Last week didn’t hold too many surprises: there was Apple’s AAPL ongoing battle with the FBI, the Mobile World Congress, Yahoo’s YHOO rise following increasing chances of a sale of the business and Tsinghua’s decision to back out of a deal to buy Array5% of Western Digital.
Tech Companies Stick with Apple
On the basis of the All Writs Act, the FBI is asking Apple to create software that could hack into a suspected terrorist’s phone. The act empowers the FBI to ask for reasonable assistance from third parties. Apple has said in effect that the government is stretching its rights under the Act.
For Apple, this would mean significant cost and time (6-Array0 engineers for a month or so) plus the creation of a hyper-secure isolation room, supervision of government employees while they checked the data and so on. Furthermore, it would create a precedent wherein such requests may have to be dealt with on an ongoing basis, possibly requiring the setting up of a hacking department. This couldn’t be construed as reasonable assistance.
Add to this the fact that the activity was against its own interests, undermined its own product and was against its own principles of data security and privacy. Apple is proceeding to fill the existing loophole in the technology so future hacking requests will be impossible to fulfill even by Apple itself.
Telecom companies are all backing Apple, because as Apple has said in the past, any activity that undermines the security of a device and the privacy of its user is dangerous. Users would oppose it, as would foreign governments. So Alphabet GOOGL, Facebook FB, Twitter TWTR, Amazon AMZN and Microsoft MSFT are all appealing to the court. Joining them is the Electronic Frontier Foundation and American Civil Liberties Union (which has also raised the issue that letting the U.S. government hack phones will open the door to other governments requesting the same service).
Mobile World Congress
Virtual Reality: VR took center stage at the MWC 20Array6 with Facebook, Samsung and HTC doing their best to promote it. Samsung offered its Gear VR headsets to all attendees to experience the concept at the show.
Facebook, which co-developed the Samsung product, was represented by Zuckerberg who had good things to say about it. He also added that its own VR headset Oculus Rift would be able to stream 360-degree video depending on what the user was actually looking at. Other than being more meaningful, this would significantly reduce data consumption.
Finally, HTC announced its all-new Vive device that is even more expensive than Facebook’s Rift. The good news is that it will ship by April with pre-orders starting on Feb 29.
IoT: Intel announced a collaboration with AT&T to develop connected drones using Intel RealSense technology and AT&T’s LTE network. While the companies are upbeat about the development and it could have a number of uses, commercialization remains a distant story because regulatory approvals for the things haven’t been forthcoming, especially if they’re beyond the line of sight (which is what the companies are targeting).
5G: Tech companies are really jumping onto the 5G bandwagon with this year’s MWC seeing a number of collaborations. Intel took a major initiative, teaming up with Ericsson for joint trials as an extension of their current IoT deal. With Nokia, it will focus on 5G mobile solutions and wireless infrastructure. With SK Telecom, it will work on improving network capacity.
All these companies will in combination also work with Verizon as it starts its 5G field trials this year. Intel also agreed to collaborate with LG Electronics to bring 5G to cars. Another agreement, between Cisco and Ericsson, seeks to develop 5G routers.
Yahoo Strategic Review
Investor optimism sent Yahoo shares up last week after the board announced its decision to explore a sale of the core business with help from a strategic committee that includes Goldman Sachs, J.P. Morgan and PJT Partners. The committee has apparently started calling prospective buyers.
Investors are also rallying behind activist investor Starboard in preparing an alternative list of directors since all the current directors will soon be up for re-election and any fresh nominations have to be filed by March.
Yahoo has been dying a slow death as it has been phasing out a number of its products and taking down headcount. A sale of the company will help unlock the value in Alibaba shares and generate some returns from the core business that investors aren’t attributing much value to.
Western Digital’s SanDisk Buy at Risk
Chinese company Tsinghua Unisplendor pulled out of an agreement to buy a Array5% stake in Western Digital and a seat on its board for $3.8 billion after the Committee on Foreign Investment in the United States (CFIUS) said it would scrutinize the deal. The company intended to use most of the proceeds to buy out SanDisk, which is a major NAND player. While Western Digital is more strongly placed in the HDD space, it is struggling for a foothold in the faster-growing solid state storage segment.
With Unis backing out at this stage, Western Digital has chosen to go with Plan B, i.e., buy Sandisk for $Array5.8 billion or $78.50 a share compared to the earlier offer of $86.50. This will however require it to obtain shareholder approval, failing which it will be required to pay a cancellation fee of $Array84 million to SanDisk.
