Last week was packed with events from Microsoft (MSFT - Free Report) , China’s GTC, in which NVIDIA (NVDA - Free Report) participated, news about some business that Tesla (TSLA - Free Report) is moving from NVDA to Intel (INTC - Free Report) , Toshiba signing an agreement to sell its chip business to a group including Western Digital (WDC - Free Report) competitors, plus so much more.
So let’s jump right in-
Microsoft Ignite Conference
At its Ignite conference in Orlando on Monday, Microsoft announced some interesting changes to its product lineup and that clearly lays out that the company is at the top of its game and not falling behind the pack.
Similar to IBM, Intel, Alphabet’s (GOOGL - Free Report) Google and others, Microsoft also started talking about computing based on the quantum theory that seeks to explain the nature and behavior of matter and energy on atomic and sub-atomic levels. The company will soon release to developers a new programming language based on this kind of computing that they can use, along with Microsoft's simulator and application writing tools.
It also announced several enhancements to its cloud-computing and productivity software products and services, including the infusion of artificial intelligence, or AI, into its Office 365 productivity suite. Now, Office 365 will also integrate Teams, which will be the primary application for communications, replacing Skype for Business, which will henceforth be focused on customers with on-premise data centers.
Teams is now being used by over 125,000 organizations worldwide just six months after its launch. The company did say that it intends to release an updated Skype infrastructure next year that will be targeted to companies that aren't using the cloud and have on-premises data centers.
The other major announcement involved LinkedIn integration into its other products like Office 365 and Dynamics 365. As a result, customers will now be able to see LinkedIn information, including things shared on social media for deeper insight on customers or employees they are looking to meet with.
Additionally, Microsoft says that its virtual reality headset is increasingly being used to collaborate on projects. As an example it mentioned Ford, which uses the goggles to view virtual versions of car models, instead of constructing the usual 5,000-pound clay models.
It also announced some Windows and Office bundles to target enterprise and education segments. Microsoft 365 F1 is one such bundle for customer-facing employees and includes Office 365, Windows 10, Microsoft's Enterprise Mobility and Security suite and StaffHub. It also announced Microsoft 365 for educators, including Office 365, Windows 10, Enterprise Mobility and Security, and Minecraft: Education Edition.
NVIDIA’s Cements Position in China’s AI Market
Meanwhile in Beijing, China, NVIDIA announced at the Graphics Technology Conference (GTC), that it remains the favorite with the BAT companies, i.e. Baidu, Alibaba (BABA - Free Report) and Tencent. The three Chinese Internet giants will now be migrating from NVIDIA’s Pascal GPU platform to its Volta platform, which means that their cloud customers will be able to harness the greater speed and scalability for inferencing (where the trained neural network is used to predict and classify sample data) and training required for artificial intelligence development.
In the words of Jensen Huang: "AI is the most important technology development of our time, with the greatest potential to help society…As the world's leading cloud providers deploy the world's best AI platform, with Volta GPUs and NVIDIA software, we'll see amazing breakthroughs in medicine, autonomous transportation, precision manufacturing and much more."
Leading Chinese OEMs like Inspur, Huawei and Lenovo are also offering Volta-based accelerators for hyperscale data centers based on NVIDIA HGX reference architecture for those companies looking to deploy artificial intelligence or machine learning in their own data centers.
Additionally, JD.com will use the NVIDIA Jetson platform (low-power AI vision) to guide and control its drone delivery systems (the company plans to have a million such drones in service by 2020). It is expected that these drones will ultimately lower delivery costs to rural China.
Tesla Switches from NVIDIA to Intel
Intel scored a small win in what appeared to be a big announcement last week. Bloomberg reported on the basis of statements from people familiar with the matter that the company will now be supplying the chips powering the infotainment systems in Tesla Model 3s and new versions of other cars. This is big news because Intel displaces NVIDIA, which has been making waves in the automotive segment.
On the other hand, NVIDIA continues to supply technology for Tesla’s self-driving system (instead of technology from Intel’s recently-acquired Mobileye), which is a more lucrative business. There are rumors that Tesla is planning to move from NVIDIA to AMD in this area, but since none of the companies have made any official statement to that effect it remains mostly a surmise.
