Last week, which was light in terms of tech earnings, saw a number of negative reports on Nikkei that pulled down Apple shares. At the same time Alphabet GOOGL and Oracle ORCL found themselves heading to court again.
Here are the top stories-
Nikkei Reports Pulling Down Apple
Back-to-back negative reports from the Nikkei impacted Apple shares last week. The first of these mentioned falling iPhone shipments based on estimates from IHS, smartphone part makers and manufacturing equipment makers, all of which see increasing demand for cheaper Chinese smartphones from Huawei, Xiaomi, Lenovo, ZTE, Vivo, etc. While Huawei is currently expected to be the biggest gainer (to grow 20-30% this year), the top 10 Chinese smartphone makers are together expected to grow 15% to 550 million.
The other reports focused on weak sales of Apple component suppliers and measures taken by Japanese and Taiwanese part makers to target Chinese phone makers. Since Apple is already dealing with its first quarter of shipment decline, the Nikkei reports had more of a negative impact.
Oracle Has Some New Numbers for Alphabet
Oracle lawyer Peter Bicks says that Alphabet’s Google made $42 billion in revenue and $21 billion in profits from Android-based smartphones and is therefore seeking $8.8 billion in damages, or around 11.7% of its balance sheet cash. It’s a huge amount even for Google, but it’s as yet unclear if Google will have to pay for it. Google used 37 application programming interfaces (APIs, or software code that enables interoperability between programs) that belonged to Sun, which was subsequently taken over by Oracle.
The last time the case was tried, the court held that the technology wasn’t copyrightable. Moreover, Google argued that the inability to use APIs and making them negotiable and licensable, especially in the given circumstances (such as Sun encouraging Java use to ensure its proliferation) would limit innovation. App and hardware makers building on Android would also be affected and there would be cost escalation for all.
HP, Red Hat and Yahoo submitted papers supporting Google while Microsoft, EMC and NetApp sided with Oracle at the time. Both sides argued for innovation. Microsoft said that failure to protect APIs would lead software makers to reveal less about them, which would in turn affect innovation.
But that was a long time ago. Oracle now says it has numbers to support its claims. Google of course doesn’t make anything from Android but from software it has developed on it that people use to search, download apps, etc. It doesn’t even sell those, earning only from the ads and commissions they generate.
So after Google was granted victory in 2012, the decision was overturned on appeal, when Google asked the Supreme Court to hear the case. When they refused, the case went for retrial. Now there’s a jury of 8 women and 2 men to decide Google’s fate.
Company
Last Week
Last 6 Months
AAPL
-2.37%
-19.42%
FB
+0.27%
+12.50%
YHOO
-2.00%
+8.31%
GOOGL
-0.05%
-3.97%
MSFT
+1.37%
-5.69%
INTC
-0.43%
-10.31%
CSCO
-0.00%
-5.86%
AMZN
+5.37%
+8.34%
Other stories you might have missed-
Corporate
iPhone Manufacturing in India: Confirming earlier reports about possible iPhone manufacturing in India, last week saw a fresh report from ET saying that Apple supplier Foxconn was ready to sign a contract for a $10 billion facility covering 1200 acres in India’s Maharashtra state. Apple’s plans of selling refurbished phones in the country were hit by regulatory authorities on account of competitive concerns.
A manufacturing facility in the country aligns with the government’s plans of creating 6 million manufacturing jobs through the “Make in India” initiative. If Apple resorts to India-only prices as this facility might enable and as manufacturers in other industries already do, it has a much better chance of tapping the Indian market where the average smartphone costs around $150.
Apple on 10nm Chips: Apple’s supplier of choice is Taiwan Semiconductor, which has reportedly started taping out the design for its 10nm A11 chip. It’s currently expected that the chips will be qualified by the end of the year with samples shipping in the first quarter of 2017. It was earlier thought that Taiwan Semiconductor would secure an exclusive contract, which made sense since it is more focused on developing leading edge technology that Apple can make use of in the future. But it now appears that Samsung is likely to get a quarter share of orders.
Facebook Trouble in Sweden: 27 Swedish broadcasters, publishers and media associations have objected to Facebook’s deal with partly state-owned telecom Telia. The deal offers Facebook to customers without charging them for the data used. The concept hasn’t been popular in a number of places, most notably India where it was objected to on the grounds of net neutrality. Swedish companies are objecting on the same grounds.
