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Part of the excitement last week was with respect to the Deferred Action for Childhood Arrivals (DACA) program that President Trump is looking to scrap, something that technology companies like Apple (AAPL - Free Report) , Facebook (FB - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Cisco (CSCO - Free Report) , Netflix (NFLX - Free Report) , Twitter (TWTR - Free Report) and others are protesting. The Obama-era policy allows some 800,000 illegal immigrants who came to the U.S. in their childhood to avoid deportation.

Now, here are the top technology stories:    

WSJ Discovers Apple iPhone 8 Production Glitches

The Wall Street Journal has finally woken up to the fact that there’s a good chance that Apple is facing production issues with its new iPhone that could delay shipments past the crucial holiday season. This could have an impact on estimates for the holiday season.

Many analysts, including Apple expert Ming Chi Kuo, have earlier reported something similar. The problem areas are the touch screen sensor, which Apple said it’s not placing under the phone as earlier envisaged; the OLED production volumes on which it is still solely reliant on archrival Samsung; and the new 3D sensing feature, which may or may not make it to this iteration of the iPhone.

Apple’s guidance seems to indicate that it will not include any features that could impair its ability to churn out required volumes (as may be expected). It’s generally believed that the company will have 3 iPhone models this time, and if might just keep the new redesigned one marking the tenth anniversary as something of an exclusive item (justifying high prices and allowing it to push out some major updates in initially low volumes).

Google May Buy HTC’s Smartphone Business

It’s being rumored that Google is getting ready to acquire its long-time hardware partner HTC. Taiwanese publication Commercial Times reported the news and UBS analyst Eric J. Sheridan explained why such a deal could make sense for Google. Neither Google nor HTC have however confirmed the rumor. Nor have they denied it.

As far as HTC is concerned, its smartphone business hasn’t been successful and none of its phones have been big hits. So it makes sense to offload the R&D team to a tech giant that might have use for it (HTC reportedly still has hopes for its VR efforts although its Vive headset hasn’t been a roaring success either). 

The thought of Google going into hardware immediately brings to mind its Motorola purchase and the way it sold the unit off a few years later after stripping it off most of its important patents. But Google just isn’t the same company any more. Nor is the smartphone/mobile computing business the same as it was some years back. Today, Google has more of an internal hardware effort and it just might make sense for it to tightly integrate the software and hardware the way that Apple does.

Microsoft was effectively kicked out of this market by mostly Apple at the high end and Google at the low end. But if the company doesn’t want to remain at the low end forever, or if it wants to get more serious about enterprise customers, or even if it wants to remain up to speed with new technologies like AR/VR, Google Assistant, etc, it’s got to do something about platform fragmentation. It might also make sense to build the Google hardware brand. As far as consumer sales are concerned, lower end phones and the Asian supply chain would be helpful, both being things HTC engineers may be able to provide.    

And that’s not all. Google is in regulatory investigations that might force it to agree to the unbundling of apps, especially in the EU. Since it’s only through the apps that the company generates revenue, it would help to have a Google phone where the apps could come pre-installed.   

 

Ticker

Price Change Last Week

Price Change Last 6 Months

AAPL

-3.29%

+14.00%

FB

-0.62%

+23.17%

GOOGL

-1.11%

+9.28%

MSFT

+0.05%

+13.93%

INTC

+0.30%

-2.00%

CSCO

-2.60%

-8.10%

AMZN

-1.26%

+13.31%

 

Other stories

Corporate

Apple Refuses India’s Antispam App: Apple has reportedly refused an anti-spam application of the Telecom Regulatory Authority of India (TRAI) on its App Store. The app allows users to share spam call and text message logs with it. The agency is then empowered to alert mobile operators who could then block the spammers. Apple has refused the app on privacy considerations. Representatives of the government agency feel that since the user is pre-approving the data sharing, there can be no violation of privacy, but further details on the matter are unavailable.

The ownership and control of user data has become a hotly debated issue in the country and the agency is now looking for comments from stakeholders and users to frame new laws on the matter. Needless to say, this can have repercussions for other American technology players like Google, Facebook and Twitter, which also have access to a lot of user information.   

Apple, Amazon Fight for James Bond Franchise: Apple and Amazon are now in the running for the distribution rights to James Bond movies including the one to be released in 2019. The franchise, which will cost $2-5 billion, and which both can easily afford, also has other traditional contenders in Time Warner’s Warner Bros, Sony Corp, MGM, Comcast Corp's Universal Pictures and 20th Century Fox. Apple recently picked up Zack Van Amburg and Jamie Erlicht from Sony Corp, whose rights to the franchise expired in 2015.

The main reason this could be interesting for the technology players is the possibility of licensing the entire franchise or gaining ownership of the entire James Bond IP (current ownership is complicated with MGM plus descendants of original film rights owner Barbara Broccoli and Michael Wilson who exert enormous control of exact screenplay).  

