Here's How Leaders Get in Their Own Way Every Single Day

Leaders setting goals or New Year’s resolutions tend to focus on what they need to start doing: tracking more data, investing in better software, establishing a new annual review process.

While implementing new tracking or setting clearer review standards likely would make an impact, it’s what leaders are already doing that’s often the biggest barrier to their success.

Customer feedback, employee pushback, or failed marketing campaigns sometimes send signals about what you should stop doing. A lot of what you do, however, feels like forward motion but really keeps you in place. Your ideas about running your company or changing your industry are sometimes misguided, but that feedback’s a lot harder to gather.

How do you know, for example, if your goal-setting methods are effective? What tells you whether your risk-taking philosophy works? You’d need to make it through several quarters before you could tell whether your outlook was paying off. But there are three ways I’m sure you are hurting yourself and don’t even know it.

Adopting One Outlook Is Dangerous

We tend to absorb the thoughts we’re surrounded by. It’s not a weakness. It’s human nature. A 1969 study by French psychologists found that people who discuss ideas with others develop stronger attitudes than they’d held on their own. Their viewpoints intensified as they found more people with their perspectives, and human psychology hasn’t changed much in the intervening five decades.

The psychologists concluded that group consensus leads people to “adopt more extreme positions.” That phenomenon isn’t isolated to political discussions like the ones the researchers started. Our thoughts and behaviors are reinforced by what we come in contact with.

Don’t get trapped in an echo chamber where you’re only exposed to outlooks that affirm your own. It’s hard to see that something isn’t working. Worse, it’s difficult to come up with new ideas with only one perspective in mind.

3 Things You Can Stop Doing Today

Ditching a long-standing mindset is hard work, and that’s especially true if a leader’s viewpoints have been reinforced by policies or processes. But in my experience, there are three things leaders can stop doing today to make a new start:

  1. Stop hustling. “Hustle” has become a buzzword, shorthand that someone’s an endlessly hard worker. But hustling prevents thinking. If you’re always hustling — and trying to get your culture oriented around hustling — you’re leaving no space for creative ideas. Hustling is meant for execution, but creativity takes space.

    My best ideas don’t come during the hustle. Most come when you are not thinking about the issue like when you are on a run or in the shower. When I get away from the computer screen, my mind begins to think about problems differently. When I write speeches, I need space to think about stories and their key points.

    You can’t force the creative process; doing something unrelated sparks fresh approaches.

  2. Stop the complexity. Companies try to tackle too many strategies and find themselves making things too complicated. It’s hard for bosses to explain to employees what’s needed, and it’s even harder for customers to understand. Simplifying strategies doesn’t dilute their effectiveness — it helps them stick.

    Changing my sales flow to a two-step process impacted new clients enrolled. Over the years, I’d listened to experts’ different strategies. I found that first having a short qualification call was a rapport builder. Only in the second step do I dive into defining the problem and offering a solution. It’s simple, and I vow not to break this process after seeing how much easier it’s been to enroll new clients.

  3. Stop following others. Fast-growing companies don’t follow others. Imitation results in blander results for the copy, who can’t duplicate the excitement of the original. It’s good to remember that no matter how dominant a brand is, there’s always room for a competitor doing something different. MySpace was once the No. 1 site in the U.S., outpacing even Google, but that didn’t stop it from losing out to Facebook.

Rather than overwhelm yourself with all the things you should start doing, consider what you should quit. While some leaders have a hard time admitting they’re wrong, that can hurt their chances of success. And failing is a lot more painful than quitting.

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Tencent profit beats estimates as investment gains offset gaming weakness

HONG KONG (Reuters) – Tencent Holdings (0700.HK) said on Wednesday its third-quarter net profit rose 30 percent, beating estimates, as investment gains offset a weak performance in the Chinese company’s core gaming business.

FILE PHOTO: Tencent Holdings Chairman and CEO Pony Ma (C) visits the Tencent booth following the opening ceremony of the fifth World Internet Conference (WIC) in Wuzhen, Zhejiang province, China November 7, 2018. REUTERS/Stringer/File Photo

Net profit at China’s biggest gaming and social media group in the July-September quarter rose to 23.3 billion yuan, compared with an average estimate of 19.32 billion yuan, according to 15 analysts polled by to I/B/E/S data from Refinitiv.

Revenue rose 24 percent to 80.6 billion yuan ($11.59 billion), the slowest quarterly growth in more than three years, in-line with estimates.

China, the world’s biggest gaming market, has been imposing tougher rules on the industry, including a halt to new game approvals since March and calls to tackle young people’s gaming addictions.

This contributed to Tencent reporting its first quarterly profit fall in more than a decade in its April-June quarter. The company also cut its gaming marketing budget.

Tencent shares, which more than doubled in 2017, have dropped by about a third so far this year, wiping about $165 billion in value from the group’s market value.

In the third quarter, Tencent benefited mainly from a more-than-doubling in net gains from its investment activities, including the initial public offering of online food delivery to ticketing services company Meituan Dianping.

Douglas Morton, Head of Research, Asia at Northern Trust Capital Markets, said the result beat was a positive surprise even if not counting the investment income.

“What the real surprise is or the real comfort for the market will be that the mobile gaming data which beat expectations,” he said.

Tencent said smartphone games revenues grew 7 percent year-on-year and 11 percent quarter-on-quarter to 19.5 billion yuan, mainly due to contributions from new games. Despite the new approval freeze, Tencent already had 15 approvals and released 10 titles in the quarter, it said in the filing.

PC games revenue dropped 15 percent year-on-year due to continued user migration to mobile games and high base in the same quarter a year ago.

Advertising revenue, which accounts for 20 percent of the company’s total revenue, rose 47 percent, supported by a 61 percent jump in social and other advertising.

Tencent said its cloud services revenues more than doubled year-on-year in the quarter while the number of paying cloud customers grew at a triple-digit percentage rate year-on-year. Cloud revenues for the first three quarters of the year exceeded 6 billion yuan, it said.

Monthly active user number of WeChat, the most popular social network in China, rose incrementally to 1.08 billion.

($1 = 6.9536 Chinese yuan)

Reporting by Sijia Jiang; Editing by Muralikumar Anantharaman and Jane Merriman

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The US Is the Only Country Where There Are More Guns Than People

Americans could be forgiven for becoming numb to the swarm of stories reporting gun massacres. In the last five years, ordinary Americans have been murdered in mass shootings in a synagogue, in churches, at elementary and high schools, at a nightclub, at a bar, at a music festival, at a center for people with developmental disabilities, among countless others. After a shooting in Isla Vista, California, in 2014, The Onion wrote, “‘No Way To Prevent This,’ Says Only Nation Where This Regularly Happens.”

The Onion got it right—at least for the “only nation” bit. The US is the only country where this keeps happening. And the US also claims the dubious distinction of being the only rich nation to see so many deaths from firearms, as the chart below shows. (We kill ourselves even more than we kill each other: Worldwide, the US ranks second only to Greenland in the rate of suicides by firearm; when you remove suicides from the equation, the US falls to number 28 worldwide for deaths from firearms, both from violent acts and accidents. But even subtracting suicides, the US’s death rate from guns remains far ahead of every single European nation and nearly every Asian one.)

Most countries that see high rates of gun violence are also economically depressed; El Salvador, for example, which claims the world’s highest rate of deaths from gun violence, has a per capita GDP of around $4,000—roughly 7 percent of the earnings per citizen in the US. The chart below shows that, generally, it’s the poorer countries that see high rates of violence, while rich countries—Luxembourg tops the list—tend to lose very few residents to gunfire. The US, again, stands alone for having a relatively high GDP per capita (number 8 worldwide) and a high level of gun violence (number 12 worldwide).

Rich countries that see virtually no deaths from firearms include Japan, the United Kingdom, Singapore, and South Korea, according to data from the World Bank and the Institute for Health Metrics and Evaluation’s Global Burden of Disease survey.

Unsurprisingly, firearm deaths are correlated with firearm proliferation. American companies manufacture millions of guns each year and import many more. Domestic firearm manufacturing increased dramatically during President Barack Obama’s first term, in part because of fears that, after eight years of a Republican White House, a pro-gun-control president would take away citizens’ weapons.

That didn’t happen. By 2017 the number of handguns, shotguns, and rifles available in the United States was nearly three times higher than it was two decades earlier, according to the US Bureau of Alcohol, Tobacco, Firearms, and Explosives. Today, the US boasts more firearms than residents.

Canada, for its part, may have a lot of guns as well, as the chart below shows, but its citizens don’t often die from gunfire; the country ranks 72nd in the world for deaths from firearms. Despite having one firearm per every three Canadians, the country’s death rate from gun violence is about one-tenth that of the US (though still four times that of the UK). While mass shootings have been on the rise in Canada, only 223 Canadians died from firearm violence in 2016, compared with more than 14,000 in the US. Prospective gun buyers in Canada must pass a reference check, background check, and a gun-safety course before receiving a firearm license; the country also imposes a 28-day waiting period for new gun licensees. The AR-15 rifle—which was used to kill high school students in Parkland, Florida, moviegoers in Aurora, Colorado, and worshippers at a Pittsburgh synagogue, among many others—is a “restricted” firearm in Canada, meaning owners must pass an additional test and obtain a special license.

If Barack Obama had succeeded in passing stronger gun laws, would it have helped save lives? Maybe. On a state-by-state basis, there’s a general correlation between stronger gun laws and lower rates of firearm deaths. A May 2018 paper in JAMA Internal Medicine that sought to evaluate whether strong gun laws resulted in fewer deaths concluded, “Strengthening state firearm policies may prevent firearm suicide and homicide, with benefits that may extend beyond state lines.” Still, a February 2018 analysis by The New York Times found that most weapons used in mass shootings had been obtained legally.

The Giffords Law Center to Prevent Gun Violence gives the states of Alaska and Louisiana a failing grade for their gun-safety laws; those states also claim the nation’s highest per capita rate of deaths from firearms. Massachusetts, New York, and New Jersey all receive higher marks for their laws and have comparatively lower death rates from guns.

But as long as it’s easy for firearms to be transported from, say, a gun-friendly state (like Nevada) to a state with strong gun laws (like California), as long as lawmakers fail to enact strong policies to restrict sales to people with mental illnesses or a history of violence, as long politicians continue to take money from the gun industry, as long as the gun lobby continues to pressure medical doctors to stop advocating for their patients with bullet wounds, and as long as a box of ammunition for an AR-15 rifle costs $20 for 50 rounds, the shootings will no doubt continue.

More Great WIRED Stories

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Weighing The Week Ahead: Market Storm Averted?

We have another normal economic calendar. The election is behind us. The Fed decision is behind us. What next?

Some of the punditry convened after Wednesday’s rally to say that it was time to get “back to reality.” Others are wondering about a year-end rally. Since everyone keys off what happened the day before (!) the preponderance of commentary might go either way.

In either case, I expect pundits to look back at recent volatility, technical support levels, and headline risk. They will be asking:

Has the stock market storm been averted?

Last Week Recap

In my last edition of WTWA I guessed that the punditry focus on the continuing market pressures and warning technical signals. There was some validity in this until Wednesday. My suggestion that the end of the election would be a market positive proved to be correct. We do not know, of course, the exact reason. Some insisted on a “gridlock” interpretation, but the outcome was in line with expectations. My guess was “OK, but not great.” It was a tough week to call and we stayed on the right side of the trade.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski. She includes a lot of relevant information in a single picture – worth more than a thousand words. Read the full post for more great charts and background analysis

A close up of a map Description automatically generated

The market gained 2.1% (added to last week’s 2.7%) and the weekly trading range was 3.4%. The range was lower than in recent weeks, but it did not feel that way for those closely watching the market. I summarize actual and implied volatility each week in our Indicator Snapshot section below.


Will a robot take your job? Jenny Scribani at Visual Capitalist pulls together the evidence.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

New Deal Democrat’s high frequency indicators are an important part of our regular research. This week reflects some softening in the long leading indicators, although his rating remains “neutral.”

When relevant, I include expectations (E) and the prior reading (P).

The Good

  • Earnings forecasts are showing surprising strength. Brian Gilmartin tracks the quarter-by-quarter changes, generally not showing the declines we often see. Company reports are also mentioning tariffs less frequently on earnings calls. John Butters illustrates the pattern, sector by sector. See also Avondale’s excellent article summarizing conference call notes.

  • Initial jobless claims dipped to 214K, continuing the streak of low readings (Bespoke).

  • The Fed decision of no policy change was expected by all and the accompanying language was not worrisome.
  • Foreclosure inventory falls to the pre-recession average. (Calculated Risk).
  • ISM non-manufacturing registered 60.3 E 58.8 P 61.6.
  • Rail traffic improved but the pace of improvement is decelerating. Steven Hansen does a comprehensive analysis with special emphasis on what he calls the “economically intuitive sectors.” This is a valuable element, not seen in other sources.
  • Mortgage credit availability is increasing. “Davidson” (via Todd Sullivan) explains why this is significant for the economy, construction, and lenders.
  • The JOLTS Report continues to reflect employment strength. I especially like the chart below from Jill Mislinski. It shows the improvement of all key elements of the series, compared with a flat line for layoffs. This interesting survey only goes back to 2001, so we do not have many business cycles to analyze. Read the entire post for a collection of other charts and interesting business cycle analysis. Hint: No sign of labor market weakness.

