Last week saw Apple (AAPL - Free Report) shares jump again on the news that Warren Buffett increased his stake again in the first quarter. Apple remains exciting given its solid performance over the last five years (14.8% growth versus the industry’s -2.1% and 2.8% for the S&P 500). Its estimated growth rate of 10.1% over the next 5 years is also encouraging because it is greater than the industry’s 9.1%.
Apple also generates solid cash flows. What’s more, investors could see some cash returned if President Trump’s tax policy goes into effect. But best of all, even after appreciation in prices, its P/E of 17.39 trails the industry’s 32.40 while its PEG of 1.72 trails the industry’s 3.56, indicating that the shares are undervalued.
But as far as news stories go, it wasn’t a great week for Apple, other than its Siri-based smart home device rumor and Beddit acquisition. So with that, let’s jump to the top stories for the week-
Microsoft Build Conference
Microsoft (MSFT - Free Report) made a large number of announcements at the Build 2017 conference for developers, some of which are outlined here:
The Windows 10 Fall Creators Update adds new features for seamlessness including one that will let you go from a Windows device to an iOS or Android one while editing docs.
Azure Cosmos DB, which is a distributed data service that helps to quickly and securely access app data that is very widely distributed across geographies. Microsoft is providing uptime guarantees to woo developers.
Azure IoT Edge, which seeks to increase the capabilities of edge devices by leveraging the cloud, for which Microsoft is guaranteeing seamless deployment of its cloud services.
The Azure Database Migration Service isn’t quite ready yet but the company is offering a limited preview of the service that will offer to migrate on-premises SQL Server, Oracle and MySQL databases to Azure.
Cortana’s skillset is set to increase with the Cortana Skills Kit that lets developers write “skills” or capabilities. They can also use the Microsoft Bot Framework alongside Cortana to add speech capabilities.
There were also a couple of motion controllers to go with its AR/VR headsets to start shipping later this year.
Microsoft also said that more than 500 million devices were running Windows 10, up from 400 million devices last September.
Moody’s and Fitch Rate Intel Debt
Intel’s (INTC - Free Report) proposal to raise $6.5 billion through a senior unsecured debt offering has the blessings of both Moody’s and Fitch. The fresh debt will be used to retire $3 billion in existing debt and for general corporate purposes. Both rating systems say that Intel is doing a good job of maintaining a balance between flat to down PC sales and a moderately growing data center business. They are also both impressed with its growth prospects in IoT and memory.
The Moody’s rating of A1 is based on Intel maintaining its market position because of the depth and breadth of its product offerings, noting that while R&D and capex will continue to grow, they will help the company maintain its market position and also serve as a barrier to entry for other players.
The Fitch rating of A+ is on the assumption that Intel will continue to generate $3 billion free cash flow a year as CCG revenue remains stable (unit declines offset by price), DCG revenue grows "mid-single digits” this year “and low single digits thereafter” as well as strong growth in IoT and memory. Intel has a net debt position.
AliPay, WeChat Pay Enter North America
For four consecutive years, China has reportedly been the country with maximum outbound tourism. It generates more than 13% of global tourism revenue with the U.S. being one of the most popular destinations for Chinese travelers. It’s currently estimated that Chinese travelers will spend around $80 billion in the U.S. come 2020.
This represents huge opportunity that is not lost on local Chinese payments operations Alibaba’s (BABA - Free Report) AliPay and WeChat Pay, especially since most Chinese subscribe to one or both of these payments services back home. AliPay is teaming up with payments processor First Data so its 4 million business customers will accept AliPay.
WeChat has a deal with Citcon that will also extend its reach to several million businesses. For comparison, Apple Pay is currently accepted by 4.5 million businesses. While Chinese travelers are expected to get the momentum going, the services will also be available for American users, thus increasing competition in the space.
Twitter Using A.I. to Recommend Tweets
Twitter (TWTR - Free Report) says it has started using artificial intelligence to recommend tweets to users’ timelines. The recommendation process has gotten increasingly cumbersome as the kind of content in tweets, the number of like sand interactions between users have increased over time. The company has increased its AI focus in recent times through acquisitions and hires, but it has also lost some important people, such as the AI group’s technology lead, Clément Farabet, who joined NVIDIA (NVDA - Free Report) .
Price Change Last Week
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Facebook’s Fake News Action in UK: Facebook (FB - Free Report) has been attacked for allowing fake news to circulate on its platform although the company said these were just a small fraction of the total news in circulation. But it’s definitely not taking any risks when it comes to elections in Europe. So after doing the needful in France, it’s now advertising “10 ways to recognize fake news” in UK newspapers ahead of elections there.
