On stock prices and Nvidia

Yesterday’s analysis of Nvidia’s challneges triggered a surge of mail from readers. The company has lost about half of its value over the past two months, and has mostly blamed a “crypto hangover” for the problem. But as I pointed yesterday, it’s really the three Cs: “Crypto, customers, and China.” There are nuances here worth exploring though.

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Rapacious capitalists and short-termism

One major vein of reader feedback was around the remarkable short-termism of my analysis, which (mostly) looked at Nvidia over the past 60 days. As a reader named Stephen wrote to me:

By focusing on the peak price from this summer and its fall you ignore the fact that the stock price today is nearly the same as it was in June of 2017. Nvidia was on a huge run because of Bitcoin and the associated run on GPUs by miners. With the crypto currency market in decline so is the demand for advanced GPUs.

There is nothing Nvidia can do about that. They profited greatly from that blip and now they are returning to normal.

That’s entirely fair. After diving in the 2008 financial crisis along with the rest of the market, Nvidia’s market cap steadily gained value for nearly seven years, growing from around $3.6 billion in 2008 to around $15 billion at the end of 2015, far outpacing the S&P 500 or other standard benchmarks.

As the crypto craze took off in 2016 though, that fairly linear growth became exponential. The company hit a peak this past August, reaching $175 billion in value, only to slam back down to Earth with today’s $91.2 billion. So in about three full years — even with the last two month’s 50% drop — the company has managed to grow its market value roughly six times. That’s very strong growth for an established company, even in the technology sector.

The key question though is whether today’s market value is backed by the company’s positioning in the marketplace.

As much as Nvidia has blamed the collapse of crypto prices for its challenging position, that is hardly the whole story. New competition from startups and its own customers are challenging the company on its plan to dominate a series of new workload applications like machine learning and autonomous vehicles.

If Nvidia succeeds, its market cap makes a whole lot of sense. But if it fails to keep a market dominant position in these new applications, then it will have to revert back to its core gamer audience, and today’s market cap makes no sense given the limited size and growth of that market.

China / Nvidia

China remains a major site for manufacturing and assembly. STR/AFP/Getty Images

Another strain of readers asked for more analysis around China tariffs and their potential effect on Nvidia (you short sellers are a fascinating lot).

Let’s be clear on my position: I expect the trade conflict to get worse, not better. There is not a single issue for Trump that has better optics, political positioning, and broad support than improving the status quo around China trade. There is broad bipartisan agreement that the status quo is untenable, and while folks might disagree about specific approaches or tactics, no one thinks that China has played fair in trade for years. Trump can look like a fighter for the American worker while bringing (some) Democrats and most of his entire party on board. It’s a potent issue.

That places Nvidia in a real bind, because China is a critical end market for its products, and its manufacturing is heavily intertwined with Chinese supply chains. As just an example of this, just a few months ago, Nvidia chose TSMC over Samsung in a bidding competition to produce its large GPUs.

As Arman and I have talked with some supply chain folks about tariffs, the general consensus is that low tariffs won’t have much impact, but higher tariffs will force huge changes in the way supply chains are built to counteract those costs. That seems to be the conclusion of Debby Wu at Bloomberg as well within the iPhone supply chain world.

That said, as much as I think there should be caution on this front, Nvidia is in a relatively enviable position. Its contract manufacturers will have to deal with the tariffs directly, but Nvidia can move its manufacturing to wherever it needs to go — Korea, Vietnam, back to the U.S. or wherever. There is of course some time lag, but I would be much more worried about TSMC’s position long-term than Nvidia’s.

Quick Bites

Short summaries and analysis of important news stories, outside our main analysis

SBI Says It Made An Error Allocating Shares in SoftBank IPO – one of the underwriters for SoftBank’s IPO accidentally sent lower share numbers to some buyers, leading to speculation that the company was dealing with a mass selloff. Things seem to be righted, and blockchain enthusiasts will once again get to scream “BLOCKCHAIN” at another financial markets screwup.

