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Tech Roundup Earnings Season Kick-Off: NFLX, LRCX, PYPL, EBAY, IBM

Earnings season kicked off last week with the first few technology companies averaging a 9.9% earnings growth rate on a revenues growth rate of 7.1%. The biggest releases were Netflix NFLX, Lam Research LRCX, eBAY EBAY, PayPal PYPL and IBM IBM. Here are the details:

Earnings

Netflix: The video streaming company had a very good revenue quarter, with the top line jumping over 30% from last year. Subscriber additions were impressive with domestic paid members growing 10.5% to 51.35 million. International growth was even stronger at up 43.2% to 52.68 million. But since content costs whether acquired or produced continue to increase, the earnings of 29 cents fell below the Zacks Consensus Estimate of 32 cents.

The recent price hike will help future results but note that the company has already also earmarked several billions for content. Moreover, it continues to burn cash. Read more: Netflix (NFLX) Q3 Earnings Miss, Subscriber Growth Impressive

Lam Research: Semiconductor equipment maker Lam Research saw very strong growth in revenue and earnings, both of which also sailed past the respective Zacks Consensus Estimates. That’s because the semiconductor market is particularly hot right now, as players scramble to produce more memory to capture the growing demand for data and related services.

The company estimates that the semiconductor market will grow 15%+ this year following a 2% average growth rate in the last six years. At the same time, it says that WFE spending has remained rational, implying that there’s unlikely to be a correction any time soon. In this environment, Lam’s early lead in acquiring the capabilities to serve the NAND market will help it gain market share. Read more: Lam Research (LRCX) Tops Q1 Earnings & Revenue Estimates

eBay: The online marketplace reported earnings that matched the Zacks Consensus Estimate (helped by share buybacks) on revenue that exceeded slightly (helped by positive FX). Active buyers increased by a couple of million, the marketplaces business also did well, but promotional pricing for new/small sellers and sluggish growth in StubHub impacted results. StubHub issues are likely to continue, as sporting events restricting tickets is making it harder for the business to generate profits.

The guidance for the all-important holiday quarter was also short of exciting: revenue of $2.58 billion to $2.62 billion (or 9% growth at the midpoint) compared to $2.58 billion consensus and EPS of $0.57 to $0.59 (or 7% growth at the midpoint) compared to $0.60 consensus. Read more: eBay (EBAY) Q3 Earnings Match Estimates, Revenues Beat

PayPal: PayPal also beat the Zacks Consensus Estimates on both revenue and profits and raised full-year guidance. Apart from registering strong growth in revenue and earnings, the company also reported an increase of 88% in its active customer base to 218 million, including more than 17 million merchant accounts. The total payment volume (TPV) jumped 30% with 35% of the payment volume coming from mobile devices. The P2P business (Venmo) saw a 106% increase in TPV. Read more: PayPal (PYPL) Tops Q3 Earnings Estimates, Raises 2017 View

IBM: The company reported strong third-quarter results with both revenue and earnings coming in ahead of the Zacks Consensus Estimates. Strategic Imperatives (cloud, analytics, mobility and security) growth of 10% in constant currency was encouraging. Cloud and security in particular saw strong double-digit growth. Read more: IBM Beats on Q3 Earnings & Revenues, Reiterates '17 EPS View

 

Ticker

Price Change Last Week

Price Change Last 6 Months

AAPL

-0.47%

+9.83%

FB

+0.71%

+21.78%

GOOGL

-0.28%

+17.01%

MSFT

+1.70%

+18.69%

INTC

+1.92%

+11.32%

CSCO

+2.33%

+4.36%

AMZN

-2.00%

+9.39%

 

Other stories

Corporate

Apple Upgraded: Analyst Andy Hargreaves of KeyBanc Capital Markets and Abhey Lamba of Mizuho have turned incrementally positive on Apple Stock. Hargreaves raised his fiscal 2018 earnings estimate from $11.07 to $11.68, well above the street consensus of $11.03 while upgrading the stock from Sector Weight to Overweight.

The analyst said that Apple’s layered pricing strategy of $999 for the iPhone X, higher prices for the iPhone 8/8 Plus as well as its storage step-up pricing was effectively segmenting its customer base to generate more profit for the company. As a result, his iPhone ASP and gross margin targets are now up to $760 and 39.5%, respectively (the street consensus is at $725 and 38.6%). Prompted by an improved outlook for average selling prices, Lamba raised his price target from $150 to $160, which is close to Apple’s current price and retained his neutral rating on the shares.

