In the past week, the privacy of billions of people has increased and the privacy of a smaller set of much richer people has decreased — the first group are users of WhatsApp, which has encrypted messages sent via its app, the second group are, or were, clients of Mossack Fonseca, the Panamian law firm whose documents were leaked to the press. Read more
One question appears again and again in arguments about Apple’s battle with the FBI: should any information be totally beyond the reach of the law?
It is the question Barack Obama asked in Austin, Texas on March 12, when he first commented on the dispute. From the FT: Read more
For a certain kind of politician, a run-in with the police is a badge of honour and a sign of authenticity. In the US, supporters of Bernie Sanders contrast images of his arrest during civil rights protests with Hillary Clinton’s handling of black protesters today. In the UK, pictures of Jeremy Corbyn being handled by cops during an anti-apartheid picket are used for similar reasons.
The intended message is that these are honest politicians, not motivated by mere expediency. The words they say today are part of a continuous thread of thought going back decades and, what’s more, they were willing to go out, take action for a just cause and face the consequences. In short, you can trust these guys. Read more
When Diego Dzodan became Facebook’s vice-president for Latin America in June 2015, he probably thought he was taking a nice safe job with a decent wage and ample opportunity for promotion within the business.
He probably didn’t think he’d end up being arrested. From the FT on Tuesday: Read more
Hoisted from the archives, a Nokia presentation from the Lehman Brothers Worldwide Wireless and Wireline Conference, May 29 2008.
We were prompted to find it by a stock photo of the Economist (now sold). The February 2005 edition included the headline story “Nokia’s turnaround”, about what was then the world’s largest maker of handsets.
Ho ho, we thought, until we looked at the share price. Read more
The good people at Dow Jones indices are busy dragging themselves into the current century, and good for them. But while they are replacing AT&T — which originally stood for “American Telephone and Telegraph” — with Apple in the world’s most storied benchmark, the Dow Jones Industrial Index, maybe they should consider another futuristic leap and acknowledge that price does not equal value.
Apple’s arrival in Charles Dow’s creation was accompanied by the observation that it will sit at number six – behind Visa, Goldman Sachs, 3M, IBM and Boeing. It’s share price, $129 or so at pixel, is a smaller number than, say, Visa at $274. Read more
Apple is recruiting experts in automotive technology and vehicle design to work at a new top-secret research lab, said several people familiar with the company, pointing to ambitions that go beyond the dashboard.
Friday’s news of a secret research lab in the FT there, which stirred the froth around Tesla, the electric car company run by Elon Musk. A $75bn takeover target for Apple, anyone?
The problem with the theory, aside from Tesla’s mere $25bn market capitalisation, is that nobody really needs to buy Tesla. Might someone? Sure, but a glance at the company’s history shows just how little cash it took to build. Read more
We were struck by a line from Kas Thomas, who thinks Google is turning into Yahoo (and will end up buying Twitter as it tries to stay relevant).
Along the way, there will be layoffs. Google’s R&D and G&A spending are out of control.
Presumably someone in Mountain View does keep an eye on the total, but even if research and development spending is under control, it is large: $10bn last year. Read more
So, Apple has taken advantage of the drop in Swiss funding costs to issue SFr1.25bn of bonds.
A no-brainer funding opportunity for Apple? Or…, alternatively, a sign of things to come: corporates replacing petrodollar and sweatdollar sovereigns as the key accumulators of trade surpluses in the global economy, and issuing debt in a bid to sterilise the effects of too much liquidity on capex they can’t control?
If it’s the latter, we should beware of Andrew Keen’s concerns about the perils of a winner-takes-all tech economy, where a handful of geeks inadvertently become the new masters of the universe, thanks to their cunning monetisation of things Tim-Berners-Lee-types would never have dreamed of rationing to the great tech-ignorant. We’ve dubbed it Silicon Valley’s “god complex” before. Read more
Apple just reported the biggest quarter of net income earned by any public company ever, at least in nominal terms. It remains the world’s most valuable publicly traded company by a large margin. So naturally there are people who want to put these statistics into perspective by comparing a corporation to a country. Unfortunately, most of those efforts miss the mark because they generally don’t compare apples to apples.