But a look at JOLTS requires examining the Beveridge Curve!

The Bad

  • Individual investor sentiment becomes more bullish, viewed as a contrary indicator. (Bespoke)

  • Hotel occupancy declined a bit. Calculated Risk analyzes the seasonal components and comparisons with prior year. YTD 2018 is slightly ahead of the record in 2017.
  • PPI ran hot with core final demand up 0.5% MoM. (Jill Mislinski).

The Ugly

Forgetting veterans. Some Chicago politicians are proposing raising desperately needed cash by selling naming rights to various public holdings. I don’t mind City Hall, if they can find a buyer, but the airport idea is repugnant.

O’Hare Airport began as a military installation, Orchard Field. It is still designated as ORD, but was renamed for Edward “Butch” O’Hare, the Navy’s first flying ace and the first WWII naval recipient of the Medal of Honor.

Midway Airport opened in 1926 and was originally called Chicago Municipal Airport. It was renamed for the Battle of Midway in 1949.

These names should be untouchable.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

The calendar is normal in significance. The CPI will be watched closely, especially after the PPI report. Retail sales are expected to show a sharp rebound – important to confirming economic strength. The Philly Fed attracts interest as the early read on November data.

And of course – continued tweets, leaks, and speeches. has a good U.S. economic calendar for the week. Here are the main U.S. releases.

A screenshot of a cell phone Description automatically generated

Next Week’s Theme

Last week I opined, “It will require a major surprise for a market reaction to the election.” Unless many were surprised by the expected result, that was a bad call! Eddy Elfenbein always provides a simple, concise, and meaningful interpretation of such events. He writes:

On Tuesday, Americans went to the polls and they voted for gridlock. Or more accurately, the Democrats won control of the House of Representatives while the Republicans increased their Senate majority.

What does this mean for us as investors? Eh… not much, really. Sure, I know how partisans like to jump and holler, but the long-term impact on the markets is pretty small. Historically, bull markets have done just fine while there’s been gridlock in Washington. If anything, Wall Street seems pleased that the uncertainty of the election has passed.

But Eddy is not willing to signal “all clear” and neither am I.

We were on the edge of a storm, with many danger signals. Last week’s trading has improved the technical picture. This shifts the question to the headline risk, referred to as “the fundamentals” by some who are uncomfortable with math. I expect pundits of all stripes to be wondering:

Has the storm been averted?

I have recently offered some bearish viewpoints and suggested some flaws. This week, let’s try it the other way around, starting with a list of what might go right. publishes both stock and bond commentary, part of their free services. Patrick J. O’Hare’s market assessment, “From the Midterm to the Final Exam,” is interesting and balanced. I will take a closer look, once again intermingling my comments in cases where there is something important to add. I’ll put my thoughts in italics. While data-based, these represent my own conclusions. I act on them, but you should make your own decisions!

There are a number of reasons the punditry is making a case for the stock market to finish this year with a bang:

• The uncertainty surrounding the midterm election is over and investors can feel good that a split Congress means there won’t be a legislative unwinding of market-friendly policies. [The split Congress has little effect on market-friendly policies. Nothing was going to be repealed over a veto. What it means is no tax-cut 2.0 and a likely fight over debt limits.]

• November marks the start of the best six-month return period for the stock market, so this is typically a seasonally strong time. [True, but the seasonal effects have not been very important in recent years. The end of the year does encourage everyone to start thinking about next year’s earnings, so stocks seem a bit cheaper. They should, of course, always be looking forward, but most do not.]

• There is going to be performance-chasing by fund managers who have underperformed their benchmark. [There is not much to chase so far! Lagging results have come mostly from under-owned FAANG stocks. I don’t see how “chasing” will help the overall market.]

• Corporate share buyback activity will pick up in earnest now that the third-quarter reporting period is mostly behind the market. [True.]

• Valuation is more attractive in the wake of the October correction. The S&P 500 trades at 16.1x forward 12-month estimates – a slight discount to the five-year historical average and versus 18.3x at the start of the year. [This is the biggest factor, reflecting improved fundamentals. Eventually, attractive pricing trumps negative sentiment.]

• They expect President Trump and President Xi to convey some trade tension detente after meeting at the G20 Leaders’ Summit Nov. 30-Dec. 1. [This is the single biggest factor. Most do not realize how much trade negativity is reflected in current stock prices. My estimate is 10% in the overall market, and much more if you own the right stocks. Saying that it is important is quite different some “expecting” some policy shift.]

• The Federal Reserve could signal that it might not raise interest rates as much as it currently projects. [Don’t hold your breath. It would take a real economic reversal at this point.]

Possible catalysts?

Mr. O’Hare sees two possible catalysts – a trade agreement with China and a Fed decision to slow the planned rate of rate hikes. He does not see either as especially likely, leaving the outlook uncertain.

[I continue to see trade negotiations as the most important catalyst. The tariff impact has been important throughout GOP states, including the Trump base. His key contributors and congressional supporters will be feeling some pain. Some of the asserted executive power is subject to legislative challenge. The real-time economics lesson is playing out. The intra-party pressures could not surface before the election, but I expect to see some signs of change.]

There is a third possible catalyst – the breaking of the bogus recession narrative. This has a surprising grip, even among sophisticated investors. So many believe that Mr. Market wisely forecasts recessions and they should take cover. This is precisely backwards.

Urban Carmel, in an economic assessment packed with charts and data, concludes as follows:

Equity prices typically fall ahead of the next recession, but the macro indictors highlighted above weaken even earlier and help distinguish a 10% correction from an oncoming bear market. On balance, these indicators are not hinting at an imminent recession; new home sales is the only potential warning flag (its most recent peak was 11 months ago) but it has the longest lead time to the next recession of all the indicators (a recent post on this is here).

This is an excellent, comprehensive article. It addresses many of the skeptical points often raised by the “reliably bearish” pundits.

I have included most of my key ideas, but the Final Thought will focus on some scenarios for investor planning.

Quant Corner

We follow some regular featured sources and the best other quant news from the week.

Risk Analysis

I have a rule for my investment clients: Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.

The Indicator Snapshot

Short-term trading conditions remain at high alert. The identification as “very bearish” is a reaction to volatility, not a prediction of market movement. There is always a risk/reward balance to consider in your trading. When conditions are technically challenged, we watch trading positions even more closely. Each of our models has a specific exit strategy. The technical health rating may drop enough for a complete trading exit. It got close to that level twice in the last two months, but has now improved slightly.

Long-term trading has improved a notch on a technical basis. The big post-election rebound helped the technical picture – for us, and for others. Our methods did not “stop out” at the bottom, an important consideration. When your approach tells you to exit on a technical basis, a key question is when to get back in.

Fundamental analysis remains strongly bullish. Earnings are great, prices are lower, and there is even less competition from bonds. We reduce fundamental positions (as we did in 2011) when we get a warning from the recession or financial stress indicators, not merely as a reaction to technical signals.

The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score.”

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

RecessionAlert: Strong quantitative indicators for both economic and market analysis.

Doug Short and Jill Mislinski: Regular updating of an array of indicators. Great charts and analysis.

Georg Vrba: Business cycle indicator and market timing tools. None of Georg’s indicators signal recession. Here is the latest chart on the Business Cycle Index.

Guest Commentary

Nick Maggiulli explains how stock touts convince you of their prowess, finding winners week after week. Hint: There are some other letters to non-winners!

He then enlightens us with this valuable analysis of whether McRib is available. I recommend reading the full post before trading on these results.

Insight for Traders

Check out our weekly “Stock Exchange”. We combine links to important posts about trading, themes of current interest, and ideas from our trading models. This week we asked traders: Do you trade binary events? One inspiration for this was the election, of course, although it was not completely binary. Drug trials are another good example. As usual, we also shared advice by top trading experts and discussed some recent picks from our trading models. Our ringleader and editor, Blue Harbinger, provided fundamental counterpoint for the models, all of which are technically-based.

Insight for Investors

Investors should have a long-term horizon. They can often exploit trading volatility.

Best of the Week

If I had to pick a single most important source for investors to read this week it would be Ben Carlson’s valuable and delightful account, “Things You See During Every Market Correction.” It takes special skill to achieve the simultaneous goals of informing and entertaining. Ben provides an accurate list of what you can expect to hear from so many pundits. Here is one of my favorites (but choose your own):

…people will start making recession predictions even though the stock market is a poor predictor of recessions because no one remembers that when stocks are in the midst of a downfall. Eventually, someone will be right about this but most of the time these predictions are based on luck.

And then he has the list of clichés from professional investors on TV. Each is designed to portray the speaker as both informed and properly positioned for what just happened. Here are two of my favorites:

• We see Dow 26,104.3487 as a key level of support. If it breaks that level, watch out below. …

• The technical damage to the stock market is much worse than investors realize.

Victor Niederhoffer’s site, Daily Speculations, is also a source of humor and inspiration. The commentators are quite good, but this one is “Anonymous.”

Peter Schiff was the first one where I realized there is an actual gloom-and-doom industry full of people who consistently predict disaster, and then every X years there is a big market downturn, and they can claim to have been right all along, and the cycle starts again.

Stock Ideas

Chuck Carnevale provides a cornucopia of twenty high-quality, attractive dividend growth stocks – diversified by sector. This is a great list of ideas. I am including the list to whet your appetite, but it is no substitute for reading the full post and watching the video.

Continuing my series on boosting your dividend yield, I described how the system could be used with General Mills (GIS). This is a good approach for those whose principal need is income.

Ray Merola provides a thorough analysis of Royal Dutch Shell (RDS.A) (NYSE:RDS.B), which he likes very much. This article is another good combination of an idea and a lesson on how to do your homework.

Can Celgene (CELG) rebound from the biotech sector doldrums? Stone Fox Capital sees a buy signal.

Delta Air Lines (DAL) reported earnings a week ago, encouraging D.M. Martins Research.

Volkswagen? The company with the Beetle and the emissions problems? Barron’s thinks the “stock is cheap and has lots of horsepower.”

Personal Finance

Seeking Alpha Senior Editor Gil Weinreich’s Asset Allocation Daily is consistently both interesting and informative. Each week he highlights stories of interest for both advisors and investors. He also provides insightful commentary on important topics. Be prepared for something that cuts against the grain!

My favorite this week was his discussion over the supposed “oil bear market.” Most people are accepting this uncritically. Gil urges a deeper look and nudges us in that direction.

Abnormal Returns is an important daily source for all of us following investment news. I read it religiously. His Wednesday Personal Finance Post is especially helpful for individual investors. As always, this week there are several great choices. My favorite was Tony Isola’s analysis of the effect of inflation on retirement plans. This is not something you can ignore!

Watch out for…

Square (SQ). Stone Fox Capital is concerned about elevated valuation and “exploding” share counts.

Emerging markets. “Not yet” says Eric Basmajian. [Jeff: I agree with his conclusion, but I’d like to chat with him about some of the argument. For one thing, I don’t trust global PMIs.]

Final Thought

Here are a few ideas about the election aftermath and near-term trading. In each case I have more confidence in what I expect to happen than in the market reaction.

Scenario One: Escalation of the Trump Investigation

This is a near-certainty. Democratic committee chairs will have subpoena and investigative power. Trump is threatening that use of these powers threatens policy compromise. Even if the Democratic leadership bought that argument (and they won’t) they cannot control all the individual Committee Chairs – all fiefdoms. In my class on legislative behavior I cited a source saying that it was nearly always right to refer to someone as “Mr. Chairman” (in those days they were nearly all men) because the number of subcommittees awarded a chairmanship to nearly everyone.

The Democrats will launch various investigations. If the Mueller probe is threatened, it will become even more aggressive.

Investment implications:

  • Cooperation on an infrastructure bill is unlikely.
  • The President may need to reach out more to supporters already in office instead of voters.

Scenario Two: Death to Initiatives Requiring Cooperation

Democrats are unlikely to accede on any key proposal requiring Congressional support. This raises the implementation of the NAFTA replacement is a key worry. We might also see another round of debt-limit debates, with a possible bad ending. Expect the partisan roles to be reversed. The Trump-led GOP has not demonstrated a successful record of reaching across the aisle. That will now be essential on the budget and debt issues.

Investment Implications:

  • A crisis of confidence like what we saw in 2011. The economy runs on confidence.
  • A delay in the crucial North American trade agreements would affect many industries and have a ripple effect.

Scenario Three: Impeachment and/or Constitutional Crisis

This still seems unlikely, but Democrats will not accept firing of Mueller. Some Republicans will agree. I don’t want to get into what substance there is behind the various allegations but suppressing whatever it is will not work.

Investment implications:

  • Another type of crisis of confidence. The US would be weakened in global affairs and development of fresh domestic policies would halt.
  • The specific effects would depend upon which policies – Iran, tariff, immigration, debt ceiling, etc. – had already been implemented.
  • The market will not like uncertainty, but it should not rival 1974.

[There is a lot resting on your current investment decisions – risk, traps, assuring income, and seizing opportunity. Write to us for my free papers on each of these topics.]

I’m more worried about:

• The gradual effect of the trade war. As I have often noted, it is a real-time econ lesson. The effects are more obvious each week – lower growth, higher inflation.

• Additional crippling of compromise.

