With the 45^th President of the United States vowing to bring back jobs to the country, teach China a lesson and institute large-scale tax reform, there has been a great deal of uncertainty surrounding technology stocks. To make matters worse, President Trump has an axe to grind with Amazon (AMZN Quick QuoteAMZN - Free Report) and Apple (AAPL Quick QuoteAAPL - Free Report) while most Alphabet (GOOGL Quick QuoteGOOGL - Free Report) executives have openly supported the democrats going into the elections.

So companies are now making nice with the President like Tesla’s Elon Musk, who has changed tunes and is now tweeting his support. It’s been reported that Google’s Schmidt has also found reasons to visit the President. Executives that have supported Trump from the start are better off: some speculate that Zuckerberg is considering politics while ex-Microsoft (MSFT Quick QuoteMSFT - Free Report) and GM employee Chris Liddell is moving to the White House as assistant to the President and director of strategic initiatives. Oracle CEO Safra Catz joined the executive committee of Trump's presidential transition team in December.

Then there’s Cramer, promising us that the post inauguration sell-off won’t last and that it’s actually an opportunity to buy stocks.

Amidst all the excitement surrounding the swearing in, the FTC sued Qualcomm (QCOM Quick QuoteQCOM - Free Report) for anti-competitive practices while Mark Zuckerberg took the stand to defend Facebook’s purchase of Oculus. So let’s dig in.

Apple Forced to Use Qualcomm Chips

Following similar lawsuits, huge fines ($1 billion in China and $890 million in Korea) and anticompetitive investigations in Taiwan and the EU, the U.S. Federal Trade Commission (FTC) has sued Qualcomm for “de facto exclusive deals that were as effective as express purchase requirements and that effectively foreclosed Qualcomm’s competitors from gaining processor business at Apple.”

The FTC alleges that Qualcomm allowed Apple billions in discounts for exclusively using its chips and not using the competing 4G Wi-Max standard that Intel was pushing. This agreement, running from 2011 to 2016, ultimately killed WiMax. Apple wasted no time in sourcing from Intel after the expiry of the agreement in Sep 2016.

Another point in contention is Qualcomm’s practice of limiting access to its cellular chips and then hiking royalty payments, amounting to “a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors.” The FTC filed the lawsuit after a 2-1 vote. Qualcomm has of course denied the charges while Apple chose not to comment.

Following the FTC lawsuit, Apple filed one of its own against Qualcomm for a billion dollars. The amount is what Apple alleges that Qualcomm is witholding for rebates. Like the FTC says, the deal was to keep Qualcomm chips in Apple products and is a fair indication that Qualcomm finally has some real competition.

Mark Zuckerberg Testifies

Facebook CEO Mark Zuckerberg took the stand last week to deny charges that Facebook was aware of the violation of any employee agreement between Occulus head John Carmack and its former employer id Software, a unit of ZeniMax, the plaintiff in this case. He also denied that the technology developed by the startup Occulus and its founder Palmer Luckey was based on copyrighted technology belonging to ZeniMax.

Carmack previously testified that he copied files from ZeniMax before moving to Occulus but did not use the information in Occulus and the terms of his employment allowed him to get involved with Occulus even while in ZeniMax employ. But the thing that could cost Facebook at this point is ZeniMax lawyer Toni Sammi’s question: "So your plan for a $2-point-something billion deal was to begin legal diligence on Friday, and sign the deal on Monday, over a weekend, right?” to which Zuckerberg said, “Yeah.”

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Corporate

India Considering Apple Case: It’s hard to tell just how badly India wants Apple to manufacture in the country. But if government officials agree to Apple’s demands, it would indicate that they want it bad. Because Apple has asked for just about every concession possible, ranging from reduction in import duties on smartphones, customs duty exemption on manufacturing equipment and raw materials, a "less-intrusive" customs procedure to be completed in 30 minutes, the right to import and refurbish iPhones that are more than 3 years old so they can be exported, and so forth.

Apple is trying to convince government officials that Indian made iPhones won’t be competitive unless they give in to these demands even as its manufacturing costs in China are on the rise. But Asian phone makers are already manufacturing in the country with no such concessions, so the regulations themselves may need to be altered and relaxed to accommodate not just Apple but also other manufacturers. This could take time.

On a positive note, Reuters reports that Information Technology Minister Ravi Shankar Prasad has mentioned the setting up of a government panel headed by the cabinet secretary that would now clear investment proposals in the electronics sector above $1 billion, instead of them going through multiple government departments.

 Microsoft Executive Joins Baidu: Baidu has appointed Qi Lu as its Chief Operating Officer and Group Head as it turns focus to artificial intelligence as the next growth driver. The company was mixed up in a scandal involving medical ads that led to stricter government regulations and consequently hit its revenues.

Lu left Microsoft last year on health concerns but was in charge of its search business and also part of the team involved in architecting its artificial intelligence and bots technology. He holds more than 40 U.S. patents.

Google Ad Auctions Are Suspect: The Wall Street Journal has independently confirmed that ads for Google products and the products of its sister companies usually find the top spot on the search engine results page. On checking 25K search results, it found that Google products occupied the top spot 91% of the time and the top two spots 43% of the time. 

Google has said that this is because it is also a buyer of ads, so its position comes from paying a higher price. It also says that this doesn’t raise prices because when others bid for the price, it’s as if Google isn’t bidding. Bottom line: other advertisers lose the top spot no matter what they bid for it. Google reportedly removed its ads in a number of cases when confronted with the data last December.

