TheChek News Flow

Botched update by security software maker CrowdStrike has left companies struggling to recover

Many businesses will probably take days or even weeks to recover fully from Friday’s unprecedented computing outage, IT experts have warned, after a faulty software update from the company they trusted to secure their systems caused massive global disruption.

CrowdStrike, one of the world’s largest security vendors, blamed an update to its Falcon software for a bug that broke countless Windows PCs and servers, grounding planes, postponing hospital appointments and taking broadcasters off air around the world.

Cirium, an aviation analytics company, said on Saturday that airlines had cancelled a further 1,848 flights, mostly in the US, though Australia, India and Canada were also affected.

The outages were all the more shocking given CrowdStrike’s strong reputation as many companies’ first line of defence against cyber attacks, analysts said.

“This is the first time that a widely deployed security agent, that is designed to protect machines, is actually causing them to break,” said Neil MacDonald, analyst at IT consultancy Gartner.

The only remedy for Windows users affected by the “blue screen of death” error involves rebooting the computer and manually deleting CrowdStrike’s botched file update, requiring hands-on access to each device.

That means it could take days or weeks to apply in businesses with thousands of Windows machines or a shortage of IT workers to administer the change, experts say.

“It seems that millions of computers are going to have to be fixed by hand,” said Mikko Hyppönen, chief research officer at WithSecure, a cyber security company.

“The most critical machines like the CEO’s laptop are already fixed — but for the average Joe in finance it’s going to take a while until someone comes over to fix your laptop.”

Exacerbating the impact of its error is the large scale and the high-profile nature of many of CrowdStrike’s users.

The Austin, Texas-based company said it had more than 29,000 business customers at the end of 2023, and has claimed in marketing material that its software is used by more than half of the Fortune 500.

“Despite [CrowdStrike] being actually a fairly large company, the idea that it would shut down the world is extraordinary,” said Marshall Lux, visiting fellow at Georgetown University’s McDonough School of Business.

The global ripple effect illustrates “the interconnectivity of all these things” and “concentration risk in this market”, Lux added.

Software vendors “have clearly become so large and so interconnected” that their failures can damage the global economic system, wrote Citi analyst Fatima Boolani in a note to clients. This could invite greater political and regulatory scrutiny.

Gartner estimates that CrowdStrike’s share of revenues in the global enterprise endpoint security market — which involves scanning PCs, phones and other devices for cyber attacks — is more than double that of its three closest rivals: Trellix, Trend Micro and Sophos. Only Microsoft is larger.

In CrowdStrike’s latest earnings call in June, chief executive George Kurtz said there was “a widespread crisis of confidence amongst security and IT teams within the Microsoft security customer base” following a series of high profile cyber incidents affecting the Big Tech giant.

CrowdStrike, which was founded in 2011, said it saw a surge in demand after Microsoft said earlier this year that its systems had been breached by state sponsored hackers.

In May it launched a product designed to work alongside Microsoft’s own Defender antivirus protection tool.

On Friday, as Kurtz apologised to CrowdStrike’s customers, he emphasised that the incident was “not a cyber attack” and insisted that CrowdStrike’s customers “remain fully protected”.

But security researchers warned that fraudsters could take advantage of the chaos to impersonate Microsoft or CrowdStrike agents for phishing scams.

“We see this happening with every major cyber incident that is in the news,” said Vasileios Karagiannopoulos, an associate professor of cyber crime and cyber security at the University of Portsmouth. 

Cybersecurity firm Secureworks said its researchers had observed several new CrowdStrike-themed domain registrations within hours of the incident, most likely by criminals aiming to trick the company’s customers.

Avoiding the type of error that caused Friday’s outages was “a matter of testing”, said Ian Batten, a lecturer in the School of Computer Science at the University of Birmingham. In this case it looked like someone simply “got a bit of code wrong”, he added.

Companies like CrowdStrike are under pressure to roll out new security updates as quickly as possible to defend against the latest cyber attacks.

“There’s a trade-off here between the speed of ensuring that systems get protected against new threats and the due diligence done to protect the system’s resilience and stop things like this incident from happening,” said Adam Leon Smith, a fellow of the British Computer Society, a professional IT body.

