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Technology Stock Roundup: Google, Microsoft & More

Alphabet’s GOOGL Google and Microsoft MSFT shared the spotlight last week. Google continued its attempts to win over music labels even as the EU issued a fresh statement of objections attacking it. Microsoft on the other hand had a successful partner conference and scored an important win against the DoJ with positive implications for many technology companies.

Google Piracy Report for Music Labels

The problems of streaming music continue for Google’s YouTube as the company’s renegotiations with music labels Universal Music Group, Sony Music and Warner Music Group have reportedly seen some hurdles.

Google has now published the "How Google Fights Piracy" report, which says that its Content ID system has paid a billion dollars to copyright holders since 2014 and $2 billion during its lifetime (since 2007) in addition to $3 billion paid otherwise. Google shares its advertising revenue with copyright holders, so this may be what constitutes the other payments.

Google also says that more than 90% of copyright holders prefer to monetize copyright infringing material uploaded rather than block it.  The problem seems to be that these copyright holders are required to scour the site to find the cases of infringement, which is both time consuming and expensive.

Also playing spoilsport is a new report released by Midia Research, which claims that YouTube’s $740 million payment to rights holders represented a 15% increase compared to a 132% increase in music streaming, implying a reduction in the rate charged from customers. However, this doesn’t seem to be a YouTube only problem because other services like Spotify also follow the policy of lower rates with all-you-can-eat subscription models that increase payments to rights holders over time.   

EU Charges Google Yet Again

The EU strategy appears clear, i.e. to keep filing separate charges against Google to keep it busy in court rooms for a long time to come. This could be a distraction for management, a drain on resources and also possibly affect employee morale. Or Google could plead guilty, pay the fines (10% of Google’s revenue for each offense) and change its way of doing business.

But Google isn’t one to give up. Not only does it continue to deny charges, but it also adjusts business practices continually, so as to render previous charges untenable. And, of course, it also has a very good track record of winning its cases.

An anti-competitive charge by authorities with a mission to promote domestic industry is, however, a different ballgame. So when the EU says Google should be penalized for favoring its own comparison shopping service, it should be taken seriously.

Google’s previous arrangement to bundle its services with phone makers was also a problem for Russian search service Yandex, which took the matter to the EU, ultimately leading to another charge against Google.

In the latest case, the EU says that Google has restricted access to ads provided by its competitors, thereby hitting its core AdSense business.

Google has so far chosen to fight all the cases, but the pressure is building up. The tactics used by the EU in case of Google are similar to those used against Microsoft, which ultimately led the software company to cave in.  

Microsoft Worldwide Partner Conference

Microsoft had a number of announcements at the WPC. One of the most exciting was the partnership with Facebook FB wherein the social networking company adopted Office 365 for its 13K employees. Microsoft also said that HoloLens was being used by Japan Airlines for training flight crew and mechanics. Additionally, Microsoft’s Cloud Solution Providers (CSPs) will now offer its Surface devices as a managed service (SaaS model) along with cloud services, Office 365 and the Windows 10 managed subscription.

Microsoft Wins Appeal

A federal appeals court ruled that the DoJ can’t force Microsoft to turn over information stored in servers located outside the U.S. This could be a landmark ruling of great importance to U.S. cloud computing companies. Ever since Edward Snowden revealed the extent of the government’s spying activities, international governments and individuals have become extremely vigilant. They are therefore hesitant to allow American companies access to their data thus impacting their business.

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Intel Adds to Board of Directors: Dr. Tsu-Jae King Liu was elected to Intel’s INTC board for her expertise in silicon technology and innovation. She is a professor and associate dean for Academic Planning and Development at the College of Engineering, University of California, Berkeley.

With over 90 patents and several awards to her credit, Liu is also the recipient of the Intel Outstanding Researcher in Nanotechnology Award (2012) and the SIA University Researcher Award (2014). Her current research involves nanometer-scale logic and memory devices, advanced materials, process technology and devices for energy-efficient electronics. So she should be extremely valuable to Intel.

