The incumbent's dilemma
And also: Remote work and "decentralized living". A new life for local retail stores. Arm prefers servers to IoT. A Metaverse company disappoints. Can Europe compete with China & US?
Intel and the incumbent’s dilemma
The (negative) reaction of investors to Intel’s transformation plan, presented last Thursday, is one more reminder of how difficult it is, for incumbent companies, to convince the financial community of their ability to change and become growth leaders again
No one questions the central role that chips will play in the coming years, with the economy massively shifting to digital business models, and requiring semiconductors for most activities and products
Also, no one questions the geo-strategic importance that chip manufacturing will have for countries, as a critical element of the supply chain, that is not a good idea to leave in the hands of rival nations. There is consensus about how expensive / inefficient it may be to become self-sufficient in this, but both the Chinese and the US governments are showing their commitment to support the move. And the EU too..
So, investors should be happy to participate in an opportunity like this. And that is very close to what Intel proposed them last Wednesday
However, the reaction was (ultra) cold. They didn’t like it when Intel projected a negative cash flow for this year, due to the huge investments they need to do, to catch up with Taiwanese (TSMC) and Korean (Samsung) leaders in the space. Investors also thought that 2025, the target date committed for the jump to the next phase, after the initial investments, was too far away in the future
At the end of the day, it is difficult not to think that things like these would have been much better tolerated in a younger company. Intel’s “incumbent” condition seems to be hurting their credibility to execute the plan. Maybe they can prove otherwise, but investors’ pessimism won’t necessarily help them
The week
1. Consumers and businesses, after COVID
What has happened
New consumer trends:
Airbnb presented good results, with the (expected) end of the pandemic and inflation seen as growth catalysts (WSJ)(FT)
Airbnb’s CEO even talks about a future of “decentralized living”, linked to the remote work, with people becoming more itinerant and using flexible living locations (WSJ)
Emerging technology risks
A former NSA director believes Russian cyber-attacks on Ukraine might expand and create a global systemic crisis (FT)
The post-pandemic economy:
Economists want to understand how expanding “crypto-wealth” will impact economic growth (WSJ)
A parallel concern is that the use of cryptocurrencies could increase the digital divide among nations (FT)
Tech workers are becoming a scarce resource, and have started to exploit their growing negotiation power (NYTimes)
What it means
Everyone agrees that remote work is here to stay, at least as a component of “hybrid” schemes that many companies have started to implement with the end of lockdowns
We still don’t know the implications. One of them could be aligned with the vision that Airbnb’s CEO shared with investors this week: People with no “physical link” to offices could embrace “decentralized living” (kindly supported by Airbnb…)
Another emerging effect after the pandemic is the scarcity of qualified workers, partially driven by the (relatively massive) “big resignation”. This is particularly significant in the tech industry, with talented people having the best negotiation position in years
2. Platforms and digital enablers
What is happening
Google follows Apple’s privacy-protection moves, and will let Android users block cross-app tracking (FT)(WSJ)
Facebook may have lost ~$10bn in sales due to Apple’s tools (WSJ)
Amazon finally signed the peace with Visa (FT)
Big Tech companies work on a common smart-home standard (WSJ)
Apple’s Tim Cook’s compensation is subject to debate (FT)(FT2)
Mobile gaming and the Metaverse emerge as the key M&A themes for the entertainment industry (FT)
Connectivity:
European operators want Big Tech firms to co-invest in the networks (FT)
Ericsson’s shares hit by news of payments to Isis to transport equipment in Iraq (FT)(FT2)
Infrastructure:
Shopify plans to build a network of warehouses, to remain competitive vs. Amazon in e-commerce (WSJ)
Semiconductors:
Intel shares its transformation plan and disappoints investors (WSJ)(WSJ2)(NYTimes)
Expensive acquisitions like Tower Semiconductor this week, are part of the plan (the acquired company provides manufacturing expertise) (WSJ)(WSJ2)