Intel Refinances Debt: Intel refinanced some debt that matures this year and in 2017. It sold $2.75 billion in bonds with five, ten and thirty-year maturities and carrying an S&P rating of A+. The 30-year part is the biggest one through which it raised $1.25 billion at 1.55%. The company will also repay $1.5 billion of its 1.95% percent notes due in October and a portion of the 1.35% notes due next year.
Google, Yahoo Apps Banned: News reports last week said that the Yahoo Mail and Google appspot.com had been banned in the lower house of Congress on security concerns. In Yahoo’s case, it was because the mail was allowing ransomware attacks, in which hackers attach malicious software to emails. In Google’s case, it was because appspot continues to host remote access tools that were capable of stealing personally identifiable information and a trojan named BLT. The FBI issued warnings on these in June 2015.
Microsoft Cloud in Canada: Microsoft has announced that its Canadian cloud is now open for operation. This is a big deal because it allows businesses and governments to store their data within the country while using Microsoft solutions such as its IaaS, PaaS, SaaS and hybrid platforms. Microsoft has said that Office 365 is already available for data residency and Dynamics CRM is coming in September.
Alibaba Fights Counterfeiting, Brands Unimpressed: Alibaba’s entry into the Washington DC-based International Anti-Counterfeiting Coalition (IACC) last month has ruffled many. Gucci and Michael Kors already quit the lobby group in protest and last week saw an anonymous letter to the board that there would be mass exits unless Alibaba was ousted. The relationship between IACC President Robert Barchiesi (who has held Alibaba shares since its IPO) and Matthew Bassiur (who took over as Alibaba's head of intellectual property enforcement this January) has also been called into question.
China’s leading ecommerce company has battled with counterfeits on its Taobao platform for long and many brands are unhappy with its limited success. Taobao has announced fresh rules to crack down on counterfeit items including new requirements for luxury goods sellers that require them to upload proof of authentic goods by May 20, failing which they can have their fund balances frozen.
WDC Closes SNDK Acquisition: Following the approval of the Ministry of Commerce of China (MOFCOM), the deal, which was already approved by other regulatory bodies and company shareholders, came to a close. Western Digital, which specializes in HDDs and San Disk, which specializes in the new age NVM are perfectly complementary to each other with broad product and industry experience. So the acquisition is a boon for shareholders. SanDisk co-founder, President and CEO Sanjay Mehrotra joins the Western Digital board of directors. Western Digital CEO Steve Milligan continues as CEO of the combined company.
Legal/Regulatory
Facebook Meets Conservatives: Facebook has been anonymously accused of suppressing news stories that offer a conservative view point. Zuckerberg said an investigation was in progress although there was no evidence of this happening and that he would meet conservative leaders through the week. Facebook also confirmed that it will remain a sponsor of the GOP’s July convention in Cleveland despite pressure from liberal activists. Separately, U.S. Magistrate Judge Paul S. Grewal has left the bench to become global litigation head at Facebook.
FTC Investigates Google Search: A new report from Politico indicates that Alphabet’s Google is in for some fresh investigation into its search practices. The report says that the investigation is in its early stages, so details are limited. But the idea is to see if Google has misused its dominant position in search to favor its own products. A previous investigation found it not guilty back in 2013.
Both search and Android OS are being scrutinized by European authorities. The British newspaper The Sunday Telegraph reported yesterday that Google was looking at a fine of up to $3.4 billion (or up to 10% of its annual sales) plus a ban on favoring itself over rivals in search but that the bill had not been finalized.
Groupon Suing IBM: Groupon has sued IBM in Chicago district court for infringing on its software patent. Specifically, Groupon alleges that IBM’s WebSphere Commerce platform infringes on a patent that Groupon holds. This follows IBM’s suing the company for infringement of four of its patents, which said that Groupon’s lawsuit is without merit.
New Technology/Products
WhatsApp for Desktops: Possibly in order to better target business users, WhatsApp has now spread to Macs and PCs. The app is now available on the broadest range of operating systems including iOS, Android, Blackberry and Windows and has the reach of other leading messaging services, such as iMessage and Skype. Facebook Messenger is close on its heels with apps for mobile, web and as a Windows 8 or 10 app.