Intel Gets Even Bigger Share of iPhone: Cowen analyst Timothy Arcuri now estimates that Intel has won a position in more than 50% Apple’s iPhone 7 (his earlier estimate was around 25%). It was earlier estimated that Intel had won 25% of the modem business. The analyst believes that this could bring in $1.5 billion in additional revenue, which while small in comparison to Intel’s total business, is an important psychological win for the company.

Mozilla Could Benefit from Yahoo Sale: Back in 2014 when Yahoo YHOO was trying to beat Google and Microsoft’s Bing in search, Marissa Mayer entered into a deal with Mozilla, according to which it agreed to pay $375 million a year as guaranteed income and up to $1.25 billion in the event Yahoo went for a sale and Mozilla didn’t like the party it was sold to. Now that Yahoo is up for sale, Re/code says that Mozilla could make a neat sum by simply walking away from its deal with Yahoo.

Google Gaming Festival in September: Google will host a game festival on Sep 24, where developers building on Android and selling in the Play Store will be eligible. Developers (located in the U.S. or Canada and not being public companies) can submit their creations by Aug 14, of which 30 will be chosen by Google for showcasing at the conference. Prizes include 3D Tango devices of free Google ad campaigns. For now, developers using Google’s Daydream VR or Tango software toolkits will not be eligible, but Google encourages this development, so maybe that show is soon to be.

Alphabet HQ Plan on Course: Soon after LinkedIn agreed to sell itself to Microsoft, it entered into a historic land swapping deal with Google. This involves the exchange of Google buildings and land in three locations in Mountain View and Sunnyvale for land adjacent to Google’s current offices that was crucial for the development of its new futuristic headquarters.

Mountain View earlier rejected those plans, preferring LinkedIn’s development plans instead. But city administrators now prefer a mix of residential and office space in the area to better deal with traffic situations. The land swapping is beneficial for both Google (which can now go ahead with its plans that include office space, residential and retail outlets) and LinkedIn (which can speed up the move to new office buildings).

The city authorities that have been struggling with congestion on the roads as a result of the concentration of office buildings in the area can also relax because Google’s plans are in line with their goals. No money reportedly exchanged hands.  

Alphabet General Counsel for Auto Poject: Alphabet’s auto project may be running well ahead of plan because the unit just appointed its chief legal counsel. At this juncture, Alphabet is one of the companies prescribing fully automated cars over semi-automated cars because the change of control to or from manual drivers can cause accidents.

The government has, on the other hand, taken the view that a driver should have the ability to take over control in the event of an emergency. The death of a Tesla driver in recent times has increased awareness of the dangers of a semi-automated car. But will the company persuade the authorities? That is a question that will depend on Kevin Vosen, who is now chief legal officer.


Facebook Faces Billion Dollar Lawsuit: Last week, Facebook found itself the subject of a lawsuit. The plaintiffs (relatives of Israeli and American victims of Palestinian attacks) to the lawsuit filed the case in the U.S. District Court for the Southern District of New York alleging that the terror group Hamas used Facebook as a communication platform between operatives when carrying out terror attacks. A Hamas leader said the lawsuit was proof of American prejudice. Facebook didn’t comment on the lawsuit but urged users to report content promoting violence, terrorism, hate speech and so forth.

New Technology/Products

Intel Open-Source Security Solution    

Alphabet’s Nest Cam Outdoor: Nest has come up with a camera that can be installed outside to detect, deter and perhaps prevent burglaries. It’s calling this camera Nest Cam Outdoor and renaming the older version Nest Cam Indoor. With its 130-degree field of view, 1080p video and two-way audio, the Outdoor’s specs are similar to the Indoor. Priced at $199, it will be available in the U.S. and Canada this fall.

Google Offers New Shopping And Travel Features

NVIDIA Launches VR Funhouse: NVIDIA launched its first game that started out being an activity showcasing its VR development but later became a game that proved addictive. The company has developed a software development kit (SDK) called PhysX that enables physically accurate simulation of a 3D environment. Of course, as admitted by the company, this physics simulation requires a huge amount of processing power, which is what NVIDIA is really good at providing. So it’s open sourcing the PhysX SDK and offering VR Funhouse as an example, so developers can see the effect of the technology and start working with PhysX. That way NVIDIA can start making some money.  

