeting and forecasting, capital expenditures, and portfolio investing. My approach to staff management is very collaborative, and I work hard to encourage a friendly, relaxed atmosphere in our office and aim to be courteous, polite and fun. 

This approach extends beyond my staff and through to my clients, and I aim to be as approachable as possible. I feel very proud that I have overcome the ‘bean counter’ stereotype that pervades through the corporate landscape with regards to CFOs. Some people want to box you in to this skill-set, and view those in accounting roles as nothing more than a score keeper. I got some strange looks earlier in my career when I brought attention to opportunities for productivity gains in operations or tactics to grow sales. This has impacted my view on running a business and I strive to always listen to what is being communicated.

A collaborative approach is also key to keeping up to date with the latest industry information. I value discussions I have with suppliers, OEMs, customers, and sales personnel about what is happening in the industry. The American Foundry Society and the Non-Ferrous Founders Society are valuable sources of industry trend data as well as the internet, which has made it remarkably easy to research relevant information quickly.

Ultimately I feel that the secret to my personal success is that I truly love what I do, and therefore it never really feels like work. A lot of people rely on WAF for their livelihoods, so running the business well means better job security for our employees and their families, and this is a big responsibility which I take very seriously.

With regards to the future, the company is well positioned in a mature industry. Innovation and diversification are key to its continued growth and success, and as such our future direction will be driven by strategies and activities that add value for our customers. The US-based foundry industry has contracted over the last 30 years, and it is my personal opinion that there will be struggles ahead with regards to the industry’s ability to remain autonomous, and the transfer of trade knowledge from this generation to our next generation.

With regards to my own personal future, I believe this is firmly focused on growing WAF, making it stronger, making it more innovative than our competition, and having fun while doing so.

Company: Wisconsin Aluminium Foundry

Name: Kory Brockman

Website: http://www.wafco.com/

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OrbiMed Launches $307mn Venture Capital Fund

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OrbiMed, a leading investment firm focused on the healthcare sector, has announced the closing of its second Israel-focused venture capital fund, OrbiMed Israel Partners II, LP, with approximately $307 million in capital commitments. Investors in the Fund include several of the world’s largest healthcare companies, in addition to dozens of institutional investors and family offices.

Consistent with its predecessor fund, OrbiMed Israel Partners II will target all stages and sectors of the healthcare industry, with a focus on biopharmaceuticals, digital health, medical devices, and diagnostics companies in Israel. The fund is targeting to invest in approximately 20 portfolio companies. Where appropriate, Israel Partners II may co-invest with OrbiMed’s global private equity team, leveraging the full financial and strategic resources of OrbiMed’s 100 team members and $15 billion global investment platform.

“Israel is a compelling locus of life sciences innovation, on par with top regions in the U.S. and Europe,” commented Jonathan Silverstein, co-head of OrbiMed’s global private equity effort. “With this fund we will further accelerate our investment pace in Israel and help nurture local innovations into leading healthcare companies.”

“Our new fund builds on OrbiMed’s strong 16-year track record of investing in Israel,” said Dr. Nissim Darvish, a Senior Managing Director of OrbiMed. “With a fund of this size, OrbiMed is well-positioned to be a significant partner to entrepreneurs, research institutions, and life sciences companies here in Israel.”

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The Business Elite: CEO of the Year – Colorado

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InfoMedia, Inc. is a new media marketing firm focused on developing software, services and training materials for entrepreneurs, small businesses and consumers. We profile its dedicated CEO Joel Comm and explore the various aspects of his work that make him so successful.

 

Established by Joel Comm in 1995, InfoMedia, Inc. is known for content-based websites, iPhone application development and more.

 

Founder Joel has been building online businesses since 1995. His first website was amongst the first 18000 sites in the world, and his efforts have brought experience in creating and selling websites, licensing content, affiliate marketing, internet marketing, blogging, podcasting, online video creation, social media marketing, joint ventures, mobile app creation and marketing, authoring books, public speaking, conducting live training events and more.