Amazon, Apple End Audiobook Exclusivity Deal: Apple and Amazon have decided to end the deal initiated back in 2008, according to which Amazon subsidiary Audible became the exclusive supplier of audiobooks to Apple and was barred from selling to any other party. The agreement was actually serving no one because the market for audiobooks has advanced since then and it’s now in the interest of both parties to be able to source from others and in Audible’s case, to also be able to sell on other platforms. Nonetheless, it was preceded by regulatory scrutiny of the deal by German and EU competition authorities that felt it was inflating prices.

Pandora Shares Gain: Pandora preannounced fourth-quarter results that it said exceeded its revenue and EBITDA targets. This came as a relief because it has been lowering expectations the last two quarters indicating continuing bad news. Moreover, Pandora also said that the $5-a-month Pandora Plus garnered 365K new subscribers in the quarter and the Pandora Premium service remained on track to launch later this quarter. It also expects to lay off around 7% of the U.S. workforce, which will further boost margins.

Legal/Regulatory

Cisco-Arista Developments: The U.S. Customs and Border Patrol agency has expressed concern that its earlier decision to lift the ban on Arista switches may have been incorrect. Following conversations with Cisco (CSCO Quick QuoteCSCO - Free Report) , the CBP therefore intends to reinstate the ban. Arista has said that it will respond to Cisco points and re-engage with the CBP.

In the meantime, U.S.-manufactured switches will have to make do, which can result in supply glitches and pressure on its gross margin. On Dec 2, the ITC judge ruled that Arista patents infringe on Cisco’s and Arista has subsequently produced workaround while denying the charges. A full commission review of the judge’s decision will be completed by Apr 9.

New Technology/Products

Google to Launch Android One Phones In U.S.: Google’s high-end Pixel phones are mostly unavailable, but it’s already gearing up to launch the low-end ($200-$300) Android One devices in the country by the middle of the year. The goal seems to be to build brand value and familiarize people with the Android ecosystem.

Android One was first launched in India and later in other countries including Japan and then Europe. It is a system under which Google agrees beforehand with handset manufacturers to push out Android updates as soon as they are available so the experience is true to the latest iteration of the software.

M&A and Collaborations

HPE Buying Simplivity: Hewlett Packard Enterprise is dishing out $650 million to buy SimpliVity, the second largest provider of hyperconvergence software (after Nutanix which has over 50% market share). The company describes a hyperconverged system as one that integrates compute, storage and networking into a pre-configured system, managed by a user-friendly software platform that doesn’t require extensive IT staff for set up and management.

Within a couple of months after the deal closes, HPE will offer a range of integrated HPE SimpliVity hyperconverged systems based on HPE ProLiant Servers. The acquisition significantly strengthens its position in the space where competitors like Cisco and Dell/EMC base their hyperconvergence solutions on market leader Nutanix or Simplivity software. HPE will initially support current SimpliVity customers.

Cisco, Ericsson Join Forces in Australia: The collaboration between Ericsson and Cisco on telecom cloud infrastructure has yielded a major customer in Vodafone Hutchison Australia (VHA). The companies will virtualize Vodafone’s infrastructure, enabling it to improve customer service and user experience while increasing network agility, reducing opex and capex, and speeding up the deployment of services. The partnership has reportedly generated 60 new deals and is expected to generate revenue of a billion dollars to each partner by 2018.

Microsoft Acquires Simplygon: Microsoft has acquired 3D data optimization specialist Simplygon of Sweden for an undisclosed sum. This is intended to play an important role in developing its 3D For Everyone strategy, which is part of the Windows 10 Creators Update. 3D optimization is used by game developers and others to facilitate 3D content creation.

Simplygon also does more than this: it has already started optimizing content for AR and VR technology, including for Microsoft’s Hololens. Microsoft believes that by making the technology a part of its creators update, users will be empowered to capture, create and share 3D content thus augmenting their productivity, collaboration and creativity.

Google Buys Twitter Developers Platform: Google has acquired Fabric, which is based on Crashlytics technology (crash analytics, app feedback and real-time analytics) that Twitter acquired back in 2013. Google hasn’t said how much it’s paying for Fabric, but has said that it will be a part of its cloud based mobile software effort called Firebase that was itself acquired in 2014. Firebase offers mobile app developers tools to build and monitor their apps, so any attempt to build its capabilities should help the company attract developers. 

Alibaba Has Long-term Digital Deal: Alibaba and the International Olympic Committee (IOC) signed a deal, according to which Alibaba will be responsible for the IOC’s digital presence through its cloud platform. The deal makes Alibaba the digital sponsor of the Olympics in cloud services, e-commerce and television for a period running through 2028. While immediate returns may not there, this lends credibility to the service and should help Alibaba win big customer accounts.

WDC Considering Toshiba Stake: Nikkei Asian Review has reported that Toshiba is looking to spin off or sell off a 20% stake in its chip business in which case Western Digital might be the one picking it up. Toshiba is in trouble right now as it has to deal with an unprofitable nuclear business and accounting scandal that requires it to cough up some cash. Selling off a share to its longtime partner Western Digital (the two operate a flash memory fab in Japan) might be just the answer it needs.

Some Numbers

UK App Store Prices Up: As a result of the pound’s continued declines, Apple has been compelled to raise App store prices by as much as 25%.

Intel Invests in Retail Tech: At the National Retail Federation’s annual conference in New York, Intel said that it intended to invest $100 million in retail technology over the next five years. It also announced the Intel Responsive Retail Platform, which uses a combination of sensors, software kits and other hardware solutions to provide “in-the-moment information about what customers are buying, what they want and how to manage inventory so it arrives just in time for customers to take it home”.

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