The damage caused by this week’s flawed software update “could take days and weeks” to repair, he said.

Eight startups raised $100 million or more this week as a biotech and financial services company led the way. In fact, the big rounds came from everywhere, including automotive, fintech and IT software. Notice anything missing? Yep, no huge AI raise.

1. Cardurion Pharmaceuticals, $260M, biotech: Cardurion Pharmaceuticals led the way for biotech startups raising big money this week, as the Burlington, Massachusetts-based biotech firm raised a $260 million Series B financing led by Ascenta Capital. The startup is focused on developing therapeutics for the treatment of cardiovascular diseases. Founded in 2017, the company has raised more than $600 million, per Crunchbase.

2. Human Interest, $242M, financial services: Retirement planning is big business and it also can apparently produce big valuations. San Francisco-based Human Interest offers small businesses the ability to more easily offer 401(k) plans to their employees. The company locked up a $267 million round led by investment firms Baillie Gifford and Marshall Wace that values the company at $1.3 billion. The round included $25 million of debt. The company said it recently surpassed $100 million in annual recurring revenue. Founded in 2015, Human Interest says it has raised more than $700 million in total primary and secondary financings.

3. Tekion, $200M, automotive: Providing a software platform to the retail automotive industry may not be the sexiest of technology plays, but it obviously can make a valuable company. Tekion, whose software connects manufacturers, retailers and others, raised a $200 million growth equity round from Dragoneer Investment Group that values the company at more than $4 billion. Bloomberg reported that the startup now has between $100 million and $200 million in revenue. Founded in 2016, the company has raised $635 million, per Crunchbase.

4. Saronic, $175M, defense: Autonomous surface vessels maker Saronic locked up a $175 million Series B at a $1 billion valuation led by Andreessen Horowitz — minting the defense tech startup as the newest unicorn in the growing sector. The Austin, Texas-based startup designs and manufactures autonomous surface vehicles — basically drones for the U.S. Navy that move along the water surface. Founded in 2022, the company has raised $245 million, per Crunchbase. Saronic’s new round comes just about a week after Germany-based Helsing, which develops artificial intelligence software for defense, raised approximately $489 million in funding led by General Catalyst that valued the company at $5.4 billion. With the new rounds, global venture dollars in defense tech this year has now passed $1 billion, per Crunchbase data. That is still behind last year’s pace, when such funding hit nearly $2 billion for all of 2023.

5. Scorpion Therapeutics, $150M, biotech: Yet another big biotech round. Scorpion Therapeutics, a clinical-stage precision oncology company, closed a $150 million Series C co-led by Frazier Life Sciences and Lightspeed Venture Partners. The Boston-based startup will use the new cash for further development of its program for the treatment of breast cancer and other solid tumors. Founded in 2020, the company has raised $420 million, per Crunchbase.

6. Aven, $142M, fintech: San Francisco-based Aven, which offers consumer credit cards backed by home equity, raised a $142 million Series D round of funding led by General Catalyst and Khosla Ventures. Founded in 2019, this is the company’s first disclosed round, per Crunchbase.

7. NGM Biopharmaceuticals, $122M, biotech: South San Francisco-based NGM Biopharmaceuticals locked up a $122 million Series A led by The Column Group. The company is developing therapeutics for, among other things, liver diseases and issues during pregnancy. Founded in 2007, the company has raised more than $542 million, per Crunchbase.

8. Kandji, $100M, information technology: San Diego-based Kandji, an Apple device management platform, raised $100 million in capital from General Catalyst valuing the startup at $850 million. Founded in 2018, the company has raised more than $288 million, per Crunchbase.

9. Halo Industries, $80M, semiconductor: Santa Clara, California-based Halo Industries, a developer of a laser manufacturing technology platform for the semiconductor industry, raised an $80 million Series B led by US Innovative Technology Fund. Founded in 2014, this is the company’s first disclosed raise, per Crunchbase.

10. DreamBig Semiconductor, $75M, semiconductor: San Jose, California-based DreamBig Semiconductor locked up a $75 million equity round co-led by the Samsung Catalyst Fund and Sehat Sutardja. DreamBig, founded in 2019, develops chiplet platforms, and its specialties include applications in large language models, generative AI and more. The company has raised nearly $93 million, per Crunchbase data.

