Big Tech post-COVID-19: stronger than ever?
And other signals of change this week: The Tech Cold War accelerates. The road to the “new normal”. Building the next generation infrastructure. M&A in telecoms. The new age of entertainment
After the pandemic, Big Tech could emerge stronger than ever
The combined market value of the “Big 5” keeps hitting all-time records: Facebook, Apple, Amazon, Alphabet and Microsoft (which some call the “Faaam”) have added a combined market cap of $1.7trn after their lowest point last March, equivalent to a +43% bounce, an impressive achievement even if compared with the wider US stock market (which has rebounded +33% in the same period) (Read)
Large digital platforms are capturing most of the opportunities that the crisis is creating: The great Christopher Mims at the WSJ links this to the importance of scale to capture the emerging digital opportunities, and he offers the example of how Waymo (an Alphabet subsidiary) just got $750m more funding for its self-driving car project, while Uber just announced a possible slowdown of its own autonomous vehicle activities, to reduce costs. The “Faaam” companies are spending massive amounts in R&D ($29bn in just last quarter!) and when this is not enough they also have the cash to acquire successful or promising startups (Read)
And they’re even looking to expand their current scope: As healthcare becomes a key target for innovation, with everyone understanding that there is a lot to do, the
“Big 5” also want to lead these efforts. They are confident on the potential of Machine Learning and data analytics applied to health, but some of them (like Google, who tried this in the past) are also conscious of how difficult this field is, how leading Tech companies tend to “under appreciate bottlenecks” in other industries, as a Microsoft scientist points out, and how there are potential regulatory issues as well (Read)
However, they may also be in collision course with each other: Facebook’s big announcement this week of “Facebook Shops”, a set of tools to help small businesses shift into digital commerce, as the new times require, has been received as a move that puts them in direct competition with Amazon and eBay, to diversify from advertising (Facebook’s core business). Others see this more as a way to get more advertising revenues, or to (finally) enter into payments. The recent deal with RelianceJio in India could be part of the same strategy (Read)
And regulators have not really stopped looking at them: This week we learnt that the US Justice Department is “likely” to bring antitrust lawsuits against Google, after an investigation on the companies’ advertising business, where the company has been accused of using its dominance in search to create barriers for competitors. Nothing new, but significant at a time when some had started to think that regulators had been distracted by the COVID crisis, and would have forgotten the Big Tech regulatory issues (Read)
So last year’s “techlash” could come back: Rana Foroohar at the Financial Times says that even if “last year’s techlash may be gone”, “it is certainly not forgotten”. She expects regulatory actions on the tech industry, focused on 3 key issues: (1) privacy, (2) content moderation, and (3) antitrust / monopolistic behaviors (Read)
In parallel, the emerging “Tech Cold War” accelerates
Huawei suffers another hit from US government: Last Monday Huawei reacted to a previous announcement by the US commerce department, that created new (and very significant) barriers for the Chinese vendor to build its own chips. According to the new rules, any company wanting to manufacture chips to Huawei’s designs using US tools would have to apply for a license. The problem is that “US tools” almost dominate this industry, with shares of approx. 40% in hardware tools and 85% in software. So this is a big blow and some think that it could have a deep impact on tech (and telecoms) supply chain (Read)
And they’ve started to look for international allies: Huawei actually held a 3-day analyst summit this week, and of course the US measures were at the center of all discussions. The company’s chairman said he was confident that they will find a solution, and reiterated their commitment to partner with companies and institutions in the West (and in Europe, in particular) to build a new technology ecosystem. They’re investing heavily into this ($18.5bn, equivalent to 15% of their revenue) (Read)
Financial markets believe China will succeed in becoming self-sufficient: The read-across for some investors is that the Chinese government will do whatever it takes to make the country self-sufficient in key technologies, like semiconductors. So they’re heavily betting into local chip stocks like Will Semiconductor, GigaDevice or NAURA, which have hit record valuations this year (between +40% and +80%) (Read)
Meanwhile, for Cloud companies there’s a new Vietnam War: The tech war between the US and China is also affecting software, maybe in a less noisy way. Cloud giants from both sides (Amazon, Microsoft and Google vs. Alibaba, Tencent and Huawei) are now fighting for the South Asian market. Chinese vendors entered first in several markets in the area, but now some companies are looking to diversify with American providers (Read)
Tech companies are also leading the road to the “new normal”
Apple and Google finally released their contact-tracing tech: On Wednesday, Apple and Alphabet released the tools that make it possible for developers to create contact-tracing apps for iOS and Android smartphones, protecting users’ privacy. This comes after the solution has had a positive reception in Europe (where most countries have now shown their preference to this technology). The challenge now, for some analysts, is to create a good enough user experience (Read)
