Technology stocks barely moved last week, but it wasn’t for a dearth of news. Here’s a closer look at the top stories:
Apple’s EU Taxes
The EU has slapped a 13 billion euro ($14.5 billion) tax bill on Apple AAPL, saying that the company owes the amount to Ireland. This puts the Irish government in a spot because it has for long been using a lower tax rate to lure multinational companies (many of which are technology companies) to set up shop in the region and thereby lift the unemployment rate.
But the devil is in the details because the tax bill is most likely not related to “state aid” as described above, which is legal per EU rules. This enabled Ireland to charge a 12.5% tax rate even while the EU tax rate was 35%.
The issue is most likely related to the Double Irish, which allowed these companies (Apple and Google were perhaps the most criticized on this count) to avoid paying even this reduced amount by transferring tax residency to a country with a lower or zero tax rate through a specific corporate structure that was legal in Ireland. But because a lower tax rate translated to more cash for these multinationals, thus strengthening their competitive position versus other players, it has been the bone of contention for the EU.
The Irish government changed the law in 2013, so new companies setting up in Ireland after Jan 1, 2015 have to be tax resident in Ireland and existing companies have until 2020 to comply. This is probably not acceptable to the EU.
Meanwhile, Apple has done an interesting thing. Tim Cook has said that some of the cash it has been hoarding overseas will be repatriated to the U.S. next year meaning that it will then be taxable in the U.S. The prospect of revenue has got President Obama interested. Consequently, he has promised to take on the EU and address the issue at the G20 summit in Hangzhou, China.
Nest Labs Now Part of Google
Not all separations go well. A case in point is the separation of Nest Labs from Alphabet's GOOGL Google. The smart home device maker was acquired some years back and was later reorganized into one of the “Other Bets” ventures that Google created. In fact it was perhaps the only one among them that actually generated cash.
But Nest has had problems in the recent past with software glitches, employee lawsuits and management departures. Google’s smart home platform has also lacked clarity with Brillo, “Works With Nest” and later the Revolv acquisition. All this while Amazon’s AMZN Echo and Alexa grew stronger through increased functionality and partnerships with consumer electronics companies.
So currently, Nest is a company with some good, well-designed products; confused vision for future growth; a leadership crisis and sluggish sales. No wonder it’s being folded back into Google, probably with the intention of cash infusion, nurturing and leadership. Whether the products will be made to run on Android, or whether there will be a completely new OS to tie them together (Google is apparently developing a new OS from the ground up for IoT devices called Fuchsia) uis not known at this time.
Possibilities Of Twitter Sale
Twitter TWTR has for long been rumored to be a takeover target with the possible suitors being a broad range of companies including Alphabet, Microsoft MSFT, Facebook FB and even Apple. But after Microsoft’s LinkedIn acquisition and Facebook’s innovations and acquisitions, those companies don’t appear to be likely suitors any more. The most logical acquirer is therefore Alphabet, with which it also has an arrangement to include tweets on the search engine results page.
This time, however, the rumor seems closer to fact because it is Twitter co-founder Ev Williams that has got it going. CNBC pointed to an important board meeting on Sep 8 that will likely focus on Twitter’s growth rates and consider available options including a sale of the company.
Twitter isn’t a social network although it has social elements and is therefore clubbed in that group. Like LinkedIn, it has a unique flavor so calling it a tweeting site seems far more appropriate. The concern is not with the uniqueness but with management’s ability to monetize it.
So the problem facing management is to find a way to monetize the uniqueness or change its character. Management seems to have gone the change character route by adding more social-type elements, facilitating better sharing and including live streaming of major sports events.
But character changes can alienate Twitter fans and lack of uniqueness can keep users on other social networking properties. Twitter user growth rates have slowed to a crawl so this strategy may not be yielding desired results. Or, the uniqueness it retains is too niche to ensure continued growth rates. Which means it could now be on the block.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
+0.74% |
+4.58% |
|
FB |
+1.24% |
+18.32% |
|
GOOGL |
+0.46% |
+11.10% |
|
MSFT |
-0.62% |
+13.34% |
|
INTC |
+2.33% |
+21.92% |
|
CSCO |
+1.53% |
+21.57% |
|
AMZN |
+0.45% |
+39.79% |
Other stories you might have missed-
Corporate
Facebook Loses Satellite: Facebook’s plan to launch a satellite to extend connectivity in Sub-Saharan Africa met a roadblock last week. The company’s dreams of these “solar-powered drones” that “are basically like a cell phone tower in the sky” with the ability to “go over really remote rural locations and beam down connectivity” crashed along with its AMOS-6 satellite.