Alphabet’s Sidewalk Labs Unleashed on Toronto: Alphabet’s Sidewalk Labs is partnering with Waterfront Toronto, the public agency funded by federal, provincial and city governments, to build a highly digitized neighborhood in the Eastern Waterfront area of the Canadian capital. Quayside, as the area will be called, is currently an underdeveloped region, but the plan is to take it to the forefront of technological progress, teaming with automated transport of various kinds, including bikes, vans and cars for both personal and business uses, and even an automated trash collection system.

Waymo and Lyft are expected to help in these efforts and other companies are likely to join the efforts as and when Sidewalk Labs partners with them. Google will be moving its Canadian headquarters and around 300 employees to the site once it is completed. But it expects to employ around 5,000 people in the region by then and support another 5,000 over the following 3-4 years.

Amazon Wind Farm: Amazon AMZN has launched the 253 megawatt Amazon Wind Farm Texas, which operates more than 100 turbines – each over 300 feet tall with a rotor diameter more than twice the wingspan of a Boeing 787. Amazon Wind Farm Texas is built, owned and operated by Lincoln Clean Energy, a leading developer of wind and solar projects across the U.S. Amazon has launched 18 wind and solar projects across the U.S., with over 35 more to come. It is second only to Google in its clean energy consumption, having bought more than 1.22 gigawatts to date. Google has bought 1.85 gigawatts.

Amazon Expands in Brazil: Amazon has been selling books in Brazil since 2012 but the company has now started selling electronics as well. Products can also be purchased with up to ten interest free monthly installments on the items sold with local sellers handling deliveries. The logistics business in Brazil is reportedly complicated, which makes it difficult for ecommerce companies to get into it.

Amazon may eventually open a fulfillment center for sellers, although that is pure conjecture at this point. A Bloomberg report mentioned that Amazon’s easy returns policy might help it gain momentum, as that is a sore point for Brazilian customers and it’s apparently really hard to get your money back.

NVIDIA Price Target Hiked: Analyst Vijay Rakesh reiterated his buy rating on NVDA, while raising his price target to $220, representing around 12% upside from current levels. Some of the positives cited include the rising GPU pricing trend fueled by strength in the gaming and cryptocurrency markets, recent business deal wins in China and growing demand from the self-driving market.

HP Estimates, Target Price Up: Amit Daryanani of RBC raised estimates to account for the company’s 2018 guidance. His new EPS estimate is $1.81 (previously $1.74) and revenue estimate $52.0 billion (previously $50.8 billion). The note said that HPQ's "FY18 guide is inherently conservative and could enable sustained beats/raises over the next few quarters," and "Commodity markets should remain challenging but likely peak in FQ4 (October); that headwind should be offset by cost-reduction initiatives."

Micron Retires Debt, Appoints EVP Global Operations: Micron will be using the proceeds of its recent equity offering to redeem $1.25 billion of its outstanding 7.5% notes due 2023 and $1 billion of its 5.25% notes due 2023. The company also appointed Manish Bhatia as EVP of Global Operations to report directly to Sanjay Mehrotra, president and CEO. He will be in charge of operations, including the company’s global manufacturing fab footprint, back-end assembly and test operations, supply chain planning and fulfillment, procurement, quality and IT teams to enhance Micron’s agility and responsiveness to meet customer requirements through a tighter coordination and alignment of these critical business functions.

Legal/Regulatory

Apple Fined $440 Million: After 7 years of winning and losing appeals, VirnetX, which sues on patents held but doesn’t manufacture anything of its own, has finally won another legal round against Apple. The judge and jury found Apple guilty of infringement and willful infringement at that, so they awarded the patent troll, as such companies are sometimes called, $440 million. This includes the jury verdict of $302.4 million awarded last year, additional willful infringement charges of $41.3 million or $1.80 in royalties per infringed device sold, and another $96 million by way of interests, costs and attorney fees. Apple said it would appeal the decision.

Qualcomm Sues Apple Again:  An Accesswire report indicates that Qualcomm has filed another patent infringement case against Apple in Beijing. The three patents in question are related to power management and touch screen technology known as Force Touch, which Apple uses in its iPhones. Qualcomm says that since these patents are not a part of any standard, it is not bound to license them.

Qualcomm is asking the court to ban the manufacture and sale of iPhones in China. Since this is an employment question, it is very unlikely that the lawsuit will be successful. The Chinese authorities haven’t made the filing public yet. Apple hasn’t denied infringement, but instead called the suit a courtroom maneuver, adding that these patents have never been discussed in the past and that Qualcomm’s effort would fail.