I’m less worried about:

• Earnings growth. It is a strong positive, supported by a strong economy.

• Debt issues. This is a staple complaint of those struggling to find something wrong. I have often said that this is an important problem, but not currently urgent. It must be addressed, but not right now. Read this piece from David Kotok.

We have another normal economic calendar. The election is behind us. The Fed decision is behind us. What next?

Some of the punditry convened after Wednesday’s rally to say that it was time to get “back to reality.” Others are wondering about a year-end rally. Since everyone keys off what happened the day before (!) the preponderance of commentary might go either way.

In either case, I expect pundits to look back at recent volatility, technical support levels, and headline risk. They will be asking:

Has the stock market storm been averted?

Disclosure: I am/we are long GIS, CELG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: GIS vs short calls

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How Amazon's Marketplace Supercharged Its Private Label Growth

In 2009, Amazon launched its first private label brand AmazonBasic. Today, Amazon has 100+ private label brands that offer over 4,600 products. That explosive growth has been supported by rich data that Amazon mines from its marketplace. The modern monopoly’s control over search results on its website, mobile app, and Alexa voice queries further exacerbates the problem by giving its own brands premium listing space (or in the case of some voice searches, the only listing).

Reinventing the private label game

To be clear, Amazon is a late comer to the private label game. For decades large retailers such as Walmart, BJ’s, and CVS have placed private labels on their shelves at a cheaper price than other brands.

In the decades before the rise of online marketplaces, retailers stocked their shelves by making deals with big manufacturers like Proctor & Gamble or Nestlé. Those big consumer good conglomerates wielded the power to shove out smaller brands, demand premium shelf space, and trade for other perks as part of their deals with big retailers like Walmart. Consequently, Walmart could, and did, use the data it gathered in its stores to build its own private label brands.

On its face, Amazon’s approach looks no different – that is, it gathers data on products sold of the website and builds out a private label strategy with that data. However, Amazon’s platform business and market share gives it advantages that brick-and-mortar retailers could only ever dream of.

Predatory pricing in Amazon’s private label brands

The proliferation of Amazon’s private label brands has consumer good sellers squirming. Because Amazon prioritizes growth over profits, the tech giant has been able to move quickly across many product categories from electronics to fashion to home and kitchen, pet products, cosmetics, health and beyond. Like the private label brands of traditional retailers, Amazon’s products often sell for cheaper than other brands on its own market, and often (though not always) at a loss.

As Lina M. Khan wrote in the Yale Law Review in an article discussing antitrust issues with Amazon, “The economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational.”

Amazon’s multi-channel revenue, including the revenue it makes from third-party sellers on its marketplaces, subsidizes its private label experimentation and dominance. But Amazon’s platform has done more than provide financial cover for Amazon’s private label brands, it has also provided the right data.

Data richness and search results

Amazon’s marketplace catalog dwarfs even the largest traditional retailers, such as Walmart’s catalog (especially pre-marketplace). Amazon democratized access to the consumer for sellers. Soon small brands and living room product startups could open shop on a marketplace that commanded over half of online sales.

That boon cut both ways. Amazon gained access to all the data for itself, and the quality of the data is much richer and more granular than any data collected by traditional retailers at their stores.

The combination of granular data and the democratization of access has quickly benefited Amazon in a matter of years. Consider Anker, a smaller brand of portable battery packs, speakers, and other electronic goods. Before 2017 they were sold almost exclusively on Amazon’s marketplace. Compare and contrast Anker’s portable bluetooth speaker with Amazon. Anker’s is $40 and Amazon’s is $20.

Both even come in black, blue, and red! Notice Amazon is out of stock of its blue speaker. Most of its private label brands carry a limited stock of each item to test their performance.

In addition to hyper specific data mining, Amazon also accounts for 49% of online product searches, while another 36% of product searches start on Google and point to Amazon first (according to research firm Survata). Amazon can, and does, list its items before competitors. In the case of voice shopping via Alexa using generic product terms such as ‘batteries’, the smart speaker chooses an Amazon brand for the consumer (a practice that, among others, is inviting antitrust scrutiny).

How manufacturers and resellers should respond

Given Amazon’s monopolistic advantage, what can product sellers do? In the short term, pulling your product from Amazon simply isn’t practical. Amazon accounts for over half of all online sales. They have the consumer goods retail market by the wallet.

Rather than just hoping that antitrust regulation is successfully brought against Amazon, product vendors should build or acquire a marketplace of their own. Listing stock on competing marketplaces is a good idea, but it isn’t enough. The publishing industry tried that approach with books, and it found little success. By building or buying a competing marketplace, product companies can scale niche, specialized marketplaces that can serve as a competitive moat against Amazon.

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This Woman Walked 7,000 Miles to Discover the Secrets to Happiness. Here's What She Learned

How far would you travel to uncover the secret to happiness?

Vermont-born Paula Francis has already walked nearly 7,000 miles on behalf of Gross National Happiness USA, a nonprofit dedicated to changing how we measure success. She recently told a CBS affiliate that her research thus far points to caring, compassion, and listening as the key ingredients to a happier life.

You may not be ready to wear out your tennis shoes like Francis (she’s going on 14 pairs), but that doesn’t mean you can’t improve your own happiness factor.

When Francis studies people, she absorbs their stories, a technique that combats self-focused negativity. It’s tough to be hard on yourself when you’re concentrating on being in the moment with another person. Plus, learning about someone else’s personal journey can put your own woes into perspective.

Does it take intention to forge a better life? Of course, but making a few smart choices will go a long way. For me, it’s simply a matter of switching up my attitudes and routines.

1. Choose nontoxic friends.

We’ve all had the experience of dealing with an emotional vampire at work, someone who sucks our soul dry of energy and happiness. You may not be able to fully cut ties with this person, but you can keep your distance.

As one long-time Harvard study indicated, being happy for the long haul has more to do with positive relationships than anything else. The stronger the connections between family members, co-workers, and friends, the greater the sense of joy. So ditch the folks who bring you down and find ones who pick you up.

2. Ghost your phone sometimes.

When Tim Cook, the CEO of Apple, says he needs to take a step back from his phone, it’s a wake-up call for all of us. So much screen time leads to bad sleeping habits, missed opportunities to deepen human connections, and fear of missing out (FOMO) stress.

You can add some joy to your life by breaking an unhealthy routine. If you spend too much time in the virtual world and not enough in the real one, keep your phone out of the bedroom for a week. You might wind up like the study participants who reported more happiness, less stress, and improved relationships when they stopped sleeping with their phones.

3. Give to get.

Lending a helping hand is a surefire way to feel happier and get more enjoyment out of your day. After all, our brains experience the same rush when helping someone as we get from a nice meal. If a co-worker is swamped, ask what you can take off his plate. Doing someone a solid will make you feel good, too.

Outside of work, pick causes you’re passionate about and volunteer occasionally. Alternatively, you may want to give money or items to an individual or organization. As long as you do it with altruistic intentions, you can expect a positive return in the form of adrenaline and happiness.

4. Follow the “benefit of the doubt” rule.

Not everyone is out to get you, no matter what you’ve heard. When you start to tell yourself that a co-worker is trying to use you, ask yourself why you feel that way. Is there a historical reason? Or are you just assuming the worst about human nature?

Our biases can lead us to misjudge actions and words. Instead of convincing yourself that you’re the target of a conspiracy, let yourself accept the possibility that you’re not being mistreated by those around you. It may give you a freeing lift.

5. Push yourself just enough.

Happiness comes from exceeding expectations, so put a bit of pressure on. Try out for the company softball team. Add a yoga class to your weekly schedule. Tackle a big project for the head honcho.

You’ll feel some stress, but it’s the kind that lends happiness based on a sense of accomplishment. Even if you don’t succeed in doing a Tough Mudder or snagging the corner office, you can celebrate the progress you made along the way–and feel happy with how far you’ve come.

6. Celebrate others’ successes.

Why be stingy when you can share some good vibes? Look for opportunities to support those around you when they succeed. For instance, when your colleague receives a bonus, be happy for her rather than feeling like you deserved it more.

By being able to remove yourself from the center of the universe, you savor the happiness of connecting with others. Plus, you set the stage for the people in your life to see you as a trove of optimism.

I didn’t have to travel across the U.S. to boost my happiness, and you don’t, either. You can raise your happiness quotient with just these few tweaks in perspective.

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Roku: Time To Buy Again

After the bell on Wednesday, streaming media company Roku (ROKU) announced its third quarter results. The company beat on the top and bottom lines and again raised its yearly guidance, yet the stock sold off on the news. As this business continues to grow and repeatedly impress, the pullback makes the name quite attractive again.

The company reported revenues of $173.4 million, up nearly 40% over the prior year period and beating estimates by more than $4 million. On the bottom line, a 9 cent per share loss beat by three cents. While player revenues handily beat estimates, platform revenues fell about $3 million short of expectations, and this is the more important part of the business moving forward. This also lead to ARPU (average revenue per user) coming up shy. While Roku has beaten top and bottom line estimates every time it has reported since going public, this was the smallest beat as seen below.

(Source: Seeking Alpha Roku Earnings page, seen here)

Overall, Roku continues to make progress. The chart below shows how active accounts have soared, up 7.1 million in the past 12 months. At the Q3 2017 report, the year over year gain was 5.4 million. This was the first quarter where platform revenues topped $100 million, and this is the higher margin side of the business. As platform revenues become more of the company’s total, overall gross margins rise even though platform margins are down, so the total gross margin jump was 560 basis points year over year.

(In millions. Source: Q3 2018 shareholder letter and S-1 filing from 2017)

The company’s overall loss did increase a bit thanks to higher operating spending to support the growing business, but Adjusted EBITDA swung from a negative in last year’s period to a positive in Q3 2018. Roku also finished the quarter with about $180 million in cash and investments against no debt, meaning the balance sheet is quite strong. I do not see a need to raise additional funds unless the company wants to make a big acquisition or some major capital expenditure.

One of the things I like the most about Roku is that management continues to raise guidance. As you can see in the table below, every guidance item for the full year 2018 is well above where the original forecast was. Should the company’s progress continue in the near term, we could see more than $1 billion in revenues next year, and perhaps a profit too depending on spending.

(Source: Roku quarterly reports, seen here)

Thursday actually marks one year to the day when I first covered Roku, at which point shares were less than half of where they stand now. I was a big fan of the company’s growth, and results have only improved since. Shares that were in the teens skyrocketed to the high $70s, but they’ve lost a third of their value since then. My last article on the name came with shares in the low $30s, so those who bought on that pullback have done very well.

Since everyone likes to look at streaming giant Netflix (NFLX), I mentioned last year how Roku only needed to get 1/10th of Netflix’s valuation to get to an $8 billion valuation. After the recent pullback, Roku is worth about $5.5 billion, but 10% of Netflix would be over $14 billion now, despite Netflix shares nearly $100 off their all-time high. With the revenue picture and account base growing quite strongly, I now think a $10 billion valuation for Roku is eventually possible. That probably equals a price in the mid to high $80s if you assume some dilution, mostly from stock based compensation, over the next couple of years.

In the end, Roku announced another strong quarter, but the street didn’t totally like the results. The top and bottom line headline beats weren’t as large as previous quarters, and platform revenues were a little short of estimates. However, the company continues to grow its active accounts base very nicely, and Roku should only be about a year or so away from hitting a billion in annual revenues. As streaming media becomes an even larger part of our lives moving forward, the recent pullback provides another good opportunity for investors to buy.

Author’s additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Alibaba's on-demand online services unit valued at $30 billion: sources

HONG KONG (Reuters) – Alibaba Group’s newly formed on-demand online services unit has rocketed in value to as much as $30 billion after raising $4 billion in fresh funds, people with knowledge of the situation told Reuters.

FILE PHOTO: People stand near a sign of Alibaba Group at its campus in Hangzhou, Zhejiang Province, China, May 27, 2016. REUTERS/John Ruwitch/File Photo

Alibaba (BABA.N) combined the operation of food delivery service and online restaurant guide business Koubei under a single management team and holding vehicle in October. It announced a fundraising plan for the vehicle in August.

In a deal in April where Alibaba bought the shares it did not already own, was valued at $9.5 billion. Koubei was worth $8 billion at the end of last year, according to a list of unicorns published in March by a unit under China’s science and technology ministry.

More than $3 billion of the new funds came from Alibaba itself and SoftBank’s (9984.T) Vision Fund, the people said. Primavera Capital Group and Alibaba affiliate Ant Financial, which have already invested in Koubei, also joined in the fundraising, they said. The company expects to close this financing round by the end of November, one source added.

Alibaba, SoftBank and Ant Financial declined to comment. Primavera did not immediately respond to a request for comment.

The people declined to be named because the information is confidential.

Alibaba said in August it had received commitments of more than $3 billion from investors including itself and SoftBank.

The fresh capital will give the unit ammunition in its intensifying battle with rival Meituan Dianping (3690.HK), backed by Tencent Holdings (0700.HK), for dominance of China’s booming online-to-offline (O2O) market where apps link smartphone users with bricks-and-mortar businesses to provide food delivery and other offerings.

Meituan Dianping in September raised $4.2 billion in the world’s biggest internet-focused initial public offering in four years, after pricing it near the top end of a marketed range at HK$69 per share.