The company was working with French satellite firm Eutelsat Communications to launch the satellite in Cape Canaveral, FL. AMOS-6 was set to move into orbit on a SpaceX Falcon 9 rocket on Saturday but a launchpad defect set off an explosion destroying it.
Microsoft to Sell MSN China: Microsoft’s MSN China portal is changing hands. The company announced last week that XiChuang Technology (Beijing) Co. led by former Microsoft executive Liu Zhenyu would acquire Microsoft Online Network Communications Technology (Shanghai) Co. as part of a strategy of divesting non-core assets to increase focus on faster-growing segments. The details of the deal weren’t disclosed, but it appears that Microsoft maintains a finger in the pie.
UBS Positive on Microsoft: UBS analyst Brent Thill reiterated his buy rating and slightly raised his target price on Microsoft, based on its growth and prospects in cloud computing. The analyst said that the company is on track to beat its own $20 billion commercial cloud revenue target by 2018 on the back of the secular shift to cloud computing, its product positioning and vision, and collaborative approach.
Google Executive Changes: Alphabet has hired Airbnb’s Shaun Stewart to commercialize its self-driving car effort. Stewart was a senior executive at the travel company and previously headed TripAdvisor’s Jetsetter division. This, as well as the hiring of the highly experienced John Krafcik as CEO last September seem to indicate that shipment of its self-driving cars is not too far away.
Meanwhile, Google’s Chief Legal Officer David Drummond said that he recently quit Uber’s board because of conflicting interest between the two companies. Google was one of the first companies to have invested a significant amount in Uber. The fact that both companies are separately entering the self-diving car market is the most likely reason for the development.
Amazon Anti-Counterfeit Actions: It appears that Alibaba is not the only ecommerce platform with counterfeit problems. Amazon has seen its fair share (in fact complaints are on the rise with some sellers feeling like the marketplace is inefficient at taking down fakes because fresh fakes outnumber the ones taken down). The offenders are the same as on Alibaba too: Chinese companies that can quickly make replicas and generate fraudulent positive reviews thereby boosting their sales at the expense of brands.
Amazon’s answer may not go down so well with sellers, though. The company now requires all new sellers to pay up to $1,500 per select brand and also furnish invoices that show they were genuinely bought from the brands or their authorized resellers (existing sellers won’t be charged).
The problem with this approach is that some (especially small) sellers that make some retail arbitrage by buying cheap and selling at higher prices will be in a spot. Their costs will also increase. Therefore, while the policy can have an impact on the product range and availability, shoppers will have a better chance of obtaining authentic goods.
Amazon Dash Button Now in Britain: Amazon is promising British Prime subscribers the comfort of a wifi-connected Dash button for regular purchase items like toilet paper, dishwasher tablets, dog food and coffee. Each button will cost 4.99 pounds ($6.53) that will be refunded as a discount on the first order. The U.S. launch was with 20 brands that have now swelled to 150. In the UK, it will have 48 brands at launch.
HPE Looking to Sell Software Business: Hewlett Packard Enterprise HPE is reportedly looking to sell off its software business unit to Thoma Bravo LLC for $8-10 billion. Other parties are also interested in the unit, but it’s being thought that a company with other similar assets will be willing to pay a higher price and Thoma Bravo appears to fit the bill. Read more: What’s Behind The HPE Software Unit Sale?
Legal/Regulatory
Google Settles for $5.5 Million: Back in 2012, a Stanford researcher discovered that Google had circumvented the privacy controls in Apple’s Safari browser to capture user data. This led to a class action lawsuit that accused Google of “unfair, deceptive, and unlawful business practices.” Google is finally settling the case and it has been decided that the amount won’t go to the plaintiffs but to Berkeley Center for Law & Technology and the Center for Internet & Society at Stanford instead.
