It was a very big week for the sector that saw some mega-acquisitions involving Avago AVGO-Broadcom BRCM and Intel INTC-Altera ALTR, as well as the Google GOOGL I/O 2015.
M&A Across Semiconductor Industry
Avago-Broadcom: Avago is paying Broadcom $37 billion ($17 billion cash and the rest in shares) for a 32% stake in the combined company to be called Broadcom. The positives include a lower tax rate (since the headquarters will be in Singapore) and a much broader product line (spanning Broadcom’s SoCs for smart homes and data centers and Avago’s optical and wireless analog products). It’s not yet clear yet where the cost synergies lie since both companies are quite disciplined, but Broadcom spends significantly more on R&D.
Intel-Atera: Intel is paying $16.7 billion to acquire partner Altera. The deal was expected to be approved by June 1, failing which Intel could have resorted to a hostile takeover. It’s a sweet marriage of complementing technologies with Intel specializing in the chip logic and Altera in speeding up the process. Intel promises better performance at lower costs and that’s exactly what is likely to be achieved.
Cypress-ISSI: In the bidding war between Cypress and Uphill Investment Co., Cypress just upped the ante. The maker of mixed-signal programmable chips and memories for multiple markets is now willing to pay $20.25 a share for Integrated Silicon Solution. Uphill’s last offer was for $19.25. The deal will greatly increase Cypress’ SRAM market share but the company is urging ISSI shareholders to accept the offer as they can then expect an earlier closing date. ISSI makes DRAM and SRAM memories as well as mixed-signal chips.
Google I/O Highlights
Google had many announcements at its I/O 2015 but here are just a few key points:
Android M: M probably represents milkshake, and the new OS will likely be even easier to swallow. That’s because with this iteration of Android, the primary goal appears to be to improve user experience. First off, app permissions are being streamlined with customers being offered more choice. Second, there will be subtle improvement in user experience when interacting with websites and apps. Third, M is more intelligent when it comes to opening app content and doesn’t require further directions from users.
It also offers automatic encrypted backup for apps with the information being retrievable later on in case the device is lost or the app deleted. Fourth, “adoptable storage devices” was introduced, in which an external storage such as an SD card or USB drive is reformatted as internal storage facilitating free data flow. Fifth, it enables faster charging and comes with longer battery life.
Android Pay: Google’s NFC-based mobile payments solution enables you to use existing cards in more than 700,000 U.S. stores. It’s currently being supported by American Express, Visa, Mastercard, and Discover on AT&T, Verizon and T-Mobile networks. The new OS is bringing fingerprint authentication both for making payments and unlocking phones.
Google Photos: A free service enabling storage and organization of all your photos that Google is enhancing with its machine learning expertise so you can find anything in a jiffy. It is comparable to Apple photos and Yahoo Flickr.
Advanced Technologies and Projects (ATAP): Some of the highlights this time round related to Project Jacquard (conductive fibers woven into cloth enabling sensors to be embedded) and Levis has already signed on; Project Ara (brings a modular approach to hardware enabling download of different parts of a mobile device and fitting them together) and the company demoed a working prototype; Project Soli (a tiny sensor on mobile devices that detects hand gestures; Project Vault (for enhanced security); and Project Abacas (bringing machine learnings to security).
Tools and Marketing for App Developers: Android Design Support Library helps improve the look and feel of apps by integrating simple tools into them. It also introduced C/C++ support in Android Studio and brought cloud support for testing apps all in the interest of speeding up the development process.
And that’s not all: Google now promises better marketing for app developers through its Universal App Campaigns, across the Play Store, YouTube and other Google properties as well as the 2 million websites in its display ad network and inside the 650,000 apps on its AdMob mobile ad network. The only thing is, Google algorithms will determine the property depending on specified needs of the developer. But developers can determine app value across Android, iOS and 20+other ad networks.
