TheChek News Flow

Apple’s mixed reality headset is a hedge against future disruption

Virtual world venture makes sense ahead of a technology revolution that could threaten the iPhone empire

What if Apple came up with its most important new product in years and the world yawned?

Next week’s expected unveiling of Apple’s mixed reality headset — a product that combines virtual reality with augmented reality, which overlays a digital world on to the real one — feels oddly out of step with the times.

Generative AI has taken the tech industry by storm this year. It could represent the most important new way of interacting with computers in a long time, with the sort of impact that resulted from the iPhone’s multitouch screen 16 years ago.

It is not yet clear how this new form of AI will affect the smartphone domain dominated by Apple. The text-heavy interactions of ChatGPT are not suited to small screens and voice- and image-based applications of the technology for handsets are still under development. But for now, this has become the tech industry’s most important experimental focus, rather than the immersive world of VR.

Even without this explosion of interest in a different corner of the tech world, the headset that Apple has been working for years to perfect would still feel oddly beside the point to most consumers. At around $3,000, its high price will limit sales to a handful of enthusiasts, as well as developers who want to create software for it. And the world has not been demanding a cheaper VR device (Meta’s Quest 2 will soon sell for as little as $299). Most people who have tried virtual reality are amazed by the novelty, but they feel little desire to don a headset when they want to work, play games or be entertained.

However, Apple’s venture into virtual and augmented reality needs to be judged against a broader set of objectives. It is best seen as a hedge against future technology disruption, a relatively modest but still useful extension of Apple's existing universe of services and gadgets and a place holder for a technology revolution that is likely to take many years to play out.

The hedge is against threats to Apple’s iPhone empire. It is not clear whether or when the smartphone will lose its central place in people’s digital lives, but Apple clearly needs to place more bets on the future.

The company formerly known as Facebook was the first to attempt the leap beyond the smartphone, with its acquisition of VR company Oculus nine years ago. It signally failed: only 8.5mn VR headsets were sold last year, according to an estimate from the Interactive Data Corporation. That still leaves the field wide open for Apple.

Even if sales are minimal for a protracted period, the headset should be a moderately profitable addition to Apple’s line-up and another way to tie users more tightly into its expanding digital universe. With a suite of its own digital services, such as music, video content and game subscriptions, Apple will be well-positioned to develop the VR experiences needed to stimulate demand for its headsets.

The 34mn software developers registered to work on Apple’s devices represent an even more powerful asset. It is not clear what the “killer apps” will be for VR, but the combined efforts of these people make it likely they will come to Apple’s headsets first.

This has left most Wall Street analysts sanguine about the expected extension to Apple’s hardware range. Goldman Sachs, for instance, forecasts that its headset sales will reach $18bn five years from now. That would give a useful lift to Apple’s division that sells wearables, home devices and accessories, and which delivered sales of $41bn last year. A wild card is the high-margin services sold alongside the headsets: if consumers are willing to pay up for the deeply immersive experiences that come with VR, software sales could eventually overshadow the amount spent each year on hardware, as they do in the console gaming market.

Finally, as a place holder in an important new category of technology, an Apple headset would be a statement of intent, rather than an end in itself. However impressive the technology behind the device, it will still suffer from the problem common to all VR and AR headsets: most people do not want to don a bulky headset or to cut themselves off from the world to enter a different digital realm.

Until the same experiences can be worked into lightweight glasses — or even, one day, contact lenses that make the technology completely invisible — VR and AR are unlikely to infiltrate everyday life in the way that smartphones did. But if Apple finally launches its headset next week, it will have taken the all-important first step

The beauty firm has purchased a minority stake in the San Diego-based startup, which specializes in “cell-free” manufacturing.

PARIS – L’Oréal is prepping to take green chemistry to the next level.

The world’s biggest beauty player, via its BOLD venture capital fund, has taken a minority stake in U.S.-based biotech startup Debut, which specializes in “cell-free” ingredient manufacturing.

The beauty giant led a $34 million round of Series B funding in the San Diego-based firm.

L’Oréal sees the nascent technology – through which new, naturally-derived active ingredients can be reproduced, at scale, in the lab — as being key to helping the firm reach its sustainability goals, notably around renewable raw materials, which the group has pledged will account for 95 percent of the ingredients in its formulas by 2030.

