The top news for last week included earnings reports from Intel INTC, Netflix NFLX and Lam Research LRCX as well as published statements from the senate committee investigation into Facebook FB, Twitter TWTR and Alphabet GOOGL to determine Russian meddling on their platforms. Here are the details-
Earnings
Intel: Intel reported strong fourth quarter numbers, beating the Zacks Consensus Estimates on both the top and bottom lines. The Data Center Group (DCG) was the primary driver, and at nearly a third of the business grew 19.6%. The Internet-of-Things Group (IOTG), Non-Volatile Memory Solutions Group (NSG) and Programmable Solutions Group (PSG) segments that together contributed around 13% also grew strongly.
At over half its total sales, the PC-centric Client Computing Group (CCG) remained the primary drag with desktop volumes and prices being down significantly and notebook volume growth coming at the cost of much weaker pricing. The outlook remains more or less consistent with ongoing trends of a stronger data centric business partially offset by weaker PCs.
The company provided for taxes on previously untaxed foreign earnings payable over eight years, which raised the GAAP tax to $5.4 billion. Tax reform has however lowered the tax rate significantly and allowed the company to raise the annual dividend by 10%. Read more: Intel Beats on Q4 Earnings & Revenues, View Positive
Netflix: Netflix reported solid numbers that beat the Zacks Consensus Estimate on the top line and met the estimate on the bottom line. Being a subscription service, the company’s results are driven by the subscription charge and the number of subscribers. So the 10% increase in subscription charges in the U.S. and Europe for some plans and the 24.1% increase (international grew 41.6%) in the subscriber base both contributed to the results. International subscribers now make up the larger group.
Netflix’s focus on growing its roster of original and regional content as well as its acquisition of popular movies and shows has enabled it to raise the subscription charge and helped it attract more customers. Read more: Netflix Q4 Earnings In Line, Revenues Top Estimates
Lam Research: Lam Research topped the Zacks Consensus Estimates on both revenue and earnings. Guidance was also much better than expected. The company expects continued strong spending this year, driven by increased adoption rates of 3D NAND, FinFETs and multi-patterning that it expects will generate continued growth. Cost cutting will ensure higher profitability. Read more: Lam Research (LRCX) Tops Q2 Earnings & Revenue Estimates
The Russian Hand in U.S. Presidential Elections
A senate committee has called upon social networks Facebook, Twitter and YouTube-owner Google to offer written statements on if and to what extent their technology platforms facilitated Russian meddling in the U.S. presidential elections. President Trump has called the effort a witch hunt. Nonetheless, the companies appeared before the committee to submit comments that were published last week. And they seemed to have a lot to say-
Facebook: Facebook stated that Russian agents created 129 events on its platform during the 2016 U.S. election campaign, that 338,300 different Facebook accounts viewed the events, that 62,500 agreed to attend and that it wasn’t aware how many events actually took place. The events were apparently on controversial and divisive issues.
As regards evidence of collusion between Trump and a Russian group on social media, Facebook said it "does not believe it is in a position to substantiate or disprove" such allegations. As far as making money from content produced by Russia’s Internet Research Agency, or IRA is concerned, it said, "Ads generally did not run on IRA Pages, and we expect that any revenue from such ads would be immaterial."
Facebook has also released an online tool that tells users if they followed or liked Facebook pages or Instagram accounts associated with the IRA that it would notify its users about in the coming days. Facebook said it no longer promotes Kasperky’s antivirus offerings because of the government’s espionage concerns although it is still in the process of phasing out a Kaspersky product it uses internally that doesn’t transmit data back to Kasperky Lab. It can’t however determine how many Facebook users downloaded Kaspersky software.
Twitter: Twitter said that there were 2.12 million automated, election-related tweets from Russian-linked accounts that garnered 455 million impressions within the first seven days of posting. It mentioned 677,775 people in the U.S. that followed, retweeted or liked content from IRA-associated accounts at election time. Twitter will be emailing these people the facts.
These accounts engaged in various activities like masquerading as local American news sources, content from which were then quoted by more than 100 news outlets, they also apparently attempted to organize rallies and demonstrations, and some were even abusive and resorted to harassment. Moreover, Russia-linked Twitter bots retweeted @realDonaldTrump posts 470,000 times (constituting 4% of the re-tweets he received from Sept. 1 to Nov. 15, 2016) and Hillary Clinton’s account nearly 50,000 times.