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Company |
Last Week |
Last 6 Months |
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AAPL |
-1.51% |
+13.43% |
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FB |
-0.31% |
+8.49% |
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YHOO |
-0.31% |
-16.35% |
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GOOGL |
-0.96% |
+0.32% |
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MSFT |
+0.70% |
-0.76% |
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INTC |
+1.36% |
-6.46% |
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CSCO |
-0.27% |
+7.95% |
Explaining the price movement For the First Half
Apple AAPL has gained mostly on the back of strong iPhone results, new product pipeline and growing strength in China, while Facebook FB has gained from user growth (particularly in mobile) and growing engagement on the platform. Cisco is a solid dividend stock and the company has overcome some of its challenges in emerging markets.
Microsoft MSFT and Intel continue to be discounted because of the PC market weakness. They are also both in transition to new models and have much to prove. The strength of their legacy businesses and innovative prowess are supporting share prices.
Yahoo has been hit by continued weakness in the core business and the tax free distribution of Alibaba shares hasn’t been completed yet. Google languishes because of growth issues in the core desktop business and many issues in the mobile segment where there is significant and growing competition. Legal problems in Europe don’t help either.
Other stories you might have missed–
Corporate
Brand Watch: WPP and Milward Brown’s top ten most valuable brands has Apple leading, followed by Google, Microsoft, IBM and Visa. In 2014, Google was number one, followed by Apple, IBM and Microsoft. Visa was number seven last year.
Gartner’s Magic Quadrant for Cloud Providers: Gartner’s magic quadrant for cloud IaaS shows Amazon’s AWS way ahead of the others both in terms of vision and the ability to execute. Microsoft is closest but still well behind with significant compute capacity and nascent partnerships. Google and VMware have seen the biggest gains over the past year. While both have some shortcomings with respect to enterprise workloads, Google has appeal for technology-centric businesses. The biggest disappointment was IBM, which slipped quite a bit and probably needs to work on integrating its capabilities and building capacity.
Apple’s Arizona Facility Catches Fire: The Arizona-based facilitywas one of GTAT’s, which Apple (AAPL) promised to convert to a data center some time back. It appears that the iPhone maker is planning to hire 300 to 500 people to run the center, which will be powered entirely by green energy. Operation starts next year.
IBM to Get Macs for Employees: The company recognized as the inventor of the PC is offering to buy employees Apple Macs. New hires or employees due for a new PC can avail the option. IBM reportedly has around 380,000 employees and 15K Macs are currently in use. It intends to buy 50,000 more by year-end.
Amazon Lures Etsy Sellers: Amazon is prepping a marketplace for hand-crafted customized goods and it’s offering Etsy sellers the option to market their wares on the platform. The launch date for the new marketplace is not available and the whole thing sounds kind of hush-hush, but some Etsy sellers did get an email to check out the site. Amazon’s huge traffic is a big lure for many of these small players.
Alibaba Improves Next-Day Delivery Service: Cainiao, the logistics company in which Alibaba has a 48% stake has launched a new supermarket distribution center in Chengdu, China to serve the southwestern part of the country. This is its sixth distribution facility and is expected to deliver same or next-day delivery to 50 cities by the end of the year.
Legal/Regulatory
Amazon Will Tow The Tax Line In Europe
Apple Fails to Disqualify Antitrust Monitor: A federal appeals court ruled that a lower court judge did not abuse her discretion when she rejected Apple’s bid to disqualify Michael Bromwich as anti-trust compliance monitor. Apple was found guilty of ebook price fixing in actions that would have raised prices across the industry and had objected to the choice of Bromwich mainly because he was expensive and was calling for interviews with executives not linked to the ebook case without the consent of company lawyers.
Oracle Wins Against Google: In a case that seems to be winding on forever, Oracle has won a round. Earlier, Google won a round when it was ruled that the 9 lines or 0.0009% of the then-free Java that helped create a free OS could be considered “fair use”. After Android gained traction in the smartphone market, Oracle bought Java creator Sun to extract some money.