 

Joel hosted and produced the world’s first competitive Internet reality show, The Next Internet Millionaire, and he has also created a #1 best-selling iPhone application which became one of the most talked about novelty iPhone apps of all time.

 

Alongside his work with InfoMedia, Joel is the New York Times best-selling author of 12 books, including The AdSense Code, Click Here to Order: Stories from the World’s Most Successful Entrepreneurs, KaChing: How to Run an Online Business that Pays and Pays and Twitter Power 2.0.

 

He has also written over 40 ebooks. He has appeared in The New York Times, on Jon Stewart’s The Daily Show, on CNN online, on Fox News, and many other platforms.

 

As a public and motivational speaker, Joel speaks on a variety of business and entrepreneurial topics. He presents a step-by-step playbook on how to use social media as a leveraging tool to expand the reach of your brand, increase your customer base, and create fierce brand loyalty for your business. Joel is also able to speak with authority on the various ways to harness the marketing power of mobile applications to explode profits. He offers an inspiring yet down-to-earth call to action for those who dream of obtaining growth and financial success. As someone who went from having only 87 cents in his bank account to creating multiple successful businesses, Joel is uniquely poised to instruct and inspire when it comes to using the various forms of new media as avenues towards the greater goal of business success.

 

Utilising his more than 20 years of Internet business experience, Joel has found success in multiple niches. Corporations, small-to-medium sized businesses and entrepreneurs trust him for sound, practical advice and creative thinking. He has consulted with, trained or developed strategic partnerships with Microsoft, IBM and Twitter, among many others. Whether you are seeking general direction or you require in-depth marketing strategy, Joel brings his varied experiences to you and is available for consulting by the hour or by the day.

 

In order to remain competitive in the fast paced corporate landscape, Joel is always exploring new methods of leveraging his expertise and technology to educate, inspire and entertain others, and moving forward he will continue to innovate and create.

 

Contact Details

 

Company: InfoMedia, Inc.

 

Website: http://joelcomm.com

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Large Deals Persist For US Outpatient Providers

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Consolidation in the US healthcare provider industry is likely to continue as CMS accelerates value-based care initiatives under the Medicare program, according to Fitch Ratings.

 

CMS has stated that they intend 50% of Medicare payments to be linked to value by 2018.

 

Large merger and acquisition deals between healthcare providers have not been limited to horizontal scale plays in one area of care. Over the past few years, many healthcare providers have acquired adjacent care verticals to create a continuum of care or broaden service offerings in the wake of a still largely undefined value-based reimbursement environment.

 

The outpatient provider industry has seen its share of consolidation as it is an especially attractive area to build scale or a care continuum, considering outpatient treatment is a lower cost care setting. Consolidation in this area has only accelerated since AmSurg Corp., traditionally an operator of ambulatory surgery center, bought Sheridan, a provider of outsources physician staffing, in 2014.

 

In October 2015, AmSurg Corp. made an attempt to further build scale and broaden presence in outsourced physician services when it proposed a merger with TeamHealth Holdings, Inc., a deal TeamHealth shot down, claiming the proposal undervalued the company. The recently reported merger talks between AmSurg and Envision Healthcare Holdings Inc. could achieve similar aims.

 

Consolidation strategies that combine care delivery verticals may offer significant upside in a world of value-based payments. However, the evolution toward value-based payments is nascent and limited financial evidence supports these arrangements. If reimbursement schemes continue to move in that direction, it is likely to favor diversified providers. However, in the near term, it is important for investors to also consider the financial health of each care delivery vertical independently.

 

Healthcare providers considering lateral consolidation, or common ownership along some continuum of care, must consider whether investors will reward business diversification with a lower cost of capital. If this is the case, it will further encourage companies to pursue the strategy. It is risky from a credit perspective because debt funding of acquisitions often pressures the financial profile, and cost synergies are often not a major boost to pro forma EBITDA for transactions that are not traditional horizontal scale plays.

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A4A Urges New Jersey to Drop Tax Hike

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Increasing jet fuel tax would hurt jobs, reduce air service, slow economic growth and put New Jersey at a competitive disadvantage says organization.