According to L’Oréal’s deputy chief executive officer in charge of research, innovation and technology Barbara Lavernos, Debut “addresses one of the beauty world’s fundamental challenges, which is driving limitless, open innovation without the resource-intensity and environmental impact that comes with relying on traditional manufacturing alone.”

Debut, founded four years ago, specializes in the vertically integrated discovery, development, testing and manufacturing of novel ingredients, and claims to now be ready to produce these for the beauty market at scale.

Its IP portfolio includes more than 7,000 ingredients that can be created without the need for living cells, and the company claims it can take an ingredient like a polyphenol from discovery to delivery in as little as six weeks.

In layman’s terms, the company’s scientists, thanks to genome research, have developed a method of studying how plants make molecules in nature, then replicating the process at scale using enzymes – for example sugar – in its laboratories. The technology works faster than nature can with a process that is considerably less resource-intensive and more reliable than growing plants, flowers or trees, Debut claims.

“The ability of biotechnology is to always produce the ingredients of absolutely the highest standards consistently,” Debut founder and CEO Joshua Britton, a Brit expatriate to California who discovered the potential of the technology when researching his PhD at the University of California, Irvine, told WWD.

The molecules it has tested also perform better than naturally derived ingredients, according to Debut.

“In some cases, these new ingredients are a thousandfold improvement in critical functions like barrier protection, anti-oxidant activity or even senescence,” Britton explained.

Debut claims it is the only biotech player with full vertical integration capabilities incorporating ingredient discovery, clinically-backed scalable ingredients and brands on shelf – it plans to introduce its own brands in the latter part of the year.

The L’Oréal partnership, which gives the beauty giant exclusive access to Debut’s technology for cosmetics, involves Debut developing a variety of novel ingredients and personal care products using its proprietary cell-free and biotechnology model, with a view to accelerating the technology industry-wide.

The process, it says, overcomes the limitations of cell-based fermentation, allowing it to produce high-value ingredients found only in trace amounts in nature rapidly and more sustainably.

The sustainability aspect is key. “You no longer have fields of cultivation required, you have no pesticides, you have less water, less CO2,” Britton explained.

“One of the biggest challenges [of our sustainability targets] is how we’re going to be able to have access to a set of natural ingredients that can scale at the level of consumption of our industry,” L’Oréal president of tech and open innovation Guive Balooch told WWD.

To meet its goals, “We need to have partnerships with innovative startups that are working in the space of biotechnology and synthetic biology,” Balooch explained.

The tie-up follows the March announcement that L’Oréal would join an initiative led by Genomatica Inc. to harness the powers of biotechnology.

“Now we’re venturing into a really new space, cell-free biotech,” said Balooch. “There is a huge amount of potential in using cellular processes to make green molecules, green actives of the future. Now, because of technology, there’s been a rise in the ability to do what the cells do without the cells.”

The technology also offers the advantage of speed. “They can go a lot faster, because cells take a lot of time to make these processes for green formulas,” Balooch explained. “The potential is really huge, it’s like a brand-new area of green science.…If it can go where we think it will, it will allow us to go exponentially faster, to be able to make the kind of volume that we would need in our industry.”

“Cell-free biomanufacturing is not science fiction: It is here, and with intelligent infrastructural investment, will be ready for mainstreaming in the beauty industry,” stated Lavernos.

Debut’s initial focus is skin care, but applications for hair care and color cosmetics are also in the pipeline.

According to Britton, biotech development will mean a major overhaul for the beauty space in the next decade. “The majority of ways that active ingredients are made today are either through chemical synthesis or cultivation, and that’s the way it’s had to be done,” he explained. “The days of vitamin C and Retinol as hero ingredients is history.…You won’t see the traditional ingredients being reformulated anymore.”

With Debut’s Bio2Consumer platform, which spans ingredient discovery, biofermentation, formulation, clinical trials and brand creation, L’Oréal will also have access to its database of 3.8 million pre-clinical data points for finding new ingredients that address the needs of beauty consumers. It is L’Oréal’s biggest direct investment to date in a synthetic biology company.

The other participating investors in the funding round include Cavallo Ventures, Fine Structure Ventures, Material Impact, ACVC Ventures, Sandbox Sustainability Ventures and GS Ventures.

