The telecom new wave
And also: Regulatory pressure expanding to Apple. The post-pandemic landscape. News from the Second Cold (Chip) War. Where is tech innovation going
Winds of change in telecoms?
This industry could be getting ready for disruption
The telecom world is looking at Rakuten: The Japanese company is an example of three deep structural trends in the telecom industry, at the same time. First, their open network deployment, including radio access, could be the first step to disruption in the telecom supply chain. Second, their open network architecture is also based on cloud technologies, and open cloud networks can be an entry point for hyper scale cloud infrastructure providers to offer / own the network functions required to provide telecom services. Third, in parallel to all this, what Rakuten is doing could also show the way for big consumer retailers into telecoms, as Rakuten is a leading e-commerce player in Japan. So everyone is thinking about Amazon (an obvious name when one thinks of trends 2 and 3) (FT)
Microsoft watching 5G as an entry point into telecoms? Consistent with what Rakuten is doing, Microsoft (the second biggest hyperscaler) is making obvious moves to at least provide some of the network functions from the cloud. The focus would be on 5G, in parallel with Edge Computing, and signs of this have been the recent acquisitions of Affirmed Networks and Metaswitch, two providers of “cloudified” network functions (FT)
Meanwhile, the telecom infrastructure field keeps changing fast, especially in Europe: Vodafone held a Capital Markets Day to present the spin-off of its European tower infrastructure unit, Vantage Towers, which looks to compete with Cellnex and other specialists carved out from European competitors like Telefonica (Telxius). Also this week, Orange’s CEO has said he’s “open minded” on creating an “European mobile towers champion”. The French incumbent has 59,000 towers in Europe and the CEO believes that combining them with those of Vodafone or DT would be an “interesting opportunity” (FT1)(FT2)
The announced TowerCo IPO is helping Vodafone improve investors’ perception: The reaction to Vodafone’s results this week was relatively positive, as revenues behave better than expected and cost cutting is also paying off, with margins showing resilience, even in the current crisis. So now investors perceive that the dividend is sustainable, and this should help the stock (which is currently paying off a +7% dividend yield) (FT)
In other telecom supply chain news…
Huawei may be too strong to fall: A fantastic article by Steven Levy shows to what extent the strengths of Huawei are often underestimated in the West. More than a copycat, or an intellectual property thief, the company is now becoming an alternative technology giant. Under the current threats, they could become even stronger (Wired)
And even Ericsson seems to agree with that: Maybe this is a way for them to protect their (rather large) market in China, or an attempt to maintain the “status quo” in the telecom supply chain, where they’re sort of the other half of a duopoly, with Huawei (FT)
Regulatory pressure expands to Apple
Apple attacked from several fronts
Apple just made a defensive move with the App Store: Apple was already under heavy pressure from big app providers like Epic Games, which has sued Apple on their requirement for a fee on all in-app revenues generated e.g. within Fortnite. Now Apple is making a move that seems designed to convince that they’re not abusive, particularly with smaller app providers, and they’re reducing the fees (from 30% to 15%) for apps that generate less than $1m/year. This is not yet a big deal for Apple, but some expect that it will be difficult for them to stop here, and that they will have to expand the new policy to bigger players, and accept a much more significant impact on their P&L (WSJ1)(WSJ2)
Apple’s position as a “privacy champion”, under question: Last week we discussed claims of a cybersecurity specialist against Apple’s MacOSX privacy practices. This week an Austrian activist has filed complaints against the company with German and Spanish data protection authorities, for sharing a user tracking code called IDFA (“IDentifier For Advertisers”) with iPhone developers. The paradox here is that Apple had already announced (in June) that with the new iOS apps would have to ask for user permission before accessing the IDFA, but has recently delayed the change until early 2021, after suffering pressure from developers (FT)
The company has responded by doubling its public messaging bet: After the accusations, Apple has insisted in its “privacy-protection” language, and has even criticized Facebook and other Big Tech companies for their ad-targeting practices, highlighting how they are in contrast with Apple’s own approach. Facebook responded with a long statement accusing Apple of doing all this for profit, rather than to protect users’ privacy (Bloomberg)