Airlines for America (A4A), the industry trade organization for the leading U.S. airlines, has stated that it opposes any attempt to saddle airline customers and our employees with higher taxes. Recent attempts by New Jersey lawmakers to raise the fuel tax risks making flying more expensive for consumers, increasing the cost for airlines to operate in the state and jeopardizing jobs for an already struggling economy.

Commercial aviation is vital to the health of New Jersey’s economy, supporting almost 150,000 jobs and driving $22 billion in economic activity. A massive tax hike will jeopardize jobs, air service options to the region and the affordability of airfare and shipping for New Jersey families and businesses.

States that have a lower tax burden on airline jet fuel do so because they recognize the industry helps create 11 million U.S. jobs and $1.5 trillion in economic activity. Part of what makes New Jersey a strong market for commercial aviation is the state’s current competitive tax climate. Current legislative proposals put New Jersey’s edge as an aviation hub at risk.

For example, neighboring states New York and Pennsylvania have low effective tax rates on fuel, which would put New Jersey at a serious competitive disadvantage in trying to expand air service. New York’s effective rate is .05 cpg (43rd most burdensome), and Pennsylvania’s is 3 cpg (32nd).

Assuming a 7 cent-per-gallon (cpg) effective rate, New Jersey would jump to 17th on the list for most burdensome jet fuel tax in the nation. It is currently 44th. Increasing the cost of jet fuel and the tax burden on airlines could lead to less revenue to the government, reduced tourism and less economic growth.

The trend in other important aviation states is to lower taxes on jet fuel. For example, Florida recently reduced its excise tax on jet fuel from 6.9 cpg to 4.27 cpg; North Carolina exempted jet fuel from its sales tax in 2015; and Ohio, which does not tax jet fuel at all, rejected a proposal in 2015 to begin taxing jet fuel.

Airlines and our airport partners are making significant investments in airport infrastructure across the country without tax increases, including over $1 billion of projects that have been completed or are underway at EWR since 2008. Planning and design is also underway for a $2.0 billion Terminal A redevelopment project. Moreover, United Airlines has invested almost $2.0 billion of its own funds since 2001 in improvements at the airport including club upgrades, baggage system upgrades, jetbridge replacements, Terminal A improvements and self-service kiosks. This investment will be put at risk by increasing taxes.

Airlines and their customers are already paying more than their share – a staggering $62 million a day in federal taxes – on top of billions in state and local jet fuel, income, and employment taxes. A healthy and competitive airline industry is vital to economic growth and consumer affordability, and A4A urges New Jersey lawmakers to consider these important facts before they introduce legislation that runs the risk of reducing air service options for consumers and businesses in the state.

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Nuveen to Propose Fund Reorganization

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Nuveen Investments, an operating division of TIAA Global Asset Management, has announced that it intends to propose a plan of reorganization to the Board of the Nuveen Global Equity Income Fund (JGV).

Nuveen recently announced a plan to accelerate the growth of its global product platform at NWQ Investment Management Company. Assuming necessary Fund Board and shareholder approvals are received, this plan would consolidate a number of existing global equity funds currently managed by Tradewinds Global Investors into funds managed by NWQ Investment Management Company, including that of JGV.

Under the proposed reorganization plan, JGV would be reorganized into the open-end Nuveen NWQ Global Equity Income Fund, reflecting differing approaches between JGV’s current mandate and NWQ’s global equity income mandate. JGV shareholders would receive Class A shares of the NWQ fund in the reorganization. Nuveen expects to make this proposal at the Board’s upcoming meeting in late May. If approved by the Fund’s Board, the proposed reorganization is subject to shareholder approval at the fund’s annual meeting to be held this fall.

Nuveen provides investment solutions designed to help secure the long-term goals of individual investors and the financial advisors who serve them. Through the expertise and capabilities of TIAA Global Asset Management’s high-caliber investment managers, Nuveen is committed to providing world-class consultative services and advice that align with client needs. Funds distributed by Nuveen Securities, LLC, a subsidiary of Nuveen Investments, Inc. Nuveen Investments is an operating division of TIAA Global Asset Management.

