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Tech Roundup: AAPL Taxes, IBM Earnings, FB Newsfeed, iPhone X

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The top news for last week included Apple’s (AAPL - Free Report) decision to pay off its U.S. taxes, International Business Machines’ (IBM - Free Report) return to revenue growth, a positive view of Facebook’s newsfeed change and iPhone X estimate declines. Here are the details- 

Apple Cash Repatriation

Apple has made headlines by announcing that it will pay all of the $38 billion it owes the government in taxes on its overseas cash hoard of $252 billion. While the new tax law makes it mandatory for companies to pay up the taxes due on money earned overseas, it also lowers the tax rate from 35% to 15.5% on cash and 8% on less liquid assets, thus making it easier to pay up.

Not that the major technology companies that are stashing billions abroad are hard up for cash, but this arrangement makes it infinitely more palatable. Read more: Apple’s Cash Repatriation Is A Big Win For Trump

IBM Sees Revenue Growth

IBM’s fourth-quarter 2017 revenues grew 3.5% year over year, after 22 quarters of decline. EPS grew 3.4%. Both revenue and earnings were ahead of the Zacks Consensus Estimates. Strategic imperatives continued to drive the results, with cloud growing 27% in constant currency, security 127% off a small base and analytics 6%. Management has been talking about a turnaround in IBM’s fortunes for several years, but that date seemed to stretch out like a mirage until this time.

The results were particularly encouraging because the growth was primarily in emerging areas with some parts of the traditional businesses also keeping pace. Read the full story here: IBM Earnings & Revenues Beat Estimates in Q4, Rise Y/Y

Facebook Algorithm Changes May Not Be That Bad

Facebook’s news feed algorithm — which will prioritize friend content over public content from businesses and brands — could affect ad revenue. That’s because the company itself admitted that the move would lower engagement by some measures. But ultimately, Zuckerberg feels that Facebook’s uniqueness is in the social element, so personal or even public posts that encourage social interaction is what will keep the platform unique.

At the same time, a reduction in the number of posts from businesses and publications will mean that there will be a reduction in the number of ads, which could increase competition for those ads and thus drive up ad prices.  William Blair analyst Ralph Schackart, based on conversations with “a large digital ad buyer and a third-party direct response buyer” quotes them to say that ad prices could increase by 25% and the reduced “clutter” could mean that the number of relevant, meaningful ads remains the same.  

Analyst Lowers iPhone X Estimates

Ming-Chi Kuo of KGI Securities has dramatically reduced his iPhone X estimates citing weak demand in China. He now expects Apple to ship just 62 million devices over its lifetime compared to around 80 million estimated earlier. It seems that Chinese customers are continuing to opt for older and cheaper iPhones, according to Cowen & Co. via Bloomberg, so the $999 iPhone X doesn’t appear to have lived up to its hype and customer expectations.

 

Ticker

Price Change Last Week

Price Change Last 6 Months

AAPL

+0.8%

+16.3%

FB

+1.1%

+11.4%

GOOGL

+1.2%

+16.4%

MSFT

+0.4%

+24.3%

INTC

+3.7%

+32.3%

CSCO

+1.0%

+30.6%

AMZN

-0.8%

+27.5%

 

Other Stories-

Corporate

Apple’s Everyone Can Code Initiative Finds Takers in Europe: Apple has announced that 70 European colleges and universities in n the UK, Germany, France, Italy, Spain, the Netherlands, Sweden, Denmark, Norway, Austria, Belgium, the Czech Republic, Ireland, Luxembourg, Poland and Portugal have added its App Development with Swift program to their curricula, so students can learn to code for Apple’s ecosystem. The program was developed by Apple engineers to train students from different disciplines and backgrounds to learn coding. P

opular apps like Airbnb, KAYAK, TripAdvisor, Venmo and Yelp are created with Apple’s intuitive programming language called Swift. According to the company’s press release, the app economy has generated 1.36 million jobs in Europe with Apple paying out around $18 billion to developers since the launch of the App Store in the region.

Buses for Tech Workers Attacked: The rise of the technology industry in California must have once caused locals to rejoice as it increased business. But in recent years, resentment has been growing as high-paid tech workers have caused housing costs to skyrocket and traffic congestion to increase manifold. This is the primary reason being attributed to the recent vandalism of Apple and Alphabet (GOOGL - Free Report) buses by unidentified persons using unidentified weapons that could be pellet guns, rocks, or somethings else.

The good news is that no one was hurt, the bad news is that no one seems to know anything about it, including whether the attackers were inside or outside the buses and there are no comments from the two companies either. But Apple has rerouted some buses as a precautionary measure. All the acrimony notwithstanding, tech workers have moved the courts against their employers because apparently no-poach agreements between the companies were containing wage increases and limiting opportunities for them.   