The North Face – Cory Arcangel does a great job of decomposing the modern EDM “product” and placing it into today’s context — with some nice connections to our discussion above about Nvidia. “EDM is the perfect reflection of 2018. It is intense, adrenaline-fueled, all-night music made by hyper efficient, work-a-holic, laptop bureaucrats.” Talking about Steve Angello and his rapid series of engagements on the EDM circuit: “Instead, he—his literal, physical self—was being shipped around, with minutes to spare, as part of an intricate just-in-time supply chain. Like Apple’s, this supply chain is also exceedingly light—Angello is the only asset required.” Hat tip to Robert Cottrell at The Browser for this one.

Semiconductor equipment sales forecast: $62B in 2018 a new record – More uplift for 2018, if some challenges in 2019 forecasted. “In 2018, South Korea will remain the largest equipment market for the second year in a row. China will rise in the rankings to claim the second spot for the first time, dislodging Taiwan, which will fall to the third position.” It will be interesting to see how tariffs affect these numbers next year.

What’s next

More semiconductors probably. And Arman and I are side glancing at Yelp these days. Any thoughts? Email me at danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York

How important is China to Canada’s economy?

Canadians consume a lot of goods from China, almost $71 billion each year, which is 12.6 per cent of total exports. So how would the arrest of Huawei CFO Meng Wanzhou affect the economy?

Qualcomm Now Seeks iPhone XS and iPhone XR Sales Ban in China as Legal Battle With Apple Intensifies

Qualcomm plans to file for an injunction on the iPhone XS, iPhone XS Max, and iPhone XR in China, which would theoretically prevent the sale of those devices in the country, a lawyer for the company told the Financial Times today.

Earlier this week, a Chinese court granted an injunction on older iPhone 6s through iPhone X models in China after it ruled that those devices violated two Qualcomm patents, and the chipmaker now plans to assert those same patents against the latest iPhones amid an escalating legal battle with Apple.

The first Qualcomm patent reportedly enables users to “adjust and reformat the size and appearance of photos,” while the second is said to relate to “managing applications using a touch screen when viewing and navigating apps.”

In a statement issued following the ruling earlier this week, Apple said all iPhone models remain available for customers in China:

Qualcomm’s effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world. All iPhone models remain available for our customers in China. Qualcomm is asserting three patents they had never raised before, including one which has already been invalidated. We will pursue all our legal options through the courts.

Apple has continued to sell the affected iPhone models in China because it believes the patent infringement ruling does not apply to iOS 12, leading Qualcomm to call on the Fuzhou Intermediate People’s Court to enforce the injunction.

Reports suggest that Qualcomm’s latest efforts are an attempt to pressure Apple into settling a long-standing dispute between the two companies, primarily over chip-related licensing fees. Reports also suggest that the iPhone injunction could be politically motivated due to the ongoing US-China trade war.

Note: Due to the political nature of the discussion regarding this topic, the discussion thread is located in our Politics, Religion, Social Issues forum. All forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

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What China searched for in 2018: World Cup, trade war, Apple

Soon after Google unveiled the top trends in what people searched for in 2018, Baidu published what captivated the Chinese in a parallel online universe, where most of the West’s mainstream tech services including Google and Facebook are inaccessible.

China’s top search engine put together the report “based on trillions of trending queries” to present a “social collective memory” of internet users, said Baidu. 802 million people have come online in China as of August, and many of them use Baidu to look things up daily.

Overall, Chinese internet users were transfixed on a mix of sports events, natural disasters, politics, and entertainment, a pattern that also prevails in Google year-in-search. On Baidu, the most popular queries of the year are:

  1. World Cup: China shares its top search with the rest of the world. Despite China’s lackluster performance in the tournament, World Cup managed to capture a massive Chinese fan base who supported an array of foreign teams. People filled bars in big cities at night to watch the heart-thumping matches and many even trekked north to Russia to show their support.
  2. US-China trade war: The runner-up comes as a no surprise given the escalating conflict between the world’s two largest economies. A series of events have stoked more fears of the standoff, including the arrest of Huawei’s financial chief.