New Products/Technology

Apple Watch Connectivity Issue in China: The new Apple Watch was the first one offering cellular connectivity by virtue of an eSIM (subscriber identity module) that Apple has embedded in it. The problem is that in China, the SIM is normally provided by state-owned telecom companies, which also register the person’s name. This therefore made it possible for the government to identify the person using it.

Connectivity was first made available exclusively to customers on China Unicom, but was abruptly cut off without adequate explanations. All that China Unicom said on its website was that the cellular feature had been offered on a trial basis. It’s currently believed that since the technology is relatively new and lesser-known in China, regulatory authorities may have required its discontinuation.

iPhone 8 Demand Issue: Taiwan’s Economic Daily reported that Apple told its suppliers of a 50% cut in iPhone 8 components for the final quarter of the year because of lower-than-expected demand. This is likely because of customers are waiting it out to buy the more expensive iPhone X, although there could be some customers defecting to other devices. If iPhone X increases in the sales mix, Apple will obviously make more profit, so this weakness could in fact be good news. Nevertheless, it sent shares down.

Intel on Autonomous Vehicle Safety: Intel and Mobileye have created a set of standards that if adopted will ensure that self-driving cars aren’t responsible for accidents. At the World Knowledge Forum in Seoul, South Korea, Professor Amnon Shashua, Mobileye CEO and Intel senior vice president, offered his solution.

The solution is based on the understanding that the most a vehicle can do to avoid an accident is to ensure that it isn’t the cause. The company seeks to show that computers can precisely calculate the time it takes for another vehicle or pedestrian approaching it to actually make contact with it, so it can take a course of action that will avoid the collision much better than a human.

Cisco’s AI-Powered Predictive Services: The two new services are called Business Critical Services and High-value Services. Powered by AI, these services anticipate IT failures, mitigate risk, reduce maintenance costs, and assist organizations in attaining the necessary skills to transform their businesses. "Business Critical Services," uses analytics, automation, compliance and security tools to enable a secure, efficient and agile technology environment, minimize human error and help extract the most value from products and solutions in a secure environment. High-value services offer software, hardware and network support for Cisco systems and processes.

YouTube Comedy Video Series: Featuring comedians Trevor Noah, Judd Apatow and Howie Mandel, YouTube has launched its first virtual reality (VR) video series called “The Confessional”. Google offered a grant to Montreal-based production company Felix & Paul Studios as funding. In seven episodes of several minutes each, over the next few weeks, comedians and YouTube stars including Lilly Singh and Grace Helbig will confess about embarrassing and awkward moments in their lives such as first dates gone wrong.

YouTube hasn’t said how much it intends to spend on VR content, but it should be a priority for its recently-launched $79 Daydream View headset, which uses the smartphone display close to stream VR content. Earlier this year, it pulled out $30K to launch a training program for video makers with at least 10,000 followers. It also introduced a new video format for semi-immersive videos that is intended to reduce the cost of creation.

Google Chip for Consumer Devices: Last week, Google announced a system on chip (SoC) called Pixel Visual Core that will increase the speed and power efficiency of its camera. Google says it’s an image processing unit (IPU), although it is structurally closer to an 8-core processor like Qualcomm’s Snapdragon or Samsung Exynos. Although a part of its latest Pixel offerings, Google will activate the device some time soon, after which third-party developers will get access to it.

Google hasn’t said that its relationship with Qualcomm will change as a result of the chip, but its growing prowess in chip design is no doubt a matter of concern for the leading mobile processor company. For Google, this is an important step to more closely integrate hardware and software in its devices the way that Apple does. If anything, these moves are indication of Google’s growing ambitions for mobile and IoT markets. 

New Twitter Rules for Abuse, Hate Speech: Twitter hasn’t formed any new rules, but the company has come out and said that it’s going to. Its primary goal is to remove unwanted sexual advances, nonconsensual nudity, hate symbols, violent groups, and tweets that glorify violence from the platform and it will frame rules so bystanders can report incidents.

Twitter "will take enforcement action against organizations that use/have historically used violence as a means to advance their cause." The concession comes after Rose McGowan was prevented from posting additional tweets about alleged sexual abuse by Hollywood bigwigs. Twitter said that the 12-hour suspension was because she mentioned a private phone number. Women boycotted the site on her call. This kind of thing is turning out to be unsafe for users and therefore, harmful for business, so the company says it is taking necessary steps.

