Category: lenS & thoughtS

Lowered iPhone Sales Forecast and More

Since Apple announced that it would stop reporting the iPhone unit sales number during Q3 earnings call, things have not become easier.

iPhone Ban in China

The fight between Qualcomm and Apple has led to a sales ban on older iPhone models in China, ordered from a Chinese court (福州市中级人民法院). The case was filed against Apple in China in late 2017, saying the iPhone maker infringed patents on features related to resizing photographs and managing apps on a touch screen.

Apple said it planned a software update that would solve the issue; also, the ban would likely take time to enforce, according to Reuters.

iPhone Ban in German

In German, Apple will be pulling iPhone 7 and iPhone 8 models from its stores there following a win for Qualcomm in the District Court of Munich, which ruled that Apple’s devices were infringing on Qualcomm’s intellectual property related to power savings in smartphones. (The Verge)

Qualcomm said on Thursday (Jan.3) that it posted security bonds of 1.34 billion euros ($1.52 billion) to enforce the German court order.

Apple Outlook Cut Citing Weaker iPhone Demands in China

On Jan 2, a letter from Apple CEO Tim Cook to investors said sales will be about $84 billion in the quarter ended Dec. 29, down from earlier estimates of $89 billion to $93 billion. Apple posted sales of $88.3 billion in the fiscal first quarter a year earlier, so the new forecast would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011. (Bloomberg)

Apple shares fell 10% to $142.19, the biggest drop in almost six years, the next day.

In the letter, Cook said Apple’s gross margin will be approximately 38%. (also discussed in a previous post about Apple’s pricing strategy)

Chinese Phone Makers Gaining In Zero-growth Market

Although 2018 Q4 numbers are not yet available, Q3 numbers tell the same story. According to IDC Quarterly Mobile Phone Tracker on Nov 1.

Company 3Q18 Shipment Volumes (millions) 3Q18 Market Share 3Q17 Shipment Volumes (millions) 3Q17 Market Share 3Q18/3Q17 Change
Samsung 72.2 20.3% 83.3 22.1% -13.4%
Huawei 52.0 14.6% 39.1 10.4% 32.9%
Apple 46.9 13.2% 46.7 12.4% 0.5%
Xiaomi 34.3 9.7% 28.3 7.5% 21.2%
OPPO 29.9 8.4% 30.6 8.1% -2.1%
Others 119.9 33.8% 149.8 39.6% -19.9%
Total 355.2 100.0% 377.8 100.0% -6.0%

And in Gartner’s December report…

Vendor 3Q18 Units (thousands) 3Q18 Market Share (%) 3Q17 Units (thousands) 3Q17 Market Share (%)
Samsung 73,360.1 18.9 85,605.3 22.3
Huawei 52,218.4 13.4 36,501.8 9.5
Apple 45,746.6 11.8 45,441.9 11.8
Xiaomi 33,219.7 8.5 26,853.2 7.0
OPPO 30,563.4 7.9 29,449.2 7.7
Others 153,960.0 39.6 159,742.0 41.6
Total 389,068.2 100.0 383,593.4 100.0

What is good for Apple…

From Cook’s letter, we know Apple’s wearables sales grew by almost 50% year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers.

Loxo and Pan-Cancer Treatments

In the first week of 2019, besides the BMS-Celgene merger, the $8 billion acquisition of Loxo Oncology by Eli Lilly is the largest deal announced.

For a premium of 68%, what is special with Loxo?

Its approval of Vitrakvi in Nov 2018 is definitely a remarkable one, marking the second approval by the FDA based on a patient’s tumor’s molecular information (TRK fusion), regardless of the location of the tumor within the body. (pancan)

That has been the trend since targeted therapies were proved to be extraordinarily effective in certain types of cancer, usually characterized by gene mutations. EGFR is probably the most famous one.

But FDA approvals were still linked to the tumor locations until May 2017 when Merck’s Keytruda was approved upon a biomarker – microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR).

Before Keytruda became the first cancer treatment for any solid tumor with a specific genetic feature, it had been approved for the treatment of certain patients with metastatic melanoma, metastatic non-small cell lung cancer, recurrent or metastatic head and neck cancer, refractory classical Hodgkin lymphoma, and urothelial carcinoma.

Loxo’s Vitrakvi, however, received its approval solely based on biomarkers since the beginning. Also, Vitrakvi is the first targeted therapy to be approved this way.

And this big step forward for precision medicine is now acquired by Eli Lilly.

Source: Bloomberg

2019 – A Year of Alliance?