  3. Typhoon Mangkhut: The massive tropical cyclone swept across the Pacific Ocean in September, leaving the Philippines and South China in shambles. Shenzhen, the Chinese city dubbed the Silicon Valley for hardware, reportedly submitted more than $20.4 million in damage claims after the storm.

  4. Apple launch: The American smartphone giant is still getting a lot of attention in China even as local Android competitors like Huawei and Oppo chip away at its market share. Apple is also fighting a legal battle with chipmaker Qualcomm which wanted the former to stop selling certain smartphone models in China.

  5. The story of Yanxi Palace: The historical drama of backstabbing concubines drew record-breaking views for its streamer and producer iQiyi, China’s answer to Netflix that floated in the U.S. in February. The 70-episode show was watched not only in China but also across more than 70 countries around the world.

  6. Produce 101: The talent show in which 101 young women race to be the best performer is one of Tencent Video’s biggest hits of the year, but its reach has gone beyond its targeted young audience as it popularized a meme, which made it to No. 9 on this list.

  7. Skr: A buzzword courtesy to pop idol Kris Wu who extensively used it on a whim during iQiyi’s rap competition “Rap of China,” prompting his fans and internet users to bestow it with a myriad of interpretations.

  8. Li Yong passed away: The sudden death of the much-loved television host after he fought a 17-month battle with cancer stirred an outpouring of grief on social media.

  9. Koi: A colored variety of carps, the fish is associated with good luck in Chinese culture. Yang Chaoyue, a Produce 101 contestant who the audience believed to be below average surprisingly rose to fame and has since been compared to a koi.

  10. Esports: Professional gaming has emerged from the underground to become a source of national pride recently after a Chinese team championed the League of Legend finals, an event regarded as the Olympics for esports.

In addition to the overall ranking, Baidu also listed popular terms by category, with staple areas like domestic affairs alongside those with a local flavor such as events that inspire national pride or are tear-jerking.

This was also the first year that Baidu has added a category dedicated to AI-related keywords. The search giant, which itself has pivoted to go all in AI and has invested heavily in autonomous driving, said the technology “has not only become a nationwide buzzword but also a key engine in transforming lives across the globe.” In 2018, Chinese people were keen to learn about these AI terms:

Robots, chips, internet of things, smart speakers, autonomous driving, face recognition, quantum computing, unmanned vehicles, World Artificial Intelligence Conference, and quantum mechanics.

Huawei drama sparks concern that Canada’s exports (and there’s a lot) will get caught in the crosshairs

Brewing tensions between Canada and China following the arrest of a Huawei Technologies Co. executive have some exporters worried they could be caught in the crosshairs if the Asian nation decides to retaliate.

China is one of Canada’s biggest buyers of agricultural products from oilseeds to softwood lumber and is a growing market for the nation’s banks, insurers and luxury-good makers. Escalating tensions have stoked concern that some companies could see their markets upended after the Chinese threatened “severe consequences” following the arrest of Huawei Chief Financial Officer Meng Wanzhou in Vancouver at the request of U.S. authorities.

While Meng has been released on bail, China’s spy agency detained former Canadian diplomat Michael Kovrig during a visit to Beijing on Monday. Neither Canada nor China has formally linked the cases.

“Everyone in the farm community is worried there might be some retaliation and the retaliation might involve canola,” Neil Townsend, a senior analyst at FarmLink Marketing Solutions in Winnipeg, Manitoba, said by phone.

Canada exported $21.8 billion dollars in merchandise to China last year, over half of which was agricultural products or natural resources. China is the biggest buyer of Canadian canola, an oilseed used in everything from salad dressing to french fries, and could be vulnerable to trade action, Townsend said.

China is the biggest buyer of Canadian canola, an oilseed used in everything from salad dressing to french fries, and could be vulnerable to trade action.