Facebook at Work in India: Business Insider reports that India comes first as far as Facebook At Work adoption is concerned and says that it’s because of its high mobile dependence. Users can typically toggle between their personal and official accounts, with Facebook serving ads on the first one and giving companies total control over the other one which is ad-free. First users are happy with the product calling out its intuitive feature.
Microsoft Wants More Apps on Windows: Microsoft is courting corporate technology buyers by allowing them to make bulk purchases of third party apps from its Windows Store for Business launched last November. While there’s no incentive yet, volume discounts are reportedly on the way.
That’s not all — it is removing the option to block the purchase of apps using Windows 10 Pro devices. This is a cheaper version of its OS, usually used by SMBs. If the IT departments want greater control over company devices, they have to upgrade to its pricier product. All this is expected to interest developers to make more apps for Windows, which is absolutely necessary if it is to succeed against Android and iOS.
Google's Chirp: Google has a developers’ conference this week where we might learn more about a new device along the lines of Amazon’s popular Echo. Re/code’s Mark Bergen says the device will be called Chirp and is in all probability being developed by its Nest group. Nest has some earlier success with smart thermostats and security cameras and has something of a cool design team. So we should get ready for a smart device answering questions, fetching mail, turning on music, etc but hopefully Google will think of a sexier name than OK Google.
Amazon Video: Amazon has launched a YouTube killer/competitor called Amazon Video Direct that will live on user-generated content the way YouTube does. But Amazon may get it to profit sooner since it can advertize the millions of items it sells on the platform. It also has a fairly large and loyal user base that it feeds through Prime, so uptake could be quick. Just how Amazon hopes to tie this in with the rest of what it does isnt something it’s talking about yet, but the possibilities are exciting.
Also, note that Amazon has some fairly successful original content that sets it apart from other video providers except Netflix. Still, YouTube has many more years of experience in video distribution and also has brand value, so it should be a good fight.
M&A
Salesforce to Use Amazon’s AWS: Salesforce will build its IoT cloud on AWS according to the WSJ. This is a big win for Amazon, which also recently helped Netflix move to its cloud. While Amazon remains the largest online retailer with significant growth prospects, all the excitement in recent times has been about AWS.
Its cloud infrastructure business, while making a single-digit contribution to revenue, generates nearly half its profit. Note that Salesforce’s flagship CRM offering competes with Microsoft’s Dynamics CRM. Microsoft is second in the IaaS segment, so Amazon (the market leader) is the best company it could have gone to.
Apple Invests in Chinese Ride-Sharing Company: Apple has invested a billion dollars in Chinese ride-sharing company Didi Chuxing Technology. Company president Jean Liu has said that the two companies would "benefit each other on product, on technology, on many other levels," but no other details are available.
Apple’s only known interest in cars is with respect to its autonomous/electric car technology, which is another secret project with few details available. It’s extremely hard to understand Apple’s move here. If it had been a manufacturing alliance, Apple would have tied with car makers, instead its tied with technology companies. SO Didi could be interested in using these cars when they become available. This could be a goal of the Chinese government as well as it moves to reduce China’s carbon footprint.
Alibaba-Softbank Team Up: Alibaba and Softbank have formed a joint venture (called SB Cloud) to offer cloud services in Japan. Softbank’s goal is to develop the perfect cloud for Japanese companies and multinationals with data residency in Japan. Alibaba brings its secure, scalable cloud computing technology to the JV so the companies can deliver data storage and processing services, enterprise-level middleware and cloud security services.
Some Numbers
Micron Shares Down: Micron said it was expecting a third quarter loss of 5-12 cents per share on revenue of $2.8 billion to $3.1 billion. Analysts expect Micron to report a loss of 4 cents per share on revenue of $3.2 billion. The softness at Micron is because it is focused on memory chips for the PC market where prices continue to slide. The company does have new products in the pipeline, but they aren’t expected to make a contribution yet.
Some Other Companies That Reported Last Week: Dun & Bradstreet, CA Inc, Symantec, Electronic Arts, NVIDIA
Some Companies Reporting This Week: A, CSCO, ADI, AMAT, TTWO, ADSK, CRM, SNPS
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