Silicon Valley wants to lead the move into the “future of work”: Several tech companies from Silicon Valley, including Twitter, have announced that they will offer their employees the option to work from home indefinitely. The good experience with the current “enforced” remote work environment, and the positive feedback that some employees are giving, with the advantage of skipping long daily commutes pointed out as a key positive, are being used as arguments. If you combine that with the expensive price of office space in the Bay Area, and the expected “social distance” rules that will have to be applied when people go back to the office, it looks clear that many companies would be much better off if most of their employees remain at home (Read)
Among the “Big 5”, Facebook has already made a very clear public statement about this: Last Thursday, in a communication with employees, M Zuckerberg announced Facebook’s plans to “aggressively open up remote hiring” and predicted that as much as 50% of Facebook’s workforce could work from home in the next 5-10 years. The caveat seems to be that salaries will be linked to where the employee is located, so forget about having a San Francisco salary and living in Idaho (Read)
Meanwhile, Amazon has revealed some of its post-COVID preparations: Among the steps that they’re taking to prepare the company for after the pandemic, Amazon just revealed that they will be shifting their annual Prime Day shopping promotion to Fall this year. The company has also started to allow unlimited shipments of non-essential goods to their warehouses, after having restricted this to cope with the massive demand for essential products (Read)
Building infrastructures for the future: more emerging signs
With the crisis, policy makers are getting more conscious of the need to solve the “digital divide”: Yes, the good news are that digital connectivity has kept us alive, and working, in what has probably been the most severe physical lockdown that most of the World has ever suffered. But the bad side of that is that many people who remain unconnected, or that have poor connections, have been excluded. This is increasing policy makers’ interest in closing the gap, and public initiatives / funding are now expected. This affects both emerging markets (where 3bn people have no connectivity) and more advanced ones (where differences in connections’ quality could reinforce social inequalities) (Read)
Connectivity is even seen as a tool to improve healthcare: In Africa, where poor physical communications and scarce medical resources create a serious healthcare problem for large segments of the population, connectivity is already playing a role to improve this, by enabling telemedicine services. However, the economics of deploying networks in many areas are still challenging. And the problem is even bigger if we think about the kind of bandwidth that would be really useful for advanced telemedicine, which only 5G or other new technologies can provide (Read)
Telecom network assets also revealing to be useful to build the cities of the future: Some telecom network assets can have new roles to host new infrastructures that the cities of the future will require. In the UK, Liberty Global, which operates the leading cable infrastructure, has reached an agreement with Zouk Capital, a London-based firm that manages a government fund for infrastructure development, to deploy thousands of on-street charging points for electric vehicles (Read)
Telecoms, in need to reduce debt, run to M&A
More shareholders for India’s Reliance Jio: The Indian telecom group Reliance Jio keeps selling stakes to external investors, looking to reduce their massive $20bn debt, a need that has increased after the recent oil crisis (Reliance is an oil industry conglomerate). After Facebook ($5.7bn), several Private Equity funds have entered the capital, including Silver Lake ($750m), Vista Equity Partners ($1.5bn), General Atlantic ($870m), and now KKR ($1.5bn). There are rumors that Mubadala, Abu Dhabi’s sovereign fund, is also considering a $1.2bn stake. In summary, all this would be equivalent to selling almost 20% of the company in just a few weeks. An IPO could be also in the works (Read)
SoftBank looking to sell its stake in the new T-Mobile: Another Asian operator with significant financial problems is SoftBank. In this case, the driver are the massive losses from the company’s expensive investments (through its huge “Vision Fund”) in some “sharing economy” startups badly affected by the COVID crisis, including Uber or WeWork. Now their charismatic leader M Son (which has recently compared himself to Jesus Christ) is looking to sell their 25% stake in the “new T-Mobile”, or the combination of Sprint with the “old” T-Mobile. This could generate up to $20bn, and would be part of a sale of up to $41bn in SoftBank’s assets (Read)
The new age of entertainment
AT&T may be thinking on abandoning PayTV distribution: Under increasing pressure from investors, including the activist fund Elliot Management (that entered last year), AT&T is reportedly considering to sell its DirecTV business, potentially to the other large US Satellite TV provider, Dish. DirecTV now aggregates all AT&T’s PayTV customers, and it’s currently in a not-so-good shape, after having lost -900K video subscribers in just 1Q20. Selling this would help AT&T focus on content production and “Direct to Consumer” / streaming distribution (through WarnerMedia) (Read)
Disney+ loses its key executive, and people wonder why: TikTok, the most successful social media platform after Snapchat, owned by the emerging Chinese group ByteDance, has just hired K Mayer, until now Head of Streaming at Disney (i.e. the executive leading Disney+). This has created some noise in the markets about potential instabilities in Disney+ (the consensus is that there won’t be a big problem) and also about what are ByteDance’s plans for TikTok, with some speculations that Mayer could help them develop their own content (Read)
Spotify embraces (“premium”) podcasts, and makes investors happy: With most pop music artists and titles simultaneously present across all the online music platforms, podcasts, typically offered exclusively, have become the way to differentiate these companies’ offers. Spotify just reached a deal with J Rogan, a very successful American comedian (and martial arts commentator). Even if the deal doesn’t look exactly cheap (at approx. $100m, according to sources), investors received this positively (Read)