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The election was the biggest event last week, easily blotting out everything else, especially because of the surprise President-elect. But that didn’t stop a hot Apple (AAPL - Free Report) rumor from KGI Securities analyst Ming Chi Kuo; or Alphabet’s (GOOGL - Free Report) defense of its Android ecosystem; or the gangbuster Singles Day numbers from Alibaba (BABA - Free Report) . So read on…

Apple May Not Upgrade iPhone SE

KGI Securities analyst Ming Chi Kuo is famous for breaking Apple product-related news. This time, he’s saying that the company may not refresh the budget iPhone “SE” line next year. The rationale is purportedly to boost demand for the more expensive and higher-margin iPhone 7, while also pressuring SE component makers to reduce prices. This pressure may increase because Apple is now selling refurbished, certified iPhones from its online store.

The iPhone SE is a very competitive and lighter phone, especially if you can make do with a smaller screen and 64GB storage, don’t mind a somewhat weaker front camera and more limited water resistance, and also really want the headphone jack.

The analyst feels that not refreshing the SE, weaker China demand and lower 4.7-inch volumes will impact iPhone sales next year. He forecasts an iPhone shipment volume decline to between 35 and 40 million (40.4 million units were shipped in 2Q16). He also has reservations about component price declines.

Google Defends Android

Google has its rival Yandex to thank for this one, as the leading Russian search engine’s (until it was displaced by Google) complaint to the Competition Commission precipitated proceedings. In 2013, Google rivals Microsoft (MSFT - Free Report) , Nokia and Oracle (ORCL - Free Report) had gone to the EU through an umbrella organization called Fairsearch.

But it was hard to pin Google guilty, leading to the case dragging on. But when in Russia, Google required phone makers to pre-install Google search (just as everywhere else) instead of Yandex, the company went to court.

In this case, the EU is investigating 3 angles as Techcrunch pointed out so well-

  • that Google is allegedly “requiring and incentivizing” smartphone and tablet manufacturers to exclusively install its own services, and in particular its search engine
  • that it is allegedly bundling certain Google products with other apps & services
  • whether Google is hindering the ability of smartphone and tablet makers to use and develop other OS versions of Android (aka Android forks)

If found guilty, Google will have to pay up to 10% of revenue, or around $7.4 billion.

The crux of Google’s response of more than 100 pages is that Google’s practices are with a view to prevent fragmentation of the platform without which Android would be weakened and competition would in fact be impaired.

It says that the Commission’s decision to omit Apple as a competitor appears arbitrary and partisan. It makes no sense because the Commission’s own survey revealed that 89% of respondents consider Apple and Android as competing platforms. Besides, it allows the Commission to conveniently ignore the fact that 39 out of 39 pre-installed apps on iPhone 7 are from Apple, and 39 out of 47 pre-installed apps on the Microsoft Lumia 550 are from Microsoft.

Android has allowed phone makers to bring cheaper phones to the market and has helped millions of app developers. A weak platform would be bad for everyone. In the words of Kent Walker Google’s general counsel, "The response we filed today shows how the Android ecosystem carefully balances the interests of users, developers, hardware makers, and mobile network operators. Android hasn’t hurt competition, it’s expanded it."

Alibaba Singles Day

Alibaba had a record Singles Day with sales of $17.79 billion, up from the record $14.3 billion last year and short of the $20 billion analysts were projecting. But these sales are nothing to scoff at: 2015 sales in the U.S. on Thanksgiving, Black Friday and Cyber Monday combined and from all stores (both online and offline) totaled $19.4 billion.

This year, Singles Day moved across the border, with the top markets for Chinese goods being Russia, Spain, Israel, Ukraine and France. Top markets selling to the Chinese were Japan, U.S., South Korea, Australia and Germany. The most popular brands were Apple, Nike, New Balance, Siemens, Philips and Adidas. Around 37% of shoppers bought from international stores with virtual reality creating new experiences like Chinese customers browsing the isles of Macy’s store in New York without ever leaving their seats.

But clouds are looming for Alibaba with the election of Donald Trump. The company’s business hinges on China-U.S. relations, so it will be negatively hit by Trump’s decision to charge a heavy tax on Chinese goods. If the Chinese government reacts with similar duty on U.S. goods, Alibaba will be affected very badly.

The other concern is with respect to its accounting practices, particularly with respect to its Singles Day sales, for which the company is being investigated both in the U.S. and in China.

Company

Last  1 Month

YTD

AAPL

-0.38%

+20.01%

FB

-1.42%

-1.05%

GOOGL

-1.19%

+6.00%

MSFT

+0.53%

+14.58%

INTC

+2.98%

+16.30%

CSCO

+3.87%

+17.58%

AMZN

-2.12%

+2.94%

Other stories you might have missed-

Corporate

Facebook on Fake News: After claims that the false stories on social media won Trump his victory, Facebook (FB - Free Report) has said that it will take the matter more seriously. Adam Mosseri, VP of product management at Facebook says, “In Newsfeed we use various signals based on community feedback to determine which posts are likely to contain inaccurate information, and reduce their distribution. In Trending we look at a variety of signals to help make sure the topics being shown are reflective of real-world events, and take additional steps to prevent false or misleading content from appearing. Despite these efforts we understand there’s so much more we need to do, and that is why it’s important that we keep improving our ability to detect misinformation.” The company earlier formed an alliance with various media houses for similar reasons although the possibility of potential business partners colluding to suppress or misinform the public for vested interests is a bit unsettling.