Facebook Gets New Board Member: Facebook is adding African American Kenneth Chenault to its board as the debate around diversity in Silicon Valley continues to simmer. Chenault will join after retiring from his position as CEO of American Express and in the words of Facebook’s Zuckerberg, has: “unique expertise in areas I believe Facebook needs to learn and improve — customer service, direct commerce and building a trusted brand.” Chenault has the ivy league stamp by virtue of his training in Harvard and serves on the boards of IBM, Procter & Gamble, the Harvard Corporation and many nonprofit organizations.

Facebook Loses China Executive: Wang Li Moser, who took on the impossible task of convincing the Chinese government on Facebook’s behalf that the social network wouldn’t be a disruptive as the government believed, has resigned. Probably because there’s no evidence to support this belief, she put in her papers at the end of December, after three long years at the job. This is a big loss for Facebook and not unexpected, but doesn’t necessarily indicate that it doesn’t have other plans for China. The government blocks not just Facebook, but all other foreign social networks like Twitter, Snapchat etc. Local companies like WeChat however are very popular and widely used.

Amazon Seeks HIPAA Executive: Amazon (AMZN - Free Report) has a new job listing that is calling for a professional who can "own and operate" the security and compliance aspects of a new initiative, particularly with respect to health privacy regulations known as the Health Insurance Portability and Accountability Act (HIPAA). The posting seems to indicate that Amazon intends to work with outside partners that manage personal health information. Candidates that can serve in a consultative capacity for all health-care regulatory issues will be more welcome.

Amazon Studios Changing Strategy: Studios, Amazon’s streaming film and television division, is planning on going after bigger movies costing $50 million or so instead of independent movies in the $5-6 million range as it has been focusing on to date. Of course Amazon won’t exit that end of the spectrum completely, but it will reduce its budget for those movies. Amazon typically bids for the indies at the Sundance Film Festival.

Jason Ropell, Amazon Studio’s worldwide film head has said, “We are not abandoning the indie space, we are increasing the potential size of the audience for our films; that in some cases involves higher budgets, but in others not. It's about the potential for the film not the cost…our roots are in independent/prestige film and we intend to continue in that space using it as a springboard to expansion and scale.” Amazon Studios is seeing a change at the helm after the departure of head Roy Price on sexual harassment charges. COO Albert Cheng is filling in until a replacement is found.

Legal/Regulatory

Slowing iPhone Problem Continues: South Korean advocacy group, Citizens United for Consumer Sovereign, has filed a criminal complaint accusing Apple of slowing down iPhones to save batteries without warning or notice and with the intention of inducing users to upgrade to newer and more expensive devices. Similar is the case in Italy where the country’s antitrust body opened a formal investigation into what it calls the iPhone 'performance-gate.' The Italian authorities suspect both Apple and Samsung of resorting to these measures. Meanwhile in the U.S. and Canada, Apple’s discounted battery replacement is speeding up some iPhone 6 devices, according to media reports.

Facebook Acts on Child Sex Video Sharing: Over 1,000 Facebook users sharing sexually explicit content involving two 15-year-olds have been pulled up by Danish authorities. They came to know of the incident after Facebook notified U.S. authorities who passed on the information to their Danish counterparts. The Danish authorities have said that the sharing may be regarded as child pornography with consequences that include fines, imprisonment, omission from some jobs such as child care or teaching and difficulty in obtaining U.S. visas.

The crackdown on child sex videos has strengthened after some young women turned vocal about how it destroyed their lives. This is also a good move by Facebook because it puts the onus on the government for determining fault and also sets an example for people that could have a desirable ripple effect.

UK Brings Open Banking: The UK is bringing an Open Banking law that corresponds with the EU’s Second Payment Services Directive (PSD2). The law will force banks to share customer data when authorized by the customer, so it becomes easier to compare and switch between banks and also help third-party fintech companies to get into the space. This is also good news for companies like Amazon, Google and Facebook, which have been easing into the space with their wallets and payments systems.

The Royal Bank of Scotland (RBS), HSBC, Barclays, Santander UK, Bank of Ireland and Nationwide Building Society are stalling however, saying that they could lose 6-10% of their revenues, so the change should be gradual. Besides, not all of the banks have the required technology in place to give effect to the change.

Alibaba’s Taobao Back on U.S. Blacklist: The United States Trade Representative (USTR) has adjudged that Alibaba (BABA - Free Report) hasn’t taken adequate measures to address the concerns of the full range of U.S. businesses that continue to find infringing versions of their products for sale on Taobao.com. As a result, many small and medium enterprises continue to be affected. Moreover, Alibaba’s report merely mentioned the progress it had made in checking counterfeits and didn’t mention the full scope of the problem that continues to exist.