BMO Downgrades Cisco: BMO Capital’s Tim Long downgraded the networking equipment giant from outperform to market perform, lowering its price target from $37 to $35. The analyst says that Cisco will continue to face secular and competitive challenges in its core switching and routing businesses that will continue to make up a large portion of its business in the foreseeable future and therefore remain a drag on the business, masking any progress in other areas.
Moreover, its data center revenues are already shrinking, and the only place it’s making gains in is security. Therefore, it will be years before Cisco is able to transition away from a hardware-centric business to a software and services-centric business.
Alphabet’s Sidewalk Labs Picks Toronto: Sidewalk Labs has applied to develop a 12-acre strip in downtown Toronto, in response to a recent request for proposals by city authorities. The idea is to create a smart city-like area with Google technology that the company calls “from the Internet up.”
Austria to Facebook: Meanwhile in Austria, politician Eva Glawischnig’s lawyer Maria Windhager won a small court victory. The court ruled that unlike Facebook’s claims that a case against it can only be heard in accordance with California and Irish laws, Facebook can in fact be tried according to Austrian law. The court also said that Facebook must remove all hate speech from its site not only for Austrian viewers but worldwide.
Thailand Wants Facebook to Remove Some Content: Citing national security concerns, the National Broadcasting and Telecommunications Commission of Thailand also gave Facebook until today to remove 131 web addresses that violated the lese majeste law, according to which the defamation, insult or threatening of the king, queen, heir to the throne or regent is deemed criminal. These IDs are part of 6,900 web addresses that Thai courts have ordered to be removed or shut down since 2015.
Facebook says that when it receives government data removal requests, it first ascertains whether the content violates the law of the land and only then restricts that content in that country. Government requests have led the company to remove 50 such pieces of content. The company didn’t comment on the request to remove user accounts.
Siri Speaker Reportedly Testing: Apple is being rumored to launch a Siri-based smartphone speaker at its WWDC conference in June. The rumor is from none other than KGI Securities analyst Ming Chi Kuo, who has always been spot on in predicting Apple news in the past.
Kuo says that it will be a high-end device (as with all Apple products). He also suggests that the device will support AirPlay and have "excellent acoustics performance" with one woofer and seven tweeters" and computing power (similar to iPhone 6/6S). So yes, the Apple device could be more capable than Amazon Echo and offer better entertainment, while also incorporating Apple profiles the way Google Home does (with the same benefits).
Facebook Translation Through A.I.: The Facebook Artificial Intelligence Research (FAIR) team has published research results of a convoluted neural network for speech translation and claims that it can achieve state of the art accuracy at 9X the speed of recurrent neural systems. While the technology is expected to reflect in Facebook products, a challenge is must overcome is the nature of language used in conversation which is colloquial rather than formal, making it that much harder to translate.
Facebook Penalizing Poor Quality Pages: Sites featuring deceptive ads, more ads than actual content and sexually suggestive ads will be in for a surprise, when Facebook starts demoting them in the News Feed starting Wednesday. Facebook has over 1.9 billion users, so this will of course be done through algorithms and Facebook VP of ads Andrew Bosworth has said that the decision would affect only the very bad spammy sites, but other sites may even see a resultant increase in traffic.
Microsoft Launches Invoke: Microsoft unveiled the Cortana-powered, Harman-manufactured voice controlled home assistant called Invoke. Cortana enables the device to follow voice commands to control music and get simple questions answered. Because of integration across Microsoft products, it also enables you to consult your calendar or call people on their normal telephone numbers through Skype (if you have Skype credits).
Google G Suite Adds 10 New Features: Google will be adding updates for Gmail, Docs, Drive, Sheets and more to its G Suite cloud-based work applications the company announced at its Cloud Next event in London. This month, Google will launch Jamboard (a 52-inch, 4K digital whiteboard for online collaboration that will also recognize objects and handwriting. Soon, Gmail will get the Smart Reply feature that will allow automated responses that users can select to reply (will improve with use).
Coming in the third quarter, is Drive File Stream that can be updated online (including adding comments to Office and PDF files or offline through a mirrored file. Also in the third quarter is an update to Calendar that will enable it to automatically book meeting rooms. Hangouts Meets will be tweaked through the year and get major enhancements in Q3.
In the same quarter, the company will tweak Docs, Sheets and Slides and by the next quarter there will be integrations between them. Protected team drives will come in the last quarter. The Calendar will get a major overhaul by year-end. Companies like Salesforce and Intuit are working on Gmail add-ons that will increase its functionality across the web, iOS and Android clients.