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Cavium to Acquire QLogic

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Opportunity to drive significant growth at scale in data centre and storage markets

 

Cavium, Inc. a leading provider of semiconductor products that enable intelligent processing for enterprise, data center, cloud, wired and wireless networking, and QLogic Corp.  a leading supplier of high performance networking infrastructure solutions, have announced that they have entered into a definitive agreement for Cavium to acquire all of the outstanding QLogic common stock for approximately $15.50 per share, comprised of $11.00 per share in cash and 0.098 of a share of Cavium common stock for each share of QLogic common stock (valued at approximately $4.50 based on the volume weighted average Cavium trading price for the three trading days beginning June 10, 2016), through an exchange offer. The transaction values QLogic at approximately $1.36 billion in equity value, inclusive of approximately $355 million of cash on QLogic’s balance sheet, and has been unanimously approved by the boards of directors of both companies.

 

The acquisition provides:

 

  • Opportunity to drive significant growth at scale in data center and storage markets: QLogic’s leading portfolio of advanced connectivity and storage solutions is highly complementary to Cavium’s extensive portfolio of networking, compute, and security solutions. The combination enables Cavium to offer a complete end-to-end offering to customers in Enterprise, Cloud, Data Center, Storage, Telco and Networking markets. QLogic adds an incremental $2 billion market opportunity for Cavium.
  • Substantial customer and revenue diversification: The combined customer base includes market leading OEMs and end-customers across a broad set of end markets that diversifies Cavium’s revenue and presents a unique opportunity to accelerate further growth.
  • $0.60 to $0.70 of accretion to Cavium’s CY 2017 non-GAAP EPS: The combined company will have nearly $900 million in LTM revenue, with strong profitability and cash flow generation. There are $45 million of identified annualized cost synergies across COGS and operating expenses expected to be realized by the end of 2017. The transaction is expected to create significant value for the shareholders of both companies.

 

“Today’s acquisition of QLogic is highly complementary and strategic to Cavium and it creates a diversified pure-play infrastructure semiconductor leader,” stated Syed Ali, President and Chief Executive Officer of Cavium. “QLogic’s industry leading products extend our market position in data center, cloud and storage markets, and further diversifies our revenue and customer base. In addition to the compelling strategic benefits, the manufacturing, sales and operating synergies will create significant value for our shareholders.”

 

“QLogic with Cavium is a winning combination for customers and employees and is financially compelling for QLogic shareholders,” said Christine King, Executive Chairman of QLogic. “The scale of operations of a nearly $1 billion revenue business will allow the combined company to deliver better solutions for customers and create more career opportunities for employees. Shareholders will benefit from both the immediate premium, as well as the opportunity to participate in the long-term value creation from the combined company’s strong growth prospects.”

 

The transaction will be funded with a combination of $220 million balance sheet cash, $750 million of committed financing, which includes $650 million of term loan and $100 million of short-term bridge debt, and $400 million in new Cavium equity.

 

Under the terms of the definitive merger agreement, a wholly-owned subsidiary of Cavium will commence an exchange offer to acquire all of the outstanding shares of QLogic common stock for $11.00 in cash and 0.098 of a share of Cavium common stock (approximately $4.50 per share based on the volume weighted average Cavium trading price for the three trading days beginning June 10, 2016) for each share of QLogic common stock tendered in the exchange offer. Upon satisfaction of the conditions to the exchange offer, and after the shares tendered in the exchange offer are accepted for payment, the agreement provides for the parties to effect, as promptly as practicable, a merger, which would not require a vote of QLogic’s stockholders, and which would result in each share of QLogic common stock not tendered in the exchange offer being converted into the right to receive $11.00 in cash and 0.098 of a share of Cavium common stock. The transaction is expected to close in the third quarter of calendar year 2016 pending customary closing conditions, including the tender into the exchange offer by QLogic stockholders of shares representing at least a majority of the outstanding shares of QLogic common stock, and the receipt of relevant regulatory approvals, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

 

J.P. Morgan acted as exclusive financial adviser and provided a financing commitment to Cavium; Skadden, Arps, Slate, Meagher & Flom LLP acted as Cavium’s legal counsel. Qatalyst Partners acted as exclusive financial adviser to QLogic and O’Melveny & Myers LLP acted as QLogic’s legal counsel.