As the first week of 2019 developed with JPM Healthcare Conference in San Francisco and CES in Las Vegas, several alliances across big companies attracted attentions. This might be a year of further cooperations as free growth is not possible and some major developments need different domain knowledge & power.

Intel & Facebook – AI chips (new Nervana Neural Network Processor for Inference) in the second half of this year, according to Reuters, and following the previous collaboration.

Qualcomm & Ford – demonstrating driving situations utilizing C-V2X direct communications, following last year’s partnership announcement.

Celgene & Bristol-Myers Squibb – collaboration-like merger for a stronger presence in oncology & immunology. (news release)

GM & DoorDash – deliver food in self-driving cars. (CNN)

and last month…

Starbucks & UberEats – expanding the partnership to more than 2,000 stores in the United States next year, about a quarter of all of the company’s locations in the country. (TechCrunch)

The Race in Aerospace – Positions of Private Equity Firms

~$40bn Apollo acquisition – GE Capital Aviation Services (GECAS), GE’s aircraft leasing operations

  • Bidder: Apollo, an offer as much as $40 billion according to Bloomberg & Reuters
  • GECAS has a fleet of more than 1,900 planes, which it provides to airlines under long-term leases.
  • 1/4/2019

~$1bn KKR investment – Altavair, focusing on the acquisition of new and used commercial aircraft for leasing to passenger airlines and cargo operators

  • Investor: KKR, $1 billion capital commitment to acquire commercial aircraft in partnership with Altavair + a 50% interest in Altavair; Altavair will be KKR’s partner for aircraft leasing investments going forward
  • Since its inception in 2003, Altavair has completed over $8 billion in commercial aircraft lease transactions with over 40 airline customers in 27 countries representing over 200 individual Boeing and Airbus aircraft
  • 1/3/2019, KKR Commits to Invest $1 Billion with Altavair

~$5bn Carlyle acquisition – StandardAero, largest independent maintenance, repair and overhaul (MRO) providers

  • Bidder: Carlyle, for more than $5 billion (Reuters) from Veritas
  • Veritas acquired StandardAero from Dubai Aerospace Enterprise Ltd (DAE) for $2.1 billion, including debt, in 2015
  • Carlyle first acquired StandardAero in 2004. In 2007, DAE simultaneously purchased StandardAero and Landmark Aviation, also an aircraft maintenance services company, from Carlyle in a transaction valued at $1.8 billion, including debt.
  • 12/18/2018, The Carlyle Group to Acquire Leading Aircraft Engine MRO Provider StandardAero from Veritas Capital

~$15bn Apollo acquisition – Arconic (ARNC), aluminum products used around the world by aerospace manufacturers

  • Bidder 1: Blackstone, Carlyle, Onex and Canada Pension Plan Investment Board
  • (winning) Bidder 2: Apollo, seems winning with a potential acquisition price of $22; also considered is a spin-off of its cladding operation with potential liability from the Grenfell Tower fire of two years ago.
  • 10/8/2018, early report on bidders
Arconic in 2018 | Source: Bloomberg

Half of the 2018 Top 10 Movies in US Are Made by Disney…

2018 Top 10 movies in US

Here is the list by gross sales in US, according to boxofficemojo.com

Rank Movie Title (click to view) Studio Total Gross / Theaters Opening / Theaters Open Close
1 Black Panther BV $700,059,566 4,084 $202,003,951 4,020 2/16 8/9
2 Avengers: Infinity War BV $678,815,482 4,474 $257,698,183 4,474 4/27 9/13
3 Incredibles 2 BV $608,581,744 4,410 $182,687,905 4,410 6/15 12/13
4 Jurassic World: Fallen Kingdom Uni. $416,769,345 4,485 $148,024,610 4,475 6/22 10/4
5 Deadpool 2 Fox $318,491,426 4,349 $125,507,153 4,349 5/18 10/18
6 Aquaman WB $270,596,781 4,184 $67,873,522 4,125 12/21 –
7 Dr. Seuss’ The Grinch (2018) Uni. $269,848,350 4,141 $67,572,855 4,141 11/9 –
8 Mission: Impossible – Fallout Par. $220,159,104 4,395 $61,236,534 4,386 7/27 10/18
9 Ant-Man and the Wasp BV $216,648,740 4,206 $75,812,205 4,206 7/6 11/1
10 Solo: A Star Wars Story BV $213,767,512 4,381 $84,420,489 4,381 5/25 9/20

* BV (Buena Vista) was the brand name which was historically often used for divisions and subsidiaries of The Walt Disney Company, whose primary studios, the Walt Disney Studios, are located on Buena Vista Street in Burbank, California

Top 3 are all from Disney, as are #9 & #10, making Disney occupy half of the Top 10 seats of best-selling movies in US.