The biggest round outside the U.S. went to a startup down under.

Sydney-based renewable energy startup Symphony locked up a Series A worth approximately $201 million.

With bottles of Moët and Louis Vuitton trunks never far from sight, the Parisian conglomerate’s brands have already made their mark on the Games

When the 128-year-old ship Belem sailed into the southern French port of Marseille on a radiant May day two months before the opening of the Paris Games bearing the Olympic flame, LVMH was already on board.

The Belem docked amid fireworks, fanfare and a flyover by Rafale fighter jets as Olympic swimmer Florent Manaudou carefully unwrapped the Olympic torch from its custom-made Louis Vuitton trunk to begin the torch relay on French soil, sponsored by LVMH-owned beauty retailer Sephora. 

The event kicked off the countdown to this summer’s Paris Olympics, and a marathon of activities by the world’s biggest luxury group, as it leaves its mark on the Games in its home city as one of the event’s biggest and most high-profile sponsors. 

“The torch has arrived in a sumptuous Louis Vuitton trunk,” the French rapper Jul shouted to cheering crowds of locals and tourists. They gathered to party on the docks as the torch was carried off the ship under the watchful eyes of VIP guests including president Emmanuel Macron and Delphine Arnault, the chief executive of Dior and the eldest daughter of LVMH’s billionaire owner Bernard Arnault. 

Thus began LVMH’s Olympics, less than a year after the €350bn luxury conglomerate announced it would come on board with a sponsorship deal worth €150mn, according to a person with knowledge of the deal.

When the Paris Olympics open on July 26, the month-long spectacle will allow the group to use the spotlight on the city with which it has indelibly intertwined its image to showcase its brands ranging from Louis Vuitton, the world’s biggest luxury brand, to jeweller Chaumet and suiting specialist Berluti.

“Even though we announced our partnership less than a year ago, which is very short, we have not been idle,” said Antoine Arnault, Bernard Arnault’s eldest son, who is leading the Olympic partnership across the group. “Our partnership allowed us to make our contribution to all the major moments of celebration of these Games, which is the common theme.” 

While he expects the Games to be neutral for the group’s bottom line, LVMH’s involvement should “enhance the image of the group and its houses,” Arnault added.

The group’s stamp will be evident in many major moments of the competition, beginning with the torch relay, which included stops at LVMH’s Cheval Blanc hotel in the Saint-Émilion wine region and the Louis Vuitton Foundation art museum west of Paris.

Berluti is making the uniforms for the opening ceremony for the French Olympic team, the design a sharp navy suit with either skirt or trouser options, the French national colours in ombre silk along the lapels. Its workshops are currently doing hundreds of fittings for the athletes who will wear them during the spectacle, which will be held on barges floating down the Seine through Paris on the 26th.

At VIP bars where the drinks will flow freely, millions of bottles of Moët & Chandon champagne and Hennessy cognac are being delivered to stock Olympic hospitality venues. Chaumet has designed the medals that will be awarded to the champions, each with a small piece of metal from the Eiffel Tower embedded in the centre, which will be stored and presented in custom Louis Vuitton trunks.

As athletes mount the podiums, volunteers dressed in Louis Vuitton-designed uniforms will bear the awards, presented on Louis Vuitton-made salvers featuring the house’s signature brown check. The group will also host events for VIPs and top clients at venues such as the Louis Vuitton Foundation and the Cheval Blanc hotel on the Pont Neuf, which has sweeping views overlooking the Seine, and an exclusive lounge for medal-winning athletes.

The Paris Olympics “will contribute to heightening the appeal of France around the world. It is only natural that LVMH and its maisons would be part of this exceptional international event,” LVMH chief executive Bernard Arnault said as he announced the partnership last year, standing at a podium surrounded by French ministers and Olympic committee members with the Eiffel Tower as a backdrop. 

Reinforcing the link between LVMH and Paris during an event where the city will be the star makes sense. Paris has served as a sort of sobriquet for luxury labels for centuries, denoting quality and exclusivity, with many LVMH houses including Celine and Dior bearing the city’s name alongside that of its creator. The group also frequently uses the city as the canvas for events and runway shows, capitalising on iconic sites from the Louvre’s Pyramids to the Pont Neuf. 