In other tech regulation news:
A consensus is emerging on the need to create rules to enable a competitive data economy, but the question is how: John Thornhill at the FT discussed this week the new tech regulation that the EU is preparing. He suggests that the focus will be on anticipating potential unfairness from Big Tech companies, rather than on breaking them up. He also supports actions to create a single digital market across Europe, but claims that the key objective should be to create a “radically different and more decentralized data economy”. And he even proposes the recently announced technology from Tim Berners-Lee as an enabler of that (FT)
Microsoft is already moving to adapt to a new reality: The US government decision to force tech companies to disclosure users’ private data to government agencies if that was considered of national interest is one of the reasons why the EU is reacting and e.g. denying permission for Big Tech firms to move data from Europe to the US. Microsoft is trying to address this concern and published an blog post last Thursday saying they would challenge all US government’s requests to access customers’ information (Bloomberg)
The “Techlash” has arrived to China: As we saw last week, Chinese regulators are prepared to enforce antitrust actions against Chinese Tech Giants, including Alibaba and Tencent, and have released a set of new antitrust guidelines for the sector. And stocks have reacted negatively, showing that investors do believe this could be serious. Regulators are concerned about the barriers to data sharing across different apps, with users traditionally having been forced to “pick one of two” platforms, without any way to use Tencent’s services in Alibaba’s sites or vice versa. Like in the West, acquisitions by the Big Tech players will also be closely monitored from now on (FT)
Discussions on the post-pandemic landscape
The Stay-at-Home economy is here to stay: Christopher Mims at the WSJ claims that there are four different reasons to believe that things won’t get back to (the 100% previous) normal. First, companies have made large investments in the logistics enabling remote delivery of goods and services; second, families have also invested in being less dependent on going out; third, habits have changed, and many people have crossed a way-of-life “point of no return”; and fourth, jobs are being shifted from the traditional service economy (e.g. retail stores and restaurants) to the new digital alternatives (WSJ)(WSJ2)
Walmart’s results this week confirmed the shift: E-commerce sales jumped +79% and accounted for much of 3Q20 revenue growth. Meanwhile, traffic to physical stores decreased -14.2%, with people going to stores less often, although buying more in each shopping trip (+24%). The company told investors that they were well prepared to ride the wave of “changes in customer behavior that have accelerated the shift to e-commerce and digital” (WSJ)
Meanwhile Amazon keeps expanding its scope: The company announced this week its entry into online pharmacy and will now sell prescription medicines. This is a relatively old project for them (they acquired PillPack, a specialist, 2 years ago) but now could be the right time. Stocks of traditional pharma retailers like CVS Health (-8.6%) and Walgreens Boots (-9.6%) reacted with pessimism. Still, some analysts don’t expect this to revolutionize the market (yet), as Amazon is being relatively cautious in its approach, under regulatory limitations, so it is not using its size to negotiate lower wholesale prices and disrupt the incumbents (WSJ)
Airbnb shows that adapting to the “new normal” can be the right way out of the crisis: After the pandemic triggered a massive erosion of their revenues (-72% yoy in 2Q20), the company has largely recovered fro that, and in their 3Q20 results this week they announced that the difference vs. last year had reduced to -18% (still a large gap, but much better). The company has achieved this by focusing on doing the job that their customers demand in these times, no longer related to moving to exotic places far from home, but to finding locations close to home that they can reach by car and where they can relax during holidays (WSJ)
Even cities’ public transport systems could be under threat: The FT discusses the case of New York City, where a fiscal hole of $12bn has appeared in the Metropolitan Transportation Authority, as a consequence of people not traveling. This is already putting at risk future investments and the salaries of thousands of workers. And everyone seems to be concerned by the possibility that the previous normality never comes back, with people remaining reluctant to use the system everyday, like they used to (FT)
News from the Second Cold (Chip) War
