Curated Insights 2017.12.31

Google Maps’s Moat

In other words, Google’s buildings are byproducts of its Satellite/Aerial imagery. And some of Google’s places are byproducts of its Street View imagery…so this makes AOIs a byproduct of byproducts. Google is creating data out of data.

With “Areas of Interest”, Google has a feature that Apple doesn’t have. But it’s unclear if Apple could add this feature to its map in the near future. The challenge for Apple is that AOIs aren’t collected—they’re created. And Apple appears to be missing the ingredients to create AOIs at the same quality, coverage, and scale as Google.

And as we saw with AOIs, Google has gathered so much data, in so many areas, that it’s now crunching it together and creating features that Apple can’t make—surrounding Google Maps with a moat of time.

Google likely knows what’s inside all of the buildings it has extracted. And as Google gets closer and closer to capturing every building in the world, it’s likely that Google will start highlighting / lighting up buildings related to queries and search results.

Apple to hit $1 trillion in market value in 2018

Today, Apple has an estimated 900 million customers. Many are buying services that include music streaming, movie rentals, applications, online storage, extended warranties, and digital payments. Apple’s recent purchase of Shazam, a service for identifying music clips, shows how Apple can add features to subscription services like Apple Music. Growing 23% in the past fiscal year, services account for 13% of Apple sales—and an estimated 20% of gross profit.

IPhone generates 60% of Apple’s revenue; there are an estimated 800 million active devices that provide a vast and growing base for services. A recent UBS survey of smartphone users in five key countries shows that retention rates have been climbing and stand at 85% for iPhone, versus 71% for Samsung and 78% for phones that use Android software. In other words, switching services isn’t common, but when it occurs, Apple generally wins.

Another upside source got less theoretical this past week with the passage of a sweeping corporate tax cut. Apple sits on more than $250 billion in cash and investments held overseas as a tax dodge, about a fifth of the total for all U.S. companies doing likewise. To bring that money home for dividends or stock buybacks, it would have had to pay the top corporate tax rate of 35%. The new law cuts the top rate to 21%; imposes a mandatory, one-time 15.5% tax on overseas cash and equivalents; and switches to a territorial tax system to reduce offshore avoidance.

For shareholders, the cake is the tax savings; the icing is that Apple loses its incentive to hold cash overseas. The second helping of cake with icing is that Apple has already booked enough to cover anticipated tax charges. Epoch’s Pearl reckons Apple could get a mid-single digit boost to ongoing earnings from the lower tax rate, and as much as a 7% increase from bringing home cash and buying back stock.

 

The near future of electric cars: Many models, few buyers

Electric cars—which today comprise only 1 percent of auto sales worldwide, and even less in the U.S.—will account for just 2.4 percent of U.S. demand and less than 10 percent globally by 2025, according to researcher LMC Automotive. But while consumer appetite slogs along, carmakers are still planning a tidal wave of battery-powered models that may find interested buyers few and far between.

Magna International Inc., for example, the largest auto supplier in North America, is having vigorous debates over whether to add capacity to tool up for electric cars when its executives don’t see much demand for them over the next eight years. The company predicts EVs will only grow to between 3 percent and 6 percent of global auto sales by 2025, said Jim Tobin, chief marketing officer at the Canadian company.

Industry executives convinced drivers will abruptly exit their internal combustion engine vehicles in favor of electrics may find themselves too overzealous, with LMC forecasting gasoline-powered engines will still make up about 85 percent of U.S. new car sales in 2025. But that shift could accelerate as electrified vehicles reach price parity with gasoline-powered cars, which Bloomberg New Energy Finance predicts will happen by 2029 or sooner for most models.


Riders in Alphabet’s driverless car will be insured by startup Trov

So-called usage-based insurance, which changes in response to the customer’s needs or actions, has become popular among both traditional insurers and startups like Trov. A common example is car insurers’ use of devices to track a driver’s behavior and then offer discounts for good driving.

Trov CEO Scott Walchek said what appealed to Waymo was Trov’s ability to measure risk in what it calls “micro-durations.” The company asked if Trov’s technology for only assessing risk during periods when its users swiped on their coverage could be repurposed to cover passengers for the length of a ride in a Waymo vehicle. Trov developed a solution, Mr. Walchek said.


