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  • Google Locks In Search Monopoly With $1 Billion to Carriers
    Bloomberg

    Google Locks In Search Monopoly With $1 Billion to Carriers

    (Bloomberg) -- Google doled out more than $1 billion last year to U.S. mobile carriers to distribute its search engine, according to the landmark antitrust lawsuit from the Justice Department.The DOJ suit, filed Tuesday, details several methods Google uses to make its search the default service on browsers, smartphones and other devices. That includes deals with Apple Inc. and Android manufacturers such as Samsung Electronics Co.Read the U.S. antitrust suit against Alphabet Inc.’s Google here.Google also cut hefty revenue sharing agreements with major mobile carriers to box out competing search engines and browsers, the Justice Department said. In exchange for placing Google search as the default on phones, carriers received a portion of search advertising revenue.“If a carrier or manufacturer does not renew its revenue sharing agreement with Google, the distributor loses out on revenue share not only for new mobile devices but also for the phones and tablets previously sold and in the hands of consumers,” the Justice Department said in the suit. “This provision is punitive to the carrier or manufacturer and helps to ensure that carriers and manufacturers will not stray from Google.”Last year, Google paid major U.S. carriers, collectively, more than $1 billion, the DOJ noted. A 2014 Google document in the lawsuit showed that Google paid $460 million for these deals, which are typically set for two to three years.The filing did not specify which carriers were involved in these deals, however the largest providers in the U.S. are Verizon Communications Inc., AT&T Inc. and T-Mobile US Inc.Soon after the suit hit, Kent Walker, Google’s head of global affairs, rejected the complaint’s claims. “Our agreements with Apple and other device makers and carriers are no different from the agreements that many other companies have traditionally used to distribute software,” Walker wrote in a blog post.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Google’s Search Default Deals Threatened by U.S. Antitrust Suit
    Bloomberg

    Google’s Search Default Deals Threatened by U.S. Antitrust Suit

    (Bloomberg) -- The Department of Justice filed its highly-anticipated antitrust case against Google Tuesday, focusing on payments Google makes to ensure its search engine is the default choice on millions of phones and computer internet browsers made by other companies.The payments are a little-known part of how Google does business. Cutting them off could disrupt a long-standing status quo that helps Google but also provides significant revenue to other companies.The biggest of those deals is with Apple Inc. Sanford C. Bernstein & Co. estimates Google pays around $8 billion a year to be the default search engine on the iPhone maker’s Safari mobile web browser. The lawsuit argues Google uses the massive cash reserves of parent company Alphabet Inc.-- some $121 billion -- to pay those giant fees, which would be out of reach for smaller competitors. Nearly 60% of all search queries happen in places where Google has a distribution agreement to be the default search engine, the DOJ said in its complaint.The agreements amount to a “web of exclusionary and interlocking agreements that shut out competitors,” Associate Deputy Attorney General Ryan Shores said on a conference call. “Google’s conduct is illegal under traditional antitrust principles and must be stopped.”Google immediately pushed back. “Today’s lawsuit by the Department of Justice is deeply flawed,” a spokeperson said in an e-mail. “People use Google because they choose to -- not because they’re forced to or because they can’t find alternatives.” Google will have a fuller statement later this morning, the spokesperson said.Google is willing to pay so much for the distribution deals because it’s confident it can make more money from the millions of queries consumers type into their browsers, iPhones and other devices. That’s because the company has packed the top of search results with advertising in recent years, increasing it’s ability to profit from users’ hunts for information.The distribution agreements also benefit the companies being paid to give Google’s search engine prominence. Even for Apple, $8 billion is a considerable revenue stream. Other big electronics makers like Samsung Electronics Co. Ltd., the world’s biggest mobile phone maker, benefit from them too. (Google and partners have not disclosed how much the company pays for these deals, but some details have occasionally leaked out through litigation or regulatory filings.)For some companies the payments can mean the difference between success or failure: Mozilla Firefox, one of the last remaining web browsers that competes with Google’s Chrome in the U.S. and Europe, relies on a distribution agreement with Google for search for much of its revenue.“The silver lining for Google, if those default search deals would eventually be ruled illegal by the courts, is that Google would no longer have to pay Apple a revenue share on search clicks that users would choose to make on Google,” said Colin Sebastian, an analyst with Baird. He estimates Google pays a total of $15 billion a year in payments on all of its distribution agreements.The case could take years to be resolved, and major changes would only be ordered by a court if Google’s activity is proven to be illegal, or if the company agreed to a settlement with the government instead.Google also gains a subtler, but potentially more potent benefit from these paid default deals. The company’s search engine gets better the more it’s used. When a query comes in, Google’s technology monitors what result people click on and how they behave after that. If a user clicks back to the list, that suggests they were unhappy with their initial result. The system logs this and adjusts future results, perhaps demoting that specific answer and raising up an alternative suggestion. This happens millions of times a day, helping to keep Google’s search engine ahead.Rivals, with less money to pay for big distribution deals, find it hard to keep up with a virtuous feedback loop that operates at such a large scale. But if the U.S. government prevents Google from paying to be the default provider in so many place, competitors may have more of a chance.In Europe, regulators have forced Google to give Android users a choice of which browser they want as their default. The rules, which require rivals to pay Google through auctions, haven’t made a major impact on market share yet. If people had to choose which search engine to use on all sorts of phones and browsers, some might switch to a competitor, but most would probably stick with Google, said Mark Shmulik, an analyst at Sanford Bernstein.That could result in a situation where the money saved from canceled distribution deals is greater than the loss of revenue from people picking other search engines, ultimately helping Google instead of curbing it.The biggest risk for Google is if regulators go further and devise rules that specifically give an advantage to smaller competitors like Microsoft Corp.’s Bing or DuckDuckGo over Google, Shmulik said.Europe’s latest remedy has been criticized for not giving consumers enough choice over search engines and forcing competitors to pay Google for placement.The focus on search hits Google in its most visible and important business, but also leaves out possible attacks that may have been more damaging or disruptive to the tech giant. Investigators had examined Google’s advertising technology business at length, and industry watchers had speculated the government could try to force the company to sell off part or all of the division completely. Other critics argued that the company’s biggest parts should all be split up, hiving off search, advertising technology, its browser and the YouTube video service.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Intel Agrees to Sell Storage Unit to SK Hynix for $9 Billion
    Bloomberg

