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Among the top news for last week (other than CES) were senators calling for a probe into Intel (INTC - Free Report) CEO Krazanich’s stock sale, Facebook (FB - Free Report) making material changes to its newsfeed that can impact its content and lower its revenue and HP (HPQ - Free Report) returning as the leading computer vendor. Here are the details- 

Senators Want to Probe Krzanich Chip Sale

Intel’s CEO is up for some scrutiny from regulators. Senator Jack Reed, a Rhode Island Democrat and Senator John Kennedy, a Louisiana Republican have sent letters to the Securities and Exchange Commission (SEC) and the Justice Department voicing their concerns about his Nov 29 stock sale and requesting them to examine whether there was any violation of insider trading laws. Intel has said that the stock sale was prescheduled, in line with the SEC’s 10b5-1 rule, but it is cooperating with any probe into the matter.

Intel is facing class action lawsuits in California, Indiana and Oregon, but it may be hard to prove that Krzanich had the information and acted on it, despite the fact that Google informed the company several months prior to the scheduled sale. Moreover, security experts believe that the vulnerabilities need to be material to Intel’s business for insider trading to take place.

And Intel has already said that it doesn’t expect the impact to be material. In fact, the company was going to announce the vulnerability along with the fix on Jan 9 and things may have gone according to plan if not for leaks, according to Bloomberg.

The unusual size and timing of the transaction is however drawing some attention. In the last 2-3 years, Krzanich has reportedly been selling not more than 80K shares at monthly or quarterly intervals but in this case he sold more than 245K after liquidating all his options, yielding 644K shares (last year, he got the biggest payout of performance-based shares since at least 2012). Also, in 2015, 2016 and 2017, his sales instructions were issued in February, April and June, so October (in this case) was a deviation.

As far as customer deviation to Intel competitors is concerned, it appears that the switching cost and complexities make it difficult, particularly for cloud providers. So Intel’s data center business is unlikely to disappear overnight. Besides, companies like Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Apple (AAPL - Free Report) have already updated their systems to secure them. There remains some issue with customers using older versions of Intel chips, but the company says it is working to fix those as well.

The Oregonian has also reported that Intel has formed a cybersecurity group headed by Intel human resources chief Leslie Culberstone, joined by Intel VP Steve Smith and reassigned several top executives to the new organization, but Intel declined to comment on the news.

Moreover, chips from Intel rivals also have the Spectre vulnerability although Intel is also affected by Meltdown. Microsoft’s patch for AMD devices caused them to freeze and the companies are looking for a workaround. ARM has said that around 5% of its chips are impacted. NVIDIA has said that its GPUs are immune although it has issued software patches for its drivers because they interact with potentially vulnerable CPUs.

Facebook Makes Changes to Newsfeed

Facebook is making some changes to its newsfeed that may not go down well with its content providers, advertisers and users, although management believes it will be “good for health.” So rather than posts from publications, businesses and other unpaid Facebook pages, it will be populating the newsfeed with stuff from friends and family.

The quality and frequency of ads served won’t be impacted by the change. The goal is to make the platform more social and less of a place from where to catch your news. Also, posts with more reactions and likes will be promoted versus those that simply offer links for people to read or watch passively. Since businesses and publications won’t be thrilled, they could take their content elsewhere, such as YouTube for example.

Engagement is also likely to drop, according to the company as the feed was earlier optimized to increase engagement and little else. So at times it may have helped the spread of fake news, or at least that’s what it’s been accused of doing. Zuckerberg has vowed to do the right thing because the fact that Facebook now reaches 2 billion users means there’s social responsibility attached.

PC Shipments

Both IDC and Gartner are out with their fourth-quarter and full-year PC shipment estimates.

Gartner, which doesn’t count Chromebooks, estimates that PC shipments fell 2.0% to 71.6 million units in the fourth quarter (the 13th straight quarterly decline) with the top 6 vendors being HP, Lenovo, Dell, Apple, Asus and Acer. Moreover, HP, Dell and Apple grew sales a respective 6.6%, 0.7% and 1.4% for market shares of 22.5%, 15.2% and 7.6%, respectively. The other vendors saw declines.

IDC on the other hand saw Q4 PC shipments inch up 0.7% to 70.6 million units with the top 6 vendors also being HP, Lenovo, Dell, Apple, Asus and Acer. According to IDC however, HP, Dell and Apple grew sales a respective 8.3%, 0.7% and 7.3% for market shares of 23.5%, 15.7% and 8.2%, respectively. Lenovo’s sales were consistent with the year-ago quarter while other vendors saw declines.

Market positions for the year were similar according to both research firms although Gartner places Asus fourth while IDC placed Acer fourth. HP, Dell and Apple were the only vendors that grew according to both firms.

