Last week was a historical one, with Great Britain voting in favor of leaving the EU. But it was a close call, and rightly so, because the benefits to the country aren’t very clear. Economists, the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), President Obama, and practically every financial and economic advisor has said that leaving the EU would be detrimental to Britain, but its citizens didn’t heed the warning. So Brexit is here, or at least the severance process will start soon, and it is unlikely to be completed by 2018.
What could people have been thinking? For one, there was the issue of immigration that the EU hasn’t been particularly good at curbing the free inflow of immigrants. The second was rising food prices, because in an attempt to protect the agricultural and manufacturing sectors, customs duties on food items under the EU had risen.
Then there was the theory that an independent Britain would be more flexible in negotiations and would therefore become stronger in trade. To top it all off was some patriotic hot air about Britain’s former glory that campaigners used to play on peoples’ emotions.
It’s time to take stock of the damage and what it could mean for technology companies, particularly U.S. companies operating in the EU. In a nutshell, this is bad news and technology stocks reacted suitably.
For companies like Alphabet’s GOOGL Google, Microsoft MSFT, Amazon AMZN, Facebook FB, etc., the situation has become highly complex on multiple levels. It was great having an EU member with relaxed rules that tech companies could headquarter in, store their data in and also use as a tax haven. With Britain out of the EU, countries like Germany and France, which have hit out at U.S. technology companies, will assume even greater importance in the EU and the result is unlikely to be positive for technology players. Privacy will also be an issue, and companies headquartered in the UK will no longer be subject to its more relaxed rules.
With that, let’s jump into the other top stories for the week-
New FDI Norms to Help Apple in India
The Indian government has decided to allow three years for retailers to alter their business models and procure 30% of their inputs from within the country. The adjustment in the foreign direct investment (FDI) norms are a big positive for Apple AAPL both because the company is seeing issues in China (still a very big market) and because of the maturing traditional markets where further penetration is likely to be limited.
Additionally, Indian smartphone penetration is likely to escalate over the next few years and any delay in consolidating market position would be highly detrimental to market share. Of course, Apple products are already available in India and the stores are mainly for the purpose of brand building. Apple products are high-end and they become even more so because of the currency differential; hence brand building becomes all the more important. With the relaxation in the FDI rules, Apple can start opening its stores right away.
Twitter Focuses on Video
After seeing stronger-than-expected demand for the NFL games (it has already sold 50% of ad inventory for the event), Twitter TWTR said it would soon announce more live streaming deals. The streaming will be through Periscope, the live-streaming app it acquired in 2015.
Regular video is also getting an upgrade. The company has decided that users will now be able to send videos that are up to 140 seconds long, up from the earlier limit of up to 30 seconds. Suggested videos will also be featured, which should increase the hours of video viewed on the platform.
Yahoo’s Tumblr Will Also Stream Video
Yahoo’s YHOO Tumblr has partnered with YouTube, YouNow, Kanvas and Upclose. YouTube is a giant everyone knows, but YouNow also has over 100 million user sessions per month with 50K hours of new live-streamed video daily. Kanvas and Upclose are much smaller players. Additionally, 15 media partners including Mashable, Refinery29, MTV and The Huffington Post will live stream content to Tumblr with more being in the pipeline.
By getting a large number of partners on board, Tumblr becomes a platform for sharing and discovery of live content that is created elsewhere. Once they have enabled the feature in their settings, users can stream their live content (created on partnered services) directly to Tumblr’s native video player from where it can be transmitted to users. If you’re a follower on Tumblr, you will receive a push notification every time followed users go live or re-blog a live stream.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
-2.02% |
-13.53% |
|
FB |
-0.83% |
+7.73% |
|
YHOO |
-1.88% |
+9.98% |
|
GOOGL |
-2.71% |
-9.47% |
|
MSFT |
-0.60% |
-7.94% |
|
INTC |
-0.66% |
-6.83% |
|
CSCO |
-4.15% |
+5.62% |
|
AMZN |
-1.05% |
+5.24% |
Other stories you might have missed-
Corporate
Apple Hires Important Executive: Apple has scooped up healthcare partner Sage Bionetworks executive Stephen Friend. Sage has been an Apple partner since the iPhone maker launched its ResearchKit and CareKit platforms and continues to maintain their open source back ends. Friend is a healthcare old-timer having previously worked at Merck and Harvard Medical School.