And according to ComScore, 2018’s movie business hit all-time benchmarks of $11.9 billion in North America and $41.7 billion globally, with Disney taking in nearly a fifth of that figure. (Variety)

Among Disney’s domestic box office of $3.09 billion, its top 3 got ~$1.99 billion (64.32%), top 5 got ~$2.42 billion (78.25%).

Besides, Disney’s movies in Top 10 all have rating of 7.0 or above, averaging at ~7.56 on IMDb (beating the Top 10 average of 7.35)

2018 US Top 3 Movies | Source: IMDb

Overall…

Total US movie sales is barely growing. The figures below are not inflation-adjusted.

But the number of movie productions is increasing, partially due to a lack of funding after financial crisis (bottomed in 2009 with 521 movies that year).

Yearly US Box Office 2008-2018 | Source: boxofficemojo.com

As streaming is disrupting the market, increasing the number of production seemed to be a way to make up for the total revenue?

Then expenses are up and industry margin is low. It is a sure thing that movies are hard to survive alone.

Then no wonder the consolidation kicked in.

Disney bought Marvel for $4 billion in late 2009, bought Lucasfilm for $4 billion in late 2012. Before the financial crisis, Disney also got Pixar in a $7.4 billion in stock.

With the completion of $71 billion acquisition of Fox, Disney will add X-Men and Avatar to its list of movie series.

Warner Bros. will be under a new umbrella – AT&T’s, together with HBO and Turner.

Universal has been under Comcast since 2011.

Paramount is under Viacom and has teamed up with Netflix.

Movie is not a studio business anymore.

Tesla Model 3 Sales in 2018 Q4 – Not so Exciting

Model 3 has Little QoQ Growth

Tesla had very impressive numbers in Q3, when Model 3 delivery (55,840) was almost tripled from Q2 (18,440).

While no one is expecting another jump, the Q4 numbers are kinda lackluster, especially when adding Model 3 delivery and in transit numbers.

Tesla shares fall 9% on Wednesday when those numbers were reported.

$2,000 Price Cut and Phase-out of Tax Credit

Tesla also announced a price cut of $2,000 for Model S, Model X and Model 3 in the US. The move will partially offset the phase-out of the $7,500 federal tax credit for EV.

[Phase-out will start in the second calendar quarter when the manufacturer has 200,000 plug-in registered in US. The credit is reduced to $3,750 for the next 6 months, then to $1,875 for the next 6 months before expiring completely.]

Source: InsideEVs

According to InsideEVs’ estimate, Tesla hit the 200,000 first in the second half of 2018, while General Motors was second with a breakout month of sales for the Bolt and Volt in November 2018.

The next four manufacturer in EV are Nissan (126,875), Ford (111,715), Toyota (93,011), BMW (79,679).

A combination of flat delivery + in transit Model 3, and a price reduction, warned people about the actual demand for Model 3.

Good news are: 1) people may just be waiting for the basic Model 3, aka $35,000 version that Elon touted but analysts said money-losing for Tesla; 2) Tesla is still way ahead in the EV market

2018 Monthly Sales Chart

Canada Housing Problems

Talks around Canada’s housing market have been surging – about its booming prices and about its looming risks.

The price side – directly shown by its pricing index from Statistics Canada – plotted below from Jan. 2006 – Oct. 2018.

Canada Housing Price Index | Source: Author, Statistics Canada

Toronto’ prices are the most wild in among Canada’s housing markets – nearly doubled in 39 month from Jan. 2014 to Apr. 2017.

Toronto home prices 2014 – 2017 | Source: Financial Post

The price itself is not actually something to worry about. But as FT argued, “House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.” Similarly on Huffpost, “Toronto’s house price index doubled between 2011 and 2017, even as household incomes grew by single percentage points.”

And let’s take a look at the housing debt level – the risky side.

Bank of Canada said the two trillion dollars of debt is around 170% of disposable income.

I double checked with OEDC data here.

Here is a historical comparison –

and housing debt versus GDP – just passed 100% for 2017 Q2.

The regulator took actions to cool down the market.

The short-sellers/investors took theirs too.

Home Capital is at the center, Canada’s largest provider of home loans to the newly arrived and self-employed.