“It’s a win for the group: the price tag [for the sponsorship] is not much for a group of that size, but the exposure is extremely valuable. It will help say: LVMH is Paris, and Paris is LVMH,” said one person with knowledge of the arrangement. And for the organising committee, “it filled in the budget nicely”.

LVMH’s Olympic partnership also represents the apex of luxury’s push into sport. While football and basketball might once have been considered too low brow for luxury brand partnerships who stuck closer to moneyed sports like sailing, polo and tennis, that has shifted in recent decades as ambitious groups shed some of their exclusivity in pursuit of new clients in a wider, more aspirational base — to great success. 

LVMH been at the forefront, inking brand ambassador deals and shooting campaigns with top athletes alongside supermodels and actors. A 2022 Louis Vuitton campaign shot by Annie Leibovitz featuring football stars Cristiano Ronaldo and Lionel Messi hunched over a chess board surrounded by the brand’s signature luggage broke the record for the greatest number of likes on Instagram at the time. A reprise this year featuring Roger Federer and Rafael Nadal hiking in the Alps looks to once again capitalise on the star wattage of the two tennis virtuosos. 

Its competitors are also getting in the game. Italian luxury house Prada has been a sponsor of China’s women’s football team since last year, designing chic androgynous suits for them, and Chinese table tennis player Ma Long is a brand ambassador. American designer Thom Browne, part of the Italian Zegna group, has dressed teams including the Cleveland Cavaliers and FC Barcelona. Sticking closer to luxury’s more exclusive origins, watchmaker Rolex is a fixture at major tennis tournaments from Wimbledon to Roland-Garros, while Hermès pays homage to its equestrian roots by backing a number of the sport’s top athletes and events. 

In addition to dressing rising sports stars like 20-year-old French basketball prodigy Victor Wembanyama in custom Louis Vuitton suits and a 2023 collaboration between LVMH-owned US jeweller Tiffany and the NBA, LVMH is also sponsoring a number of Olympic athletes. Seven are sponsored at the group level, including the French swimmer Léon Marchand and fencer Enzo Lefort, while individual brands have also inked deals such as Dior’s naming a group of female athletes including US soccer star Alex Morgan as brand ambassadors.

With weeks to go until the Paris Games start, LVMH remains unfazed by the fraught politics in France after President Emmanuel Macron’s shock snap elections earlier this month. “This partnership will not be affected in any way by the political climate in France,” said Antoine Arnault. “We are removed from that.”

As to whether future Olympic sponsorships are on the cards, the group is not ruling them out, though Arnault said the focus remained on getting through the current Games before thinking about future events in Los Angeles (2028) or the French Alps (2030). “Nothing is excluded,” he said, but “there is a more significant link between our houses and Paris”.

What happened to Russia’s seized superyachts?

Swift action to impound palatial boats became a symbol of western resolve after the invasion of Ukraine. Now the costs are mounting for owners and governments alike

The next generation of drugs vying for a slice of the potential $150bn obesity market

Investors’ hunger for obesity drugs is unsatiated. Roche’s share price jumped by 6 per cent this week after the Swiss company announced promising early stage trial data from a potential obesity drug.  

This extreme reaction to a phase 1 trial is a sign of investors’ sensitivity to news about the next generation of drugs vying for a slice of the potential $150bn obesity market. Enthusiasm for Denmark’s Zealand Pharma underlines the point. Positive early stage trial results for obesity drug petrelintide in June helped push the company’s value up by a fifth in the days that followed.

Petrelintide does deserve attention. Based on a hormone called amylin, it has a different mechanism to existing weight loss drugs, which mimic the GLP-1 hormone. Whereas the latter suppresses appetite, amylin promotes a feeling of fullness after eating. Greater enjoyment of food, relatively minor side effects and reduced muscle wastage could all be selling points.

Zealand is not alone in pursuing amylin-based treatments. Eli Lilly, AstraZeneca and Novo Nordisk are all conducting trials. To compete, Zealand needs a differentiated product and a capable partner to manufacture and supply the drug.