Ticker

Price Change Last Week

Price Change Last 6 Months

AAPL

+1.2%

+18.4%

FB

-4.0%

+12.3%

GOOGL

+1.9%

+15.9%

MSFT

+1.6%

+22.2%

INTC

-3.3%

+25.5%

CSCO

+3.4%

+29.7%

AMZN

+6.2%

+29.2%

 

Other Stories-

Corporate

India Concession to Apple: On Jan 10, the Indian government approved 100% foreign direct investment in single-brand retail without government approval (earlier, foreign companies needed approval if they owned more than 49%). This should help Apple set up its stores in India, something the company has done in every other country as part of its brand building exercise.

iPhones are currently sold online  in India and will likely continue to be sold that way, but the stores could help with brand building and showcasing Apple products and experiences. But the government has stuck to its guns with respect to Apple’s demand for tax concessions including duty exemption on manufacturing and repair units, components, capital equipment and consumables for a period of 15 years.

It has, in fact, recently raised customs duty on some imported components to encourage companies to manufacture in India. At the same time, Union Commerce Minister Suresh Prabhu said last week that the government is waiting for a specific proposal from Apple.

UW Reality Lab Gets VR Research Funding: The University of Washington is setting up the UW Reality Lab that will focus on next-generation virtual and augmented reality technology and educate the industry's workforce. The university has now received $2 million each from Facebook, Huawei and Google for the purpose. Graduate students and undergraduates working on 3D computer vision and perception, object recognition, graphics, game science and education, distributed computing, stream processing, databases, computer architecture, and privacy and security will be part of the program.

Amazon’s Israel Problems: Amazon has been aggressively targeting talent in Israeli startups, according to social media posts by several of them. The tactic has led to quite an uproar among the vibrant startup community in Israel, with some threatening to abandon AWS in protest. This shouldn’t have a material impact on Amazon, given its size and geographical breadth, but could encourage some of its bigger customers to also look elsewhere, such as the Google Cloud.  

Vogels, Amazon's chief technology officer, has responded with a comment of his own: “Let me dive into this…It may be a sourcing agency vs. Amazon proper. I find that sourcing from our customers would be extremely counter-effective." Google Cloud salesmen are also jumping into the action. One salesman messaged on LinkedIn: "Google Cloud would love to have you — shoot me a message."

Legal/Regulatory

Apple Probed in France: In response to a complaint by HOP, the consumer and environmental protection association acting on behalf of its clients that were wronged by Apple, French authorities initiated a criminal probe on Jan 5 to see if Apple resorted to “programmed obsolescence” and “deceit.” The iPhone maker recently apologized for inadvertently slowing down iPhones as a result of software changes to protect the batteries of older iPhones. The 6 and 6s were the worst affected.

Apple also faces a number of lawsuits in the U.S. along the same lines including one that claimed Apple did it to encourage consumers to replace them with newer, more expensive models.

EU Still Dissatisfied with Illegal Content: Five EU Commissioners met with representatives from companies including Facebook, Google, YouTube, and Twitter in Brussels to express their dissatisfaction with the pace at which illegal content, hate speech, extremist propaganda, etc were being removed from the platforms. While agreeing that the companies had stepped up efforts and were moving in the right direction, they kind of threatened to bring legislation if more wasn’t done soon.

China Speaks Up on Privacy: Alibaba Group Holding’s payment affiliate Ant Financial, search firm Baidu and Beijing Bytedance Technology Co, which oversees popular news feed app Jinri Toutiao were pulled up by the Ministry of Industry and Information Technology (MIIT) for inadequate policies relating to personal information protection. The MIIT also said that in the absence of proper policies and the violation of users’ privacy, the government would identify and severely punish technology companies.

Privacy concerns have been mounting since users discovered that a feature detailing spending statistics automatically enrolled them into Alipay’s credit rating program, giving Alipay access to a wide array of user data. The program has been suspended after cyber regulators took exception to the action.  A consumer protection group is also suing Baidu for failing to properly notify users about the data it is collecting.

Products/Technology

Apple to Increase Parental Controls in iPhones: Activist investor Jana Partners and the California State Teachers' Retirement System (CalSTRS), one of the nation's largest public pension plans, are urging Apple to look into parents’ concerns about iPhone addiction and resultant brain damage. Apple said that it has had parental controls since 2008 that allow parents to decide what content to restrict, including apps, movies, websites, songs and books, as well as cellular data, password settings and other features.

An Apple spokesman now says, "We have new features and enhancements planned for the future, to add functionality and make these tools even more robust." There’s a lot of wrangling about the responsibility that tech companies and parents have to protect children and some have said that it isn’t the hardware but the addictive software that affects children so that’s where the concern should lie.

But it’s a little strange to buy your kid an item and then cry because it’s being used. It’s also strange to expect companies that sell addiction to find research against it.