Saudi Prince Meets Facebook, Cisco and Microsoft: As part of a push to strengthen economic and security ties with the U.S., Deputy Crown Prince Mohammed Bin Salman met with Zuckerberg, Nadella, Chambers and Kalanick of Facebook, Microsoft, Cisco and Uber as well as executives of other technology firms. Boeing and Lockheed Martin executives were met the previous week. U.N. Secretary General Ban Ki-moon is the last stop on the list.
Google Executive to Work with Government: Google’s love affair with the government continues. The company has for long been a place where government executives found employment (nearly 200 instances to date). And it’s also been a company that the government has picked up talent from when required. One such case is Matt Cutts, who remains on extended leave at Google (since Jul 2014) while joining a government startup as a part of the U.S. Digital Service (USDS) group. Google doesn’t pay his salary but covers healthcare costs. This looks like a temporary engagement but details are scarce.
Amazon Cloud Gets Government Clearance: The Amazon cloud service has received a high-level government authorization called Federal Risk and Authorization Management Program (FedRAMP). This covers a lot of security concerns, so clearing the specification is a big deal. It’s now expected that sensitive but not classified information of the government, such as patient records, financial data and law enforcement data will be saved and processed in the Amazon cloud.
Amazon to Expand into Indonesia: With an initial investment of $600 million into a market where ecommerce sales now total only $3.2 billion (around 3% of total retail sales), Amazon is pretty much laying down its intention to dominate. Rocket Internet-backed Lazada is the biggest player at the moment, although Alibaba and Softbank are also getting into the action. Alibaba recently invested $1 billion in Lazada while Softbank invested in smaller rival Tokopedia.
Amazon’s Next Physical Bookstore in Portland: The upscale Washington Square mall in Tigard, Ore. will see the next Amazon bookstore, according to media reports. The region is home to one of the remaining still-popular brick-and-mortar bookstore chains Powell's City of Books. The group of five Powell’s stores in the area sell more than two million new and used volumes.
There definitely appears to be a battle afoot, and any customers Amazon manages to pull away from Powell’s will be beneficial for the ecommerce giant. However, this may not have been the only reason for choosing the location. Amazon typically chooses locations where there are a known volume of readers (its previous stores were near universities). This location also fits the bill on that count and should help footfall. The idea of physical stores is to give personalized attention to book lovers and the model is intended to support rather than replace Amazon’s online sales.
Legal/Regulatory
Intel Appeals EU Fine: It appears to be time to pay the piper. Intel has been fighting an EU court decision that is seeking damages of $1.2 billion for stifling competition. The case continues from 2009, when Intel coerced Acer, Dell, undivided Hewlett Packard, Lenovo and NEC Corp into using its chips over those from Advanced Micro Devices by offering “loyalty rebates.” It has been alleged and accepted by the courts that Intel used its leadership position to squeeze out its only viable competitor, preventing them from looking for lower priced products “that might have been available.” Intel is now appealing that the EC didn’t analyze “all relevant circumstances.” A date for deciding on Intel’s appeal hasn’t been set yet.
Arista in Infringement of Cisco Patents: The U.S. International Trade Commission has ruled that Arista infringed on three Cisco patents in a long-drawn out legal battle between the two. Arista, which was formed by former Cisco employees, has a lot to lose because this could prevent it from selling its 7000 series switches, which generate most of its revenue.
Arista executives have said that the company has redesigned its switches to comply with the ITC’s order and would defend its rights in court. Cisco executives have said that Arista hadn’t presented the new designs to court and couldn’t mislead its shareholders and customers any longer.