Given the size of the potential market, Zealand would not need a huge share to prosper. Jefferies thinks peak sales could reach $10bn. It has upped its probability of success from one in five in February to 60 per cent. It calculates to a corresponding net asset value of DKr365/share NPV, about 35 per cent of its DKr1100 price target. That compares with the current share price of DKr868. Another potential obesity drug survodutide, being developed in partnership with German pharma group Boehringer Ingelheim, could also chalk up $10bn of sales.

Backing Zealand is a volatile business. Trial results suggesting survodutide could be effective against fatty liver disease sent its shares up 26 per cent one day earlier this year. The shares gave up a good chunk of their gains over the following month, as investors took profits. That could happen again, as rivals report trial results. Indeed, after Roche’s trial results this week Zealand’s share price dipped, as did that of its compatriot Novo Nordisk.

Zealand Pharma is doubtless on the radar of acquisitive big pharma companies keen to join the obesity gold rush, although it is not a pure play stock with rare disease drugs also in development. But it is well placed among the runners and riders. Having recently tapped the equity market for $1bn for clinical trials, it has the time and cash to put potential winners to the test.

Hedge funds and investors lured by high interest rates, but flows could leave country vulnerable to a shift in sentiment

Hedge funds and other traders have pumped billions of dollars into the Turkish lira in recent months as they chase juicy returns, but the rush of “fast money” has also left the country more vulnerable to sudden swings in sentiment, say investors and analysts. 

Money managers have since October poured around $24bn into trades that seek to profit from Turkey’s high interest rates — currently 50 per cent — according to Istanbul-based Bürümcekçi Research and Consultancy.

Managers borrow the money for the trade in a currency with lower interest rates to maximise their gains, while hoping that the exchange rate does not move against them in the meantime.

The race into the lira is the latest sign of how Turkey’s pivot towards conventional economic policies, which began last summer, is helping draw back international fund managers who had fled the market in recent years as unorthodox measures fuelled runaway inflation.

“The lira . . . has been a very popular trade,” said Grant Webster, co-head of emerging market sovereign and foreign exchange at investment manager Ninety One.

“Turkey has seen meaningful foreign inflows” as a result of high interest rates and a shift away from unorthodox economic policies, he added.

Investors are running the biggest position in the Turkish lira above the benchmark index weighting in about five years, according to a June survey of JPMorgan clients.

A significant portion of the influx has been in the form of “fast money” flows — investors such as hedge funds who can rapidly exit in the event of international or domestic shocks, analysts and investors say.

“The share of fast money in trades like this has been increasing and that definitely does make them more prone to reversals,” said Kieran Curtis, head of emerging market local currency debt at fund manager Abrdn.

A Turkish economic official, who asked not to be named, echoed that sentiment, noting that one downside of being back in vogue was that an external crisis such as a surge in oil prices could send fickle investors stampeding out of the country’s markets.

The inflows have come after President Recep Tayyip Erdoğan, who once called high interest rates the “mother and father of all evil”, abandoned his insistence on keeping borrowing costs at ultra-low levels following his re-election in May 2023.

Turkey’s central bank has raised its main interest rate to 50 per cent from 8.5 per cent since last June as part of a broad economic overhaul.

Moody’s Investors Service on Friday awarded Turkey a rare two-notch upgrade to its junk-level credit rating to B1, citing the “increasingly well-established return to orthodox monetary policy”.

The head of a large emerging markets hedge fund that has allocated a substantial amount to carry trades added that he “liked Turkey” right now. “[Erdoğan] recognises inflation has to be controlled,” he said, adding that “Turkish savers fled to dollars but now they are coming back.”

Another hedge fund manager running a carry trade in the lira said he was less worried about foreign investors exiting the market and more focused on the risk of local savers losing confidence in the currency and moving their savings back into dollars and euros. 

The lira has generated total returns, including gains from interest payments, of 18 per cent against the US dollar in 2024 despite a significant depreciation in the Turkish currency, Bloomberg data shows. Few other emerging market currencies have offered such strong total returns.

In addition to betting on the currency, foreign investors have scooped up around $12.5bn in lira denominated-government bonds since the economic volte-face last June. Foreign investors now hold 6.7 per cent of the country’s domestic debt stock, compared with 0.6 per cent before May’s election, finance ministry data shows.