Home Capital Stock Price (C$) | Source: Bloomberg

In Jun. 2017, Warren Buffett’s investment vehicle Berkshire committed to acquire a 38.39% stake as part of a rescue package (C$2.4 billion, including C$400 million equity and C$2 billion credit line with 9% interest rate). The first tranche of equity investment acquired a 19.99% ownership.

However as the second tranche of equity investment wan’t approved, now in Dec. 2018, the updates came as Buffett would sell most of its stake and reduce ownership level to less than 10%.

Home Capital is under control and stabilized now.

A single crisis is easier to solve than a systematic problem between housing prices and local income.

 

Does US have 3% Checking Account?

Robinhood recently prepared to launch its stunning checking & saving offering for cash management with a 3% rate.

That is an astonishing number compared with regular checking accounts (and saving accounts). Industry average is 0.08 percent yield on U.S. checking accounts and the 0.1 percent average on savings accounts (find more about rates here on bankrate.com).

Comparison provided by Robinhood | Source: checking.robinhood.com cached by Google

However, the comparison didn’t last long… as Robinhood pulled back and slowed down it official launch. The center question is that “accounts look like bank accounts, (but) they aren’t.”  Below is the description at the bottom of the website.

Robinhood Financial LLC and Robinhood Crypto, LLC are wholly-owned subsidiaries of Robinhood Markets, Inc. Equities and options are offered to self-directed customers by Robinhood Financial. Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Cryptocurrency trading is offered through an account with Robinhood Crypto. Robinhood Crypto is not a member of FINRA or SIPC. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC insurance

It is not FDIC protected and it is reported that – “the head of the Securities Investor Protection Corp. (SIPC) told CNBC on Friday that the start-up didn’t contact his office ahead of the product launch, and to his knowledge Robinhood had not contacted the SEC, either.”

While regulation is an issue, another question is – whether 3% reasonable / doable?

Historical CD Interest Rates – 1984-2016 | Source: bankrate.com

US has been through years of low-interest environment; people are not familiar with 10% or 5% interest rate back then. But after Fed’s meeting this week, it is highly likely that there is another 25bp raise, pushing fed funds rate into a range of 2.25 to 2.50 percent.

Here is a brief history of four increases this year (updated in Jan 2019)

Date Increase Decrease Level (%)
December 20 25 0 2.25-2.50
September 27 25 0 2.00-2.25
June 14 25 0 1.75-2.00
March 22 25 0 1.50-1.75

And a history – Intended federal funds rate change, 1990 to present.

I should say 3% in 2019 is not undoable. But the core difference is a marketing issue. Robinhood could invest in higher yield products.

But in consumers’ view, it is truly disrupting and may level up the playground for all players in this field.

The time of easy money is gone. The startups or new initiatives with better and sustainable solutions (usually tech-oriented) are attacking the incumbents. Robinhood may or may not be the one (and this may not be the exact right approach), but the industry needs to be prepared.

Beyond Cars – Bike & Scooter Sharing in Age of Ride-Hailing

共享自行车已经进入市场很多年，模式上在近年有多方面突破；另一方面，以 Birds 为首的美国 scooter 的热潮从 2017 年开始迅速蔓延，之前的共享自行车公司也找到了美国新的突破口，毕竟相比于中国自行车的普及和流行，美国自行车一直处于出行需求的角落（有安全监管、道路等因素）。

大多数共享自行车和共享 scooter 诞生之初，就内涵了与 uber/lyft 相近的模式和基因，又同时在解决一个大问题的不同局部。它们早晚会相遇是公认的事实。

各自 2019 年 IPO 计划的临近，出于公司定位和战略说明的角度，以及财务角度，uber 和 lyft 的出手之快出乎一些意料（相比于市场的成熟度和发展时间），却也极其合理。这篇 blog 主要关于 lyft 的收购。

2018 年 4 月，uber 率先宣布了第一笔交易，$100 – 200 mn 收购 JUMP Bike。

JUMP Bike | Source: uber.com/ride/uber-bike/

2018 年 6 月，有报道 Lyft 在寻求 $250 mn 收购 Motivate（旗下拥有纽约的 Citi Bike 和加州的 Ford GoBike 等）；uber 也尝试参与，竞价收购，最后 7 月初由 Lyft 拿下。
– Motivate 2017 rev. $100 mn, ~ half coming from sponsorship
– Motivate has ~30k bikes, operating in 8 US cities – Citi Bike (New York), Ford GoBike (San Francisco Bay area), Divvy (Chicago), Blue Bikes (Boston metro area), Capital Bikeshare (Washington, D.C. metro area), BIKETOWN (Portland metro area), CoGo (Columbus, Ohio), and Nice Ride (Minneapolis)
– 纽约的 Citi Bike 用户数约 15 万；For GoBike 17 年6 月与 Ford 达成合作正式 launch，截至 18 年 1 月用户数近 1 万
– Motivate has an advantage of exclusive deal terms with cities including NYC, SF, among others
– Motivate’s bikes are dock-based, which was an old model but fit with cities like NYC
– Unionized workers (~600) are a major issue, which was not included in the acquisition