In September, Twitter suspended about 200 Russia-linked accounts and in October, suspended ads from media outlets Russia Today and Sputnik. It is now in the process of setting up a “transparency center” that will display how much political campaigns spend on advertising, the organization funding the campaign and the targeted demographics. Twitter did say it wasn’t aware of "any specific state-sponsored attempts to interfere in any American elections in 2017, including the Virginia and New Jersey gubernatorial elections." Twitter said it doesn’t use products made by Kaspersky Lab.
Alphabet: Alphabet earlier told the Congress that it had discovered that Russian agents spent about $4,700 on ads and launched 18 channels on YouTube, posting more than 1,100 videos that had been viewed about 309,000 times. Google also doesn’t use products made by Kaspersky Lab. Like the others, it is building a new dashboard displaying information about who buys some campaign advertisements.
Amazon Go Launches
Amazon AMZN chose Seattle to launch the first of its checkout-free convenience store concepts dubbed Amazon Go. Built on computer vision, sensor fusion and deep learning, the store promises a unique and hassle-free shopping experience: people download the app and scan it as they pass through a turnstile at the entrance to the store. Cameras and sensors fitted all over the store keep track of what they pick up or put down until they leave the store.
The shoppers' Amazon accounts are charged for whatever they take with them. That’s it. The concept is interesting, and Amazon has picked up enough real estate with its book stores and the Whole Foods acquisition (although it isn’t saying Go will reach those places yet) to roll it out more broadly. But one thing to note is that it places a lot of reliance on those cameras, which can malfunction or be deliberately turned off, or simply generate incorrect results because of a heavy traffic situation, impacting the security of the store/merchandise and the customer experience. But Amazon no doubt has those details ironed out given that it has been testing the concept with its employees over the past year or so.
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Price Change Last 6 Months |
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AAPL |
-3.9% |
+16.4% |
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FB |
+4.8% |
+14.0% |
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GOOGL |
+3.9% |
+17.8% |
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MSFT |
+4.5% |
+24.8% |
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INTC |
+11.7% |
+33.5% |
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CSCO |
+3.1% |
+32.1% |
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AMZN |
+8.3% |
+31.1% |
Other Stories-
Corporate
MS Lowers Apple Price Target: Katy Huberty and other analysts of Morgan Stanley lowered their price target to $200 from $205 while maintaining an upbeat view on the company's prospects. The analysts say that rumors about weak supply chain orders in the first half of the 2018 calendar year are "largely noise" and higher-end phones will make up a larger part of the mix. They therefore have their blended average selling price at $815, much higher than the consensus $752.
Apple Rating Downgrades: Atlantic Equities analyst James Cordwell lowered his rating to neutral from overweight, but retained the $190 price target because of signs that iPhone demand is starting to soften and "limited visibility into the potential for future iPhone cycles." Instinet's Jeffrey Kvaal pointed to Verizon’s earnings release comments about its upgrade rate of 7.2%, which is meaningfully below what it has been after other recent iPhone launches.
Bernstein analyst Toni Sacconaghi said that based on checks with supply chain vendors, Apple’s iPhone shipments are likely to decline about 33% sequentially in the March quarter to 51-57 million units (last year it sold 51 million units). A 30% decline in the March quarter is normal seasonality, indicating that iPhone X didn’t result in any super-cycle. JP Morgan was more pessimistic, saying the sales decline would be as much as 50%.
Google Invests in Spain, France: Google will open a new support center for Europe, Middle East and Africa in the town of Oeiras on the outskirts of Lisbon in Portugal this year. The amount of Google’s investment remains unknown, but the center will create up to 500 high-skill tech jobs, according to Prime Minister Antonio Costa. Separately, CEO Sundar Pichai wrote in a blog post that Google will also be expanding operations in France.
First, it will add 6,000 square meters of office space (64,500 square feet) to its Paris headquarters, taking the total headcount to a thousand. Second, it will open a new research center dedicated to artificial intelligence to tap into the local talent. Third, it will be creating Google Hubs with local partners around France, the first of which will be in Rennes. Three other hubs at unspecified locations will also be coming up soon with the goal of teaching people digital skills.
Alphabet’s New Cybersecurity Unit: Alphabet has spun out a new cybersecurity unit called Chronicle from its moonshots factory called X Labs. The goal of the company is to increase “the speed and impact of security teams’ work by making it much easier, faster and more cost-effective for them to capture and analyze security signals that have previously been too difficult and expensive to find.”
Based on the Google infrastructure and delivered through its cloud, Chronicle’s security intelligence and analytics platform will leverage the company’s own machine learning and search capabilities so businesses can analyze their security data more efficiently. The company also has an online virus/malware scanner on offer that came through Google’s 2012 acquisition of VirusTotal.