Google, Facebook on News Usage In EU: The European Commission has hinted (according to a quote from the Guardian) that it may give publishers the right to extract payment for the news snippets displayed by companies like Google and Facebook. Earlier attempts to secure payments from Google fell through in Germany when publishers found that not displaying snippets reduced traffic to their sites.
But an EU mandate would force the companies to pay although it was generating revenue for publishers. Performers, broadcasters and others reportedly receive some kind of payment in similar situations, which they call “neighboring rights,” so it’s possible that this rule will be extended to publishers as well.
New Technology/Products
Samsung Note 7 Battery Problem: Samsung has recalled its latest, big-screen Galaxy Note 7 just days after launch because of a faulty battery that affected a million phones, 600K of which were sold overseas. Soul-based IBK Securities has raised concerns for final sales numbers, saying that the hit to user experience and resultant negative news flow would dampen total sales numbers, which launched just days before the iPhone 7. He lowered his shipment expectations from 14 million to 12 million units.
Facebook Adds Feature to Instagram: The Instagram user base has swelled despite competition from privately-owned Snapchat and is now over 500 million (most users are based overseas). Facebook keeps adding enhancements to keep them there and keep them engaged and last week, it added pinch-too-zoom for Apple devices with Android devices to follow soon.
PlayStation Now for Windows: Sony recently launched the PlayStation Now game streaming app for Windows PCs. The current offer price is a 100 bucks for around 400 games for 12 months including 50 “greatest hits.”
Google Enters Ride-Hailing Business: Google has said that it will run the car-pooling service it has been testing as a business in the San Francisco Bay Area. The service involves the sharing of gas cost for commuters traveling along the same route. The “driver” in this case is the one using his own car, and he picks up a fellow passenger along the way, recovering half the fuel cost. Google fixes the rate, which is currently 54 cents a mile.
Running as a business means that Google gets to charge something somewhere, but apparently it is still not charging. However, considering that the company is in the commercialization phase of its self-driving car, this could be one use case it is thinking of. Read more: Will Google Combat Uber and Lyft For Ride Sharing Dominance?
M&A and Collaborations
Cisco to Buy ContainerX: Soon after downsizing its workforce by 7%, Cisco CSCO brought on board eight members of a container management startup called ContainerX. Containers help developers create complex software to run on cloud infrastructure provided by multiple vendors.
Google has developed its own container management system called Kubernetes which it subsequently open sourced, Microsoft has its own service, Hewlett Packard Enterprise is heavily invested in Mesosphere and now Cisco is going the acquisition route to develop its own expertise. ContainerX employees have previously worked in companies like Microsoft and VMware. The terms of the deal weren’t disclosed.
Amazon Partners with LG: Amazon has signed a deal with LG Electronics according to which, LG will integrate Amazon technology like Alexa into its devices in order to “smarten” them for the IoT world. For starters, Alexa will find its way into LG’s SmartThinQ Hub, which connects home appliances over the Internet. It will also add Dash technology to its SmartThinQ sensors, to facilitate ordering of household items.
Amazon-Wells Fargo Call It a Day: A month ago, Amazon agreed to promote Wells Fargo private loans for students who are Prime members. It was heavily criticized for this because private loans usually carry much higher interest rates and have less flexible repayment options than federal student loans, such that the slight discount they were providing was of no consequence (the difference is 3.76% for federal loans compared to 13.74% for private loans). Now, after a month, the companies are doing their best to forget it as they remove the scheme from their portals and limit conversation on it.
Baidu Partners with NVIDIA: Chipmaker NVIDIA has been developing an AI-based self-driving car technology that Baidu’s cloud is using to develop solutions for HD 3D maps, Level 3 autonomous vehicle control and automated parking. Chinese and global automakers are testing the technology according to the companies.
At the heart of the collaboration is NVIDIA’s DRIVE PX2, an AI-powered supercomputer that it showcased at the Baidu World Expo. Last week, Baidu also received a permit to test its self-driving cars in California (the company has only tested in China until now).
Some Numbers
Earnings Reports: Verifone, Ciena
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