The most common way to measure the size of an economy is to look at how much stuff is produced in it each year. (This is GDP.) You might think that is equivalent to corporate revenues, except that a lot of those inflows are offset by outflows to suppliers. In other words, you’d be looking at a company’s GDP without subtracting the imports that represent foreign production. That’s double counting. Read more
As the WSJ reported on Tuesday, the Russian rouble’s collapse is taking a particularly heavy toll on Belarus, Europe’s last standing autocratic economy, which remains hugely dependent on Russia to this day.
According to the report, the regime of Alexander Lukashenko has started to block independent news sites and several online-shopping outlets in an apparent attempt to prevent a bank run.
This follows an emergency rate hike by 2,6000 basis points last week.
The trouble relates to the fact that the Belarusian rouble is supposed to be pegged to the US dollar, the euro and the Russian rouble, which has understandably put pressure on its valuation. As analyst at Danske Bank explained this week: Read more
In the light of the foregoing considerations, the Commission’s preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU. The Commission has doubts about the compatibility of such State aid with the internal market. The Commission has therefore decided to initiate the procedure laid down in Article 108(2) TFEU with respect to the measures in question.
Click for the full document laying out the case.
Can just one product deliver a 1 per cent boost to Chinese export growth?
If that product is Apple’s iPhone 6, then potentially yes.
So says BoAML’s China Economist Ting Lu, who presents the iPhone 6 case for Chinese exports as follows (our emphasis):
Though iPhone is an American product, it’s assembled in Mainland China (henceforth China) and all iPhones, except those sold in China, and are counted as China’s exports. The iPhone 6 is also important for Taiwan because the economy provides a significant amount of iPhone components including producing processors.
In which Citi look for the next Apple, our emphasis:
Apple’s valuation has been through a spectacular round-trip over the past couple of years (Figure 2). Its total market cap first broke through $600bn in August 2012, but then collapsed to $341bn in April 2013. Since then, the recovery has been equally remarkable, moving back above $600bn in the past month. In the process, it has regained the title of the world’s most valuable company ($187bn ahead of Exxon at number 2). To put this in context, Apple has lost and then regained the value of the Russian stock market in just two years.
The narrative associated with this spectacular journey often focuses on the never- ending pressure for Apple management to maintain the company’s product pipeline. A lower share price reflected concerns that Steve Jobs’ midas touch had been lost. The subsequent rebound was associated with increasing conviction that it had not.
The lack of smoke signals and reports of millions of wearable devices actually going into production have led KGI Securities to declare:
We believe the launch of iWatch could be postponed to 2015.
Apple, that ultra-secretive, profit maximising, cash hoarding, phone making, tax
dodging efficient maker of phones and stuff is supposed to be the sensible one. It sells actual things for a profit and is not known for pouring money down speculative drains.
But, as the FT’s Matt Garrahan and Tim Bradshaw revealed, it wants Beats Electronics for $3.2bn. Beats makes headphones, like Apple does, and, er, even longtime Apple analyst Gene Munster is scratching his head.
We are struggling to see the rationale behind this move. Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand’s sake (i.e., there are no non-Apple sub-brands under the company umbrella). Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand.
Before going any further read Matt Levine. He nailed a lot of this already, including the ever worthwhile point that the Dow is ridiculous:
Apple’s stock is trading at around $565 today. Apple thinks that number is too high, and so is going to cut it by six-sevenths, to some number around $80, by giving everyone six extra shares for each share they currently hold. This is not the sort of story where I explain to you that changing the nominal price of a stock doesn’t change the economic value of the company; I hope we are all grown-ups here.
So, if the split doesn’t have any economic impact, why bother?
Indeed. And with that in mind there are a few things worth adding Read more
A couple of years ago we had the privilege of attending a closed door session with a well known (former) spook/security type. We shan’t mention exactly who it was, but suffice to say the person in question seemed to know more about what’s what in the world of global security than anyone else doing the public speaking rounds these days.
It was a so-called “access event”, the sort where wealth managers pay organisers to connect them with those who know much more about what’s going on than they do.
The spook in question made clear that he could only comment in a private capacity and in very general terms, but he was nevertheless open to questions. Read more
Matt Yglesias at Slate has been on a quixotic campaign to stop the total devaluation of disruption as a term. Thank Steve Jobs for that magic cloak of respectability.