Amazon Banking in India, Mexico: Amazon has already been offering some banking services such as more than $3 billion in loans to small businesses that sell on its platform since 2011, according to a new research report by CB Insights via Bloomberg. Moreover, over 33 million people currently use its payments service and its recently-introduced Amazon Cash service allows customers to load cash into their Amazon accounts.
But Amazon has apparently made more aggressive moves in India and Mexico. In India for example, it has launched a system for customers to load cash into their digital wallets at their doorstep. It has also acquired or invested in several startups like Emvantage Payments and BankBazaar. In Mexico, Amazon’s cash payment service works as an alternative to using a debit or credit card.
Amazon Pharmacy Team: Amazon’s recent job listings have hinted at its growing ambitions in the pharmacy business. Now, a new research report from Leerink via CNBC states that Amazon’s team of specialized persons for that market has grown from 7-8 people to 30-40. Its initiatives make perfect sense given its successful platforms (the marketplace as well as the Echo and Dash devices) and the fact that it’s a $3 billion opportunity, according to Leerink.
Unlike other markets, Amazon’s goal for this market will be to match the lowest price rather than beat it. Amazon has been meeting with generic drug makers for some time now, so there must be good reason for this. It appears that Amazon will make for the generics market first simply because it will be easier to capture.
Twitter COO Departure: Anthony Noto is resigning from his position as Twitter's Chief Operating Officer in order to accept the CEO role at troubled finance startup SoFi from Mar 1. Noto has been the most important executive at Twitter after founder CEO Jack Dorsey and inspired Twitter’s live video push, so the departure will be a blow for the company. His role will be played out by existing Twitter executives.
HPE-Aruba Growth in India: HPE-owned wireless networking company Aruba is looking to generate double-digit revenue growth in India this year, on top of the 67% growth last year, according to top company officials. The strength was attributed to mobile growth in the country. Aruba focuses on sectors like education, health care, hospitality, retail and manufacturing in the country and even has an R&D center in India’s Bengaluru. It is particularly strong in the government vertical that contributed 48% of its 2017 business, according to Santanu Ghose, Country Manager, HPE Aruba.
MS Upgrades HPE: Morgan Stanley’s Katy Huberty raised her rating on HPE stock to Overweight from Equal Weight and also bumped up her target price from $14 to $19. The main reason for the upgrade is the impact of the new tax law on HPE financials where the average effective tax rate goes down to 9% and repatriated cash increases financial flexibility.
Legal/Regulatory
U.S. Rules on Streaming Services: The Copyright Royalty Board of the U.S. Library of Congress has issued a written decision altering the formula for revenue share between music streamers, song writers and music publishing companies. The National Music Publishers Association announced the decision, which hasn’t reached the public yet.
The Association claims that over the next five years, streaming companies like Apple and Spotify will have to pay out 15.1% of their revenue, a big jump from the current 10.5%. The Copyright Royalty Board decides the rate to be paid for mechanical licenses (i.e. the amount to be paid to the publisher every time a person streams a song).
EU Fines Qualcomm: At the end of its investigation (initiated in 2015) into Qualcomm’s business practices between 2011 and 2016, the European Commission has come to the conclusion that the company’s agreement with Apple to pay it to use only its own chips and not those by rivals like Apple, was anti-competitive. The EU has therefore fined Qualcomm 997 million euros ($1.23 billion).
Qualcomm has seen turbulent times of late as governments all over the world took it to task for misusing its dominance in mobile technology for anti-competitive deals and arrangements. Apple in particular has played a big role in getting its customers together to stop making payments. Meanwhile, chipmaker Broadcom is trying to take hostile control over the company, promising shareholders improved relations with key players like Apple.
Facebook Privacy Settings Hub: In an attempt at compliance with the EU’s very comprehensive General Data Protection Regulation (GDPR) mandate that goes into effect on May 25, Facebook has brought a new privacy center that will put the core privacy settings for Facebook in one place and make it much easier for people to manage their data.
It is also publishing its privacy principles for the first time and rolling out educational videos that will help users choose who has control over their information. The GDPR drastically increases the level of fines for companies found to be in breach of data protection law, which can be as high as 4% of their global annual turnover or 20 million euros, whichever is higher.
The new law also allows users to export their data and delete it and makes it mandatory for companies to report data breaches within 72 hours among other things. So users are currently seeing “privacy checkup” prompts in their newsfeeds that will direct them to make their choices.