Facebook Messenger Kids for Fire Tablets: Messenger Kids, which uses parental controls to help under-13 kids communicate safely, can now be downloaded from the Amazon App Store for Fire tablets. In early December, it launched on iPad, iPhone and iPod touch. As kids get increasingly addicted to devices and communicating with each other online, a safe environment is what most parents will be looking for. So it’s entirely possible that this could set a trend, or at least encourage other technology players like Apple or Google to take care of those who cant do it for themselves.

Facebook Answer to Amazon Echo Show: Facebook will showcase Portal, a video chat device at its developers conference in May, reports Cheddar. The product is expected to closely compete with Amazon Echo Show, but the report indicates a $499 price tag, which is nearly double the 7-inch touch screen Echo Show that Amazon prices at $229.99. Facebook intends to make it a habit-forming thing, not unlike other smart home speakers like Google Home and Apple HomePod.

Encryption of Skype Messages: Microsoft is partnering with Edward Snowden-recommended Signal for end-to-end encrypted messaging. The feature, to be called Private Conversations, is still in beta, but once available, you can start a “private conversation” with any of your contacts to ensure that the messages are encrypted. The Signal app has been adopted by the CIA and even approved for use in the Senate last year.   

Google to Vet YouTube Premium Video Content: Google Preferred has done well over the past year according to the company, even as it faced repeated embarrassments for placing brand ads next to inappropriate content involving terrorism, hate and children. Now, well ahead of Upfronts, the annual advance ad buying event held in May, people familiar with the matter have told Bloomberg that the company is planning to vet content for the higher-priced Preferred bundle. This is in addition to recently-announced precautionary measures, including a group of 10,000 human moderators and artificial intelligence software that the company will deploy to flag videos that may be inappropriate for ads.

Collaborations & M&A

Facebook-Sony/ATV: After signing on Universal Music, Facebook has now added Sony/ATV to the list. As a result, it will no longer require users to take down videos that include music from Universal’s or Sony’s catalog for copyright infringement. This should encourage them to share more video. Facebook is also reportedly in talks with Warner Music Group, but a deal hasn’t been announced yet. Facebook has been doing all it can to become more of a destination for video sharing and watching as it attempts to take share from Google’s YouTube and also pull in some TV ad dollars. Its Watch tab was also created for this purpose.

Intel-Micron Part Ways on NAND: Intel and Micron have agreed that the third generation of their 3D NAND technology will be the last one co-developed by them for delivery in end-2018 to early 2019. After that, they will go their separate ways in order to better optimize the technology and products for their individual business needs. They are currently ramping products based on their second generation of 3D NAND (64 layer) technology. The companies will however continue to jointly develop and manufacture 3D XPoint (Optane) at the Intel-Micron Flash Technologies (IMFT) joint venture fab in Lehi, Utah, which is now entirely focused on 3D XPoint memory production.

Google Buys Redux: Bloomberg reports that Google quietly bought Redux, a U.K. startup focused on technology that turns surfaces such as phone displays into speakers some time last year. It’s LinkedIn page mentioned that the company raised $5 million in Mar 2017 for work in computing, mobile, automotive and industrial controls markets and had been granted 178 patents. It’s easy to see where Google could find its core technology highly useful, as the company has already launched smart displays that can be used both as a touchscreen and for voice-based commands. More could be up its sleeve.

ActiVision-Amazon Twitch: The Overwatch League, based on Activision’s hit shooter game, featuring teams from 12 cities, from London to Shanghai, will be televised in English, Korean and French on Amazon’s Twitch. The games will be free to watch and supported by advertising (its biggest sponsors will reportedly be HP and Intel). Amazon spent $970 million in 2014 to buy Twitch, which is a platform for people to broadcast themselves playing video games.

Twitter, Snapchat Partner with Fox: Twenty First Century Fox’s Fox Sports will be live streaming a daily show related to the FIFA world cup tournament to be hosted at Moscow's Red Square between June 14 and July 15 on Twitter. Stories, including magazine-like editions called Publisher Stories will be produced by Fox along with match day highlights for Snapchat. Snapchat will also produce FIFA World Cup "Our Stories," featuring video highlights of goals and other key moments provided by Fox Sports.

Some Numbers

SMBs On Amazon: Amazon has announced that more than 300K U.S.-based small and medium-sized (SMB) businesses joined the Amazon Marketplace in 2017, selling billions of items to customers around the world. Many of these sellers used Amazon logistics called Fulfillment by Amazon (FBA). Peter Faricy, VP for Amazon Marketplace also said that this group sells half the products that Amazon customers buy.

Moreover, more than 140K small and medium-sized businesses surpassed $100,000 in sales on Amazon in 2017. During the Holiday Season, customers ordered more than 1 billion items from SMBs on Amazon, with more than 140 million items ordered between Thanksgiving and Cyber Monday. Amazon Handmade expanded to encompass 10 categories offering customers more than one million handcrafted items from thousands of artisans and small business owners across all 50 states and more than 60 countries. Amazon Lending surpassed $3 billion lent to small businesses on Amazon since the program started in 2011.

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