收购后，Lyft 将投入 $100 mn 发展 Citi Bike，五年内自行车数量增加两倍将达近 4 万。

Citi Bike | Source: citibikenyc.com
Citi Bike Pricing Plan_Dec 2018 | Source: citibikenyc.com/pricing

在湾区，尽管开始时 Motivate 有 exclusive 合同，但由于纽约和 SF 有一个区别在于 SF 很多上下坡，在曼哈顿适用的自行车在 SF 的使用场景大幅缩减，电动助力自行车 (e-bike) 的需求凸显。这给了其它 bike-sharing 公司一个绝佳的机会，以 e-bike 的形式抢进 SF 市场，绕开 Motivate 的排他性条款，比如 Social Bicycles。随后 SF 与 Motivate 达成和解，基本算允许了其它电动自行车的试验，尽管有数量限制。

Ford GoBike 在今年 1 月展示了 e-bike 之后，于 4 月在 SF 正式 launch 了电动自行车。

Ford GoBike @ SAP Center, San Jose | Source: fordgobike instagram
Ford GoBike Plus with pedal assist (电动助力)，服务 SF 市场，18 年 4 月 正式 launch，首批 250 辆 | Source: fordgobike.com/plus
Ford GoBike Pricing Plan_Dec 2018 | Source: fordgobike.com/pricing

18 年 1 月，SF 的第一个无桩 bike-sharing permit， 250 辆，给了 JUMP (formerly Social Bicycle，见上文)，JUMP 自行车是全电动 (和 scooter，也是电动)。

这也是 uber CEO 后来解释 JUMP 收购时一直强调的每个城市/地区的不同，需要 city-by-city 地考虑。uber 选择从 SF 开始发力。

Lyft 选择了更高的起点。Motivate 确实是体量更大、更成熟的 bike-sharing 公司。加之 e-bike 的额外成本，以及 permit 的数量显示，仅依靠 JUMP 或许会让 uber 在这个局部战场输给 Lyft。

2017 total bike-sharing trips taken in millions | Source: nacto.org

加之 scooter 的起飞（全部为电动），尤其在加州主要城市的流行，不出意外，uber 在寻求另一起收购，一起这个领域决定性的收购，Uber said to be negotiating a multibillion-dollar takeover of scooter-sharing startup。

Consolidation 不仅没有缺席，而且会来得更快。

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Ohio Accepting Cryptocurrency for Tax – Pure Personal Interest or A Move to Future?

Ohio is becoming the first state to accept crypto as tax payments on https://ohiocrypto.com/.

The move is made by Ohio State Treasurer Josh Mandel. Born in Sep. 1977, he had made several moves after being elected as Ohio State Treasurer in Dec. 2010, including OhioCheckbook.com that posts all state spending information on the internet for better government transparency.

The current cryptocurrency accepted is Bitcoin, with more to come. A third party cryptocurrency payment processor, BitPay, will serve between taxpayers and Ohio State Treasury, so that the former will pay crypto and the latter will receive dollar.

Although the State Treasurer himself is said to be an enthusiast of cryptocurrencies and blockchain, it might as well be seen as a state-level move to differentiate itself and embrace the future tech world. According to TechCrunch, Ohio has other moves to become tech-friendly including a technology hub forming in Columbus, home to one of the largest venture capital funds in the Midwest, Drive Capital. And Cleveland (the city once called “the mistake on the lake”) is trying to remake itself in cryptocurrency’s image with a new drive to rebrand the city as “Blockland”, etc. Columbus also reported last year that its Smart Columbus program had an expanded $417 million in resources to turn Columbus into the testing ground for intelligent-transportation systems.

Politics and future development is more interconnected than ever. Policy makers are becoming smarter and seeing/learning the tech future as others. “Policy infrastructure” played an important role in the past and will continue to do so. Each city/state may have a specialization and leveraging its hub effect. Blockchain is one of those “specializations” that many are going after. China and US are no different in terms of this strategy of development.