Singapore Civil Service Chooses Facebook Workplace: Singapore’s civil service is adopting the Facebook Workplace platform for its pool of 143K (and growing) public servants by March 2017. The platform is inexpensive at just a dollar per user per month for groups larger than 10K people, so it’s a good deal for Facebook as well. In fact, this is the first deal of its kind for Facebook and underscores the platform’s popularity in Asia.

Legal/Regulatory

Irish Finance Minister Will Go to Bat for Apple: The EU Competition Commission has determined that Apple owes taxes to the tune of $14.5 billion for illegally transferring profits generated in Ireland to a titular head office in a tax free zone. Irish Finance Minister Noonan says that the Commission is acting out of its jurisdiction because tax is a matter decided by individual countries and the competition angle is just a back door to meddle in the member nation’s internal affairs.

The tax breaks enjoyed by Apple are part of state aid that some European countries resort to with the objective of attracting investment in the region. Apple has around 6K employees in Ireland. In September, the cabinet approved Ireland’s joining Apple in appealing the EU’s demand, and Noonan submitted his appeal last week.

LinkedIn Banned in Russia: The professional network faces a ban in Russia because of a law passed in 2014, requiring websites storing personal data of Russians to store it in servers within the country, says Russia's Roskomnadzor communications watchdog. LinkedIn reportedly has 6 million users in the country, so it could be a near-term blow. However, the problem may not be long-lived given its pending acquisition by Microsoft.

Amazon Refunds for In-App Purchases: A federal judge has ruled that Amazon (AMZN - Free Report) must take the responsibility of informing and then refunding parents, when their kids run up bills related to unauthorized in-app purchases. While judge Coughenour agreed with Amazon that the $26.5 million decided by the FTC was too high, he ruled out lump sum payments and gift cards for the amount as Amazon would collect profit on goods sold through gift cards. In similar dealings, Apple and Google coughed up around $32.5 million and $19 million, respectively. Unauthorized purchasing has been curtailed however, with the help of improved controls since then.

New Technology/Products

Pre-Owned iPhones Now on Sale: Last September, when Apple introduced the concept of iPhone annual upgrades and AppleCare+ for $32 a month, I had speculated that they wanted to build inventory of phones on which manufacturing cost was already recovered to target emerging markets like India. But competitors protested this in India, so Apple needed a Plan B (which may have also been in the works actually).

With the anniversary up, Apple would be receiving these phones about now. So it is selling these refurbished (new battery and outer shell) phones after testing and certifying them at a 15% discount through the app store and making a huge profit. Apple is reportedly selling eight versions, all with a one-year warranty.

The decision is also of great strategic importance as it could prevent users from moving away to cheaper phones from competitors. It’s also a way for Apple to further expand its user base, enabling it to sell more services. The current rates are $399 for the 4GB model, which sells for $499 at full retail and $499 for the 8GB model, which sells for $599.

Facebook App for Emerging Markets: Facebook is determined to eat Snapchat’s lunch and the leading social network is doing about all it can to replicate Snapchat-like features such as Instagram stories, “secret” (erased after some time) conversations and more. Now it’s launched Flash, a Snapchat-like platform targeted at emerging markets like Brazil, Indonesia and India where the Facebook brand name is very well recognized. This may cap Snapchat’s progress in emerging markets while strengthening Facebook versus this picture-sharing networking platform.

Intel’s New Chip Tech: Susquehanna analyst Christopher Rolland has called out Intel’s high-speed, in-package optical interconnect silicon photonics technology as a product with the capacity to “revolutionize the semiconductor industry". As the analyst says, it will definitely mitigate the effects of a slowing Moore’s law by reducing the interconnect time between Intel’s Xeon Server CPUs and Altera’s FPGAs, i.e. until Intel integrates the technology into a single piece.

The analyst also said that Intel has "proof of concept" chips and is looking to improve current low production yields. This could lead to a commercial product just three to five years down the line. Rolland estimates that data transfer rates may start at 50 to 100 gigabits per second with the new chips, but could increase to a half terabit or 2 terabits by early next decade, he said.

Google, Apple App Store Updates: Both Google and Apple have huge app marketplaces, which might make it difficult for developers to reach buyers. The two companies are therefore always looking for ways to help developers get their apps seen. Google had many encouraging announcements such as a) allowing developers to offer limited-time discounted subscription pricing for their apps b) a promise to expand the Google Play Store to wearables, VR headsets, and Chromebook laptops for easier distribution from a single marketplace and c) a decision to employ machine-learning algorithms more heavily to provide app recommendations for Google Play users.

Apple, which earlier this year promised developers a bigger revenue share and more reviews for new apps, announced that they can now create early-access promotional codes for new apps that can be offered to journalists and reviewers. These should help them generate more publicity for their new apps and in-app purchases.

Some Numbers

Google Home vs. Amazon Echo: IHS Markit says that Google Home will solidly beat Amazon Echo by 2020, shipping 5.4 million units that year, while Amazon will be stuck at 2.4 million units. Amazon does have a first mover advantage right now, but it will evaporate over the years as Google uses its treasure trove of data to more fruitfully apply artificial intelligence according to the research firm.

Apple is also expected to join the fray with a device based on Siri. The Google device is fifty bucks cheaper at $129, but lacks Amazon’s skills (app ecosystem). This should be a very short-term hurdle as Google has the wherewithal to more than catch up here.

NVIDIA Results: NVIDIA reported solid results this past quarter with its adjusted EPS of 83 cents far outpacing the Zacks Consensus Estimate of 57 cents on the back of solid revenues that also beat our expectations by a wide margin. Read more: NVIDIA (NVDA) Q3 Earnings & Revenues Top, Outlook Strong

 

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