Top news last week were patent infringement-related lawsuits between Nokia (NOK Quick QuoteNOK - Free Report) and Apple (AAPL Quick QuoteAAPL - Free Report) as well as strong results from Micron (MU Quick QuoteMU - Free Report) .  

A closer look at the top stories-

Apple-Nokia Patent Fight

This year has been a relatively quiet one as far as patent infringement cases are concerned, but the series of lawsuits and counter suits between Apple and Nokia indicate that things are again changing in the final two weeks.  

It appears that Apple has a license for some standard-essential patents that Nokia holds, but it refused to license certain others that it uses, possibly because Nokia was asking for higher rates than would be required under the fair and reasonable terms, or FRAND policy typically used in case of standard essential patents.

Nokia subsequently transferred some patents to patent assertion authorities (PAEs) that likely aren’t bound by the letter of FRAND rules. PAEs Acacia and Conversant (recently hired former Apple director of patent licensing and strategy Boris Teksler as its new CEO) subsequently filed lawsuits against Apple.

Last week, Apple filed a countersuit: “With its cell phone business dying, Nokia began to seek out willing conspirators and to commence its illegal patent transfer scheme in full force; that scheme has continued in full effect to the present. The driving force behind Nokia's strategy was to diffuse its patent portfolio and place it in the hands of PAEs. Acacia and Conversant were its chief conspirators.”

In response, Nokia filed separate lawsuits in Germany and the U.S. including with the ITC covering 32 patents related to technologies such as display, user interface, software, antennae, chipsets and video coding. Later it expanded its lawsuits to 9 more countries (Finland, UK, Italy, Sweden, Spain, Netherlands, France, Hong Kong and Japan) with the number of alleged patent infringements extending to 40. Around 18 of these patents were named in the Texas lawsuit.

Nokia is looking to make a comeback in the cell phone market through a 10-year agreement with HMD. It had earlier sold its struggling phone business to Microsoft, which recently offloaded it to a newly formed company called HMD.

Micron Reports Q1 Results

Micron reported encouraging first-quarter results with both the top and bottom lines ahead of the Zacks Consensus Estimates. Results were helped by strong demand, with margins benefiting from a higher mix of 3D NAND and stronger pricing. The stronger pricing came from tight DRAM supply problems associated with the industry wide transition from planar to 3D NAND that also limited supply for NAND. These dynamics along with accretion from the Inotera acquisition will remain positives going forward.

Read more: Micron (MU Quick QuoteMU - Free Report) Tops on Q1 Earnings & Revenues, Guides Strong

Other stories -

Corporate

Apple Manufacturing in India: Following discussions with Indian regulatory authorities, Apple has been allowed to open retail stores in India on the understanding that it will procure 30% of components from Indian manufacturing operations within 3 years.

The WSJ now reports that Apple has drawn up such a plan and asked for financial incentives and Indian government officials are considering Apple’s proposal. Apple’s largest iPhone assembler, Honhai Precision (Foxconn), that also offers similar services to Nokia and other companies, has been scouting for properties that indicate several manufacturing facilities.

The company already has one facility in Southern India. However, Foxconn hasn’t yet offered any statement on the matter.  India is an important market for Apple because it is set to become the second largest smartphone market behind China next year (IDC estimates) and Apple has a very small share. Moreover, Apple will also be able to sell other products in the country.

Optimism on Facebook Instagram: Suntrust Robinson has said in a research note that Facebook’s Instagram’s 600 million-strong user base (or the accelerated growth of a 100 million users in the last six months) suggests that the company can beat his 2017 revenue estimate of $3.5 billion. Moreover, the service is expected to account for a larger share of Facebook revenue. New features that mimic Snapchat have helped the platform attract younger Internet users and ad load remains low, two factors that should drive its growth.

Goldman Likes NVIDIA: Goldman Sachs’s Toshiya Hari (as reported by Barron’s) raised the price target on NVIDIA and put the shares on their conviction buy list. The reason for optimism is NVIDIA’s unique position with respect to strong growth markets like virtual reality, machine learning and automotive electronics. The total addressable market in machine learning and artificial intelligence is around $5-10 billion and although Intel has a big share of the total Web 2.0 market, NVIDIA is expected to grow its share on the strength of its machine learning prowess.