Collaborations and M&A

Apple-GE Deal: Apple has inked a deal with GE to use its Predix data-collection and analysis tool to launch a toolkit targeted at the industrial sector. The toolkit will help developers build apps for iPhone and iPads that can facilitate collaboration in industrial environments thus increasing the efficiency of operations, lowering unplanned downtime, facilitating better resource allocation and leading to overall time and cost savings.

Apple’s role will thus be to develop and promote Predix as the industrial IoT platform of choice, for which GE will standardize on iPhone and iPad and promote Apple's Mac computers as a choice for its global workforce of more than 330,000 employees. Apple’s approach has been to build custom solutions for large enterprises and verticals, with each win being a stepping stone, helping it expand deeper into the enterprise segment.

Intel-Facebook on AI Chip: Intel announced its Nervana Neural Network Processors at the WSJ D.Live conference last week. The chip has been built specifically for neural networks and is, according to Intel a first of its kind. Intel intends to expand the product line to an entire family over time.

Former Nervana CEO Naveen Rao who joined Intel after his company was acquired by the chip giant, said that Intel would ultimately sell the chips in two ways: it will either sell a data center appliance containing several of the new Nervana Neural Network Processors as well as Intel’s CPUs to customers wanting to run deep learning projects within their own data centers. Or, it will rent access to the chips through Intel’s cloud data centers the way NVIDIA does. Facebook, which along with others helped the chip get off to launch, will be among the first to test the chip on its platform.   

Facebook Buys tbh: Facebook has bought tbh, or “to be honest,” the anonymous messaging app from parent company Midnight Labs. The app allows you to run polls regarding people’s positive attributes, after which there is an option to connect with the people that chose you. They can, however, choose to remain anonymous even after they are part of your network. The app has been very popular with teens this summer rising to the top of Apple’s app store rankings despite launching only in August. Apple’s app store describes the app as one that has been downloaded 5 million times with 2.5 million daily active users.

Facebook’s Deal with Delivery Services: Facebook now has deals with food delivery services like GrubHub, EatStreet, Delivery.com, DoorDash, ChowNow and Olo and direct deals with some restaurants that will allow U.S. users to order food from within the app. Facebook says food delivery is a tricky business and promises to remove some of the hurdles in its operation.

The goal is, of course, that users never leave its platform by giving them all they might need right on it. The longer they stay, the greater the opportunities to serve them ads and keep them from rival services like Google. In the delivery business too, operations like UberEats and Amazon delivery are likely to see increased competition because of Facebook.

Cisco Buying Perspica: Cisco is building on its $3.7 billion acquisition of AppDynamics, which offers tools to better understand how applications are operating to identify which applications or hardware are not providing optimal performance. Now, Perspica, a machine learning startup that has raised around $8.85 million, will expand and strengthen these capabilities so customers can better analyze large amounts of application-related data, in real time and with business context, and irrespective of when an application is deployed in a company's public, private or multiple cloud environments.  

Google-Target Deal Expansion: Just as Walmart did a short while back, Target is cozying up with Google to help it battle Amazon in ecommerce. After testing the Google Express delivery service in New York City, the company has announced that it will be expanding it to the rest of the country barring Hawaii and Alaska. So customers can use the Google Express website or app to get their Target stuff delivered.

What’s more, Target is quickly bringing more services to Google Express, including its Redcard credit and debit cards that enable free shipping and a 5% discount (this one should be available next year). Although voice ordering hasn’t gained momentum and most people aren’t comfortable using it yet, the deal also lets Target customers voice-order through Google Home.

For Google, this is valuable data that gives it insight into customer buying habits and so, can help it better target ads. It also provides it a foothold in the product search space that Amazon has grown quickly to dominate.

Some Numbers

Nintendo Switch: Top-Selling Console in September: Nintendo has come out to say that according to NPD sales data, the company’s Switch game console was the leading one in September, making it the best-selling device in the U.S. for three straight months and five of the last seven months. When combined with the 3DS family of systems and the Super NES Classic Edition system, Nintendo systems claimed two-thirds of the month’s total video game hardware sales.

With the first holiday season in progress, the company will no doubt see a very strong year. Nintendo’s return to prominence is commendable despite the fact that both Sony’s PS4 and Microsoft’s XB1 have been around for a few years.

Some Companies Reporting This Week: TXN, TER, NLSN, KLAC, EXPE, GOOGL, FTV, AMZN, FFIV, CA, XLNX, NXPI, IRM, TWTR, VRSN, NTGR, GRUB, STX, AMD, AKAM, GLW, JNPR, MSFT, CDNS, INTC, WDC

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