Oracle had numerous complaints with the earlier decision, one of which was that when copyrightable “idea” and uncopyrightable “expression” merge, it should be treated as idea, so every short phrase (structure, sequence, organization) should be considered copyrighted. Google also raised the issue of interoperability as a reason for using the code, which the court set aside because Android is not specifically compatible with the Java code or JVM.
This part of the case deals with whether code was in fact copied, and this court has ruled in the affirmative. The ruling doesn’t cover fair use, which will presumably be taken up next. The case is being watched by the software community because it can affect how code is written in the future.
New Technology/Products
Microsoft New Windows Store Policy: Microsoft is making changes to its Windows App Store certification policies that could clean up the store and make it more user-friendly. In particular, it will now check both existing and new apps for unique content, creative value or utility in the absence of which the apps can be removed. Not just that- it will now check for apps that are priced significantly higher than others of the same category but do not provide additional value and remove those.
Cortana Goes to Google and Apple Devices: Microsoft’s personal assistant Cortana has been around for a while, but Windows 10 is going to make it more central to the Microsoft experience. Microsoft doesn’t have a lot of phones out there, so its decision to take it cross-platform sounds like a very good idea. Users would be able to set actions (like reminders) on the PC and have them completed on the mobile device they are carrying. Of course the lack of integration to those operating systems won’t allow it to replace Google Now or Siri, but it’s a nice option to have that users might appreciate.
GoPro Drones Coming Soon: The company has announced that it will be shipping drones in the first half of 2016 and media reports indicate that they could cost $500-$1,000. A six-camera spherical array developed in collaboration with Google is also in the works.
Yelp in Fashion: Yelp has roped in Shoptiques.com, which sells fashion apparel from 1,500 boutiques across the world. Two hundred of these small retailers are now selling their wares on the platform and Yelp expects that thousands more will be added by year-end. Management has said that a large number of the reviews on the platform related to fashion items so this seems to be a natural progression for the company.
M&A and Collaborations
Google Takes Pulse.io: Pulse.io is a tiny startup that helps developers determine how they can speed up their app’s performance. The company’s technology will be incorporated into the Google ecosystem and could be used to develop Google’s own apps or made available to Android developers.
Twitter Could Be Considering Buying FlipBoard
Yahoo Japan-Alibaba: The two companies said that they have entered into an agreement that will give Japanese merchants access to Alibaba’s Tmall. This may indeed be a better way for Japanese players to enter the country as direct efforts didn’t go all that well for Yahoo Japan archrival Rakuten. Yahoo Japan is Japan’s largest search engine and one of its two largest ecommerce players (Rakuten being the other). Yahoo Japan shares jumped 12% in response.
Akamai Scores Cloud Win at China Unicom: China Unicom’s cloud business called CU Cloud is using Akamai’s web performance, media delivery, and cloud security services. This is a big positive since China Unicom, which is one of the largest cloud computing service providers in the country, will now bundle its own services with Akamai’s. Akamai has greatly increased Asian investments in the recent past.
Last week, it also officially opened a new security operations center in Bangalore, India to expand its global cyber defense network. By year-end, the company expects this to be its second largest SOC in terms of human resources outside the U.S.
Some Numbers
Windows 10 Prices Leaked: Online retailer Newegg has leaked the launch date and price of Windows 10. While there will be large number of free updates to qualified Windows 7 and 8.1 users, the people who need to buy will have to fork out $109 for the Home version and $149 for the Pro version. Not exactly cheap!
Netflix, YouTube Gain Traffic Share: Sandvine-published traffic data estimates for the first half of 2015 puts Netflix in the lead on desktops with a 33.8% share. Google’s YouTube is a distant second at 14.6%, Apple’s iTunes fifth at 3.1%, Facebook sixth at 2.6% and Amazon Video ninth at 1.8%. But the mobile story was remarkably different, where YouTube leads with 19.2%, closely followed by Facebook with 16.2%, Snapchat is fifth with 4.3%, Google Cloud sixth with 4.2% and Netflix eighth with 3.9%.
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