Qualcomm Sues Alibaba-backed Meizu: Qualcomm has filed a case in a Beijing court against Alibaba-backed Meizu Technology for infringing on some of its smartphone technology. Qualcomm generates about half its income from licensing and its Chinese licensees include Huawei and Xiaomi.
New Technology/Products
Facebook Live Content Creation: The WSJ reports that Facebook has signed 140 contracts with media houses like CNN, the New York Times, Vox Media, Tastemade, Mashable and Huffington Post and with celebrities such as Kevin Hart, Gordon Ramsay and Deepak Chopra, paying them a total of $50 million to create content for its live streaming service. The top three recipients are Buzzfeed, NYT and CNN. More than 17 entities received more than a million.
Microsoft Updates Tap-and-Pay App: Microsoft Lumia 950, 950 XL and 650 users can now tap their phones to activate the Microsoft Wallet to pay at over a million retail outlets across the U.S. But since there aren’t many of those services available, the news becomes almost inconsequential. Unless of course Microsoft later makes the service device agnostic and/or adds it to LinkedIn networking accounts for peer-to-peer and other transactions (as suggested by Richard Crone of Crone Consulting LLC).
Google Cloud Reaches Universities: Google has said that upon application by university computer science faculty in the U.S., it will make certain cloud tools like Google App Engine (for building apps), Google BigQuery (for storing and sifting through large amounts of data), and Cloud Machine Learning (for detecting patterns across big datasets) available to students for free. The free tools are expected to be available in other countries later.
M&A and Collaborations
Alphabet’s Fiber Makes Acquisition: Alphabet’s Google Fiber has picked up for an undisclosed amount high-speed Internet service provider Webpass, which operates in the San Francisco Bay Area, Chicago, Boston, Miami and San Diego areas. Since Fiber is still a somewhat limited service despite the millions Google has invested in it, the acquisition helps it expand to new geographies.
Webpass has the capabilities for gigabit speed connectivity at rates that are competitive to Google, which also makes it a good fit. At the same time, it uses a combination of gigabit Ethernet and high-speed fixed lines, which may be of interest to Fiber because it can lower the cost of operation.
Some Numbers
Canaccord Talks on Apple iPhone: Canaccord’s Mike Walkley cut his 2016 revenue and EPS estimates for Apple while lowering the target price from $130 to $120 citing slightly slower iPhone upgrades this year. He also said that the SE is likely to grow in the mix and that shipments would pick up somewhat after the iPhone 7 launch. He expressed enthusiasm for the installed base saying it improved prospects for Apple to grow its “higher-margin services business through additional iTunes, apps, and software sales as well as through new services such as the Apple Pay and Apple streaming music service.”
Spotify Records Milestone: Spotify has declared that it now has 100 million monthly active users worldwide, of which 30 million are paying subscribers. The company is reportedly adding 1.8 million new users a month with roughly 30% of that number going for paid subscriptions. Spotify’s operating model involves getting users onto its platform using the free ad-supported plan and then gradually migrating them over to the paid subscription for an ad-free all-you-can-eat offer.
Social Media Apps Dominate Mobile Minutes: According to the Global Internet Phenomena Report by Sandvine, YouTube ranked first with 19% share, followed by Facebook with 14%, Instagram 6% and Snapchat 5%. Facebook, in combination with Instagram and WhatsApp, both of which it owns, topped with a 22% share of all video uploaded or downloaded. The survey was done at peak hours from 7PM to 11PM.
Amazon Streaming Traffic Doubles: The Sandvine report also said that of streaming companies, Netflix remains the leader with a 35.2% share followed by YouTube with a 17.5% share. Amazon is very far behind at 4.3%, but this is more than twice the 2% share just a year ago.
Citi Says Search Ad Trends Weaker: Citigroup analyst Mark May announced weaker expectations for Google’s ex-FX search business and also mentioned two leading search engine marketing companies who were seeing search marketing spend decelerating slightly on a year-over-year basis in the second quarter compared to the first. He said that upside from current estimates were unlikely and maintained estimates for the second half of 2016 and 2017 saying that they were reasonable. But this didn’t help the shares, which sank after the report.
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