Apple Raises More Debt: Soon after tapping the Canadian market, Apple again raised $5 billion from the domestic market in four tranches maturing in the September of 2019, 2022, 2027 and 2047 at fixed interest rates of 1.5% (on $1 billion), 2.1% ($1 billion), 2.9% ($2 billion) and 3.75% ($1 billion), respectively. The debt is mostly being used to fund the share buyback program because it holds most of its cash overseas. Apple has more than $250 billion in cash and more than $110 billion in debt, so the company may keep borrowing in the foreseeable future.

Facebook Admits to Election Ad Money from Russia: Facebook has revealed that there were likely Russian efforts to influence opinions during U.S. elections. The influence was created through 3,000 separate ads from 470 fake accounts worth around $100,000 (small compared to total money spent on ads at election time) over a two-year period (from Jun 2015 through May 2017).

They didn’t deal directly with election content but rather on divisive messages involving things like gun rights, immigration, LGBTQ issues and racial discrimination. At least some of the ads were traced to a troll farm in St. Petersburg called the Internet Research Agency that is known for pro-Russia fake account creation.

Amazon Stores Inside Kohl’s: Just as some technology companies have done in the past, Amazon is set to make the most of the store-within-a-store concept. For the purpose, it’s partnering with Kohl, which is already selling smart home products with Alexa built-in. Amazon will be opening 1,000 square foot stores within Kohl’s that will showcase its smart home offerings and encourage customers to invite its executives home, so they can decide on the gadgets that will suit them best. The first 10 of the stores will be in Kohl’s locations in the Los Angeles and Chicago areas.

Alibaba-backed Logistics Firm Best Launches U.S. IPO: Chinese logistics company Best Inc is looking for $930 million (that values the company at up to $5.7 billion) to fund the expansion of its supply chain network, develop new technologies and open new stores. Consulting firm iResearch estimates that the Chinese logistics market, which generated around $1.6 trillion in 2016, will grow at a CAGR of 17.9% between 2015 and 2021. CEO Chou has a 46% controlling interest in Best with Alibaba controlling 37.3% voting power and Alibaba affiliate Cainiao Smart Logistics 9%.

Best's IPO includes 53.56 million new American Depositary Shares (ADS), each representing one class A ordinary share at $13-$15 each. Existing shareholders, including private-equity firms CDH Investments, China Renaissance Capital, state-owned Everbright Financial Holding Investment Holding and a unit of Goldman Sachs Group Inc, are selling another 8.54 million ADSs.

WDC Approaches Apple for Toshiba Unit: Apple has emerged as important player in the bidding for Toshiba’s stake in its chip business. The company, which uses both Toshiba and WDC chips, would like to limit WDC’s stake in the JV so it can keep a lid on prices. Toshiba also wants to limit WDC’s ownership for fear that it will take over the entire unit and exclude it from its own IP. WDC is concerned that the IP will fall into the hands of competitors, so it wants to make sure that none of the groups bidding include its rivals. It has also spent a huge amount of money to buy SanDisk’s stake, so it wouldn’t do to become inconsequential.

So Apple has reportedly reached out to WDC, offering financial support to the consortium that included WDC and none of its competitors if the company agreed to remain a minority investor. None of the companies confirmed the news. Separately, WDC also offered to bow out of the bidding in return for a bigger share of the business once it went for an IPO. Toshiba has only said that it has taken no decision. 

Facebook Ad Metrics Under Scrutiny: Investment firm Pivotal Research found that Facebook-claimed potential audience numbers exceeded the number of people according to the census in the U.S. and Australia and another writer found that there was a similar discrepancy in the UK as well. The reason for the excess is unknown, but could be related to travelers to a region, since Facebook gleans the potential user base from “behaviors, user demographics, location data from devices, and other factors.” 

But analysts are calling into question the use of such complicated methods when the job can probably be done better through specialized products like Nielsen’s DAR and comScore’s vCE. The Pivotal analyst Brian Wieser also believes that the frequent inaccuracies in ad measurement and Facebook’s own admission of the fact as well as increased spending on video content could have a negative impact on Facebook’s ad rates as it tries to grab a share of TV advertising dollars, which in turn can have an impact on its profitability.

New Products/Technology

Huawei to Strengthen Smartphone Presence: Counterpoint Research recently noted that Huawei had surpassed Apple as the second largest smartphone maker for two straight months in June and July with August tracking in the same direction. But according to InvestorPlace, since Huawei doesn’t have a device in the top 15, it’s apparent that this position has come from volume sales of several low-end phones in its home turf China.

All that could change soon as Huawei braces for high end share with its newly designed Kirin 970 chip with built-in AI. The chip will be in its Mate 10 and Mate 10 Pro phones to launch next month. Richard Yu, CEO of Huawei's consumer business is optimistic that the phone will perform better than the latest Apple and Samsung devices with AI anticipating actions and interests of users, facilitating language translation, taking voice commands, or making the most of AR (overlaying text, sounds, graphics and video onto real-world images). At the annual IFA consumer electronics fair in Berlin, Yu said that "Users are in for much faster (feature) performance, longer battery life and more compact design."