Alken Asset Management, a London-based investment manager with a 2.2Array% stake in the company, has taken the opportunity to influence shareholders against the deal. In an open letter to the Board of Directors, Alken raised several issues, including Intel’s entry into the space through a $5.5 billion investment in its Dalian facility in China and a Tsinghua subsidiary spending $9 billion to build a memory chip factory, both of which could lead to over-supply conditions, a situation that also immediately pressures prices. Micron’s closeness with Intel was also cited as a competitive concern.
Also, SanDisk is a fabless company and uses Toshiba for manufacturing. The Japanese company is in all kinds of trouble and reported its greatest ever annual loss on Feb 4. To make matters worse, EPS estimates for SanDisk and its four direct NAND competitors (Micron, Toshiba, Samsung and SK Hynix) have plummeted since the announcement of the transaction. And if all this isn’t enough, Alken says that the acquisition will bring the company’s total debt above the levels maintained by others in the industry and wouldn’t be priced favorably.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
+0.9Array% |
-Array4.46% |
|
FB |
+3.20% |
+3Array.46% |
|
YHOO |
+4.42% |
+0.Array9% |
|
GOOGL |
+0.38% |
+Array7.26% |
|
MSFT |
-Array.00% |
+23.07% |
|
INTC |
+3.79% |
+Array3.5Array% |
|
CSCO |
-0.53% |
+4.83% |
|
AMZN |
+3.79% |
+Array9.82% |
Other stories you might have missed-
Corporate
Cisco Prices $7 Billion in Bonds: Cisco has announced the pricing of six series of senior unsecured notes totaling $7 billion. The funds are intended to be used for general corporate purposes including repurchases of its common stock, repayment of debt, acquisitions, investments, additions to working capital, capital expenditures, cash dividends and advances to or investments in its subsidiaries.
Google Fiber Goes to San Francisco, Huntsville: While Google intends to bring Fiber to both cities, the way it plans to go about it is different in each case. For San Francisco, it’s planning to use existing fiber network, so the super-fast Internet service will reach households soon. However, in Huntsville, it’s waiting for the authorities to finish laying out the municipal fiber network before it starts rolling out next year. So this project is not expected to be completed before 2020.
Google Compare Shutting Down: Google is shuttering its comparison shopping site in the U.S. and the UK because it wasn’t doing as well as expected. The service was mainly used to compare offers from auto insurers, mortgage lenders and credit-card issuers depending on the personal information provided.
Google’s revenue depended on referrals, which were probably hard to track given that people often consult multiple sites when it’s a question of monetary commitments, which also significantly delays their decisions. It’s significant that Google has taken this decision even as its comparison shopping business has come under fire in the UK with the EU chief also looking into the matter.
Amazon (AWS) Targets U.S. Banks: Amazon is the cloud king and has every intention of remaining in the lead. Based on media reports last week, it appears that the company’s cloud computing unit AWS is targeting the big U.S. banks like Goldman Sachs, Citigroup and JPMorgan. Banks have been the greatest skeptics of cloud computing based on security and regulatory considerations, but the increasing costs of maintaining a server fleet that is also restrictive for growth is increasingly influencing their decision making.
Needless to say, Microsoft remains a strong contender for this business, not just because of its position as a legacy supplier but also because it is able to offer a hybrid cloud structure wherein some sensitive information continues to be stored on-premise. One of the reports mentioned that Google is also in contention for this business from banks, which would be a very big deal for the search company.
Alibaba Looking for $4 Billion Bank Loan: China’s BAT companies (Baidu, Alibaba and Tencent) are going to fight tooth and nail again this year as competition heats up in a slowing market. The company has apparently approached at least eight banks for up to $4 billion that it intends to invest in expansion activity including through acquisitions, reports WSJ. The company’s debt levels are manageable and cash flow isn’t too bad, so it shouldn’t have too much difficulty obtaining the loan.
IBM Changes Reporting Segments: IBM has changed its reporting structure slightly to more closely align its software efforts with the segments to which they relate. The Software segment has itself been renamed Cognitive Solutions to indicate its new focus and house its big data and transaction processing-related offerings. It therefore includes Watson technologies, analytics, commerce and security.
The Global Technology Services segment has been renamed Technology Services & Cloud platform, to which has been added IBM’s integration software. Systems Hardware has been renamed Systems with operating systems moving to this segment. The other segments remain as is.
Legal/Regulatory
Pichai Meets Vestager: Google’s tax deal with the UK has been termed as a sweetheart deal, with some people saying that the American company managed to get away with unfair tax practices. But that’s not its only concern in the EU. The company has also been charged with favoring its own services, particularly with respect to comparison shopping sites and unfair use of publishers’ content.