Toshiba Finalizes Chip Unit Sale, WDC Objects
Toshiba has signed an agreement to sell its chip business through a special purpose entity called Pangea. Accordingly, it will invest 350.5 billion yen in Pangea, which along with Hoya Corp (27 billion yen) and other Japanese investors, will keep at least 50% of the company with Japanese owners, as preferred by the Japanese government.
Pangea itself will raise 600 billion yen in loans. U.S. investors (Bain which alone will invest 212 billion yen, Apple which will invest $3 billion, Seagate which will put in up to $1.25 billion, etc.) will invest 415.5 billion yen, but will not have an equity stake or voting rights. Hynix, which will invest 395 billion yen, will not increase its stake to more than 15% for 10 years.
But it’s a very difficult arrangement given that it involves a motley crowd including Western Digital’s competitors, customers and investors, as well as Hynix, which was previously found guilty of stealing trade secrets, for which it paid a fine to WDC and Toshiba. With Apple in the mix, there will also be some heavy pushing (the iPhone maker reportedly delayed the deal by demanding more advantageous wafer supply agreements).
But Toshiba is going ahead with it anyway. And if litigation isn’t resolved when it’s time to close (as will likely be the case), Toshiba won’t include its 3 JVs with WDC in the sale and the price will be adjusted accordingly. That is, if WDC doesn’t manage to secure an injunction blocking the sale of the memory business itself.
Price Change Last Week
Price Change Last 6 Months
Roku IPO Up: Roku’s IPO was priced at $14 a share, but ROKU shares soared nearly 90% in the following days. The company taps the increasing demand for streamed digital content as the new generation moves away from traditional TV. So it sells some hardware that does the job, but also licenses software that helps you tune in to video from Netflix, Hulu, HBO and the like.
Revenue also comes from advertising, which is clumped together with software under the head “platform” and this is the segment growing strongly to offset the slight decline in hardware. Of course, it’s in a crowded market with Amazon, Google, Apple and several others also looking for their shares of the pie.
But with 39 million Americans (as of July 2017) already using its service, it might not be that easy to kill. At the same time, it does need to keep investing in the business and can’t keep making losses forever (albeit from rapidly increasing revenues), so the $219 million it raised from the IPO at a valuation of $1.3 billion will clearly come in handy.
Apple, Google National Security Requests: The government, in the form of National Security Letters, or NSLs, and requests under the Foreign Intelligence Surveillance Act, or FISA, made a record number of requests for data. In Apple’s case, there were between 13,250 and 13,499 national security requests affecting between 9,000 and 9,249 users in the first half of 2017, which was up from 2,750 to 2,999 requests affecting 2,000 to 2,249 users in the first half of 2016. In Google’s case, there were 48,941 government data requests affecting 83,345 user accounts, up from 76,713 requests in the year-ago period.
Alibaba May Enter Chinese Games Market: According to a report by chinadaily.com as discussed in Investopedia, Alibaba is gearing up to hit the $15 billion Chinese gaming market (as estimated by IDC). It will operate under its digital media and entertainment group and be headed by ex-Netease COO Zhan Zhonghui who also has some experience founding his own gaming company called EJoy.
Chen Wei’an, the product manager for World of Warcraft and Starcraft 2 at Ejoy, and Wu Yunyang, a leading developer for in-house game titles at the company, will also reportedly be part of the group. It is currently working on the R&D side to develop industry-leading games.
Google Remedy for EU Antitrust Case: While Google appeals the European Commission’s 2.42 billion euro fine in the Google Shopping case, it has also taken steps to comply with EU requirements. The EU has hired KPMG and Mavens, which have expertise in search engine optimization and marketing to determine whether Google is in compliance.
For its part, Google is spinning out Google Shopping as a separate unit within Google that will rely on its own revenues to bid for advertising slots on the top of the search engine results page. Earlier, Google kept the spot for its own comparison shopping service, relegating results from competing comparison shopping services way down the page or on subsequent pages.
Lead plaintiffs Foundem and other comparison shopping sites like Kelkoo expressed dissatisfaction with Google’s solution, saying that a solution based on auctions would force rivals to bid away all their profits and wouldn’t generate free traffic. Google’s changes will be monitored and the Commission will see how it works before any decision is taken, which could lead to additional fines, a move to break up the company, or something else. Only 5-6 of the 300 comparison shopping services have reportedly signed up for the service, so tracking may be easier said than done until more companies join in.