Kuka plans for robot domination in China and your garage

China is the world’s largest and fastest-growing automation market. Sales of robots in China, which amount to about one-third of the global demand, grew by 27 percent last year, compared to just 12 percent in Europe and 8 percent in the Americas, according to the International Federation of Robotics. With 68 robots per 10,000 Chinese manufacturing workers, far fewer than the 189 in the U.S. and 631 in South Korea, there’s room for growth and rising factory wages are powering more automation. “We want to become number one in China,” says the Kuka executive, noting that their market share for robots last year was around 14 percent (that puts it among the top three suppliers).

Along with its push into non-auto industrial robots, Kuka aims to leverage Midea’s sales networks and company connections to start producing consumer-focused robots too. The companies are jointly building a large industrial park near Guangzhou that will have R&D, technology development, a robotics training center, and critically, a production facility. “We are increasing capacity. That is the first step,” says Reuter. “For Kuka, the park will be a very, very important step towards becoming number one.”

Driver shortage sends truck haulage rates higher

The shortage of drivers comes as the industry looks to a future with self-driving, autonomous trucks. There are currently more than 3m truck drivers on the road in the US, with the job offering one of the highest levels of pay for non-college graduates. Last year, the median salary for drivers with three years’ experience tipped $57,000, according to the National Transportation Institute.

However, Mr Leathers warned that buzz around the technology could discourage people from working as drivers. “The last thing I can afford, and we can afford, is for our rhetoric on driver-assist or autonomous to get out in front of reality and [for us to] start seeing enrolments and interest in the field drop before the technology is ready to really engage,” he said.

Which nation does the world trust most? (Hint: Follow the Dollar)

America’s current 24 percent share looks much diminished compared with 30 percent in 2000 but about the same as the 26 percent share in 1980. It’s simple to cherry-pick a start date that makes American decline look bad, but the reality is that China is gaining global economic share at the expense mainly of Europe and Japan. America is a tested economic superpower, having survived 21 recessions and a Great Depression since 1900. China remains untested, having suffered not one outright recession since its modern renaissance began around 1980. It has yet to be seen just how well China will weather such a test, which is inevitable for any large economy.

Nearly 90 percent of bank-financed international transactions are conducted in dollars, a share that is close to all-time highs. When individuals and companies borrow from lenders in another country, they increasingly borrow in dollars, which now account for 75 percent of these global flows, up from 60 percent just before the global financial crisis in 2008.

In a dollar world, most countries are happiest when the dominant currency is cheap and plentiful. A strong dollar raises the cost of borrowing, which slows global economic growth and has often triggered debt crises in the emerging world. A weak dollar has the opposite effect, which is why the weakening of the dollar this year offers more evidence of its dominance: Partly as a result, the world is enjoying an unusually broad recovery encompassing every major economy.

Instead, the renminbi has gained no ground as a reserve currency and probably won’t as long as China’s financial markets remain largely closed, underdeveloped and subject to government meddling. History also suggests that economic size alone will not be enough to propel China to financial superpower status. From 1450 through the late 1700s, the leading reserve currency was held by smaller countries — first Portugal, followed by Spain, the Netherlands and France. These nations were all major trading and military powers with credible financial systems, but not one was the world’s largest economy. Throughout those centuries, the leading economy was primarily China. It never gained the advantages of having the leading reserve currency because, then as now, its financial system lacked credibility.


China’s $100 billion smartphone maker

Oppo makes $14 of operating profit apiece, Vivo $13 and Xiaomi a mere $2, Counterpoint reckons. That is of course minimal compared with the $151 per device they estimate Apple Inc. made, and $31 at Samsung Electronics Co.

Oppo and Vivo appear to be much more pure-play hardware businesses. This is risky, because customer loyalty is fickle and any margins they make leave them open to price competition. But at least they’re banking profits today instead of hoping for some future “economies of ecosystem” that may never come.


Chinese populism lives in a video app

According to one analysis, 70 percent of Kuaishou’s users earn less than $460 per month, 88 percent haven’t attended university, and a majority live in less developed parts of China. Kuaishou has managed to attract them by forgoing celebrity videos and promoted content in favor of algorithms that recommend items that other users like. It’s an approach that leaves users with the impression (if not the reality) that their videos have a fighting chance to be viewed. And that attracts users who know they’d be wasting their time posting content to sites focused on fashion, luxury and city life.

Indeed, even as other video platforms see their growth stunted by Chinese government oversight and brutal competition, Kuaishou expands. Today it’s the fourth largest social-media platform in China, behind WeChat, QQ and Sina Weibo. That’s why it’s a smart bet for investors like Tencent Holdings Ltd, which pumped in $350 million in March 2017. China’s smaller cities already produce 59 percent of China’s gross domestic product and retain significant commercial and cultural pull, both for those who still live in them and for the hundreds of millions who’ve migrated away.