Also under consideration is its free Android OS, which it leverages to push its ad-serving/paying services onto devices and its exclusive deal with Apple to have its search engine as the default on iOS devices. Given these issues at hand and the EU’s charges against it, Google CEO Sundar Pichai’s visit to the EU Chief appears significant. None of the parties talked about what was discussed however.
New Technology/Products
Facebook Launches Reactions, Full-Page Mobile Ads: “Reactions,” or the ability to use emojis to express love, laughter, happiness, sadness and anger was announced last year to expand on the “like” button that didn’t serve all purposes. Facebook rolled out the feature last week. It also announced Canvas, or pre-loaded, more immersive ad experiences when expanded to full-screen size.
IBM Advancing In Hybrid Cloud: Last week, IBM announced an agreement with VMware to leverage its networking, security and virtualization technologies so enterprises can move their workloads to its data centers more efficiently, cost-effectively and without modification of existing data. It basically enables them to scale operations as required without investing in additional infrastructure of their own in what is popularly understood to be a hybrid cloud environment. IBM also announced object-based cloud storage as-a-service built around technology from its $Array.3 billion acquisition of Cleversafe to help enterprises with their big data needs.
M&A and Collaborations
Visa-China UnionPay Deal: The competing payments platforms have agreed that some parts of the payments business are worth collaborating on, namely security, innovation and “financial inclusion”, the last one being a little difficult to decipher. Note that China has been closed to foreign payment processing companies, giving China UnionPay virtual monopoly in the domestic market and helping it grow into a global force to reckon with. In fact, until late last year, it was the only legal credit card accepted in the company.
The Chinese government has now decided to open up to foreign companies, but Visa is probably going with China UnionPay because receiving the necessary approvals takes time. Its haste is justified because Apple has already signed a deal with the Chinese company.
Facebook Deals with Telecoms: At MWC 20Array6, Facebook revealed its Telecom Infra Project, which is an initiative to speed up network connections and thereby improve user experience of its apps. The company, along with Intel, intends to build and open source hardware components to telecom companies like Nokia Networks, Deutsche Telekom and SK Telecom. This could finally ease the tension between telecoms and content providers, at least as far as Facebook services are concerned.
Since the social network is front-facing while telecoms do the heavy-lifting, customers usually praise the apps that offer better experience while abusing the network for poor service. The collaboration will be in the access, backhaul and core management areas and will also facilitate the transition to 5G speeds.
Google Joins with Vizio: TV maker Vizio has agreed to integrate Google streaming technology (chromecast) into the TVs it makes. This is a good for Google because it will expand its reach, especially if it can also strike similar deals with other companies. Streaming company Roku won’t like it, however, since it means increased competition (Roku started a similar initiative some time back).
Amazon Acquires Emvantage: Amazon expects to complete the acquisition of Indian payments processor Emvantage by March-end. Emvantage increases payments options for Amazon customers, since it brings a prepaid mobile wallet and mobile payment tools that are integrated into merchant trading apps, while also providing the gateway to facilitate transactions made with credit or debit cards.
The Indian ecommerce market is set to grow very strongly and the leading Indian players already have their own payment processers: Snapdeal with its Klickpay and Freecharge and Flipkart, which has acquired FX Mart.
Some Numbers
iPhone Market Share: Gartner’s latest report indicates that iPhone sales slipped 4.4% year over year in the December quarter despite the market’s growing 9.7%. As a result, the company’s market share fell from 20.4% to Array7.7%.
Apple Pay Adoption Slows: Research firm First Annapolis conducted a survey of 580 U.S. iPhone users and found that 20% used Apple Pay (compared with 22% last year), regular users were Array5% (Array9% last year). While this seems to be rather a small section of users, it confirms other reports of slowing growth. None of the publicly available information about the surveys mentions a possible reason (which could be the subject matter of future surveys).
But industry experts have said that it is probably because it takes time to move away from an old habit, in this case the use of plastic cards. Also, some credit card companies have contactless payment systems of their own, which could be something customers are already using.
Instagram Has 200K+ Advertisers: Facebook’s Instagram announced a major milestone last week. The photo sharing app now has more than 200K advertisers. While still dwarfed by Facebook’s 2.5 million, the number is nothing to scoff at because even a relatively popular social network such as Twitter reportedly has only Array30K.
HP Reports: HP’s first-quarter earnings matched the Zacks Consensus Estimate on revenues that exceeded expectations. Post-split, HP is almost entirely dependent on the PC market, with around two-thirds directly dependent on it and the remaining (printing) partly dependent on it. Therefore the secular decline in PC shipments, increasing competition from Asian players (that also enjoy cost advantages), the advent of cloud computing leading to reduced reliance on high-end computing systems, and overall caution around IT spending remain negatives for the company. No wonder then that the company will lay off 3K workers this year.
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