M&A and Collaborations

ESPN Considers Deal with Facebook, Amazon: Disney’s ESPN is reportedly looking to strike alliances with Amazon AMZN, Facebook and other online channels for content distribution. While Pay TV is not going away, online creation and distribution of sports content has increased with Amazon Twitch and YouTube Gaming. Therefore ESPN could benefit from some digital distribution itself. For both Facebook and Amazon (and anyone else ESPN may be talking to), this is very good news because it adds to content and experiences on their platforms and makes those platforms even more appealing to their users/subscribers.

GE IoT Cloud to Run on Azure: GE is expanding its cloud partnerships as it seeks to get more industrial customers to its platform. The company’s Predix software platform, which currently uses AWS to connect industrial devices with company managers and thereby monitor and optimize them, will now have a similar arrangement with Microsoft’s Azure. Being on Azure it will now be able to make use of Microsoft’s applications and products like Microsoft’s Azure IoT Suite and Cortana Intelligence Suite and for analysis and sharing.

Some Numbers

Cowen Raises Facebook Estimates: John Blackledge of Cowen has raised his forecast for Facebook based on increases in the user base and continued growth prospects at Instagram. He cited data showing Instagram growing users at a rate of 366K a day, compared to 350K a day when it had 300-400 million users. The analyst sees no signs of market saturation yet.

PC Shipment Update: PC shipments continue to decline as expected but there is definitely an improving trend. While Gartner and IDC estimated shipments were down 10-11% in the first quarter, they estimate a decline of 4-5% in the second with improvement through the rest of the year. Specifically, Gartner said the Lenovo retained its leadership share (20.5%) with the next five positions going to HP, Dell, Asus, Apple AAPL and Acer in that order, with market shares of 19.1%, 15.2%, 7.3%, 7.1% and 6.9%, respectively.

According to IDC’s report, Lenovo, HP, Dell, Asus and Apple occupied the top five positions with respective market shares of 21.2%, 20.8%, 16.0%, 7.2% and 7.1%. Apple doesn’t look too good, slipping to the fifth position for the first time.

Windows 10 Monthly Charge: Windows-as-a-service is finally here, but consumers choosing the free upgrade option can relax. That’s because the charge for the service is only to enterprise customers at $7 a month or $84 a year.

Amazon Prime Day Metrics: Amazon said its second Prime Day was its biggest shopping day ever, bigger even than Black Friday, Thanksgiving or the previous Prime Day. Customer orders were 60% higher than Prime Day 2015. Amazon devices like Fire TV, Fire tablets, Kindle e-readers, and Alexa-enabled devices such as Echo and Tap also had their biggest sales days ever. Third-party sellers saw orders triple. Most important, Prime subscription sales were up more than 100% from last year.

Since Prime Day is a kind of celebration of Prime subscribers by offering them huge discounts, it attracts non-Prime shoppers and gets them to try the $99 a year service. Most customers signing on for Prime never leave, thus increasing the customer base for Amazon in the long run.

Yelp Stock Hit by Downgrade: Wells Fargo analyst Peter Stabler says that Yelp will have a hard time meeting its long-term margin targets and that it wouldn’t meet analyst expectations for for 2017 and 2018 either. The analyst downgraded the shares and lowered his valuation saying that international traffic acquisition would also prove difficult and Yelp would continue to see increasing competition for local ads.

Seagate Announced Prelim Results, Job Cuts: Seagate announced preliminary fourth-quarter numbers that were better than expected. Like many other PC-dependent companies, Seagate is seeing persistent year-over-year declines and this quarter won’t be different on that front. The numbers revealed thus far are revenue of $2.65 billion, gross margin 25% (non-GAAP gross margin 25.8%), HDD shipments of 37 million or 62 exabytes, average capacity per drive of 1.7 terabytes and average selling price per unit of $67. The company also announced that in addition to the 1.6K employees laid off last week, it would lay off another 6.5K.

Companies to Report This Quarter: Yahoo, Microsoft, Intel, eBay, Advanced Micro Devices, F5 Networks, IBM, Netflix, VMware, EMC, Pandora and Moodys.

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