Chinese consumers now rule the world. Get used to it

As China’s expansion increasingly depends on consumption, its growth will be not only more internally driven, but also less resource- and credit-intensive. Imports of premium goods and services will increase. This market will be more and more attractive to multinational firms and investors.

One significant byproduct: China’s politically-sensitive trade surplus will continue to shrink and the current account surplus, the broadest measure of capital flows, might contract even more. This, in turn, may exert downward pressure on the yuan.

China to overtake U.S. economy by 2032 as Asian might builds

The report by the Centre for Economics and Business Research in London sees India leapfrogging the U.K. and France next year to become the world’s fifth-biggest economy in dollar terms. It will advance to third place by 2027, moving ahead of Germany.

In 2032, three of the four largest economies will be Asian — China, India and Japan — and, by that time, China will also have overtaken the U.S. to hold the No. 1 spot. India’s advance won’t stop there, according to the CEBR, which sees it taking the top place in the second half of the century.

Also by 2032, South Korea and Indonesia will have entered the top 10, supplanting the Group of Seven nations of Italy and Canada.

Curated Insights 2017.10.29

How Intuitive Surgical turned medical sci-fi into reality

Intuitive’s devices are now used at all of the top-ranked U.S. hospitals for cancer, urology, gynecology, or gastroenterology—including venerable institutions like New York’s Memorial Sloan Kettering Cancer Center, the Mayo Clinic, Johns Hopkins, and the Cleveland Clinic. More than 4,100 da Vinci base units have been installed worldwide as of June 30, including 2,703 in the U.S., 698 in Europe, 538 in Asia, and 210 in the rest of the world.

The systems aren’t cheap: The list price for the fourth-generation da Vinci Xi is $1.9 million, and that doesn’t include the cost of various surgical appendages, which can add tens of thousands of dollars more to the price tag. Still, the robots keep selling—and surgeons are increasingly adopting them in their practices.

The company says that more than 4 million minimally invasive surgeries have been performed with da Vinci systems since 2000—a new one begins every 42 seconds somewhere around the globe, Intuitive CEO Gary Guthart tells Fortune. The number of those procedures done worldwide spiked 15% in 2016 compared with the previous year, and Intuitive pro­jects an additional 14% to 15% rise in the number by the end of 2017. Indeed, for certain more complicated procedures, such as radical prostate removal, robotic-assisted surgeries now account for nearly 90% of operations.

The boom has driven Intuitive to $2.7 billion in 2016 global revenue, with more than 70% of sales being recurring in nature—a fact that underscores the advantage that comes from being the first major player in a rapidly growing market.

It isn’t clear whether robotic surgery uniformly leads to better outcomes. (Don’t look to the extensive medical literature for a clear-cut answer; conclusions differ from study to study.) But surgeons who swear by their robotic arms tend to return to the same words of praise: They tout the “speed of recovery” for patients, who typically don’t need to spend days or weeks in a hospital as they might after traditional open surgery. They speak of the “clarity” of its camera, the “flexibility” of its instruments.

A survey by investment and research group RBC Capital last year found that American surgeons think that within five years, 35% of operations will involve robots in some form, compared with 15% today.

 

Shake Shack founder on changing the way restaurants do business

And I think what fine-casual is doing is, “If you’re willing to give up waiters and waitresses and bartenders and reservations and table cloths and flowers, we’re gonna s– we’re gonna give you about 80 percent of the quality that you would have gotten in a fine-dining restaurant. We’re gonna save you about 80 percent of the money you’d spend in a fine-dining restaurant. And we’re gonna save you about 60 percent of the time.”

So by saying, “Hospitality included,” it’s basically saying, “You see that price that it costs to get the chicken? That includes everything. That includes not only the guy that bought the chicken and the guy that cooked the chicken, but it also includes the person who served it to you and how they made you feel.”

 

AlphaGo Zero: Learning from scratch

Previous versions of AlphaGo initially trained on thousands of human amateur and professional games to learn how to play Go. AlphaGo Zero skips this step and learns to play simply by playing games against itself, starting from completely random play. In doing so, it quickly surpassed human level of play and defeated the previously published champion-defeating version of AlphaGo by 100 games to 0.