However its shares are down 9 percent since its Sept. 20 debut, giving it a current market cap of $44 billion.

Meituan said in its half-year report that the number of its annual active users from the 12 months ending June 30 grew 30 percent to 357 million from the same period a year ago. The number of merchants active in the past year grew 52 percent to 5.1 million for the same period.

In comparison, served over 167 million active consumers in 676 cities in China for the 12 months ended June 30, Alibaba said in its latest quarterly report. Together, and Koubei served 3.5 million registered merchants as of June 30.

Before the April deal, the e-commerce giant and Ant Financial owned a 43 stake in the business, whose name roughly translates to “Hungry?”. also runs Baidu Inc’s (BIDU.O) former food delivery business, which it acquired a year ago.

Koubei was founded in 2015 as a 50-50 joint venture of Alibaba and Ant Financial. Silver Lake, CDH Investments, Yunfeng Capital, which is backed by Alibaba founder Jack Ma, and Primavera Capital joined as investors in a January 2017 funding round.

Reporting by Kane Wu and Julie Zhu; Editing by Stephen Coates

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The Right Way to Scale Your Customer Support Team for the Holidays

This is particularly challenging if your company is growing significantly year-over-year. How can you predict what your holiday sales will be? And what impact will that have on your volume of customer support tickets over the holiday season?

We recently went through this process with one of our clients, an e-commerce company, and wanted to share our five-step approach.

1. Start planning your holiday customer support staffing early.

Starting early is critical for two reasons. First, training: You need to build in time to make sure your new agents are fully trained by November. Second, you need to build in time to change your plan. If customer support ticket volume seems to be growing by more or less than expected, you want to make sure you can adjust your plan accordingly.

At this client, we started planning in August, and hired our first round of agents in September.

2. Develop a holiday sales projection.

First, you need a sales projection for the holidays.

Here’s the key: Ideally, you won’t just have a dollar projection, but a projection for the number of units sold, number of orders, and the number of customers. Why? These sometimes grow in line with each other, and sometimes don’t.

Maybe your customers are buying more items and spending more money per purchase compared to last year. If that’s the case, the number of customer service tickets may not rise in tandem with dollar sales, but with the total number of customers.

3. Find the right metric for predicting ticket volume.

Next, you need to translate your sales projection into a projection for customer support ticket volume. To do that, you need to find the right metric. Does your customer support ticket volume tend to grow in line with dollar sales? With unit sales? Or with your total number of customers?

For this client, we started with four simple calculations:

  • Customer support tickets / unit sales
  • Customer support tickets / dollar sales
  • Customer support tickets / purchase
  • Customer support tickets / customer

It turned out that customer support tickets per unit sales had the lowest variance over a 16-month period, so we decided to use that metric for predicting holiday volume.

4. Develop a hypothesis for your holiday customer support team size.

Based on those calculations, we came up with a prediction for holiday team size. The initial prediction showed that we needed to scale the team by 3x to meet holiday volume.

This seemed high. We didn’t want to end up under-staffed, but we didn’t want to spend more money than necessary. We also didn’t want to over-tax our trainers. So we decided to take it slow, hire a few people, and re-evaluate our hypothesis a month later when we had a little more data.

5. Test your hypothesis.

We tested our hypothesis in three ways. First, we developed a robust customer support queuing model. This type of model takes into account not just total ticket volume, but when tickets come in. If all your calls and chats come in between noon and 2 p.m., you need to hire more people than you do if tickets come in a steadier flow throughout the day.

The model indicated that our initial hypothesis would be adequate to manage the holiday volume of customer support tickets.

Meanwhile, we looked at ways we could stretch the capacity of our existing team. We considered allowing a higher first response time, and reducing the availability of online chat.

Finally, we evaluated new data that came in during August, September, and early October. Were the initial sales projections accurate? Was the number of tickets rising in tandem with sales?

We ended up deciding to scale the team significantly, but slightly lower than the initial estimate.

Of course, the real test is only just beginning! But we hope we’ve laid a strong enough foundation to adjust our plan in November and December if need be. The bottom line: If you run a high-growth company and you’re scaling your customer support team for the holidays, you have to be flexible. And err on the side of over-staffing — having a few idle agents is better than providing sub-par support to your customers.

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China's ties with Taiwan chip firms under scrutiny as U.S. trade war heats up

TAIPEI (Reuters) – Washington’s decision to cut off U.S. supplies to a Chinese chip-maker spotlights mounting tensions over China’s drive to be a global player in computer chips and the ways in which Taiwan companies are helping it get there.

FILE PHOTO: Men walk past a signboard of chipmaker United Microelectronics Corp (UMC) in Hsinchu, Taiwan January 10, 2006. REUTERS/Richard Chung/File Photo

Shut out of major global semiconductor deals in recent years, China has been quietly strengthening cooperation with Taiwan chip firms by encouraging the transfer of chip-making expertise into the mainland.

Taiwan chip giant United Microelectronics Corp (UMC) (2303.TW) last week halted research and development activities with its Chinese state-backed partner Fujian Jinhua Integrated Circuit Co Ltd, following the U.S. move.

Taiwan firms such as UMC have helped supply China with a steady pipeline of chip expertise in exchange for access to the fast-growing chip market there.   

China has faced a shortage of integrated circuit (IC) chips for years. In 2017, it imported $270 billion worth of semiconductors, more than its imports of crude oil.  

At least 10 joint ventures or technology partnerships have been set up in the last few years between Chinese and Taiwanese firms, according to industry experts, luring Taiwanese talent with hefty salaries and generous perks.

“Such companies will need to also take care to ensure no patent or IP infringement is involved as the U.S. has export control means to restrict support of critical technology,” said Randy Abrams, an analyst at Credit Suisse in Taipei.

Among the most valuable cross-strait partnerships for China would be ones that strengthen its foundry services and memory chip production. Those two sectors require much-needed help from overseas firms due to the complexity of the manufacturing technologies and intense capital requirements, analysts have said.


But the technology transfer between China and self-ruled Taiwan has raised concerns amid the Sino-U.S. trade war and escalating tensions across the Taiwan Strait.

China has aggressively used “market-distorting subsidies” and “forced technology transfers” to capture traditional and emerging technology industries, Brent Christensen, the director of America’s de facto embassy in Taipei, told a business gathering in late September.

“These actions are harming the United States’ economy, Taiwan’s economy, and other economies.”

Taiwan is one of the largest exporters of IC globally and many worry the island could lose a key economic engine to its political foe.

Taiwan’s government views the island’s chipmakers’ cooperation with China cautiously and has implemented policies to ensure Taiwan’s most advanced technology is not transferred.

“When businesses go to the mainland to invest in wafer production, they must accept controls including one that requires the manufacturing technology to be a generation behind,” the economics ministry’s industrial development bureau said in a statement to Reuters.


Cooperation between UMC and Fujian Jinhua came under scrutiny last month, when the U.S. government put the Chinese company on a list of entities that cannot buy components, software and technology goods from U.S. firms amid allegations it stole intellectual property from U.S.-based Micron Technology. Fujian Jinhua denied the allegations.

Fujian Jinhua now faces big challenges to reach commercial high volume production as expected in 2020, industry observers say.

Last week, both UMC and Fujian Jinhua, which was only founded in 2016, were charged with conspiring to steal trade secrets from Micron in a U.S. Justice Department indictment.

“Taiwanese tech companies need to carefully re-evaluate their positions and supply chain arrangements as the tension between the two super powers escalates,” Bernstein analyst Mark Li said.

While China will need at least six years before it can catch up in chip manufacturing, according to some estimates, the scale of its chip-making abilities is already seen as a threat in other parts of the chip supply chain.

Barely 2-1/2 years after breaking ground on a 12-inch wafer plant in China, Nexchip, a joint venture between the Chinese city of Hefei and Taiwan DRAM maker Powerchip, started producing 8,000 wafers a month. Wafers are thin pieces of material, usually consisting of silicon, used to make semiconductor chips.

Nexchip’s main goal is to produce liquid crystal display driver ICs for flat-panel makers.

Using Powerchip’s resources and Taiwanese talent, which make up a quarter of its 1,200 employees, Nexchip is helping reduce China’s reliance on foreign chip suppliers.

With an aim to become “the world’s No.1 chipmaker for display drivers,” Nexchip plans to build three more 12-inch wafer plants and ramp up its monthly production to 20,000 wafers by 2019, according to a person with direct knowledge of the matter.

After visiting Nexchip late last year, researchers from Taiwan’s chip hub, Hsinchu Science Park, said progress at the Hefei plant was a “breakthrough”.

“This will likely increase Taiwan firms’ needs to invest in the China market, and it will be a test for the (Taiwan) government’s industrial policy.”

Reporting by Jess Macy Yu and Yimou Lee in Taipei

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U.S. regulator demands companies take action to halt 'robocalls'

WASHINGTON (Reuters) – U.S. Federal Communications Commission Chairman Ajit Pai on Monday wrote the chief executives of major telephone service providers and other companies, demanding they launch a system no later than 2019 to combat billions of “robocalls” and other nuisance calls received monthly by American consumers.

FILE PHOTO – Chairman of the Federal Communications Commission Ajit Pai speaks at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland, U.S., February 23, 2018. REUTERS/Joshua Roberts

In May, Pai called on companies to adopt an industry-developed “call authentication system” or standard for the cryptographic signing of telephone calls aimed at ending the use of illegitimate spoofed numbers from the telephone system. Monday’s letters seek answers by Nov. 19 on the status of those efforts.

The letters went to 13 companies including AT&T Inc (T.N), Verizon Communications Inc (VZ.N), T-Mobile US Inc (TMUS.O), Alphabet Inc (GOOGL.O), Comcast Corp (CMCSA.O), Cox Communications Inc, Sprint Corp (S.N), CenturyLink Inc (CTL.N), Charter Communications Inc (CHTR.O), Bandwith Inc (BAND.O) and others.

Pai’s letters raised concerns about some companies current efforts including Sprint, CenturyLink, Charter, Vonage, Telephone and Data Systems Inc (TDS.N) and its U.S. Celullar Corp (USM.N) unit and Frontier Communications Corp (FTR.O). The letters to those firms said they do “not yet have concrete plans to implement a robust call authentication framework,” citing FCC staff.

The authentication framework “digitally validates the handoff of phone calls passing through the complex web of networks, allowing the phone company of the consumer receiving the call to verify that a call is from the person supposedly making it,” the FCC said.

YouMail, a company that blocks robocalls and tracks them, estimated there were 5.1 billion unwanted calls last month, up from 3.4 billon in April.

The FCC has taken a number of actions to try to deter robocalls or automated, prerecorded calls that regulators have labeled a “scourge.”

“We need call authentication to become a reality — it’s the best way to ensure that consumers can answer their phones with confidence. By this time next year, I expect that consumers will begin to see this on their phones,” Pai said.

“I am calling on those falling behind to catch up … If it does not appear that this system is on track to get up and running next year, then we will take action to make sure that it does.”

FCC Commissioner Jessica Rosenworcel, a Democrat, earlier this year called on the FCC to set a deadline and noted “Canada went ahead and set a 2019 deadline to put this technology in place. We should be doing the same as our neighbors to the north.”

Reporting by David Shepardson; editing by Dan Grebler and Tom Brown

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At Amazon, the HQ2 Final Rose Ceremony is Turning Into a Mess (Have a Listen to this Angry Amazon Executive)

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

This is the part where the contestants start to fight among themselves.

Or, perhaps, the judges do.

I imagine, you see, that you’re either still enthralled by the reality show that is the search for Amazon’s next headquarters or so bored with it that you’ve devolved to watching Dancing With the Stars again.

Yesterday, I wrote about how the Washington Post had sent a strong, supposedly informed signal that Crystal City, Virginia would be the one to receive Jeff Bezos’s final rose.

You know, the one that comes with the proposal for the chosen contestant to give Amazon vast favors in return for betrothal.

It seems the Post’s revelation didn’t go down well at, oh, Amazon. 

The company’s director of Economic Development and Global Public Policy, Mike Grella took to BravoTV — I’m sorry, to Twitter — to rail against the person who’d allegedly leaked to the Post: 

Memo to the genius leaking info about Crystal City, VA as #HQ2 selection. You’re not doing Crystal City, VA any favors. And stop treating the NDA you signed like a used napkin.

So it’s true, then, I hear you snort.

Because you’ve been watching this show for some time and think you know what the scripting ghostwriters require.

They do like their secrecy at Amazon.

What a mess this has all become.

That’s what can happen when you string a reality series out for so long and the contestants — and, who knows, even the judges — get bored of the rigmarole.

Indeed, Grella wasn’t done. 

He whipped off another annoyed tweet that attempted to be witty:

‘Experts’ say following Bezos’s jet may reveal #HQ2 winner… the finalists are apparently Davos (WEF), Sun Valley (Allen & Co.), Rome (vacation), & Hollywood (Oscars). In other news Google, FaceBook, Tesla moving HQ to Black Rock Desert, NV #BurningMan

Mefears that Grella protesteth too much.

Or could it be that neither he nor the alleged leaker know anything at all?

Then again, surely the Washington Post has faith in its source. After all, its owner, Jeff Bezos wouldn’t be happy if his newspaper was printing nonsense about his company.