Mark Zuckerberg Unveils Meta’s Newest VR Headset Days Ahead of Apple Event

Meta Quest 3 is expected this fall starting at $499

Meta META 2.84%increase; green up pointing triangle Platforms Chief Executive Mark Zuckerberg introduced the latest version of the company’s virtual-reality headset, called Meta Quest 3.

The Meta Quest 3, powered by a new chip from Qualcomm, will be 40% thinner and have updated displays and resolution. Zuckerberg said in a video on social media that it is the company’s most powerful headset yet.

Meta’s new VR headset is expected to go on sale this fall and will start at $499, Zuckerberg said. The company will release additional details at its Connect conference in September, he said.

The announcement comes days ahead of Apple’s AAPL 1.30%increase; green up pointing triangle annual Worldwide Developers Conference, where it too is expected to debut a new VR headset.

Zuckerberg shifted his company to focus on immersive virtual worlds, or the metaverse, in a strategic change that led to the 2021 rebranding of Facebook as Meta. The social-media giant has spent billions of dollars on headsets, software and apps for the metaverse.

Consumer adoption of VR programs has been a challenge for Meta. Reality Labs, which makes the Meta Quest headsets, posted an operating loss of $4 billion during the first three months of the year. Other competitors like Microsoft have also struggled to get consumers to buy into VR programs.

“Building the metaverse is a long-term project, but the rationale for it remains the same and we remain committed to it,” Zuckerberg said in April.

Meta dropped the price of its Meta Quest Pro headsets in March from $1,499 to $999 in the U.S. and Canada. The Quest 2 VR headsets with 256 gigabytes fell to $429 from $499.

Meta’s new VR headset is making its debut as the company faces increasing competition from companies including TikTok parent ByteDance. ByteDance recently offered to pay developers who have made VR software for Meta to bring their apps to its own Pico headsets. Sony Group launched its PlayStation VR2 earlier this year, the second version of its VR headset.

Apple is expected to unveil a mixed-reality headset that combines augmented and virtual reality, the Journal has reported. The company is expecting slower adoption for the headset compared with hit products such as the Apple Watch or the iPhone.

Global shipments of augmented-reality and VR headsets slowed in the first quarter as demand for the headsets has cooled from highs seen at the start of the pandemic, according to International Data Corporation. Shipments for the AR and VR headset market declined by 54% during the first three months of 2023 compared with the same period last year, IDC said Thursday.

Meta controlled about 48% of the market share among AR and VR headset makers, followed by Sony’s PlayStation VR2 with 36%, according to IDC. ByteDance’s Pico had about 6% of the market.

Jean-Charles Naouri’s questioning comes as retailer boss battles to save heavily indebted group from deteriorating financial situation

Jean-Charles Naouri, the chief executive of heavily indebted grocery group Casino, has been questioned by French financial investigators in connection with a case examining allegations of financial manipulation and insider trading at the retailer. 

Naouri was questioned by police investigators in Paris on Thursday, the prosecutor’s office confirmed, as part of a preliminary probe that was opened in 2020 following a report from the AMF markets regulator. The potential charges being examined are “stock price manipulation” carried out by a group of people, as well as corruption and “insider trading”, allegedly committed in 2018 and 2019. 

At that time, Casino was locked in a battle with short sellers as it struggled to stay afloat amid heavy debts. The existence of the probe was only revealed in March this year, but relates to a period before the holding companies through which Naouri controls his stake in Casino filed for a court-protected insolvency procedure in 2019. The group’s communications to the market during that time has come under intense scrutiny from the regulator. 

Naouri and Casino declined to comment. The news Naouri was being questioned was first reported by Journal du Dimanche. 

Naouri’s questioning by police comes as the Casino boss battles to save the group he built from a rapidly deteriorating financial situation and looming debt repayments. Several French businessmen have also been circling, seeking to buy parts of the group or wrest control from Naouri, who now owns a 51 per cent stake in Casino via a series of holding companies.

The retailer entered voluntary negotiations with its creditors on Friday — called a procedure de conciliation — as it seeks to avoid default and sort out a potential cash injection or merger.