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Dynegy to Acquire ECP’s Interest in Atlas JV

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Dynegy to fund ECP’s share of the initial equity contribution and pay ECP a revised discounted floor price of $375 million.

 

Dynegy Inc. has announced its intent to acquire Energy Capital Partners’ (ECP) 35% interest in the Atlas joint venture (JV) which the two companies formed in February 2016 to purchase ENGIE’s 9,058 megawatt U.S. fossil portfolio. Upon completion of the ENGIE portfolio acquisition, Dynegy will own 100% of the acquired business.

 

Under the terms of the agreement, Dynegy will acquire ECP’s stake in the JV by assuming ECP’s share of the upfront equity funding at closing, then paying ECP the revised discounted floor price of $375 million post-closing for a total transaction value of $750 million (assuming the transaction closes on October 1, 2016). When the Atlas JV was originally formed, ECP provided Dynegy with the ability to buy its 35% interest in the JV using a predetermined methodology which included a minimum floor price of 2.25x ECP’s net investment in the venture. Based on expected partner equity contributions at the time, the minimum buyout price totaled $934 million including ECP’s initial capital contribution. By taking steps to reduce the upfront capital requirement and the minimum buyout multiple, the cost of the buyout is reduced by $184 million and accelerates the full integration of the ENGIE portfolio into Dynegy’s existing business.

 

“As we indicated in February, Dynegy’s intent has consistently been to fully own the ENGIE U.S. fossil portfolio. The significant improvement in the financial markets since announcing the transaction in February provided an excellent opportunity for us to approach ECP about an earlier timetable,” said Robert C. Flexon, President and CEO, Dynegy. “This transaction accelerates our company’s transformation, enabling us to increase our presence further in the most desirable markets with high quality assets.”

 

As a result of reaching this agreement with ECP, Dynegy envisions financing the acquisition of the ENGIE portfolio at the Dynegy Inc. level instead of pursuing a portfolio-level financing as previously planned with an expected benefit of reducing annual cash interest costs by approximately $40 million. By eliminating the structural and financial complexity of the joint venture, not only does Dynegy expect to reduce the cost of capital associated with the transaction, but also increase potential synergies and efficiently use the company’s NOLs, leading to meaningful increases in free cash flow to Dynegy. Dynegy’s acquisition of ECP’s interest in the JV does not impact ECP’s previously disclosed commitment to purchase $150 million in Dynegy Inc. common stock for $10.94/share at transaction closing which will result in ECP becoming Dynegy’s largest shareholder at that time.

 

Post-closing, the combined company will have approximately 34,700 MW of generation assets with a presence in all major competitive markets in the U.S. The company’s fleet continues to undergo a significant transition with the addition of ENGIE’s U.S. fossil portfolio and the previously announced shutdown of various coal units, resulting in a portfolio that is 71% gas and 29% coal by year-end 2017.

 

The acquisition of ENGIE’s U.S. fossil portfolio remains on track to close in the fourth quarter of this year.

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Heptagon Acquires RF Digital Corporation

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Transaction joins the innovative Simblee™ IoT technology for devices, mobile and cloud with Heptagon’s industry leading 3D imaging and sensing solutions, creating new possibilities and unparalleled value for customers

 

Heptagon, an industry leader in sensing, illumination and 3D imaging solutions for the Internet of Things (IoT) and Smart Devices, has announced it has acquired RF Digital Corporation, an expert designer and manufacturer of high performance, high quality wireless RF modules, including the RFduino and recently released Simblee, component-sized wireless module. This move further strengthens Heptagon’s position in the rapidly emerging IoT market and leverages the synergies of both companies by combining easy-to-connect modular solutions from RF Digital with Heptagon’s expertise in sensing, illumination and 3D imaging solutions.