And then I hear the cries of the conspiracy theorist seated in the corner. The theorist mutters:

Perhaps this is a marvelous ruse by Bezos to put sleuths off the scent. HQ2’s really going to Toronto. 

I asked Amazon for its thoughts on Grella’s thoughts on the alleged leaker’s thoughts.

I’ll update, should I hear.

Oh Lordy. Where’s BravoTV’s Andy Cohen and ABC’s Chris Harrison when we need their reassuring commentary the most?

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Trump’s ‘Game of Thrones’ Tweet Is Odd, but Trademark-Infringing? Probably Not

Of all the apparatuses presidents have at their disposal for making pronouncements—press secretaries, official statements, televised addresses from the Oval Office—the one President Trump used to trumpet forthcoming sanctions on Iran is by far the strangest: a Game of Thrones meme.

On Friday morning the president posted the image below on Twitter. It’s a picture of himself emblazoned with the phrase “Sanctions Are Coming” in a typeface not that dissimilar from the one used in the Game of Thrones logo along with the date “November 5.” Subtle, it was not.

As soon as it went up, and as soon as it was clarified by the White House that the sanctions in question were indeed the ones that had been relaxed during the Obama administration and which Trump had been seeking to reimpose, Twitter went nuts. Folks began responding with memes of their own—”Indictments Are Coming” etc.—and even the show’s cast got involved. Sophie Turner, who plays Sansa Stark, replied “Ew,” and Maisie Williams (Arya Stark), in perhaps the best Twitter drag of the day, retweeted the president and just added “Not today.” (“Not today,” for those who don’t remember, is what Arya Stark’s swordfighting instructor, Syrio Forel, told her is what she should say to the god of death.)

Then HBO got in on the action, sending out a tweet reading, “How do you say trademark misuse in Dothraki?” Reached for comment the network added, “We were not aware of this messaging and would prefer our trademark not be misappropriated for political purposes.” Trump evoking the show’s logo and slogan, it seems, doesn’t sit very well with the people who actually make the show.

But could the network or creators successfully sue? Probably not. First off, it doesn’t seem likely that HBO actually wants to make a legal claim of trademark infringement. At most, the network is playing along. Trump referenced the show; they responded. Simple as that. But the response, and subsequent online chatter, did raise some questions about whether or not the president went too far.

Most likely, he didn’t.

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If HBO were to bring a claim, it would probably be for what’s known as trademark dilution, says Daniel Nazer, a staff attorney for the Electronic Frontier Foundation’s intellectual property team. Typically, these are the kinds of claims companies make when they feel their very-famous trademarks are being used in ways that deplete the uniqueness, or dilute, their intended message. A company can’t, say, put something that looks like the Nike “swoosh” logo on the side of a commercial plane or use “Just do it.” to sell condoms.

A dilution claim also generally requires that the entity claiming infringement be able to prove the public was genuinely confused. Because Trump’s tweet wasn’t being used in commerce, and because it’s unlikely anyone thought he was legit affiliated with Game of Thrones, dilution would be a hard argument to make. “I think this would be a tough, a tough case,” Nazer says. “No one is likely to be confused that HBO is endorsing this tweet or sponsoring sanctions against Iran. My view is that this shouldn’t be a viable suit.”

Instead, Nazer says, Trump’s tweet would be treated more like a parody—legally speaking. If, for example, Saturday Night Live did a sketch about waiting for a train in New York titled “The G Train Is Coming” that pokes fun at MTA tardiness and references Game of Thrones, that’s not an infringing use. (It’s also a funny idea, SNL. Please make that sketch and credit Nazer.) As for Trump’s use of the Thrones font, the files used in typefaces can be protected, as is (presumably) the actual logo, but because Trump just uses a script that looks like the GoT emblem, the image the president tweeted is likely not infringing. It’s ironic, but the bottom line is that the man who likes to take shots at the media is protected here by the First Amendment.

The parody aspect, though, is compelling, because the metaphor doesn’t quite align. In Game of Thrones, “winter is coming” is a call to remain vigilant, and a warning that White Walkers could come and threaten the living when winter arrives. Yet winter has been coming on the show since the pilot; it’s a slow march that’s taken seven years. Trump’s “November 5” warning promises something he intends to do in a matter of days. Also, one presumes, Trump thinks the sanctions are a good idea, but the coming of winter in Game of Thrones is something most sane people in Westeros fear. It’s possible Trump wants Iran to be afraid of the sanctions, but the wordplay still doesn’t quite land.

“It’s kind of riffing on it, but it’s hard to know what the satirical or parodic intent is here,” Nazer says. “Winter in the Game of Thrones universe is kind of terrible, so I’m not sure if they really thought it through. There’s probably nothing much beyond it looks cool.”

Half an idea without any sense of its viability? Sounds about right.

More Great WIRED Stories

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The Bizarre Legal Fight Between Match and Bumble May Be Almost Over

Seven months after it sued Match Group, seeking $400 million in damages for misappropriation of trade secrets and other alleged wrongs, dating-app startup Bumble quietly asked the court to forget the whole matter. Lawyers for the company, founded by early Tinder employee Whitney Wolfe Herd, filed a motion to dismiss it on Oct. 18.

Not so fast, said the powerful owner of Tinder, OkCupid and, in a series of new filings made late Thursday evening.  While Match’s lawyers embraced Bumble’s motion to dismiss, they also entered an amended counterclaim demanding declaratory judgments that would put to rest Bumble’s allegations of wrongdoing and foreclose the possibility of a similar lawsuit somewhere down the line.

“As reflected by its wholesale copying of the Tinder app, Bumble is a marketing company, not a technology one,” Match’s law firm, Caldwell Cassady Curry, wrote in its notice of non-opposition to the dismissal motion. “Bumble’s marketing strategy has now extended to a misuse of the courts…. If Bumble wishes to continue to disparage Match in the media with these false and misleading allegations, it should prove them with evidence in the courts.” 

A spokesperson for Bumble, which is based in Austin, Texas, couldn’t be reached immediately for comment. 

The whole weird saga began March 16, when Match sued Bumble in federal court claiming violation of its intellectual property, including a patent on the “swipe functionality” members of Tinder (and Bumble) use to indicate interest in a potential romantic partner.

Within days, Bumble responded with its own lawsuit, accusing Match of using the pretext of acquisition talks to elicit trade secrets and then putting them to competitive use after those talks fizzled. With that eye-popping $400 million (potential) price tag attached, Bumble’s suit generated a lot of headlines but little forward progress–mostly because Bumble didn’t bother to serve Match with a copy of it, according to Thursday’s filings.

As detailed in Match’s new filings Thursday, Bumble’s lawsuit languished in the Dallas state court where it was filed for six months, until the presiding judge, Jim Jordan, set a hearing to consider dismissing it. Only then did Bumble get around to serving Match’s lawyers. By then, Bumble had announced its intention to conduct an initial public offering. In an interview with CNBC, Wolfe Herd pointedly predicted her company’s IPO “would not be favorable to Match’s stock price.” 

In its petitions for declaratory judgments, Match says Bumble’s lawsuit was doomed to be a nonstarter for a couple reasons. For one thing, the acquisition talks in question, between Match and the British internet conglomerate Worldwide Vision, which owns 75 percent of Bumble, was governed by a non-disclosure agreement–and that NDA stipulated any disputes arising from the negotiations would be adjudicated in England or Wales, not Texas.

The NDA also provided for special handling of any competitive information Bumble regarded as particularly sensitive. Any such information was supposed to have been designated “highly confidential”–but Worldwide Vision failed to indicate that any of the information it provided to Match rose to that standard, according to the counterclaim.

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3 Ways to Better Leverage Global Talent for Your Business

Whether large or small, your business can benefit from global talent. Engaging smart thinkers around the world can significantly increase your company’s potential.

How can you achieve this? The task can appear daunting, particularly for companies that aren’t near an innovation hub like San Francisco or New York. It is a challenge I’ve seen in companies and countries around the world, and there isn’t a single, one-size-fits-all strategy.

1. Understand the power of place

Innovation is concentrating in clusters – think New York, Shanghai or Boston, where the most talented workers come together produce greater innovation than if they worked in isolation. This spatial concentration shows no sign of slowing down–Kerr points out that one in every 12 patents in America is made by a Chinese or Indian inventor in the Bay Area. This means you have to figure out how to tap into them.

This doesn’t necessarily require moving your whole company to Silicon Valley or Berlin, although moving your headquarters to a talent hub does provide the most direct and sustained access to talented workers and ideas. You could also establish a research lab or similar outpost office in one or more of these clusters. At the least, you should organize leadership visits to talent clusters and learn as much as possible in that short time.

The exact formula will depend on the specifics of your company, but the bottom line is that innovation largely depends on tapping into these places. (For a deeper discussion of each approach, Kerr also wrote a recent article for Harvard Business Review.)

2. Enhance knowledge transfer through your organization

However you access talent clusters, the benefits will be severely limited if the ideas don’t flow through the rest of your organization. If you establish an innovation lab in Tokyo but the lab’s work and insights never make it out of Japan, then what’s the point?

Infrastructure-based excuses for poor information flow have largely been eliminated by technology. Videoconferencing, Dropbox, and Slack enable instant engagement with colleagues anywhere in the world.

But technology alone doesn’t communicate. You need to integrate people across locations. Multinational companies build teams that tie people together across borders and force the sharing of ideas. Though global teams can be more expensive than creating siloes, this cost is outweighed by the benefits of enhanced knowledge transfer. Managing virtual distance has become as important as face-to-face teamwork.

3. Tap into brilliant thinkers outside your organization

Airbus spent €1.4 billion on R&D in the first half of 2018. But even though its engineers create some of the world’s most advanced technology, it has created a competition on Kaggle, the data science community, to engage Kaggle’s machine learning experts on identifying ships in satellite imagery, which Airbus has so far struggled to do in an accurate and speedy way. The winning algorithm will earn its coders $25,000 – and give Airbus a leg up on competitors.

That competition is ongoing, so we can’t see the payoff yet. But Merck’s 2012 Kaggle search for new uses for chemical compounds shows the benefits. For $40,000 in total prize money – less than 0.001% of its R&D expenditure that year – Merck received over 2,900 submissions or about $14 per new idea. The winning submission came from machine learning researchers, enabling Merck to bring outside expertise into the pharmaceutical domain, in addition to getting good ideas about how to use its chemicals.

So think about how you can take advantage of the talent that exists outside your company. The opportunity isn’t just in data crunching. In 2002, Procter & Gamble wanted to print images onto Pringles. It couldn’t do this in-house, but rather building the capability internally, P&G searched within its network and found an Italian professor who already developed such a printing technique for his bakery. The resulting partnership generated higher Pringles sales at a fraction of the cost of developing the capability internally.

This success inspired P&G to create Connect + Develop, a website where innovators around the world can submit concepts to meet P&G’s new product needs. It is currently looking for designs in the gum health and non-toxic insect control spaces. Do you have any ideas?

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How to Watch Apple’s iPad Event on Tuesday

Apple is holding its second major press event in as many months on Tuesday. And while the company is staying silent on its plans, most signs are pointing to a big iPad reveal.

If anything is certain, it’s that the iPad is in need of a refresh. It’s taken on the same design since its inception and barring a few power tweaks here and there, it’s getting a little old. But it might not be all Apple unveils. There’s also talk of the company showcasing a new line of MacBooks at the show and questions abound over what will become of the Mac Mini and Mac Pro. And with the possibility of a TV subscription service launching soon, that, too, could make its way on stage.

But like anything else in Apple’s universe, those details are being kept secret. And the only way to know for sure what Apple unveils will be to watch the show live when it kicks off from Brooklyn on Tuesday at 10 a.m. ET.

But if you’re unsure how you can watch the event live, here’s a quick rundown:

Come Back to Fortune

Good news! The Fortune video team will be streaming the Apple event live starting at 10 a.m. ET. So, if you set your calendar to come back here to at that time, you’ll be able to catch every announcement.

Watch on Your Mac

Apple makes it easy for you to watch its events on a Mac. Simply boot up your Mac and head over to the company’s event page from the Safari browser. As long as you’re on a Mac and Safari, you’ll be able to stream it live from its site.

Watch on Your iPhone or iPad

It’s a similar story with the iPhone and iPad. If you’re going to be mobile Tuesday, head over to Apple’s site from your Safari browser and turn on the stream. You’ll be able to watch live over Wi-Fi or your cellular network.

Watch on Apple TV

The Apple TV offers an Apple events app you can download for free and stream the company’s events from. Again, all you’ll need to do is turn on the app and choose the show and you’ll be good to go. Better yet, you can use the app to watch past events, as well.

Watch on Windows

Apple allows Windows users to watch its event live, as well. However, in order to do that, you’ll need to be on a Windows 10 machine that’s running Microsoft’s Edge browser. From that browser, go to Apple’s website and the stream should work just fine.

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Data Sheet—IBM’s Make or Break Deal for Red Hat

You’re just what I needed. The mobile search home page of Google got a makeover to promote links to other content. The new “discover” feature positions a curated list of content below the search box. The choice of new topics and stories is based on the user’s web habits. (I’m mostly getting suggested stories about the Red Sox World Series win this morning. Sigh.) Meanwhile, a story that Twitter CEO Jack Dorsey was planning to eliminate the ability to “like,” or favorite tweets blew up across Twitter on Monday, forcing the company to issue a semi-denial. “We are in the early stages of the work and have no plans to share right now.”