Om Malik sees Apple’s new M1 chip as the start of the next phase of computing: From his blog, the mythic tech analyst tells us that the emphasis for computing (i.e. the limiting factor for better computing “experiences”) is shifting from raw performance to the ability / flexibility to handle many different tasks, as computers shift shapes and become embedded in all things surrounding us. He also sees this as the culmination of Steve Jobs’ vision for Apple to “make the whole widget”, with the processor being the final element to complete this on the Mac (OM)
With companies designing their own chips, high-quality manufacturing becomes a scarce resource (and an opportunity): After Intel’s recent renounce to compete in this space (or being unable to remain in the race), Taiwan’s TSMC and Korea’s Samsung are becoming almost a duopoly, and seem to be looking into a massive profitable growth opportunity. Samsung is investing a huge amount of money ($116bn) to build its next-generation chip manufacturing capabilities, and this includes the target to surpass TSMC (the current leader and provider of Apple and AMD) by 2022 (Bloomberg)
This is a geopolitical (not just a competitive) war: Among TSMC’s risks is their location in Taiwan, the focus of disputes between China and the US, and also an international location that could be penalized by American protectionist policies, that no one discard that could continue under Biden. This is among the reasons why the company is now building a $12bn plant in Phoenix, AZ, that would guarantee its ability to keep making chips for some of its most lucrative customers (including Apple) (Bloomberg)
The Second Cold War accelerates China’s efforts to be self-sufficient in chip manufacturing: Dependence of foreign chip manufacturers for processors designed by Chinese companies (like Huawei) has revealed to be a key weakness of China’s tech strategy, after the US sanctions. And somewhat paradoxically, the American policy has accelerated the efforts to build an alternative, self-sufficient position. Chinese semiconductor companies have raised $38bn of funding so far this year (2x vs. last year) and more than 50,000 companies have registered as semiconductor-related businesses this year (4x vs. 5 years ago) (WSJ)
At the other extreme of the value chain, Nvidia is becoming more powerful: Companies like Apple design their own chips that they then ask others (like TSMC and Samsung) to build. But these designs are made on top of an architecture provided by the British company Arm. Nvidia is now on the way to acquire Arm for $40bn and become the “owner” of that space. The company presented its (rather brilliant) 3Q20 results this week, and the stock didn’t react too well. But their emerging position as a “powerhouse” both in some processor segments (e.g. gaming, AI for data centers) and as the “king” of chip architecture, keeps analysts confident in their future (WSJ)
Signs of where innovation is going
Tech at the service of sustainability: Plenty of startups are working these days to address sustainability problems through the use of new technologies. And the current waste of a third of the world’s food is one of the issues in the radar, as discussed in this article (FT)
Game platforms remain a hot innovation topic: This week we’ve learned about Roblox’s plans for an IPO. Very popular among the GenZ, Roblox is usually defined as a “user-generated game platform”, with more than 30m daily active users spending 22.2bn hours/year on the platform, and 7m active developers which create new “experiences” within the game (they have been called “the YouTube of the gaming world”. This adds to recent investors’ interest in Unity ($13.6bn valuation at its IPO) and Epic Games’ Unreal Engine (VentureBeat)(FT)
Autonomous (military) airplanes could be under way: The Economist tells us that in August this year, 8 different teams met to discuss the algorithms they had developed to control a virtual F-16 aircraft in simulated fights. Removing pilots would make it possible to increase the airplanes’ degrees of freedom (e.g. manoeuvres at higher g-forces). However, the short-term target seems not to be eliminating the pilot, but what they describe as “redistributing the cognitive workload within the cockpit”, which would hand over some tasks to the AI, like pointing radars in the right direction, or accelerate or turn to increase the chances of success of a shot (TheEconomist)
AI is reshaping finance…: Two weeks ago Barclays announced a deal with Amazon to offer customized payment services in Germany, and this has moved the FT’s Gillian Tett to explore an underlying structural trend of banks partnering with tech companies to use AI in finance and improve services to customers. According to her, this could change the nature of competition in the industry, and also create new regulatory needs (FT)
… And Google seems to be conscious of that: Also this week, we’ve learned that Google is revamping its Google Pay app, starting now with a number of new features to help people better manage their bank and credit card accounts, but with plans to launch a Google-branded mobile bank account next year, in partnership with Citibank (FT)