After SoftBank, Arm shifts its strategy from IoT to Servers (FT)
What it means
The move by Shopify to develop physical warehouses to enable better e-commerce logistics reveals how critical physical infrastructure has become for digital retailers. Amazon is also investing a huge amount of money to differentiate in this. Maybe there is hope (in an unexpected way) for traditional, well-located stores, after all
Google’s move to follow Apple and implement privacy protections in Android could increase the pressure on Facebook’s business model. E-commerce advertisers shift money to other media when Facebook is unable to provide the value they used to (e.g.:ad performance by tracking users’ behavior after watching the ad)
The shift of Arm’s focus to servers highlights the disappointment caused by IoT’s unfulfilled promise
3. Financing digital innovation
What is happening
Mobile payments, a major growth driver for African mobile operators, are also behind the region’s largest unicorns (FT)
The new Peloton CEO doesn’t want to sell the company (FT)
Sequoia is restructuring, and it looks like web3 investments will play a key role in thenew organization (FT)
El Salvador wants to fund expansive fiscal policies leveraging the adoption of bitcoin as national currency. But it’s a risky bet (WSJ)
Emerging themes for investors:
Next-Gen AI: Eric Schmidt creates a new fund to invest in initiatives to solve hard AI problems (FT)
Metaverse: Roblox lost -25% of value on Wednesday, with growth decelerating as people go out again (FT). China wants to control the local Metaverse ecosystem (FT)
Space: Virgin Galactic started selling tickets for space trips (WSJ). NASA doesn’t like SpaceX plans to launch “thousands of broadband satellites” (due to potential “space congestion”) (WSJ)
BioTech: Ark Invest are excited about CRISPR applications. But it looks premature (and risky) (FT)
What it means
More news about the shift of VC money to solve “hard problems”, which could open the door to transformational technologies. What Eric Schmidt announced this week (about AI) can be understood in the context of the “Deep Tech” trend towards long term innovation, often linked to atoms, as well as bits, and with potential impact on productivity or on sustainability
The (expected) end of the pandemic is leaving some “permanent” trends (e.g.: remote work), but also reducing expectations on other businesses. Interestingly, Roblox, a gaming company usually identified as an early leader in the Metaverse, is one of those, and suffered investors’ pressure this week, after lukewarm results. Let’s see if this expands to Metaverse expectations in general
4. Building new rules for the (digital) game
What is happening
Antitrust:
Apple’s App Store is again under pressure. Tim Cook has been trying to stop a bill that could target them (WSJ)
Some see these initiatives as an opportunity to re-start the economy, after the “pandemic depression” (FT)
Protecting consumers
Texas is suing Meta about face-recognition practices (WSJ)
UK is launching ambitious online safety laws, asking Big Tech to remove harmful posts, even if they are “legal” (FT)(FT2)
And the US wants to copy this (California could be next) (WSJ)(FT)
The “Tech Cold War”
China is clearly leading in 5G. Some Western analysts blame policymakers (WSJ)
The EU wants to compete with the American space giants SpaceX and Blue Origin… (FT)
… and it is also accusing China of patent infringement in smartphone technologies (FT)
But fragmentation in different countries still makes it difficult for Europe to compete vs. the US or China (FT)
What it means
Europe has an opportunity to become a “third force” in the global geo-strategiccompetition that will determine the future of technology. However, we still have a pending issue to solve. Advanced, strategic technologies require economies of scale, and China and the US (huge single-country markets) are well prepared for this. Meanwhile, Europe still has barriers among different countries, and (even more worrying), it also has an emerging political current that wants to reinforce these barriers, by strengthening individual nation-states, in what would effectively become a serious blow to the region’s future economic (and geo-political) perspectives
Apple, immune (and even profiting) from privacy regulations, sees an increasing threat in antitrust laws targeting its App Store, now one of the company’s growth engines