It’s not the perfume that you wear. In less positive news from Google, a backlash is brewing in the wake of a New York Times story alleging that male senior executives (including Android founder Andy Rubin) left with millions of dollars after being accused of sexual misconduct. A group of about 200 engineers is organizing a “women’s walk” walkout for later this week, BuzzFeed reports. And Intel is declaring that is has reached “full representation” in its workforce three years after making that a top priority. But at 27% female, 9% hispanic, and under 5% black, the employee base is still not representative of the U.S. workforce. Intel says the stat is one of its own devising measuring the make up of workers available in its market. Meeting the target is only a first step on its path to diversity, the company says.

I don’t mind you comin’ here. How is my favorite note organizing app doing? I’m note sure. Evernote CEO Chris O’Neill, who took over for co-founder Phil Libin in 2015, is departing after “putting Evernote on solid financial footing so we can continue to build for the future.” Those are the words of incoming CEO Ian Small, who had run video platform TokBox.

And wastin’ all my time. The new $1,300 Hydrogen One phone from high-end camera maker Red arrived on Monday and got some of the worst reviews in recent memory. The phone’s much hyped holographic screen “looks like the entire display has been smudged up when holographic mode kicks in,” The Verge says. “The phone seems misguided and unfinished,” adds PC Magazine “The phone’s advertising also lies about its screen being holographic, which makes me really cranky.”

Standin’ oh so near. My colleague Phil Wahba has a interesting take on a kind of boring subject. He reports how rental car company Avis plans to survive and thrive in the coming wave of self-driving cars.

(Headline reference explainer video for non-Gen Xers.)

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IBM to acquire software company Red Hat for $34 billion

(Reuters) – IBM Corp said on Sunday it had agreed to acquire U.S. software company Red Hat Inc for $34 billion, including debt, as it seeks to diversify its technology hardware and consulting business into higher-margin products and services.

The transaction is by far IBM’s biggest acquisition. It underscores IBM Chief Executive Ginni Rometty’s efforts to expand the company’s subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers.

IBM, which has a market capitalization of $114 billion, will pay $190 per share in cash for Red Hat, a 63 percent premium to Friday’s closing share price.

Founded in 1993, Red Hat specializes in Linux operating systems, the most popular type of open-source software, which was developed as an alternative to proprietary software made by Microsoft Corp.

Headquartered in Raleigh, North Carolina, Red Hat charges fees to its corporate customers for custom features, maintenance and technical support, offering IBM a lucrative source of subscription revenue.

Red Hat is one of the very few companies in the cloud computing sector that has both revenue growth and free cash flow, Rometty, who has been IBM’s CEO since 2012, said in an interview with Reuters.

“This acquisition we are clearly doing for growth synergies. This is not about cost synergies at all,” Rometty said in the interview.

The acquisition illustrates how older technology companies are turning to dealmaking to gain scale and fend off competition, especially in cloud computing, where customers using enterprise software are seeking to save money by consolidating their vendor relationships.

FILE PHOTO: A logo of IBM is seen at the Mobile World Congress in Barcelona, Spain February 28, 2018. REUTERS/Yves Herman/File Photo

IBM is hoping the deal will help it catch up with Inc, Alphabet Inc and Microsoft in the rapidly growing cloud business. IBM shares have lost almost a third of their value in the past five years, while Red Hat shares are up 170 percent over the same period.


IBM was founded in 1911 and is known in the technology industry as Big Blue, a reference to its once ubiquitous blue computers. It has faced years of revenue declines, as it transitions its legacy computer maker business into new technology products and services. Its recent initiatives have included artificial intelligence and business lines around Watson, named after the supercomputer it developed.

To be sure, IBM is no stranger to acquisitions. It acquired cloud infrastructure provider Softlayer in 2013 for $2 billion, and the Weather Channel’s data assets for more than $2 billion in 2015. It also acquired Canadian business software maker Cognos in 2008 for $5 billion.

Other big technology companies have also recently sought to reinvent themselves through acquisitions. Microsoft this year acquired open source software platform GitHub for $7.5 billion; chip maker Broadcom Inc agreed to acquire software maker CA Inc for nearly $19 billion; and Adobe Inc agreed to acquire marketing software maker Marketo for $5 billion.

One of IBM’s main competitors, Dell Technologies Inc, made a big bet on software and cloud computing two years ago, when it acquired data storage company EMC for $67 billion. As part of that deal, Dell inherited an 82 percent stake in virtualization software company VMware Inc.

The deal between IBM and Red Hat is expected to close in the second half of 2019. IBM said it planned to suspend its share repurchase program in 2020 and 2021 to help pay for the deal.

IBM said Red Hat would continue to be led by Red Hat CEO Jim Whitehurst and Red Hat’s current management team. It intends to maintain Red Hat’s headquarters, facilities, brands and practices.

A sign for Red Hat hangs on a building in Boston, Massachusetts, U.S., June 27, 2018. REUTERS/Brian Snyder

Lazard Ltd offered financial advice to IBM, alongside Goldman Sachs Group Inc and JPMorgan Chase & Co, which also provided financing for the deal. Paul, Weiss, Rifkind, Wharton & Garrison LLP provided legal advice to IBM.

Guggenheim Partners LLC and Morgan Stanley were financial advisers to Red Hat, while Skadden, Arps, Slate, Meagher & Flom LLP offered legal advice to the company on the deal.

“Knowing first-hand how important open, hybrid cloud technologies are to helping businesses unlock value, we see the power of bringing these two companies together, and are honored to advise IBM and commit financing for this transaction,” JPMorgan CEO Jamie Dimon said in a statement.

Reporting by Liana B. Baker and Greg Roumeliotis in New York; Additional reporting by Stephen Nellis in San Francisco and Carl O’Donnell and Jim Finkle in New York; Editing by Rosalba O’Brien and Peter Cooney

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IBM acquires Red Hat

IBM has agreed to acquire Red Hat for $190 per share in cash. The total value of the deal is approximately $34 billion, making this the biggest Linux or open-source business deal ever.

Red Hat is the leading corporate Linux company. Prior to this deal, Red Hat had a market capitalization of about $20.5 billion.

The market hasn’t loved Red Hat recently. Red Hat missed its most recent revenue estimates and its guidance fell below Wall Street targets. That said, the company subscription revenue was still at 20 percent year over year to $722 million. Red Hat was still on pace to become the first Linux or open-source company to break the billion-dollar-a-quarter barrier.

IBM CEO Ginni Rometty focused on the cloud benefits of IBM acquiring Red Hat rather than Linux. “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market. IBM will become the world’s number one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

Rometty continued:

“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.”

“Open source is the default choice for modern IT solutions, and I’m incredibly proud of the role Red Hat has played in making that a reality in the enterprise,” said Jim Whitehurst, Red Hat’s CEO. “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience–all while preserving our unique culture and unwavering commitment to open source innovation.”

In the 2000s, there were rumors that Oracle, Microsoft, and, yes, IBM might acquire Red Hat. Nothing came of these stories. Today is a different story, which reshapes the Linux, open-source, and cloud worlds.

Related Stories:

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Tesla's Elon Musk says tweet that led to $20 million fine 'Worth It'

FILE PHOTO: Tesla Motors CEO Elon Musk speaks during the National Governors Association Summer Meeting in Providence, Rhode Island, U.S., July 15, 2017. REUTERS/Brian Snyder/File Photo

(Reuters) – Tesla Inc (TSLA.O) Chief Executive Elon Musk said the tweet that cost him and the company $20 million in fines each by the U.S. Securities and Exchange Commision was “Worth It”.

The tweet, sent late Friday evening less than an hour before Musk tweeted that he would take a break from Twitter “for a few days,” was in response to a question from a Twitter follower.

The SEC in September charged Musk, 47, with misleading investors with tweets on Aug. 7 that said he was considering taking Tesla private at $420 a share and had secured funding. The tweets had no basis in fact, and the ensuing market chaos hurt investors, regulators claimed.

Tesla Inc and Elon Musk have agreed to pay $20 million each to financial regulators and the billionaire will step down as the company’s chairman but remain as chief executive, under a settlement.

Under the settlement agreement, Tesla needs to appoint an independent chairman by Nov. 13.

Reporting by Kenneth Li; Editing by Chizu Nomiyama

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Cyber Saturday—Reader Reactions to Facebook’s ‘War Room’

Last weekend’s newsletter, “Facebook’s ‘War Room’ Is a Marketing Ploy,” elicited mixed reactions. Some readers agreed with my criticism that Facebook’s unveiling of a misinformation-quashing initiative was a PR stunt. Other readers felt I had been unfair to the company, arguing that it is taking the threat of fake news seriously. Below is a sampling of the mailbag.

J.B.: “Thank You for calling out FB for their PR/marketing ploy with their ‘war room’. I was surprised and disappointed from a number or articles from other news organizations that essentially praised the company for all of its efforts while failing to exercise any basic form of journalistic/critical thinking.”

K.S.: “Sorry but I’m with Facebook on this…. The unanimous view is, there’s no reliable technology available today using which Facebook, or anyone else, can conclude that a piece of news is fake news at the point it is posted.”

A.J.: “I smiled as I read your analysis. But then, as a professional communicator who eschews hype (though not transparency), I wondered how should FB solve this: 1. Should it go dark? Can’t do that now, since it would seem like they were hiding. 2. Should it go very proactive? Not sure that would work since it would feel like hype.”

Melanie Ensign, ex-Facebook, present Uber PR: “The event might have been a performance for press, but the team/effort/initiative is real w/ origins long before the 2016 drama began. We all know plenty of journos who require a ‘visual element’ before they commit to anything.”

M.C., discussing whether Facebook had contradicted itself when one executive said it’s easier for the fake news-fighting squad to work side-by-side in a single office, whereas the company’s cybersecurity director said it’s harder for them to collaborate with external partners when seated next to one another: “From a security perspective, it is absolutely easier to collaborate virtually. Allowing employees of your competitors into your office, with access to your systems, is a huge security risk compared to digital collaboration. The exec and security director are both correct.”

Oren Falkowitz, CEO and cofounder of cybersecurity startup Area 1 Security, summed the reactions up best when he posted a gif from the film Dr. Strangelove (a personal favorite). “Gentlemen, no fighting in the war room!”


One note: in last weekend’s newsletter I misinterpreted views held by Jason Witty, chief information security officer at U.S. Bank, who was referenced talking about these flashy, cybersecurity workspaces in a separate New York Times story. He did not say that the war rooms themselves are mostly for show but, as paraphrased by a Times reporter, that “the blinking map he breaks out for customer briefings is mostly for show.” Susan Beatty, U.S. Bank’s communications lead, corrected me: “Jason believes that such ‘war rooms’ are very important and highly valuable to our company and our customers.”

Marketing at its finest. Have a great weekend.

Robert Hackett


[email protected]

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. Fortune reporter Robert Hackett here. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my, PGP encrypted email (see public key on my, Wickr, Signal, or however you (securely) prefer. Feedback welcome.

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Tesla Is Facing a ‘Deepening Criminal Probe’ About Misleading Investors on Its Model 3 Production, Report Says

Tesla, the pioneering electric-car manufacturer that posted blowout earnings this week, may be facing an FBI investigation over investor communications it made regarding the production levels of its Model 3 sedans, the Wall Street Journal said Friday.

Earlier this month, Tesla settled with the SEC over charges that it misled investors after CEO Elon Musk tweeted that he had secured funding to take Tesla private. The SEC, which alleged that the tweets were fraudulent, at first sued Musk, before reaching a settlement that required Musk and Tesla to each pay $20 million in fines, while finding an independent chairman to replace Musk.

According to the Journal, Tesla the FBI “has intensified” its investigation into whether Tesla misstated data on the production of its Model 3, its lowest-priced sedan. Tesla has invested heavily in the Model 3 production, adding to losses in recent quarters. Last quarter, however, Model 3 sales pushed Tesla into the black.

In a statement, Tesla disputed some of the Journal’s report. “Earlier this year, Tesla received a voluntary request for documents from the Department of Justice about its public guidance for the Model 3 ramp,” a Tesla spokesperson said in a statement to Fortune. “We have not received a subpoena, a request for testimony, or any other formal process, and there have been no additional document requests about this from the Department of Justice for months.”

The Journal reported that former Tesla employees, who received subpoenas earlier in the investigation, have been contacted in recent weeks by the FBI for further testimony.

Musk told investors on earnings calls that Tesla would be producing between 5,000 and 20,000 Model 3s per month by the end of 2017, the Journal said. In reality, Tesla ended up producing only 2,700 Model 3’s for all of 2017. The FBI is reportedly investigating such discrepancies.

While Tesla admits it did not meet its early and ambitious production goals, it said it was “transparent about how difficult it would be… and that we were entering ‘production hell.’” Tesla further noted that “it took us six months longer than we expected to meet our 5,000 unit per week guidance,” but that its approach has been “to set truthful targets – not sandbagged targets that we would definitely exceed and not unrealistic targets that we could never meet.”

Tesla’s stock, which rose 5.2% Friday during official trading, was down 1.8% in after-hours trading.