 

RF Digital’s newest technology and product line – Simblee – incorporates Mobile, Bluetooth® Smart, Mesh, Cloud and other forms of wireless communication. With its unique “Push UI” technology, billions of users can interact with Simblee-connected devices instantly without needing to download additional mobile applications for each IoT product.

 

“We are very pleased to welcome the RF Digital team to Heptagon,” says Christian Tang-Jespersen, Heptagon’s CEO and President. “RF Digital’s cutting-edge wireless technology and products positions us to deliver an even broader range of innovative industry-leading solutions that address the rapidly evolving needs for the Interface of Things™.”

 

“Simblee is changing the way connected products are built, and its ease of use is speeding time to market,” said Armen Kazanchian, the Founder and President of RF Digital. “We are passionate about leveraging Heptagon’s global scale to help us realize our vision. While we will continue to operate somewhat independently, joining forces will enable us to support all leading smartphone vendors and OEMs across many industries, expand and invest in our developer community, and enhance our products and solutions.”

 

Simblee is an ideal product to combine with Heptagon’s sensors for a flexible mix-and-match building-block solution. This removes a significant amount of work from the development of mobile-connected IoT devices, making the technology much more accessible to a broader range of developers. In just a few hours, functional IoT applications can be created using the Simblee development environment. But Simblee does more than just accelerate the device-mobile-cloud development path. The device’s extremely low connection latency and its timing accuracy enables use in everything from wearable medical devices to gaming to industrial applications.

 

RF Digital, located in Southern California, was established in 1999, and led by its founder and President Armen Kazanchian for over 16 years. The transaction brings an expert team of hardware and software architects and engineers to Heptagon. Both RF Digital and Heptagon are individually known for their solid histories, visionary technologies, creativity and strong foundational skills. Each company is driven by an unrelenting commitment to excellence, performance, quality, delivery and customer support, making the joining of these two high performance teams notably significant to the IoT industry.

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Steady Growth in US Continues Say Forecasts

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UCLA Anderson Forecast’s second quarterly report in 2016 for the United States calls for continued slow but steady GDP growth in the 2% range.

 

As forecast in the spring report, national economic growth will be driven by increases in consumer spending and housing, along with an end to the inventory correction currently underway. In California, the Forecast anticipates continued steady gains in employment through 2018 and a steady decrease in the unemployment rate over the next two years. California’s unemployment rate is expected to be insignificantly different from the U.S. rate at 5.1% by the end of the forecast period.

 

The National Forecast

 

In his Forecast essay for the nation, UCLA Anderson Forecast Director Ed Leamer takes a deep dive into the factors driving the current U.S. economy, one that has been growing steadily at 2% following quarterly growth rates of 3% for the 40 years between 1965 and 2005. Leamer writes that growth since 2010 has been so eerily steady that it is defining an entirely new corridor at 2% instead of 3%. “Something is different, terribly different. What should forecasters be thinking?” Leamer asks. “We are thinking 1.7% real GDP growth in 2016, 2.8% in 2017 and 2.1% in 2018, averaging 2.2, with a strong labor market averaging about 200,000 increases in payrolls per month and a steady unemployment rate around 5%. More of the same, in other words. We are starting to see more evidence of inflation ahead, and are forecasting interest rate increases to keep real rates of interest pretty constant.”

 

Leamer’s essay examines the factors that led to the current state of the U.S. economy, specifically gross domestic product and employment. The article breaks down the historical performance of GDP (since 1951) and notes that the current economy’s roots date back most likely to 1990. These include: the elements that go into factoring GDP, including ways intellectual and creative services are measured and whether real GDP is being measured correctly now (and then); population and aging demographics; the impact of changing demographics on employment and workforce participation; how worker productivity is measured, since the nation’s productivity is not dependent on the numbers of people employed, but rather the number of hours they work and how productive they are while working.