    Intel Agrees to Sell Storage Unit to SK Hynix for $9 Billion

    (Bloomberg) -- Intel Corp. agreed to sell its Nand memory unit to South Korea’s SK Hynix Inc. for about $9 billion, a deal that allows the U.S. chipmaker to concentrate on its main business while shoring up the Asian company’s position in a booming market.The chipmaker will pay 10.3 trillion won for the Intel unit, which makes flash memory components for computers and other devices. The acquisition, which will take place in stages through 2025, includes Intel’s solid-state drive, Nand flash and wafer businesses, as well as a production facility in the northeastern Chinese city of Dalian.The deal should shore up Hynix’s position in a business that’s boomed after Covid-19 drove demand for the chips used in everything from Apple Inc.’s iPhones to data centers. It whittles down another player in an industry the Korean company dominates alongside Samsung Electronics Co. and Micron Technology Inc., potentially buoying Nand flash prices. Hynix’s shares fell about 1.8% after analysts raised concerns about the price tag on its largest acquisition ever.“Hynix is now entering the hyperscale control chip business by purchasing Intel’s business. Although there is some skepticism about the price of the deal, I think this won’t be a burden because it will ensure solid long-term cash flow,” said Greg Roh, an analyst at HMC Securities. “The market consolidation is good news for Korean memory chipmakers, and will alleviate oversupply issues.”Read more: Intel ‘Stunning Failure’ Heralds End of Era for U.S. Chip SectorIntel has said for months it was exploring options for the flash group. Hynix however won’t be buying the Optane division, which develops chips that can permanently store data and read and write it faster than NAND -- if not faster than traditional DRAM. The product, which went on sale in 2018, was tested successfully by some large cloud providers and Alibaba Group Holding Ltd. used the technology to support its massive Singles’ Day sales. Bob Swan, Intel’s chief executive officer, described Optane as “something special” last year.The Korean company said it will pay Intel $7 billion before the end of 2021, then the rest by March 2025. Citigroup advised Hynix, while Bank of America did the same for Intel. The deal could allow Hynix to surpass Kioxia -- a Toshiba Corp. spinoff -- in the Nand flash market, in particular, according to Bloomberg Intelligence analyst Anthea Lai.What Bloomberg Intelligence SaysSK Hynix’s agreement to acquire Intel’s memory chip unit for 10.3 trillion won will help the South Korean chipmaker surpass its second-biggest rival Kioxia by NAND flash revenue, we calculate. The deal would consolidate the NAND market, with Samsung, SK Hynix and Kioxia commanding more than 70% of revenue share, aiding NAND price recovery and narrowing losses, in our view.\- Anthea Lai, analystClick here for the research.The acquisition also further streamlines Intel’s struggling empire. Since taking over in 2019, Swan has looked to sell several units that aren’t part of the company’s focus on processors for personal computers and servers.The Santa Clara, California-based company has delayed production of important upcoming chip lines and now lags behind some industry players in manufacturing technology. Its shares are down about 9% so far this year, while the benchmark Philadelphia Semiconductor Index is up almost 29%.Despite the delays, the company’s server group has been performing well. Shedding another non-core business could help Intel focus on fixing its chip technology woes.Intel unloaded its smartphone cellular modem group to Apple in 2019 and this year sold its home connectivity chips group to MaxLinear Inc. In July, the company said it was considering moving away from manufacturing its own chips, potentially benefiting contract producers such as Taiwan Semiconductor Manufacturing Co. and Samsung.Read more: Intel’s Latest Chip Push Suggests the Company Has a Short Memory(Updates with share action and analyst’s comment from the third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.