The international inflows have been a major boon for the central bank’s effort to rebuild its foreign currency war chest, which was severely depleted in recent years by an unsuccessful attempt to prop up the lira and by high imports caused by intense demand for consumer goods.

Net foreign assets, a proxy for foreign exchange reserves, have jumped to $40bn from around minus $20bn last summer, according to Financial Times calculations based on central bank data.

Net assets strip out some liabilities of the central bank, but do not account for short-term borrowing from the local banking sector through swaps.

These higher reserves, and the central bank’s commitment to keeping monetary policy tight, will help Turkey fend off any future run on the currency, according to Webster, who said the central bank is now in a “very strong position to defend against outflows”.

Nevertheless, many conservative investors, such as pension funds, remain too nervous to make large allocations to Turkey, on concerns Erdoğan will change course on policy, as he has done many times in the past when it has been politically expedient.

Large-scale foreign direct investment in projects such as factories has also remained elusive.

“[Finance minister Mehmet] Şimşek is likely to deliver the more predictable Turkey that FDI needs — but he’ll only get rewarded for it in a few years,” said Charlie Robertson, head of macro strategy at emerging markets specialist FIM Partners.

Airbus Has Some Supply-Chain Woes. In the Long Run, They’re Just a Blip.

Remember the supply chain? Airbus Chief Executive Guillaume Faury sure does.

Faury should be living in something close to CEO heaven right now. His only serious competitor, Boeing, lurches from crisis to debacle. His order book is full for the next decade.

Markets tell a different story. Airbus shares have plunged by a quarter from a peak in March and are off 7% year to date (better than Boeing’s 26% loss, to be sure).

The Toulouse, France-based jet maker’s problem is that it can’t build planes fast enough. Or more precisely, it can’t predict how fast it can build them. In late June, Faury dialed back his 2024 production forecast from 800 aircraft to 770. Enormous fixed costs multiply the effect on the bottom line. Faury slashed guidance for this year’s operating profit from as much as seven billion euros ($7.66 billion) to €5.5 billion. Airbus stock is down 10% since the announcement.

Airplanes depend on the mother of all supply chains, which experienced the mother of all whiplashes as aviation came near death during the pandemic, then roared back afterward. Scott Hamilton, founder of industry consultant Leeham, recently saw Airbus A320s whose delivery was held up by missing USB ports for the in-flight entertainment system.

But the heart of the problem is engines. Leading suppliers are Pratt & Whitney, now a subsidiary of RTX, and CFM International, a joint venture between GE Aerospace and France’s Safran Aircraft Engines. These contractors, and their long tail of subcontractors, shed thousands of skilled employees during the dark days of 2020, and are struggling to replace them.

“There’s a huge shortage of specialists and professionals,” says Rico Luman, a senior transportation economist at Dutch bank ING. “They can’t easily speed production back up.”

To make matters worse, jet engines launched earlier this century are proving less durable, though more fuel-efficient, than workhorses from the 1970s, Hamilton says. That’s bringing them in for maintenance or replacement earlier than expected, aggravating the backlog.

Airbus outran its key suppliers in 2022, building “gliders” that waited in hangars for engines to be installed. Still, Faury described this year’s shortages as “a new situation that we were not expecting” in the investor call after the June production revisions.

“They seem to be surprised time and time again by the supply chain lag,” Luman comments. “I’m not sure what went wrong in the management board.”

Many businesses would be happy to have Airbus’ problems. The travails of Boeing’s competing 737 line have cemented the A320 family’s position as the premier single-aisle jet, says David Wireman, global co-lead for aerospace at consultant AlixPartners. “Airbus will continue dominating the narrow-body market so long as Boeing is constrained by the current platform,” he says.

Both duopoly companies are selling aircraft for delivery in the mid-2030s. Against that unprecedented demand backdrop, Airbus’ production headaches might look like a blip, says Nicolas Owens, aerospace equity analyst at Morningstar. “If they deliver a few less planes this year, a few more next year, that’s a wash,” he argues.

Owens has kept his fair value estimate for Airbus’ Paris-listed shares at €163, 15% above the current price.

Still, matching supply inputs to sales for the world’s most complex machines will remain a headache despite, or because, of surging customer demand. And mistakes, as Airbus has seen, can be expensive.

Expect more turbulence.