 

While the Forecast continues to be on track for moderate growth, enthusiasm has dampened and expectations are revised slightly downward. Instead of looking for 3.3% growth in real GDP for 2016 on a fourth quarter-basis, the Anderson Forecast anticipates a more modest 2.7% growth rate. Despite the lower GDP growth rate, the economy remains on track to create 2.7 million jobs this year and 2.1 million jobs next year, as the economy operates at full employment. Consistent with the April statement from the Federal Reserve Board, the Forecast still expects two or three increases in the Fed funds rate, with the first one expected this July. As above, growth will be driven by increases in consumer spending and housing, coupled with the end of the inventory correction we are now experiencing. Despite coming off a weak first quarter of 2016, real annual GDP is expected to grow 1.7% this year.

 

The California Forecast

 

In his latest essay regarding the California economy, UCLA Anderson Senior Economist Jerry Nickelsburg focuses on the state’s employment situation. “Employment in California has grown steadily and is now at record levels. The number of payroll jobs is now at 16.4 million and is 6% above its previous peak,” writes Nickelsburg. “The number of people employed, including farm labor and the self-employed, is now at 18.1 million and 6.2% above its previous peak. One might claim that this is not near enough, since California’s population has grown by 9.5% since 2007 and therefore the state is a bit away from that elusive full employment level. However, it is not the population per se, but the age profile of the population that matters when considering full employment.” Nickelsburg’s look at California revisits the notion of “the bifurcated California” – the idea that inland California, with its traditional manufacturing, government and agriculture, continue to suffer in terms of employment, while the coast, with its technology, information and trade sectors, led the recovery.

 

While California experiences “full employment,” Nickelsburg warns of a number of risks, including the extension of Prop 30, which is on the September ballot (Prop 30, first passed in 2012, taxes the state’s top earners at a higher rate, leaving the state government vulnerable in times of recession) and the upcoming presidential election, as the next president’s policies might have an impact on international trade, a sector on which California relies.

 

The California Forecast has been revised downward slightly, as a consequence of slower than expected growth in the U.S. in 2016. The current Forecast calls for continued steady gains in employment through 2018 and a steady decrease in the unemployment rate in California over the next two years. Nickelsburg expects California’s unemployment rate to be insignificantly different from the U.S. rate at 5.1% by the end of the forecast period.

 

Nickelsburg estimates total employment growth for 2016 to be 2.0%, and forecasts 1.6% and 0.8% growth for 2017 and 2018 respectively. Payrolls will grow at about the same rate over the forecast horizon. Real personal income growth is estimated to be 3.1% in 2016 and forecast to be 3.4% in 2017 and 3.0% in 2018.

 

Letting The Air Out of the Commercial Real Estate Balloon

 

In a companion essay, UCLA Anderson Senior Economist David Shulman examines the nation’s commercial real estate sector. Citing a number of factors, including “cheap money, low levels of new construction, except for apartments and modestly improving demand, we are truly living in heady times for commercial real estate,” Shulman writes. But, it seems the heady times are slowly ending.

 

Shulman’s essay notes that the combination of a less favorable financial environment along with weakening fundamentals arising from increased supply and reduced demand will likely bring to an end the seven-year bull market in commercial real estate. “To be sure,” he says, “we are in no way forecasting a ‘crash’, but rather an extended period of sideways to down prices. Simply put, financial conditions will transition from being extraordinarily easy to just plain easy, making it unlikely for us to witness a repetition of the events of 2007-2009.”

 

The Middle Class Across the United States

 

In a second companion essay, Forecast Economist William Yu looks at the implications of the country’s shrinking middle class. Yu’s report concludes that: during the past four decades, the middle class in the U.S. has been shrinking, share of the upper class has been rising and the share of the lower class remains stable; the statistics reveal a source of frustration, as real median household income in the U.S. has been stagnant since 2000; due to high cost of housing, Los Angeles has the lowest homeownership among 40 of the largest metropolitan areas; and Los Angeles has the largest share of lower class residents with a smaller share of the middle class.

 

Yu says that without improvements in Los Angeles’ public education and investments in human capital, the local economy will continue to be bifurcated.

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