Alibaba has said that the now easier IP protection programs had led to an 11% increase in registries and a 25% drop in takedown requests as infringing listings were removed in many cases even before they reached its marketplaces. Alibaba Group President Michael Evans said in a statement: "In light of all this, it's clear that no matter how much action we take and progress we make, the USTR is not actually interested in seeing tangible results." He also said that the company "went above and beyond each specific concern raised by the USTR last year."

A spokesperson said by email that "as a result of the rise of trade protectionism, Alibaba has been turned into a scapegoat by the USTR to win points in a highly-politicized environment and their actions should be recognized for what they are. The USTR’s actions made it clear that the Notorious Markets List, which only targets non-US marketplaces, is not about intellectual property protection, but just another instrument to achieve the US Government’s geopolitical objective."

Products/Technology

WhatsApp for Business: Facebook is rolling out business accounts for WhatsApp that will allow companies and brands to facilitate interactions with their customers. At some future date, Facebook will charge businesses for the service and might lump it together with other services as well. Facebook spent $19 billion to buy WhatsApp and did away with the nominal annual fee the company charged users. Today, while user accounts have swelled, monetization remains a big question. So this could be how it finally monetizes the service.

Google AI Tools for Business: Google has released additional machine learning as a service (MLaaS) tools for businesses. The company’s Cloud AutoML service simplifies the complicated functions within deep neural networks. Moreover, its technology facilitates the creation of deep learning models using the customer’s own data with interactive dashboards that track the development process. So after feeding your own data (pictures) into the system, you can sit back and wait for Google to label them (or label them yourself, if preferred) for the system to recognize. There are also security tools like the G Suite Security Center that studies the existing security system and suggests changes if required. Google’s service is only for enterprise customers.

Google Changes YouTube Rules: Google is making additional changes to its YouTube rules to pacify advertisers that have complained about their messages getting pasted next to content they didn’t support. The first of these changes, reported some days back, makes sense: Google will arrange for manual vetting of every single video that gets to be inside its premium bundle called Google Preferred and advertisers will pay more for placement on Google Preferred.

The second is a bit of a head scratcher: Google will remove advertising from a "significant" number of YouTube channels, 99% of which generated less than $100 from ads in the last year. So if the sites aren’t generating much ad revenue, it must mean that fewer ads are shown on those pages, so advertisers would normally be less interested in what Google does with them.

And that isn’t all. Google has also changed the rules for commercial channels in favor of larger players. Starting Feb. 20, video makers will need to ensure that not less than 1,000 users watch a total of at least 4,000 hours of their clips within the preceding 12 months if they want to host ads and share in revenue from them. Last April, Google determined that 10,000 followers with no viewing time standard was sufficient.

Collaborations & M&A

Apple-Tencent: Apple and Tencent have come to an understanding about tip or donation style payments made by users to content creators. Apple initially disabled the service and later allowed it on an in-app purchase basis, which meant that Apple had to be paid a 30% share of the money. Tencent disabled the service thereafter and promised users it would soon be back once Apple understood the Chinese-style feature.

Now, users are required to send the money directly to content creators rather than to their public accounts without going through WeChat. Apple’s rules don’t allow app developers and owners to charge for a service unless Apple gets its share. That’s what all the excitement is about.

Google Invests in Indonesian Ride Hailing Co: Google, Singapore investor Temasek, China's Meituan-Dianping and possibly also Samsung Venture Investment are part of a funding round to raise $1.2 billion for Indonesian ride hailing company Go-Jek. The company doubles as a delivery service for pretty much everything, including meals, groceries, cleaners, masseuses and hairdressers across Jakarta. The funding will help the company compete more effectively with larger ride hailing companies like Grab and Uber. Existing investors in Go-Jek include Chinese technology giants Tencent and JD.com. Go-Jek is on its way to taking share from the leading players through discounts and promos, so it has been looking for investors with more resources. Both its rivals have support from Japan’s Softbank.

Amazon AWS Wins Comcast: Comcast (CMCSA - Free Report) , which has already used AWS compute, storage, and analytics services, has selected it as its preferred public cloud infrastructure provider. This means that it will now transfer more vital data to Amazon’s servers and also build applications to process that data. This is a big win for AWS given Comcast’s size and customer breadth. AWS leader Mike Clayville attributed the win to its agility and flexibility.

Some Numbers

Some Companies Reporting This Week: Netflix, Intel, Western Digital, F5 Networks, Xilinx, Avnet, Texas Instruments, Lam Research, Teradyne, Maxim, KLA-Tencor, Trimble Navigation.

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