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Mellanox working with adviser on potential sale: CNBC

The logo of Mellanox Technologies is seen at the company’s headquarters in Yokneam, in northern Israel July 26, 2016. REUTERS/Ronen Zvulun

(Reuters) – Chipmaker Mellanox Technologies Ltd has hired a financial adviser to explore a sale after receiving takeover interest from at least two companies, CNBC reported citing people familiar with the matter.

The deal is not imminent and may not take place while talks are still at an early stage, according to the report.

Mellanox did not immediately respond to a request for comment.

Mellanox, which is based in Israel and the United States, makes chips and other hardware for data center servers that power cloud computing. The company has a market capitalization of about $4 billion.

Activist investor Starboard Value, which took a stake of 10.7 percent in the company last year, had raised concerns about Mellanox’s rejection of a potential merger with Marvell Technology Group at the time.

It has been critical of the company’s financial performance and has also called its 2018 financial targets “insufficient”.

Mellanox, however, struck a settlement with Starboard in June to appoint new board members and name a director if the company failed to meet certain operating goals.

Since then, Starboard has cut its stake in the company to about 8.6 percent in July but still remains its largest shareholder.

Shares of the company were up about 15 percent in after-market trading.

Reporting by Arjun Panchadar in Bengaluru; Editing by Cynthia Osterman

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STEM Candidates Can't Deliver Everything You Need. Success Requires Employees From the Arts.

I love STEM. Without STEM students, there wouldn’t be doctors, or the engineers who put together the site. Big data has revolutionized the way business is done, and it would be impossible without STEM skills. But when young people ask me what they should study, I always encourage them to consider liberal arts.

Businesses will need people to translate computer language into human language. When big data analytics uncovers a hidden pattern, someone needs to draw conclusions from the information and develop an action plan. If a robot breaks down, someone needs to explain to management why it happened – and why it won’t happen again.

Here are more reasons why you should hire someone from the arts:

1. Fresh Perspective

Hiring an artist is like getting an injection of creativity. Leaders can use this to better market to their customers, and to better connect with their employees. Artists aren’t afraid to be unconventional, but they have no time for inauthenticity. Having these elements as part of your company culture is a great way to attract high quality candidates, and will appeal to the right kind of customers.

2. Agility, with Mission Focus

3. Budget Management

The arts are chronically underfunded. If you’re looking for an employee who can stretch the value of a dollar, the arts are a great place to look. Artists use their creativity, open-mindedness, and pain tolerance to make it work. They’re able to stay on course no matter the budgetary constraints, and produce something that looks and feels like money was no object.

4. Personality Tolerance

The arts are full of people with personality – and the spectrum of personality is wide! Imagine putting together a theatre production. You have to work with an idealistic writer, a Method actor, a union stagehand, and a theatre director trying to keep donors happy. People in the arts are used to handling a variety of personalities and balancing competing interests while keeping everyone happy and working together. It’s a skill any office can benefit from, and can help keep your company humming.

5. Content Over Medium

This is perhaps the most important reason you should hire someone from the arts. With constantly changing technology and evolving tastes of customers, it can be difficult for business to find the right way to connect with employees and consumers. But here’s what many business leaders forget: the method of communication doesn’t matter if the content is garbage. To reach your desired audience, your content needs to make an impact. Artists are expressive, and know how to use humor, trauma, and beauty to make an emotional impact on the audience. No matter the medium, artists can effectively communicate your message, helping your culture blossom and your business grow.

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​What's the deal with Microsoft's open-source friendly patents?

By joining the Open Invention Network (OIN), Microsoft is offering its entire patent portfolio to the open-source patent consortium’s members. Immediately after the announcement, people asked: “Entire? Everything? Even [patent name]?”

At a keynote speech at Open Source Summit Europe in Scotland, Keith Bergelt, OIN’s CEO, answered some of these questions. Later, in an interview with Bergelt and the OIN Linux System Definition director Mirko Boehm, more questions were answered.

Why Microsoft joined OIN

The answer, according to Bergelt, is simple: Open source.

During a Open Source Summit Europe keynote, Stephen Walli, Microsoft’s principal program manager for Azure, explained:

“Open source changed everything. Customers have changed. Fifteen years ago, a CIO would have said, ‘we have no open source, they would have been wrong, but that’s what they thought.’ Now, CIOs know open source’s essential. . .

Microsoft has always been a company by, of, and for developers. At this point in history, developers love open source.”

Walli knows some people are worried that Steve Ballmer will return with his “Linux is cancer” rhetoric. But Ballmer’s not coming back. Walli even quoted Microsoft’s current CEO, Satya Nadella, “‘Judge us by the action we have taken in the recent past, our actions today, and in the future.'”

And that includes how Microsoft is dealing with patents.

Also: Microsoft’s fancy hinge patent could mean folding phones CNET

What we’re seeing now

Microsoft’s embrace of an open-source friendly patent approach is not a sudden move. The effort goes back as far as May 21, 2008, Bergelt said, because “people inside Microsoft were pushing for open source.” He continued, “I’ve been talking to Microsoft for nine years, and for the last three years, we’ve been in productive talks with Microsoft.”

Keith Bergelt, OIN’s CEO. (Image: OIN)

What we’re seeing now is “a new world order with smart, creative people creating innovation at Microsoft with open source,” Bergelt said.

What’s happening now, Bergelt explained, is that legal development and collaboration are catching up with technical development and collaboration. They’re now happening in parallel.

OIN’s mission, Bergelt said, is to enable freedom of action and operation for vendors and users of Linux open-source technology. It does this through a patent non-aggression pact and licensing around the Linux system

What is the Linux System?

According to Bergelt:

“It’s the core, well-known packages in Linux. On a minimum install of

Debian Linux, all 2,800 standard packages should be in the Linux System. It’s everything you need to create products. It also includes OpenStack‘s core programs, Kubernetes, Apache web server, and other vital open-source programs. The next update will bring in the Automotive Grade Linux (AGL) patents.”

In short, “it’s the building blocks.” For the complete current software list, see the Linux System tables.

What about specific Microsoft patents?

Were some kept out? No.

“All of Microsoft’s patents,” said Bergelt, “are covered by the OIN license. There were no exceptions. The license is the license.”



OIN Linux System Definition director Mirko Boehm (Image: OIN)

Boehm added, “Microsoft is unique, but they’re not getting special treatment.”

Yes, the OIN protection almost certainly covers Microsoft’s exFAT patents. Berglect won’t admit it’s 100 percent, because “there is no exFAT implementation in the kernel.”

But, he said, “we’re 99.9 percent sure exFAT because the functionality is already in the file systems we know are covered, so we can safely assume exFAT is covered.”

Also: Windows phone reborn: Microsoft patent hints at foldable phone TechRepublic

That’s not to say you can run out and build an exFAT-based file system for your USB-drive tomorrow with no consequences. Only OIN members have a non-aggression pact with Microsoft. If you’re not a member of the OIN, you still must license exFAT from Microsoft.

But there’s nothing special about exFAT. The same is true of any Microsoft patented technology. If you’re not an OIN member, you’re not covered by its patent-protection pool.

Some people may ask, “Why is it so hard to say this patent is OK for this program?” But that’s based on a fundamental misunderstanding of how software patents work. They describe a high-level view of how a program does a task.

“There is no one to one match between code and patent,” Boehm explained.

Additionally, if your program isn’t open-source or falls outside the Linux System definition, you’re not covered. For example, Microsoft has over 40 blockchain patents. None of those are actively covered by the OIN because blockchain isn’t part of the Linux System. Yet.

Boehm said that, in a few years, the open-source Hyperledger blockchain will probably become part of the Linux System. But, until that happens, all the OIN members’ blockchain patents are, practically speaking, outside the patent pool.

Join the OIN

You can, Boehm would like to remind you, join the OIN. Your organization doesn’t need to own patents. Joining is free. If you do hold patents, you must, of course, live up to the OIN’s license agreements. That’s not to be done lightly. At the least, you should have your attornyes look carefully at what joining the OIN will entail.

That said, the benefits of joining are also clear: There’s safety in numbers, and with Microsoft on board, the OIN is now unquestionably the largest patent protection consortium of them all.

Related stories:

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The forced march to cloud computing

Four of the Top 5 spenders on R&D are also public cloud providers (Amazon, Google, Microsoft, and Apple), according to Bloomberg. The focus of most enterprises these days—cloud, cloud, and more cloud—is why current innovation focuses on the cloud, especially the public cloud platforms.

Of course, Bloomberg’s data doesn’t dinstiguish between cloud-specific R&D and other R&D. However, it’s easy to draw the conclusion that most R&D dollars flow to the cloud, both at large tech companies and venture-funded startups.

This is very much like the change in direction of technology companies when the web became popular in the late 1990s. Then, all the innovation and money focused on the cool new platform of the web. Today, that cool new platform is cloud computing.

However, as a former CTO of four technology companies, I do know this:

  • Money that’s spent on new platforms, such as the public cloud, is not spent on new features and functions of existing on-premises technology the vendors may also sell. While this applies specifically to the public cloud providers, the innovation focus also shifts for mid-size and small technology companies that provide a lot of technology you use in the enterprise today.
  • When a specific product offering develops a real or perceived lack of innovation, most enterprises will move to technology where the real or perceived innovation does occur. If you don’t see any new features and functions from your on-premises technology providers, you’ll likely search out new paths to innovation. In most cases, that search will lead to the public cloud.

This creates something of a forced march to new technology, based on enterprise IT following the innovation and thus R&D spending. You can see this forced march right now with security technology: The most innovative security technology is being built for the cloud. The waterfall effect is that cloud platforms are typically better secured, and most breaches still occur on-premises.

I’m not a fan of these forced marches to new platforms, with their resulting lack of focus on maintenance for existing platforms. However, vendors and companies will continue to experience a Pavlov’s-dog response to current technology trends and hype—and you really can’t blame them. It’s almost impossible to be all things to all people. For example, the leading innovator of new technology is rarely the ongoing improver of current technology.

In this market, fortune typically favors the bold.

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Netflix adds to growing debt pile with $2 billion bond issue

(Reuters) – Netflix Inc (NFLX.O) announced on Monday it will tap debt markets for a second time this year, aiming to raise another $2 billion as the streaming video pioneer invests heavily in production of original shows and content acquisition to fend off intensifying competition.

The Netflix logo is seen on their office in Hollywood, Los Angeles, California, U.S. July 16, 2018. REUTERS/Lucy Nicholson

The move, which the company said was aimed at funding a broad spread of activities including paying for new content, spurred falls in both the prices of its bonds and its shares as investors worried about the growing costs of its huge planned investments in years to come.

Netflix Chief Executive Reed Hastings has been explicit about the Los Gatos, California-based company’s plan to fund content acquisition by raising debt. “We’ll continue to finance our capital needs in the high-yield market,” Hastings wrote in his second-quarter shareholder letter.

The move was very well telegraphed by Netflix, said John McClain, portfolio manager at Diamond Hill Capital, which is long in the debt, adding the debt raise “makes sense to us.”

Netflix has said it plans to spend $8 billion on content this year. The company had already spent $6.9 billion on TV shows and movies by the end of its third quarter, suggesting that if they continue apace, their 2018 spending is likely to be closer to $9 billion.

Netflix in April sold $1.6 billion in debt, after raising $1.9 billion in November 2017, bringing their total debt to $8.4 billion, the majority of which has been raised in the past three years. Its long-term debt as a percentage of total capital has roughly doubled to 65 percent since the end of 2014.

Bumper quarterly results last week, driven by gains in international subscribers, again eased concerns that the leader in global streaming is running out of space to expand in developed markets where it can target a mass audience at profitable prices.

But while Netflix still has huge potential in emerging markets like India, some brokerages have begun to draw attention to the overall high cost it is paying as an enterprise to gain more users.

“This is further proof of Netflix’s need for capital to fund short-term operations and content capex,” Richard Miller, founder and managing partner at Gullane Capital, which is short the equity.

“It shows they are further than ever from being free cash flow positive,” he said.

Prices on Netflix’s existing debt dropped across the board on Monday, with the biggest drops in a bond coming due in 2026 64110LAN6=, down by about 3 cents to 91.5 cents on the dollar.

Its eurobond coming due in 2028 US170932935= also dropped nearly 3 cents to 91.95 cents on the dollar.

Bearish bets against Netflix’s existing $8.4 billion of junk-rated bonds have more than tripled this year to an all-time high of $347 million, Reuters reported last week.


Some 27 of the 43 brokerage analysts that cover Netflix continue to back the stock with “buy” ratings, compared to just three with “sell” ratings, although its shares have slipped back since last week’s results.

That shows most have now given it the benefit of the doubt on a shortfall in subscriber numbers in the second quarter, and the company has also cut its projection for negative cash flow to closer to $3 billion from a previously projected minus $4 billion.

Moody’s Investors Service has assigned a rating of Ba3 to the new notes, three notches into junk territory, which is the same rating the agency has given the company as a whole.

Standard & Poor’s rated the proposed debt issue at ‘BB-‘ and ‘3’ recovery rating. The recovery rating indicates a meaningful recovery of about 65 percent of principal in the event of a payment default.

It said the rating reflected the company’s improving underlying profit margins over the last 12 months, driven in part by price increases and subscriber growth.

“These factors demonstrate the strength of the company’s business model and its ability to expand globally, increase margins and manage its increasing debt burden,” S&P said.