Facebook, Amazon, Netflix Lose Indian Cricket Streaming Rights: Technology companies lost their bid for the Indian Premier League cricket series to 21st Century Fox's Star India unit, which bid $2.55 billion (media value up 158% from last year) for both digital and TV rights worldwide for 5 years. Amazon and Netflix are already major providers of TV-like content and Facebook is trying to build a position with its Watch video streaming option. This would have been a big deal for Facebook had it won because India is already the largest market by users for the social network. The first three matches reportedly drew 185 million viewers, around 15% more than last year. That’s a lot of advertising dollars lost.

Facebook to Monetize WhatsApp: As has been reported earlier, Facebook is taking that next step to monetize its WhatsApp user base. But the good news is it won’t involve charges to individual users, but only businesses that may want to contact their customers through the platform. Accordingly, the company is developing an app for small business owners as well as an enterprise solution for companies like banks, airlines and ecommerce sites that may have a global customer base.

The plan is to charge businesses for this communication. Facebook bought WhatsApp for a lofty $22 billion and since the user base crossed a billion, the company has been toying with different ideas to monetize them.

Microsoft Has Blockchain-based Insurance Solution: Blockchain (distributed ledger) technology looks set to be used in the shipping industry for the first time, as consultancy firm Ernst & Young, data security firm and blockchain developer Guardtime, Microsoft and ship operator Maersk joined together to create a blockchain-based marine insurance platform. Because of the nature of the shipping business and the many things that can go wrong with cargo, the marine insurance business is particularly complicated.

Add to that the fact that the industry has been in a doldrums for nearly a decade and you get why shipping companies are looking for more efficient and cost effective solutions. So starting Jan 2018, A.P. Moller-Maersk, which tested the technology for 20 weeks, will deploy it in some areas of its business, supported by insurers MS Amlin and XL Catlin.

Fitbit Diabetes Monitoring in Smartwatch: Fitbit’s collaboration with glucose-monitoring device company DexCom Inc., enabling users of its first smartwatch called Ionic to monitor their blood sugar levels, has gone down well with investors. So starting in 2018, DexCom glucose continuous monitoring data will help the Fitbit device compete with Apple’s new watch. The best part is that users will be able to see the glucose reading at a glance at any tiem of the day or night and whether they are running Dexcom’s app on either and Apple or Android device. Fitbit also has the additional advantage of an active social network so users and connect, get others to use the service and maybe also share data.

Collaborations and M&A

Apple-Warner Music: Bloomberg cited unnamed persons familiar with the matter to report that Apple has renewed its multi-year deal with Warner Brothers on more favorable terms. Apple doesn’t have a free music service like YouTube or Spotify, so people either buy a track or subscribe to its $9.99 a month service for unlimited listening. It now appears that Apple pays a much higher rate than rival Spotify (YouTube’s details weren’t mentioned). Spotify was earlier paying 55% of proceeds from its paid tiers (now negotiated down to 52%). Apple on the other hand has been paying 58% and has now negotiated it down to 55% provided subscriber number targets are met.

Apple is slated to refresh its deal with Sony this year after the earlier contract expires. The agreement with Universal (the other big music label) still has a long time to go. But it’s expected that rates will trend lower because digital streaming services are the only major growth avenue for music companies, at least in the U.S.

Apple-LG: Apple and LG have been in talks for the latter to supply it OLED screens for its iPhones, but a recent Bloomberg report indicates that Apple will have to wait until 2019 for the first volume shipments. The delay is mostly because LG had a lot of trouble getting hold of evaporation machines, because the sole supplier Canon Tokki was flooded with orders from competitor Samsung. LG has now secured some machines that will enable to install them, set up the process, test the production line and match the kind of yields Apple requires.

UBI Research analyst Yi Choong-hoon estimates that the production line won’t be up until around this time next year, after which the company will likely take another six months to commercialize. That’s how we get the 2019 timeline. In the meantime, Samsung, Apple’s main competitor, will be selling OLED panel module at $120-130 per unit compared to the 5.5-inch iPhone's LCD module price of $45-55 per unit, according to BI.

Google-Xiaomi: Google has partnered with Xiaomi to breathe new life into Android One. The companies announced that Xiaomi’s $230 Mi A1 smartphone will run on the Google system where the search giant has control over both software and some aspects of hardware design (Xiaomi phones usually run on MIUI system). Users will enjoy a stock Android experience on a mid-range device and access to updates as and when Google is ready to push them out. The handset is initially launching in 40 countries including India, Indonesia, Russia and Mexico.

Alibaba-Mexico: as relations between the U.S. and Mexico sour and while talks to modernize the North American Free Trade Agreement (NAFTA) between the U.S., Canada and Mexico continue, the Central American country has decided it will benefit from increasing business with China. Accordingly, the country’s Ministry of Economy is partnering with Chinese ecommerce giant Alibaba to help small and medium sized businesses in Mexico to sell their wares to Chinese customers.

Alibaba will provide required logistics and its payments platform, while also sharing analytics with its Mexican sellers. Mexican President Enrique Pena Nieto expects the deal to eventually help exports to not just China, which currently has the largest and fast-growing middle class, but also to other Asian countries.

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