Canadian canola shipments to China surged 6.8 per cent between August and October, government data show. Canada has also been able to grab a bigger slice of China’s wheat and soybean market as the Asian nation feuds with the U.S. Soybean shipments have nearly doubled to 1 million tons between August and October while wheat exports rose 97 per cent to 397,200 tons, Canadian Grain Commission data show.

“This is a situation we are watching closely as the political environment is unpredictable and could have significant negative consequences,” Cam Dahl, president of Cereals Canada, an industry group whose members include grain handlers Richardson International Ltd., Cargill Inc., and Glencore Plc’s Viterra unit, said in an email.

The move to grant Meng bail and stay in her Vancouver home as she awaits a possible extradition will hopefully “lead to a little lower heat” between the two nations, said Ron Davidson, executive director of Ottawa-based industry group Soy Canada. The drama has so far not had an impact on the soybean trade and Canadian exports to China are expected to reach a record of more than 2 million tons this year as China seeks out alternative sources to the U.S., he said.

Lumber Market

China is the second-biggest buyer of softwood lumber products and companies have increasingly looked to the Asian market as a destination for shipments amid Canada’s ongoing softwood lumber dispute with the U.S.

Earlier this week, British Columbia’s forestry ministry suspended the China leg of its Asian forestry trade mission due to the “international judicial process” at Huawei, according to a government statement. But three executives from Vancouver-based Canfor Corp., including Chief Executive Officer Don Kayne, have decided to continue with the China portion of the trade mission, according to spokeswoman Michelle Ward.

“There’s still very good demand for Canadian wood in China,” said Kevin Mason, managing director of Vancouver-based ERA Forest Products Research. “The B.C. government officials backed out of the trade mission but executives for the lumber companies continued.”

Luxury Goods

Calls have gone out on the Weibo social-media platform to boycott Canadian brands, including Canada Goose.

The Huawei fallout also impacted shares of luxury parka maker Canada Goose Holdings Inc., which has been vying for a share of the Chinese market and this year opened a regional headquarters in Shanghai. The Toronto-based company, which has a store in Hong Kong, one to come in Beijing, and also sells online on Alibaba Group Holding Ltd.’s Tmall, has tumbled more than 12 per cent so far this month.

Vancouver-based yoga brand Lululemon Athletica Inc. had 17 locations in China as of Oct. 28, while e-commerce sales there grew 76 per cent in the third quarter. New Chief Executive Officer Calvin McDonald, who visited stores in Hong Kong, Shanghai and Beijing on a recent trip, told analysts last week that he saw “enthusiasm” for the brand first-hand.

Neither company immediately responded to emails seeking comments.

Some of Canada’s biggest banks and insurers have operations in China, with some ties going back 200 years, including Bank of Montreal, which has a 28 per cent stake in a Chinese money manager. Bank of Nova Scotia also has operations in the Asian nation. Manulife Financial Corp., Canada’s largest insurer, has operated in mainland China since 1897, while Sun Life Financial Inc. has a 25 per cent stake in Sun Life Everbright, a partnership with the China Everbright Group.

“We continue to monitor the situation closely, but haven’t implemented any formal travel restrictions or other changes,” Sun Life spokesman Simon Townsend said.


Chinese Hackers May Be Behind Massive Marriott Data Breach, Official Says

(WASHINGTON) — Investigators believe hackers working on behalf of China’s main intelligence agency are responsible for a massive data breach involving the theft of personal information from as many as 500 million guests of the Marriott hotel chain, a U.S. official said Tuesday.

Investigators suspect the hackers were working on behalf of the Chinese Ministry of State Security, an official briefed on the investigation told The Associated Press.

The official, who was not authorized to discuss the matter publicly and spoke to the AP on condition of anonymity, said investigators were particularly concerned about the data breach in part because Marriott is frequently used by the military and government agencies.

Marriott, which announced the data breach on Nov. 30, has not disclosed what it knows about the source of the hack, which included the theft of credit card and passport numbers over four years from guests who stayed at hotels previously operated by Starwood.