The new debt will be in the form of senior notes denominated in dollars and euros – securities which the company must repay before any unsecured debt in the event of a bankruptcy.

The company is now trading at nearly 115 times forward earnings, making it the second costliest of the FAANG group of major tech bets after’s (AMZN.O) 160 times, according to Refinitiv data.

Reporting by Akanksha Rana and Sonam Rai in Bengaluru; Kate Duguid in New York; editing by Patrick Graham and G Crosse

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No U.S. User Growth At Facebook? No Problem – Facebook Still Has Strong Upside

With all the focus on Facebook’s (FB) slowing user growth and calls for the end of its dominance, I finally gave in and decided to look into it myself. After all, from a personal perspective, I’m not the best person to evaluate user interaction with Facebook. I might look at my Facebook page a couple of times a week but it’s usually just to see if anyone sent me a message – it takes me all of 10 seconds to do that. I don’t scroll through my news feed to see what everyone had for breakfast this morning – because I really don’t care. Nor have I experienced the eerie feeling of seeing an ad pop up on my Facebook app shortly after having visited a related site on my home computer. At least Facebook knows I’m not its advertisers’ target market.

Based on Facebook’s definition of Daily Active Users (DAU) and Monthly Active Users (MAU) I would categorize myself as an MAU and the “A” is a stretch. Nonetheless, that’s one of the key stats investors look for when evaluating Facebook’s future potential to provide attractive shareholder returns.

After 2Q results were announced, I didn’t understand the rationale for what the bears were saying. 42% year of year revenue growth? That was slower than the previous quarter’s 50% growth, but still not too shabby. It’s a slowdown in growth mathematically, but the pessimism didn’t make sense.

The overall growth figures were driven by 47% growth in Europe and Asia Pacific, with 43% growth in the Rest of World.

Source: Facebook SEC Filings

User Data

A look at specific user data sheds light on some of the pessimistic forward views for the company. Both daily and monthly worldwide active users grew 11% year-over-year, but more importantly, the daily and monthly user base in the US and Canada grew by just 1% for daily active users and 2% for monthly active users year-over-year – growth also remained flat from the previous quarter. This slowdown in the company’s most lucrative market? Now I see what the bears might be talking about.

However, user growth is coming from other regions. Specifically, Asia-Pacific users were up 21% year-over-year and 3% sequentially from the prior quarter. There are now 546 million daily active users and 894 million monthly active users in Asia-Pacific. To put the opportunity in perspective, Asia-Pac now has almost four times as many users as the US and Canada.

Source: Facebook SEC Filings

With a population of 4.5 billion, however, that means Facebook has only penetrated 12% of the population in the region, compared to 32% in the US and Canada, 38% in Europe, and 28% in the rest of the world (see chart below). I’m not saying it will get to the same penetration levels in Asia-Pac as it has reached in other regions, but there’s room to grow.

Source: Facebook SEC Filings, World Bank

Revenue Per User

The second growth driver is the amount of revenue the company generates per active user. With overall active users growing at 11%, it’s obvious that the 42% growth in revenue came from higher revenue per active user. On a worldwide basis, revenue per daily and monthly active users were up 28% YoY and 9% sequentially from the previous quarter.

Source: Facebook SEC Filings, World Bank

Growth in revenue per user was highest in the more developed regions such as US/Canada and Europe, which grew revenue per daily active user by 36% and 43%, respectively. In these markets, there’s still apparent upside to what advertisers are willing to pay, but we’re probably reaching a limit.

But once again, I believe the user growth story is in Asia-Pac, where revenue per daily active user is just $4.21, compared to $33.17 for the US/Canada and $11.64 for Europe. Only the Rest of the World, which includes Africa, Latin America and Middle East has a lower revenue per daily active user, and this is not surprising considering the GDP per capita of the Rest of the World region is around $3,000. Despite revenue/user growth of just 22% on a year-over-year basis in Asia-Pac, however, the growth rate is accelerating.

In Asia-Pac, where GDP/capital is closer to $10,000, the potential revenue per user figure has much longer to run. In fact, the revenue/GDP per capita in Rest of World is 0.10% quarterly. In Asia-Pac, that figure is just 0.04%, higher than Europe but still less than in the US.

Growth Projections

Even if Asia Pacific has no additional growth in users, an increase in revenue/GDP that’s more in line with that of the US will result in an additional $3.2 billion in revenues quarterly – that’s about 12% higher than current levels with no additional growth from any of the other regions. If we also increase penetration levels to just 20% – still below any of the other regions, the marginal increase in revenue from Asia-Pac alone could reach $5.3 billion!

And let’s not forget Europe. In Europe, we wouldn’t expect to have much more of an increase in penetration levels of daily active users. But the revenue per daily active user in Europe is just 0.03% of the GDP/capita of around $36k. With a boost to 0.06% – the same levels as those in the US – revenues would increase by $5.8 billion, all else equal.

These are two aggressive assumptions that would result in an additional $11.1 billion in quarterly revenues, and there are plenty of challenges that would prevent Facebook from reaching these revenue numbers – but the potential is there.

Our Take

According to my calculations, Facebook could boost revenues by $9 billion with no user growth at all – so data showing slower user growth shouldn’t lead to the conclusion that growth isn’t possible.

If it could continue to increase revenue/user then the growth story is still compelling – and the data shows that in some regions, there’s upside pricing potential that could drive that growth. Any user growth would just be icing on the cake – and we know that penetration levels in some regions still show a big market opportunity.

New product launches like Watch, Watch Party, Stories, Ads Animator, Ads in Stories, IGTV, and others, can continue boosting revenue per user as well, even in the US, where revenue per user already is $33.17. And we haven’t even mentioned the potential upside of WhatsApp, Instagram, and Oculus.

From a valuation perspective, Facebook looks cheap. It currently trades at a price/free cash flow of 25.6. That’s well below the five-year average of 35.2.

Analyst price targets are at $204, which is a 35% gain from current levels. Free cash flow was $17.67B over the previous 12-month period on sales of $48B. If revenue increases by $9B whether with or without user growth, we could calculate an increase in free cash flow of about $3.31B, or $1.13 per share. At a more appropriate multiple of 30 (still below its recent five-year average), we arrive at a price target of $213.

The user growth story is wrong. Facebook is a strong buy.

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Gadget Lab Podcast: Pinterest’s Evan Sharp on What Makes Good Software

Why did Apple’s Jony Ive name Pinterest co-founder Evan Sharp as one of the figures in technology who he believes will change the future?

If you were wondering about that, here’s a great chance to learn a little bit more about Sharp and make the call yourself. During the 25th anniversary festival for WIRED last week, the Gadget Lab team had the chance to interview Sharp on stage, among other high-profile technologists. Over the next few weeks we’ll be publishing these taped conversations as a part of the podcast.

In this particularly interview, Mike and Arielle ask Sharp what it’s like to receive praise from Ive, how machine learning is changing software design, and whether Pinterest can remain once of the internet’s last happy places.

Show notes: Click here to read more about Jony Ive’s nomination of Evan Sharp for our 25th anniversary issue. And here’s Lauren’s WIRED 25 interview with Kevin Systrom, which we mentioned in this week’s show.

Recommendations this week: Lauren recommends the Dakota backpack from Dagne Dover. Mike recommends these awesome smartphone accessory lenses made by Moment.

Send the Gadget Lab hosts feedback on their personal Twitter feeds. Arielle Pardes can be found at @pardesoteric. Lauren Goode is @laurengoode. Michael Calore can be found at @snackfight. Bling the main hotline at @GadgetLab. Our theme song is by Solar Keys.

How to Listen

You can always listen to this week’s podcast through the audio player on this page, but if you want to subscribe for free to get every episode, here’s how:

If you’re on an iPhone or iPad, open the app called Podcasts, or just tap this link. You can also download an app like Overcast or Pocket Casts, and search for Gadget Lab. And in case you really need it, here’s the RSS feed.

If you use Android, you can find us in the Google Play Music app just by tapping here. You can also download an app like Pocket Casts or Radio Public, and search for Gadget Lab. And in case you really need it, here’s the RSS feed.

We’re also on Soundcloud, and every episode gets posted to as soon as it’s released. If you still can’t figure it out, or there’s another platform you use that we’re not on, let us know.

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The Airline Says One Thing. The Flight Crews Pictured Sleeping On the Floor Say Another. This Is What They All Told Me

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

An airline’s crew were lying on the floor, apparently trying to sleep in a brightly-lit room.

It looked a little too perfectly damning, to be honest. 

These were, though, 24 members of four Ryanair crews stranded by weather in Málaga, Spain and not provided with a hotel by the airline.

So it took to Twitter and Facebook and posted video of the crew staging the image.

I asked Ryanair whether this wasn’t a slightly unseemly move, one that may even have privacy implications.

An airline spokeswoman told me: 

The publication of this video reveals the facts and exposes the SNPVAC union fake news/false claims.This video proves that the original picture was staged and no crew ‘slept on the floor.’ All Ryanair offices and crew rooms are equipped for security reasons with CCTV cameras and notifications of same as required by GDPR [General Data Protection Regulation]. 

Why, though, didn’t the airline offer the crew a hotel for the night? Ryanair’s spokeswoman insisted: 

Due to storms in Porto (13 Oct) a number of flights diverted to Malaga and as this was a Spanish national holiday, hotels were fully booked.  The crew spent a short period of time in the crew room before being moved to a VIP lounge, and returned to Porto the next day (none of the crew operated flights).

Oddly, local resident Alex Macheras noted that showed more than 1,800 hotel rooms available in Malaga that night.

Ryanair’s Chief Operating Officer Peter Bellew insisted that the airline had called 42 hotels.

There was nothing for it but to dutifully ask Bruno Fialho, vice-president of the SNPVAC union, to offer me his two minutes on Ryanair’s claims.

Please Fasten Your Seat Belts. 

Fialho’s version was a little different.

He told me that the 24 crew members were placed in the Ryanair crew room “so that they were kept isolated from the hundreds of passengers that were in the terminal.”

It was 1.15 a.m. Then, Fialho told me: 

For hours, the Crew attempted to contact Ryanair OPS and LESMA (local RYR Ground handling agent) to obtain information about the hotel accommodation and both replied that there weren’t any hotels available. The Crew also contacted directly some hotels in the Málaga area and there were rooms available.

This is already not looking good. Fialho says that the crew were sent to an airport lounge at around 3.45 a.m. There were chairs, sofas and toilets available, but no food or drinks.

Next, Fialho says, the crew were told they’d be flown to Portugal on a 10 a.m. flight, but still no food or drinks were offered. In addition, Fialho says, the crew was guarded by security personnel, preventing them from leaving.

Then, mordant comedy. Fialho told me: 

After the security guard made several phone calls, the Crew was allowed into the airport terminal to have some breakfast. Finally, at 9 a.m. the LESMA duty manager informs that he managed to get a hotel for everyone. However, the Crew was already informed of the flight at 10:00 a.m. (just 1 hour later) which the duty manager wasn’t aware.

No, it wasn’t over. Fialho again:

At 09.55 a.m. the Crew is sent on a bus to the aircraft with the information that 2 pilots were already there to take the aircraft ferry to Porto. When they got there, the aircraft was closed and the crew were left on the ramp. The Pilots decide to open the aircraft to wait inside as the weather conditions were adverse.

So the took off shortly afterwards, right? Well, no, says Fialho.

At 10.40 a.m. the Crew is informed of a 2 hour slot restriction and that they have to wait for another 10 pilots from Málaga Airport and other bases to take the same flight to Porto in order to operate the afternoon flights. The operating captain didn’t have permission to leave Málaga before those 10 pilots arrived.

Please tell me you’re still with me, as there’s more. A lot more. Next, Fialho says:

At 11.20 a.m., the Crew asks the operating Captain to open the aircraft bars and get something to eat, a request that was denied by Operations. The Crew decided to ignore the instruction and opened the bar anyway, as they were feeling very hungry.

Fialho says that the flight finally landed in Porto at 1.42 p.m. Worse, he says, the Crew Controller was convinced that the crews had been given hotels and were properly rested, so they were being scheduled for new flights.

Yes, I hear you cry, but what about the staged photo? According to Fialho: 

The photo was a gesture of protest, that immediately became viral. Laying on the floor was the only option to rest — their ‘suitable accommodation.’ And precisely due to the unusual, deplorable and despicable treatment given to the Crew, Ryanair became the object of a social media frenzy.

Fialho added another kink to the story of the photo: 

Ryanair rushes to call it ‘staged,’ but not before the Company’s Chief Operating Officer apologized to the crew via Twitter.

Fialho believes this is merely another example of Ryanair’s cold-blooded attitude to employee relations. But what about the privacy issue with the video? He told me: 

Regarding the evident breach of the Global Data Protection Regulations we will discuss this in the appropriate institutions. Ryanair did us all a favor by providing evidence that in fact there were no minimum conditions for their employees to spend the night with dignity.

The People’s Verdict.

If you look on Twitter and Facebook, sympathy largely rests with the cabin crews. 

Above all, however, a single impression remains — that relations between Ryanair and its employees are parlous at best. 

How you treat your employees says so much about how your company is run. And once employer/employee unpleasantness reaches the public sphere, please imagine what your customers will think.

Then again, I fear that many will merely mutter: “Yup, that’s Ryanair for you.”

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