It is able to do this by using a novel form of reinforcement learning, in which AlphaGo Zero becomes its own teacher. The system starts off with a neural network that knows nothing about the game of Go. It then plays games against itself, by combining this neural network with a powerful search algorithm. As it plays, the neural network is tuned and updated to predict moves, as well as the eventual winner of the games.

 

Nike’s focus on robotics threatens Asia’s low-cost workforce

For Nike, the shift to greater automation has two huge attractions. By driving down costs, it could lead to a dramatic improvement in profit margins. It would also allow the company to deliver new designs more quickly to fickle, fashion-conscious customers at a premium. A pair of Nike Roshe shoes costs $75 without Flyknit uppers, compared to as much as $130 with Flyknit.

The potential upside for Nike of greater automation is immense. Analysts at Citibank estimate that by using the Flex manufacturing process to produce Nike’s 2017 Air Max shoes, one of its top-selling lines, the cost of labour would decrease 50 per cent and materials costs would fall 20 per cent. That would equate to a 12.5 percentage point increase in gross margins to 55.5 per cent, according to analysts Jim Suva and Kate McShane. If Flex were to produce 30 per cent of Nike’s North American footwear sales, Nike could save $400m in labour and material costs, representing a 5 per cent benefit to earnings per share, according to Citibank estimates.

Traditional shoe production has required as many as 200 different pieces across 10 sizes, often cut and glued together by hand. The new manufacturing process being developed by Flex has introduced two ideas once thought impossible: the gluing process has been automated and lasers are used to cut the Flyknit material. Lead times in the shoe industry once ran to several months: Flex has promised to help Nike speed up lead times, which can be three to four weeks for a customised pair of sneakers.

Nike has reduced its supply chain by nearly 200 factories in the past five years to focus on fewer “quality, long-term partnerships”. However, the process of closing a factory, including those with compliance issues, can be a long and costly process for “brand-sensitive companies like Nike” to mitigate the disruption to local economies.


Birth of a Hidden Champion: TSMC & Morris Chang

Morris Chang said Intel’s advantage lies in its robust technological power and strong business operation foundation, having maintained No. 1 in the global semiconductor for decades. But its biggest drawback rests with its inexperience in the wafer foundry sector that highlights a service-oriented corporate culture, as Intel’s technology departments have long served the company’s own needs, totally different from the core culture of serving others seen in the pure-play foundry sector. With his 25-year experience at Texas Instruments before founding TSMC, Chang said he realized very well what kind of corporate culture was needed for the foundry sector. He said when establishing TSMC 30 years ago, he was able to easily inject the service-oriented culture into the TSMC at the very beginning.


Apple’s COO Jeff Williams recounts how business with TSMC began with a dinner at the founder’s home

Williams said that in the next 10 years, the biggest problem lies not in computing performance, but in the lack of sufficient visions to apply new advanced technologies such as AI (artificial intelligence) as well as how to safeguard privacy.

He said Apple has many expectations for AI applications, but what the company needs is neither to make chips with faster computing performance or to make cars able to fly, but to utilize advanced technologies to change the world, such as making use of semiconductors to achieve medical technology innovations.”


Apple supplier TSMC says Moore’s Law is no longer valid

Chang said that the time frame set in Moore’s Law is no longer applicable. He said TSMC has kept increasing transistor density, but not at a pace according to the law. Chang continued by noting that discussions about the applicability of Moore’s Law in recent years have often focused on ASML, a leading semiconductor lithography equipment supplier, because the company is now the world’s only supplier of EUV (extreme ultraviolet) lithography equipment and EUV technology bears a great responsibility of keeping Moore’s Law valid. Chang said major semiconductor firms have been keen to incorporate EUV technology into their 7nm process.


ChowNow, a GrubHub competitor, raises $20 million Series B round

ChowNow prides itself on being different from the likes of GrubHub and Seamless. ChowNow’s flagship service offers restaurants a white-label platform that enables restaurants to own their customer data, and feel confident their customers aren’t constantly fending off menus and discounts from competitors. Unlike its competitors, ChowNow charges an upfront monthly cost of $150/month per location instead of taking a commission on all orders.

“Yes, our software supports delivery but we have a unique place in the restaurant where we don’t play in the delivery space outright,” Webb said. “We’re also not a traditional marketplace either. Shopify for restaurants is an accurate way to describe us. Restaurants can plug in to our system and integrate it into their delivery backend.”

In charts: has the US shale drilling revolution peaked?