Still, in the perfectly rational world of tech acquisitions, the term has power. Matt quotes arch-magician biographer Walter Isaacson:
Isaacson also pointed out that Nest co-founder and CEO Tony Fadell will be joining Google as part of this deal. “Fadell was one of the team that created the iPod. He was very deep into the Apple culture … when Apple was so innovative.”
Matt makes the case for execution over true innovation. We think though that the tech world’s focus on disruptive innovation may have more to do with fear than hope. Parts of tech are wildly profitable, something that leads to what Andrew Smithers would call a bout of stockbroker economics when it comes to assessing the long term prospects of tech companies. Read more
Doesn’t seem very value-creating for “Your Company” to put their corporate treasury outside the castle where the filthy peasants can get it, or indeed to devote capex to a castle when they have access to advanced technology like corporate jets. No wonder Carl Icahn is on their case. Read more
And so to the Irish government’s international tax strategy, fresh out on Tuesday and making Ireland “part of the solution to this global tax challenge, not part of the problem” according to Michael Noonan.
Ireland has incidentally guided its 12.5 per cent corporation tax rate through its bailout. It even outlived Sarkozy’s presidency. Read more
Or simply giving money away?
There was much hoopla late on Wednesday as Verizon got the world’s largest corporate bond sale away — some $49bn of paper which will help to buy the rump of Verizon Wireless back from Vodafone.
Here’s a little table from Marc Ostwald of Monument Securities that hints at the excessive premium offered by Verizon, along with the instant profits on offer to investors here: Read more
Apple CEO Tim Cook is up soon in front of a US Senate committee. First though, Professor Stephen E. Shay of Harvard, who knows both his tax and his bow-ties:
Click through the pic for the C-Span stream.
Alternatively, join our colleagues over at the FT’s Tech blog, where the action is being discussed in detail. Read more
Compare (Apple’s testimony to the Senate permanent subcommittee on investigations, on Monday):
Apple pays an extraordinary amount in US taxes. Apple is likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the US Treasury in FY2012. These payments account for $1 in every $40 in corporate income tax the US Treasury collected last year. The Company’s FY2012 total US federal cash effective tax rate was approximately 30.5%. The Company expects to pay over $7 billion in taxes to the US Treasury in its current fiscal year. In accordance with US law, Apple pays US corporate income taxes on the profits earned from its sales in the US and on the investment income of its Controlled Foreign Corporations (“CFCs”), including the investment earnings of its Irish subsidiary, Apple Operations International (“AOI”)…
Now that we have Chinese socialites engaging in public cat fights over who is richer, posting snapshots of their bank accounts “Rich Kids of Instagram style“, one has to wonder if it may be worth revisiting John Hempton’s prediction last year that the Chinese authorities will finally crack down on this sort of over-the-top gratuitous wealth display, and when that happens the luxury brands — among them Swiss watches — will begin to suffer.
(*We should note the “I’m really richer than you” meme possibly applies to Prince Alwaleed bin Talal as well). Read more
Krugman’s had a go, Cowen’s had a response and now Roche has weighed in.
So why are corporates hoarding cash, and is this good or bad for the economy? Read more
The WSJ talks of “iPhone-like hype” around the next Samsung smartphone model. And Bloomberg notes that in China, iPhones are way behind. It must be that time again!
Yep, Apple reports its first-quarter earnings at 5pm EDT, so feast your eyes on this five-year chart in the meantime : Read more
Citi declared a few weeks ago it had three equity analysts focused solely on Apple, which generated a bit of intrigue and also some ridicule (some traders thought it was “just a marketing ploy” by Citi, according to CNBC). Those analysts came out with a ‘buy’ recommendation, though with a target price of $675, below consensus.
But now in the depths of December, Citi’s Glen Yeung, Walter Pritchard and Jim Suva have cut the rating to ‘neutral’ and the target price to $575. Investors in Hon Hai Precision (aka Apple’s biggest supplier, Foxconn) did not like it one bit:
He might also be able to explain why Apple shares continued to struggle at the US open on Thursday. (Market cap below $500bn at pixel time, huge opening volume) Read more