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Tech Daily: GOOGL, AMZN, AAPL, TSM, FB, MSFT

Sejuti Banerjea

Alphabet GOOGL hits a trillion-dollar valuation, Amazon AMZN sees challenges in India, Apple AAPL continues its acquisitions with continued analyst support, Taiwan Semiconductor TSM posts encouraging results, Facebook FB gets sued and Microsoft MSFT targets carbon negative in this edition of the Tech Daily. Here are the details- 

Alphabet Hits a Trillion Dollar Valuation

Alphabet has been trading more or less in line with the S&P 500 over the past year, but a spate of analyst notes this month from Evercore, Deutsche Bank and the like displaying renewed confidence in its ability to grow ad revenue and maintain market share, its reasonable valuation, improved cloud competitiveness, better financial management, new leadership that could improve transparency in the way results are reported and ability to handle regulatory pressures have encouraged investors.

There is also the hope of a dividend or share buyback, particularly because the bulk of Pichai’s earnings is tied to share prices. Of course, Alphabet remains very much a growth company despite its size, so direct returns to shareholder may not materialize. But the potential is there.

So, as the U.S. Department of Justice and Federal Trade Commission watch, this 22-year-old company, originally known as Google, made the magic number.

Only two other technology companies, Apple and Microsoft are ahead of it, Apple at around $1.38 trillion and Microsoft at around 1.29 trillion. Amazon is close behind at $931.1 billion and Facebook at a distant fifth position with a market cap of $632.4 billion. If anything, this is a reflection of the way the world is moving toward a more digitized, technological future where tech is what we value the most and knowhow is what we tend to invest in.

India Isn’t Impressed with Amazon’s Billion Dollars

"We are going to use our global footprint to export outside of India $10 billion of Make in India goods by the year…we are going to do that by the year 2025." Bezos’ statement may have aroused cheer from the seller group he was addressing.

But it was a different story outside that meeting. Praveen Khandelwal, secretary general of the confederation of all India traders said (translated from Hindi): "Today the investment that he has announced of $1 billion in India, that is not an investment but it is a formula of crushing the retail trade of the country that he has given to Indian companies."

More concerning was what Indian trade minister Piyush Goyal said, because it reflects the government’s stand. "They may have put in a billion dollars but then if they make a loss of a billion dollars every year then they jolly well have to finance that billion dollars…So it's not as if they are doing a great favor to India when they invest a billion dollars."

Presumably referring to the $802 million in losses it made for the year ending March 2019, he said, "How can a marketplace make such a big loss, unless they are indulging in predatory pricing or some unfair trade practices? These are real questions that need answers."

Some news agencies had reported that Bezos would meet with the Indian Prime Minister to alleviate concerns, but it appears that the company couldn’t secure an appointment.

The Competition Commission’s recently released study on e-commerce that has the provisions to punish anticompetitive practices: “Any potentially anti-competitive unilateral conduct of platforms or platforms’ vertical arrangements with sellers/service providers will receive enforcement attention.”

Here’s my takeaway. The government is taking a tough stand publicly because there’s a real need to keep the voter base happy at this juncture and its study equips it to take such a stand. The trader body has alluded to tax evasion through deep discounts and subsequent losses, with small traders suffering as a by-product. This isn’t a matter the government can take lightly, so an investigation will take place.

At the same time, investigations don’t happen overnight, so this isn’t the time for horse-trading, which is likely why the government meeting isn’t happening now. The real challenge from the government, and its real answer to small traders is Reliance’s JioMart, which is getting ready to launch. So once all that’s in the play, there will be things to study and talk about.

Apple Gets Another Analyst Thumbs Up

Canaccord Genuity analyst Michael Walkley became the latest in a series of analysts putting out positive notes on Apple. He maintains his Buy rating while increasing his price target from $275 to $355. iPhone revenue estimates for 2019, 2020 and 2021 were bumped up from a respective $139 billion, $143 billion and $147 billion to a respective $141 billion, $152 billion and $159 billion.

Commending the ecosystem approach, the analyst said that the expansion of the installed base from the current 1.4 billion devices globally, helped by the 5G upgrade cycle and resurgent growth in China, would help higher-margin services revenue grow faster than the company to touch a new high. He therefore expects services revenue to double from the 2016 level in 2020, with new services like Apple News+, Apple Card and Apple TV pushing total subscribers to 500 million.

So the "strong trends across all business lines should continue through 2021."

Apple Buys Strategic AI Startup

Microsoft co-founder Paul Allen founded a little startup called The Allen Institute for AI (AI2), which is basically an incubator for AI startups and has attracted funding from a number of institutions including Madrona, Sequoia, Kleiner Perkins and Two Sigma Ventures. Now GeekWire is reporting that one of their startups called Xnor.ai has been picked up by none other than Apple for around $200 million.

Employees from the Seattle-based outfit are already moving to Apple’s AI unit in the same city. They will help Apple dabble with the idea of running AI algorithms on user devices rather than distant servers, thus improving processing speed and enhancing security/privacy. They also reportedly have experience in developing image-recognition software.

Apple buys one of these small companies every two-three weeks, so it’s natural that they don’t have much more to share on the topic. But it’s worth noting that it has developed an appetite for AI companies of late, with a focus on talent and intellectual property.

TSM Posts Encouraging Results

Taiwan Semiconductor reported earnings of 73 cents in the fourth quarter, which was a penny ahead of the Zacks Consensus Estimate. Revenue of $10.39 billion was up 10.6% sequentially and 10.5% year over year. The company was expecting $10.2 billion.

High-end smartphones, initial 5G deployment and high performance computing-related applications using its 7-nanometer technology drove results. Its advanced nodes are likely to remain a competitive advantage for the company given its capacity, yield rates, execution and a customer base that includes Apple and Advanced Micro Devices AMD. Intel’s INTC constraints will be further benefit AMD, and therefore also TSM.

The company is forecasting first quarter revenue $10.2-$10.3 billion, compared with $7.1 billion a year ago, driven by the continued ramp up of 5G smartphones. Its capex is expected to be $14-15 billion this year, up from its earlier forecast of $14-15 billion. It spent $14.9 billion in 2019.

Management stated that the foundry segment would post revenue growth of 17% in 2020, outpacing the 8% growth expected of the industry.

Facebook Lawsuit

A class-action lawsuit, accusing the company of selective denial of developer access to certain apps driving them to losses or extinction was filed in the U.S. District Court for the Northern District of California.
    
The plaintiffs are Reveal Chat HoldCo LLC, USA Technology and Management Services, former peer-to-peer site Cir.cl and former identity verification provider Beehive Biometric. They are seeking unspecified damages and the surrender of Mark Zuckerberg’s controlling shares. They are also calling for a disinvestment of WhatsApp and Instagram, arguing that their integration into Facebook will foreclose competition.

Microsoft Targeting Carbon Negative by 2020

Microsoft has been carbon neutral since 2012, but it has now set the target of going carbon negative across its direct emissions and supply chain by 2030. It has been developing carbon removal technology and has now created a "Climate Innovation Fund," which will invest $1 billion over the next four years to speed up development of the technology. It is also committed to using renewable energy in all of its operations within five years.

The company has also launched a sustainability calculator designed to show its cloud customers the environmental benefit of moving their workloads to the cloud. It will show the carbon impact of moving different workloads to the cloud using the products it will introduce over the next few years.

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