Products/Technology
Apple eBooks: Apple is revamping its ebooks feature to make the interface simpler and include a “reading now” tab and another one for audio books. The audio initiative will get a boost from newly hired Kashif Zafar, a former senior executive from Amazon Audible who will be heading the effort. The corresponding store from where people can buy ebooks is also being designed to look like the App Store.
Apple Insider says that Apple’s iBooks name may also be changed to simply Apple Books like Apple Music. Amazon has the lion’s share of the ebooks market, which has kind of stagnated since 2013. Apple’s actions may have something to do with Tim Cook’s stated goal of generating $50 billion in annual revenue from its services business by 2021, up from $30 billion last year. Apple doesn’t say how much of services revenue comes from ebooks, or how that business is tracking.
New Titles for Xbox Game Pass: Xbox Game Pass, the $9.99 subscription game service, will now feature new, Xbox-exclusive titles from first party studios, meaning that important new releases like Sea of Thieves, State of Decay 2 and Crackdown 3 will launch on the platform on the day they are released. This should help it woo new users and keep them from moving away to competing platforms like Sony and Nintendo.
Google Audiobooks: Google added audiobooks to Google Play Stores across 45 countries (most of Europe, North and South America, Australia, New Zealand, India and a select number of Asian countries) and in nine languages (English, German, Spanish, French, Italian, Russian, Korean, Japanese and Polish).
According to Greg Hartell, Google Play Book's head of product management, “Play Books has also been around for a long time, offering over 5 million ebooks in 75 countries, and interest in audiobooks is on the rise, along with audio content generally (e.g. digital music, podcasts, etc.). But most importantly our users are asking for them.” Most available titles cost less than $10.
Collaborations & M&A
Google, Tencent, Sequoia China Funding XtalPi: Boston- and Shenzhen-based artificial intelligence (AI)-based pharmaceutical firm XtalPi Inc raised $15 million in a series B funding round led by Sequoia Capital China. Google and Tencent also invested. XtalPi, which uses AI, cloud computing and quantum physics to improve drug design processes, has raised $20 million thus far. Google has been increasing its investments in China and recently even entered into a patent cross-licensing deal with Tencent that should increase collaboration between the two.
Amazon Acquires Sqrrl: Sqrrl, which was founded in 2012 by a team of seven former U.S. government workers, including six from the National Security Agency, has now been acquired by Amazon AWS for an estimated $40 million. The firm has raised $28.5 million to date, including a Series C round last June that fetched $12 million. The acquisition, including the talent acquired may help AWS generate more business from U.S. intelligence agencies.
Amazon Acquires Stake in StarTrek: An Amazon subsidiary called Amazon.com NV Investment Holdings LLC has entered into a deal to acquire up to 4 million shares in a Colorado call center operator and customer-engagement outsourcing company called StarTrek. According to bizjournals, StarTrek will issue a warrant to acquire up to 4 million shares of its common stock with Amazon paying $9.96 a share. Along with additional commercial services to be supplied by the company, Amazon could end up paying up to $600 million to the company.
Some Numbers
Shazam Will Add to Apple Streamers: DN Capital analyst Mark Mulligan has said in a note that he expects Shazam to add between 1.5 million and 7.5 million users to Apple’s music streaming service. If just 5% of Shazam’s monthly users choose Apple Music, it could add 7.5 million users. Shazam used to be one of the most popular apps in the App Store and Apple has plans of integrating it into Apple Music at some future date.
Amazon Monthly Subscriptions Rise: Amazon just raised its monthly Prime subscription charges from $10.99 to $12.99, meaning that monthly subscribers are now required to pay $156 for a year, compared to the annual membership charges of just $99. This definitely seems to be a move to lock in the more sticky customers while forcing the fence sitters to take a decision to go or not to go with Prime. It can also check the churn inherent in a monthly system.
Cowen & Co estimates that 30% of Amazon’s 60 million Prime subscribers in the U.S. pay monthly (including students and low-income users who pay a lower rate), which works out to an additional annual income of $300 million for Amazon.
Some Companies That Reported Last Week: Western Digital, F5 Networks, Xilinx, Avnet, Texas Instruments, Teradyne, Maxim, KLA-Tencor, Trimble Navigation.
Some Companies Reporting This Week: Facebook, Apple, Amazon, Microsoft, Alphabet, Alibaba, eBay, PayPal, Advanced Micro Devices, Electronic Arts, CA, Checkpoint, Symantec, Seagate, Juniper, Automatic Data Processing, CDNS, QRVO, Ametek, DATA and ROP.
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