Amazon Echo Show: Amazon has launched a new Echo device, it’s fifth. This one is called Echo Show, and literally, it shows you stuff through its 7-inch touchscreen display. The device is connected with a front-facing camera to help you make video calls to other Echos.
What’s more, it’s also compatible with other smart home products, so smart cameras of different makes can send images of different parts of the house or the front porch/door, depending upon request. Amazon remains the leader in the space, with 70% share according to eMarketer, followed with Google Home, which has 24% share. The Cortana-based Microsoft product Invoke and Siri-based Apple product are yet to make it to market.
Order Food on TripAdvisor: TripAdviosr’s agreement with GrubHub now allows consumers from 1,100 cities checking the recommendation site to order food. All they need to do is click on the “Order Online” tab, which will take them to GrubHub properties. This isn’t the company’s first restaurant initiative and succeeds the launch of a subscription-based service for restauranteurs and an undisclosed investment in social dining startup EatWith.
M&A and Collaborations
Apple Acquires Beddit: Apple has acquired a Finnish sleep monitoring startup called Beddit for an undisclosed amount. The company had earlier raised $3.5 million. Beddit sold its $150 device (a thin strip of sensors running below the matress and across the bed to track sleep quality, heart rates, breathing, bedroom temperatures and snoring levels, suggesting ways for the user to tackle sleep disorders of various kinds.
Beddit has been selling these products on Apple’s App Store since 2015. It isn’t clear what Apple intends to do with the technology or what product it to intends to incorporate it in, but it doesn’t generally rebrand/sell a product it has acquired (other than the Beats headphones).
Apple Fund Invests in Corning: Apple has said that its new Advanced Manufacturing Fund will invest $200 million in Corning because it is “a great example of a supplier that has continued to innovate” and because it is one of Apple's long-standing suppliers. Corning is one of the U.S.-based firms, in which Apple will invest a billion dollars with the goal of funding innovation in the country in line with President Trump’s plans.
Cisco, NetApp Invest in Datos IO: The two companies have invested millions into the data management startup that helps its customers transition to the cloud or maintain a hybrid cloud system. The company’s data recovery product already has some big-ticket buyers in Ayla Networks, Barracuda Networks, eBay and OpenTable, Macy's, payments company ACI Worldwide and Home Depot.
Moreover, most of its customers also use Cisco or NetApp technology. Amazon’s AWS doesn’t offer the hybrid cloud capability, so Datos technology is built on the premise that not everyone will want all their data in the cloud and that’s the idea the two are investing in.
Cisco to Acquire MindMeld: Cisco will acquire MindMeld for $125 million in cash and assumed equity awards. Mindmeld is a privately held company with 10 AI patents including one for a unique artificial intelligence platform that facilitates interactions between users and their chat and voice assistants. The goal is to use the technology to start new conversational interfaces for Cisco's collaboration products, which is why the MindMeld team will join the Cloud Collaboration group under the leadership of Jens Meggers, SVP and GM of the Cognitive Collaboration team.
Google Buys VR Studio: Google has bought one of the top virtual reality studios Owlchemy Labs responsible for the popular Job Simulator game. The company received investments from companies like Capital Factory, Qualcomm Ventures, Colopl VR Fund, HTC and The Venture Reality Fund. Relja Markovic, Google’s engineering director of VR and AR has said that the two teams will “be working to create engaging, immersive games and developing new interaction models across many different platforms to continue bringing the best VR experiences to life.”
Owlchemy currently produces content for HTC Vive, PS VR and Oculus Rift. Google’s VR platform Daydream only works on its latest devices (Nougat), but its basic, affordable Cardboard platform has gone far, with sales reportedly crossing 10 million units over the last few years. So it could certainly do with good content.
Twitter’s NFL Deal Won’t Include Games: Twitter may have lost the Thursday Night game to Amazon, but it’s not the end of the road for the company. Last week, it announced a deal with NFL that will run for several years and include content such as “breaking news, game highlights, key storylines, fantasy projections, team power rankings and pre-game updates”, etc.
The Thursday Night NFL games cost Twitter a cool $10 million, much lower than the $50 million Amazon is now paying. But since the current arrangement won’t include live games, it might be a more affordable one for Twitter.
NVIDIA-Toyota Partner in Self-Driving Cars: In the race to bring artificial intelligence to cars, NVIDIA has an edge over rivals Intel and Qualcomm. It’s likely that edge that helped it sign an agreement with Toyota to use its chips in its future self-driving cars. According to CEO Huang, NVIDIA’s car computing platform Drive PX is the brain of the autonomous car and used by more than 200 companies globally.
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