Piper, Morgan Stanley Like Microsoft: Piper Jaffray analysts say that Microsoft’s (MSFT Quick QuoteMSFT - Free Report) cloud revenue (defined as Azure, Office 365 (commercial + consumer), LinkedIn and a portion of the Dynamics franchise) will grow at a CAGR of 33% through fiscal 2019, with this business moving from 11.5% to 30.6% of total revenue with gross margins moving from 42% to 60%. The analysts see pent up demand for Azure that will be supported by Office 365 (user base to increase 26% through 2019) and LinkedIn (estimated to reach $5.7 billion by 2019) to result in a hyper-growth story.

Morgan Stanley analysts say that Microsoft’s broad distribution channels with LinkedIn’s Sales Navigator, Talent Solutions and Lynda.com/LinkedIn Learning products will help it increase monetization of both individual and commercial user bases, increase engagement, and create valuable integration and upsell opportunities with Microsoft Office 365 and Dynamics 365.

While LinkedIn revenue comes for higher gross margins than Microsoft’s Productivity and Business Processes segment, it carries higher operating expenses. But if Microsoft can make the most of the potential revenue synergies, the analysts expect an FY19 EPS upside of up to 20 cents.

Microsoft Wins DoD Contract: The Department of Defense has awarded Microsoft a $927 million contract for technical support and consulting services. This follows the deal in February, when the DoD signed up for Windows 10 to all four million of its employees within 12 months.

New Google Privacy Policy: Consumer Watchdog and Privacy Rights Clearinghouse has filed a complaint alleging that the changes Alphabet’s (GOOGL Quick QuoteGOOGL - Free Report) Google made to its privacy policy in June “intentionally misled users, who had no way to discern from the wording that Google was breaking from a nearly decade-old practice and asking them if it could link their personal information to data reflecting their behavior on as many as 80 percent of the internet’s leading websites.”

Google’s response was to the effect that the change was to improve user experience as its services are increasingly used across devices. Google’s statement also said, “it is 100 percent optional — if users do not opt-in to these changes, their Google experience will remain unchanged.”

Google Deal with Cuba: Google has signed a deal with Cuba’s state telecommunications company, La Empresa de Telecomunicaciones de Cuba to set up computer servers in the island nation where content such as popular YouTube videos may be saved for quicker transmission to the growing Internet population. The country with 11.2 million people had just 150K daily Internet users last year, but the encouraging point is that this was more than double the number in the previous year.

Amazon Echo Sells Out: Amazon (AMZN Quick QuoteAMZN - Free Report) sold out of its A.I.-powered Echo speakers that it had earlier discounted for the holidays. The Echo, which normally sells for $180 was priced at $140 while the Dot was sold for $40, i.e. $10 off its regular price. It’s being speculated that Amazon misread demand, or it wouldn’t have discounted them so heavily.

Amazon is miles ahead of Google Home, its next competitor in the space, especially because it has opened the platform to third-party developers that are now building home products around Alexa. But the discounting probably makes sense because Google Home sells at $129, so this would have been a good time for the device to make inroads.

Twitter CTO Out: Twitter’s chief technology officer, Adam Messinger, and product VP Josh McFarland left the company last week. Twitter has seen a steady outflow of high-level executives all through this year including the VPs of Product, Commerce, Global Media, Engineering, HR, Business Development, Communications and Global Online Sales. The GM of Vine and COO/Head of Sales were other departures. While some continue to hope for a turnaround surrounding video, the constant brain drain does paint a bleak picture.

Legal/Regulatory

Facebook on Government Data Requests: Facebook said that total government requests for data on Facebook users rose 27% from 59,229 from 46,710 with more than half the requests accompanied with non-disclosure orders preventing the company from informing users. U.S. law enforcement agencies made the largest number of requests.

Content restriction requests dropped 83% from last year, but mainly because of accelerated requests last year related to the Paris attacks. For the first time, Facebook also said that it received 38,675 user information preservation requests for 67,129 accounts.

EU Says Facebook’s WhatsApp Deal Misleading: The European Union’s competition regulator has said that it believes that Facebook misrepresented its technical capabilities to match WhatsApp user accounts with Facebook accounts when it filed for approval of the acquisition. The deal is still expected to go through, but Facebook may be required to pay a fine of up to 1% of its current revenue. Facebook is required to file its response by Jan 31, 2017.

The company maintains that it has provided all relevant information as requested and also voluntarily, but when approval was sought in 2014, it didn’t have the capability. But now that it’s able to match users across its services, it can, for the first time, determine the total number of unique users across its services.   