Marriott acquired Starwood, which includes such brands as Sheraton, W Hotels and St. Regis, in 2016.

“Our primary objectives in this investigation are figuring out what occurred and how we can best help our guests,” Marriott spokeswoman Connie Kim said. “We have no information about the cause of this incident, and we have not speculated about the identity of the attacker.”

The revelation of suspected involvement by China comes amid heightened tension with the U.S. over trade; the arrest in Canada on an American warrant of a top executive of Chinese electronics giant Huawei; and alarm among law enforcement officials about Chinese efforts to steal technology to bolster its growing economy.

President Donald Trump said he would get involved in the Huawei case if it would help produce a trade agreement with China, telling Reuters in an interview Tuesday that he would “intervene if I thought it was necessary.”

Officials from the Justice Department, the FBI and the Department of Homeland Security told the Senate Judiciary Committee on Tuesday that China is working to steal trade secrets and intellectual property from U.S. companies in order to harm America’s economy and further its own development.

Chinese espionage efforts have become “the most severe counterintelligence threat facing our country today,” Bill Priestap, the assistant director of the FBI’s counterintelligence division, told the committee. “Every rock we turn over, every time we looked for it, it’s not only there, it’s worse than we anticipated.”

Priestap said federal officials have been trying to convey the extent of the threat to business leaders and others in government. “The bottom line is they will do anything they can to achieve their aims,” he said.

Cyber-security expert Jesse Varsalone, of University of Maryland University College, said the Marriott hack does have signs of a foreign intelligence agency involvement. They included its duration and the fact that the information stolen, including details about travel by individuals, would be valuable to foreign spies.

“It’s about intelligence, human intelligence,” he said. “To me, it seems focused on tracking certain people.”

Priscilla Moriuchi of Recorded Future, an East Asia specialist who left the National Security Agency last year after a 12-year career, cautioned that no one has put out any actual data or indicators showing Chinese state actor involvement in the Marriott intrusion.

In the last few months, the Justice Department has filed several charges against Chinese hackers and intelligence officials. A case filed in October marked the first time that a Chinese Ministry of State Security intelligence officer was extradited to the United States for trial.

Prosecutors allege the operative, Yanjun Xu, recruited employees of major aerospace companies, including GE Aviation, and attempted to persuade them to travel to China under the guise of giving a presentation at a university. He was charged with attempting to steal trade secrets from several American aviation and aerospace companies.

Such investigations can be time-consuming and difficult. The Justice Department is training prosecutors across the country to bring more of these cases, Assistant Attorney General John Demers told the Senate Judiciary Committee. “We cannot tolerate a nation that steals the fruit of our brainpower,” he said.


Markets rally as hopes for breakthrough in US-China trade dispute rise

Donald Trump says talks between Washington and Beijing are progressing

Financial markets around the world have rallied amid early signs of progress in the bitter trade standoff between the US and China, as hopes rise for a breakthrough in the dispute.

Wall Street shook off days of volatility to post broad gains in early trading after Donald Trump said that talks between Washington and Beijing were progressing, while reports suggested that China was on the brink of redrawing its economic plans to give foreign companies more access to its domestic market.

Related: Markets rally as China ‘rewrites economic plan’; pound jumps over $1.26 – as it happened

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Any boost to sterling if the PM survives is not likely to last | Larry Elliott

Brexit’s unresolved problems mean the pound will still be vulnerable even if the PM stays

News that Theresa May was facing a confidence vote from her own MPs broke just before trading began in the City. But those expecting a market meltdown were swiftly proved wrong. Shares had one of their better recent days and the pound rose on the currency markets. If, as the old cliche has it, financial markets react badly to uncertainty it was hard to tell as much.

The upbeat mood in the equity markets was easy to understand. Share prices around the world were higher on hopes of peace breaking out in the trade war between the US and China, and London surfed the same wave as all the other bourses.

Continue reading…