Google Subscription Tools: Google is revising an earlier policy to demote news sites in the search engine rankings if they didn’t offer some news stories for free. This ensured that people wouldn’t be confronted with paywall after paywall in a regular Google search. But news agencies maintained that this was resulting in a growing number of freeloaders and reducing their revenues through subscription services.
Google had in the past argued that increased traffic to the sites would bring more subscribers. Now, it’s saying that the number news agencies offering subscription services have reached critical mass, so it makes sense to play ball. So it will offer publishers new online payment tools, methods to target readers and customized features inside Google News for existing subscribers. Bloomberg reported earlier that Google tested these subscription tools with The New York Times and The Financial Times.
Google Assistant on NVIDIA Shield: NVIDIA has an important software update for its Shield TV multimedia unit that will bring Google Assistant to the device. So once you get the $60 controller or $200 Shield-plus-controller, you can use voice commands to start or change TV programming, fast forward, or ask the TV to display photos and slideshows from Google Photos.
Google can furnish information about what programming is currently running, facilitate shopping on Google’s Play store, check calendars and order ride-hailing services such as Uber. Google is also throwing in a three-month free trial of its YouTube Red offering. The net result is a really great streaming device cum smart home controller. It’s true competition for Apple TV and priced accordingly.
Collaborations and M&A
Google Search for Siri: Apple has replaced Microsoft’s Bing with Google’s search engine to power Siri. An Apple representative was quoted in TechCrunch, saying that "Switching to Google as the web search provider for Siri, Search within iOS and Spotlight on Mac will allow these services to have a consistent web search experience with the default in Safari." This means that Google search is the default on over 90% of mobile devices, a big positive considering that most people never change the default. This enables Google to generate very strong advertising revenues.
In Apple’s case, a few advantages come to mind. The first and most obvious is that Google search must provide better user experience. And second, since Microsoft integrates Bing in its Windows 10 OS and competes head-on with Apple on devices, the company has an incentive to differentiate its products. This may have made the Google alternative all the more interesting.
Cisco Acquires Springpath: Cisco has closed the acquisition of hyperconvergence software maker Springpath for $320 million. The two worked together earlier to launch HyperFlex, Cisco’s solution to address this market. The concept basically looks to provide complete solutions including storage, networking and other software that increases efficiency and economy of operations as corporations move to the cloud. IDC expects the market to represent a $6 billion opportunity by 2020.
Microsoft’s Cybersecurity Alliance: To expand their current relationship, Microsoft, Accenture and Avanade have entered into a multi-year, multi-million-dollar agreement to develop, integrate and bring to market improved cyber defense solutions. The goal is to offer managed security operations, incident response support and integrated threat hunting so joint customers can better detect, investigate and respond to cyber threats.
Alibaba Stake In Chinese Supermarket, Logistics: Alibaba has taken a 10% stake in Chinese supermarket New Huadu Supercenter, which has traditional retail stores in the Fujian province. Alibaba also invested $5.3 billion to increase its stake in Chinese logistics company Cainiao from 47% to 51%. The company wants to fulfil customer orders in the mainland within 24 hours and overseas orders within 72 hours.
The company earlier announced that it will be spending $15 billion to over the next five years for the development of a global logistics network. Cainiao isn’t profitable yet, but Alibaba’s growing business might just make this possible in the next few years.
Apple Music Subscribers Up: Apple Music has attracted more than 30 million customers, according to Apple. This compares with Spotify’s 60 million (at the end of July), or 140 million is you also count the customers opting for the free ad-supported service. Apple doesn’t have a free tier, which is not necessarily a negative given that the two companies have a different strategy for their businesses.
In Spotify’s case, it gets as many new subs as possible through the free tier and migrates as many as possible over to the paid model. In Apple’s case, it sells some expensive hardware and customers buying it like to pay for its services, including music. The thing that’s worth watching in this is the growth rate and Spotify seems to be generating paying customers at a faster rate than Apple. At least as of now.
Micron Reports: Micron posted very strong revenue and earnings in its fiscal fourth quarter, up very strongly from the year-ago quarter and better than both management guidance and the Zacks Consensus Estimate. Revenue grew high double-digits across all segments. Read more: Micron's (MU) Q4 Earnings & Revenues Crush Estimates
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