Germany Wants Payment for Fake News: The German government headed by German Christian Democrats’ (CDU’s) Angela Merkel has decided to bring a law to force Facebook to take down fake news religiously. The government is reportedly looking to fine Facebook 500K euros (around $522K) for each case where it fails to take down fake news within a day after it is flagged.

The government fears Russia’s influence in the polls, particularly since the democrats blamed Facebook for fake stories and claimed that they clinched the President’s title for Donald Trump. Merkel is contesting for a fourth term.  

Alibaba’s Counterfeit Problems Continue: Alibaba was reinstated on the U.S. Trade Representative's (USTR) annual list of global marketplaces that carry counterfeit or pirated goods. The list is intended to single out companies and countries that do not attempt to stop counterfeiters and can influence American policy makers.

Alibaba’s problems are related to Taobao, where rights holders are having difficulty removing counterfeits. Michael Evans, president of Alibaba Group responded: "We are very disappointed by the USTR's decision to include Taobao on its 'notorious markets' list, as we are far more effective and advanced in IPR protection than when the USTR took us off the list four years ago.

"The decision ignores the real work Alibaba has done to protect IP rights holders and assist law enforcement to bring counterfeiters to justice. We question whether the USTR acted based on the actual facts or was influenced by the current political climate."

New Technology/Products

MacBook Pro Problems: For the first time, a Macbook received a negative feedback from Consumer Reports magazine due to its faulty/inconsistent batteries. As stated in the magazine, "the 13-inch model with the Touch Bar ran for 16 hours in the first trial, 12.75 hours in the second, and just 3.75 hours in the third," the magazine said, whereas normal variance is 5% from trial to trial.

Instagram Stickers: Instagram has introduced stickers to its “Stories” and direct messaging services, two features that help it compete with Snapchat. The platforms have gained popularity because of the feature that enables sharing of photos and video that disappear after 24 hours or after two views. Since the content becomes unavailable after a period, engagement is generally high.

Facebook Messenger Gets Group Video Chat: Facebook added a new feature to the desktop version of Messenger, Macs and Android. Accordingly groups of up to 50 can do a chat although smaller groups of up to 6 will have greater visibility. If the number of people on the chat exceeds six, only the dominant speaker will be visible to the others.

Microsoft Testing Payments API: Microsoft is testing Payment Request API, a developer solution for easier in-browser payments. Microsoft has limited presence on mobile platforms although it is still the dominant player in desktops. Since the bulk of ecommerce still takes place on desktops, this is a good start.

The facility will be available on the new Edge browser and is connected to Microsoft’s wallet. So once users enter their information into the mobile wallet, they won’t need to do it each time they want to buy thus driving demand for the wallet. There might also be a solution down the line for those using other browsers.

Google Smartwatches for 2017: Google is getting ready to launch a new line of smartwatches in 2017 in partnership with an undisclosed hardware maker. The watches will carry the manufacturer’s brand but run on Android, be supported by Google’s new voice assistant and include Android Pay.

M&A and Collaborations

Google Waymo Meets Honda: Honda has announced that it is advanced talks with Google’s Waymo to install its “fully self-driving sensors, software and computing platform” in Honda vehicles. The agreement would help Honda get its self driving cars on the road faster while also speeding up Waymo’s revenue generation through partnership with smaller automakers with more limited budgets.  

Silver Lake in Alibaba Funding Round: Alibaba’s on-demand services unit Koubei is close to securing $1.2 billion of funding for expansion. The leading investors are Silver Lake Management, China Investment Corp., Yunfeng Capital (a fund backed by Alibaba co-founder Jack Ma) and China’s sovereign wealth fund.

IBM Watson in Retail: IBM has announced that South Korea’s Lotte Group will use Watson’s AI capabilities to "maximize insights from the huge amount of structured and unstructured customer data collected through its various channels, including the Lotte Members program, deriving valuable learnings about customer preferences and product feedback."

Some Numbers

Cowen Survey on IT Spending: A survey of 118 IT executives through November and December revealed that 75% expect 2017 budgets to move higher with “uncharacteristically strong average in excess of 6%.” Cowen analysts estimate this will translate to 2-3% increase in 2017 spending. Networking is expected to grow as a share of total spend (38% of respondents say their networking spend will increase 11% while 59% say their spending will increase by 6%).

Moreover, only 2% expect to reduce their networking spend. The survey is particularly positive for Cisco because 35% of respondents expect to spend more with the company, 17% will be first-time buyers, 35% expect to spend the same and only 3% expect to spend less.

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