Throughout its existence, the shale oil industry has consumed cash. Companies have been unable to cover their drilling costs from their incomes, and have needed constant infusions of debt and equity financing. They have had little difficulty in raising that money, in part because investors wanted to share in the productivity miracle that the companies represented. If the miraculous days are over, and a more humdrum reality is setting in, will investors still be prepared to back the industry so willingly? Already equity raising by US exploration and production companies has slowed sharply this year. Plenty of attractive investment opportunities still exist in shale: internal rates of return of 30 per cent and higher are available in the Permian Basin, according to S&P Global Platts Well Economic Analyzer. Will there be enough of those attractive opportunities to keep US oil production rising, as the government’s Energy Information Administration and others expect? The industry says yes, but the drilling and productivity numbers will be worth watching closely over the months to come.

 

Australia’s got a lock on supply of the metal used for EV batteries

“Australia’s importance has been cemented by offtake deals and equity investments in mines,” Alice Yu, a Hong Kong-based consultant at CRU, said by phone. Backing from major battery manufacturers and auto producers could also see the nation add processing facilities to develop exports of higher-value lithium chemicals, she said.

Still, Macquarie Group Ltd. has warned there’s a bearish outlook for lithium prices in the short-to-medium term as “too many Australian rock producers are crowding in” with new projects. The surge is threatening to create a period of oversupply before rising demand for electric vehicles clears the surplus from about 2021, the bank said in a note this month.

Even with a wave of new supply, including from Australia, the lithium market is likely to remain tight with a stronger demand outlook than anticipated, according to Melbourne-based UBS Group AG analyst Lachlan Shaw. “We have had increased supply this year, and all the while lithium prices have kept going up,” he said. “The market is probably underestimating demand.”

How Saudi Arabia is building its $2 trillion fund

The kingdom plans to transfer ownership of Saudi Aramco, the state-owned oil company, to the PIF. An initial public offering of a small Aramco stake — probably just under 5 percent — will provide investment cash. That sale could raise about $106 billion, according to the Sovereign Wealth Fund Institute. Transferring Aramco to the PIF would allow the government to get its revenue from investments, rather than oil, according to the Prince, and along the way transform the PIF into the world’s biggest sovereign fund.

 

Bogle: Vanguard’s Size a Worry

The economies of scale just can’t keep going on much longer. We’ve only got 12 basis points to go, and let me say it: There’s an irreducible minimum, no matter how big you are, just for the fun of it, 8 basis points, cost a lot of money to run this business. We’re now talking about a 4 basis point improvement in cost. I just don’t think it’s worthwhile, hyping and trying to bring in more and more money.

The David Rubenstein Show: Masayoshi Son

On his US$100bn Vision Fund: He thinks that machines will become more intelligent than humans across a wide range of subjects within the next 30 years, an event referred to as the singularity. This will have a profound and largely positive impact on humankind. The fund will invest in companies that underpin the global shifts brought on by artificial intelligence.

On the Alibaba investment: Invested US$20m early on in the company’s history. He met with Jack Ma, who at the time had no business plan, zero revenue and only 35-40 employees. Still, he could tell from the way he talked (with “strong, shining eyes”) that he had a vision and impressive leadership skills. Similar story with Jerry Yang and the Yahoo! investment.

On his recent investment in ARM: Biggest investment to date. UK-based semiconductor company that has an overwhelming market share for semiconductor designs used in mobile phones and other mobile devices. He says they will ship more than 1 trillion IoT chips in the next 20 years.

Chinese women are getting rich by simply livestreaming their days

In China, young women like 23-year-old Huan Huan can earn up to $20,000 a month livestreaming themselves just doing regular things. That’s about 30 times more than the average college graduate makes at their first job.

In China, which banned online porn in 2000, PG-rated livestreaming has become a $4 billion-a-year industry with nearly 350 million followers — more than the entire population of the United States.


How do I get my daughter interested in computers?

Nobody becomes a software engineer because they love writing code; they become a software engineer because it allows them to build out ideas. This is a useful skill to have. Except that most software engineers aren’t realizing their own ideas. They’re getting paid to build someone else’s pet project. Software engineers are the wage labourers of the tech industry.

The most important tech skill, then, isn’t computers or engineering — It’s the art of getting paid to control vast amounts of money. Then you can make programmers build out whatever dumb ideas you like. Parents who want their daughters to succeed in Silicon Valley need not worry about teaching their girls to code: Teach them about capitalism instead.