Casino and its parent companies are facing €4.9bn in debt repayments due by 2025, which credit rating agencies question if they can meet. Casino had €6.4bn of debt at the end of last year. Meanwhile, the retailer’s core revenues have declined sharply and it continues to lose market share.

In a downgrade decision from Moody’s issued on Wednesday, the rating agency said it believed a default in the next 12 months remained likely “as the company’s liquidity is weak and the capital structure is unsustainable”. 

The decision “reflects our expectation that a default in the form of a debt restructuring, which we would consider a distressed exchange, with losses for debtholders, is very likely in the next 3 to 6 months”, it added. 

The company also announced this week that it would sell stores from its network with annual turnover worth €1.6bn to rival food retailer Intermarché. At the same time, a group of prominent businessmen have offered deals that could provide some relief to the group’s financial problems but would likely result in Naouri losing control. 

One offer is for a capital injection of €1.1bn led by Casino’s second-biggest shareholder, the Czech billionaire Daniel Kretinsky. Another proposal would combine Casino’s French retail network with Teract — a smaller food retailer backed by tech billionaire Xavier Niel, financier Matthieu Pigasse and retail entrepreneur Moez-Alexandre Zouari — spinning it off from the rest of the group and injecting it with new capital of more than €300mn. 

Both proposals as well as the debt restructuring are expected to be handled in the conciliation process, according to several people with knowledge of the situation.

Beware ‘death by GPT syndrome’

Generative AI has uses for the legal and health professions but is also a trap for the unwary

Next week, a veteran New York lawyer of 30 years’ standing will face a disciplinary hearing over a novel kind of misdemeanour: including bogus AI-generated content in a legal brief.

Steven Schwartz, from the firm Levidow, Levidow & Oberman, had submitted a 10-page document to a New York court as part of a personal injury claim against Avianca airlines. The trouble was, as the judge discovered on closer reading, the submission contained entirely fictional judicial decisions and citations that the generative AI model ChatGPT had “hallucinated”.

In an affidavit, the mortified Schwartz admitted he had used OpenAI’s chatbot to help research the case. The generative AI model had even reassured him the legal precedents it cited were real. But he acknowledged that ChatGPT had proved to be an unreliable source. Greatly regretting his over-reliance on the computer-generated content, he added that he would never use it again “without absolute verification of its authenticity”. One only hopes we can all profit from his “learning experience” — as teachers nowadays call mistakes.

As many millions of people have discovered, ChatGPT can create extremely plausible, but highly fallible, content. When generative AI companies trumpet how their models are capable of passing legal and medical exams, it is not unreasonable for users to believe they are smarter than they are. 

However, in the polite words of the computational linguist Emily Bender, these models are nothing more than “stochastic parrots”, mimicking machines designed to produce the most statistically probable — not the most accurate — answer, without any concept of meaning. Or, in the less polite words of one tech executive, they are world-class bullshit generators, as Schwartz has discovered to his cost. 

Our naive faith in technology has a long history. We have a tendency to over-trust the computer, sometimes with fatal results, as is the case with “death by GPS syndrome”. Ignoring the evidence of our own eyes, car drivers have blindly followed errant GPS navigation systems on to exit ramps for highways or into the scorching heat of California’s Death Valley. A 2017 research paper identified 158 catastrophic incidents involving GPS devices, leading to 52 deaths. But, as the paper noted, what goes unrecorded are the countless cases when drivers are saved by those same devices.

Unless we are careful, future researchers might one day write papers on “death by GPT syndrome”. How far will users, and healthcare staff, unwisely rely on a chatbot for medical advice, for example? Warnings have been posted on OpenAI’s site telling users that ChatGPT can produce incorrect or misleading information and is not intended to give advice. But the World Health Organization has already seen fit to warn about errors caused by the precipitous adoption of untested generative AI systems — even if it remains enthusiastic about the technology’s longer-term potential for improving healthcare. 

In spite of their alarming technological glitches, it is clear that generative AI models will have a massive impact on the legal and health professions, and many others. Smaller, domain-specific, open-source models are proliferating, threatening to automate away much routine knowledge work.

The professional services firm PwC has signed a 12-month contract with the legal tech start-up Harvey to assist its 4,000 lawyers. Harvey’s software, based on OpenAI’s latest GPT-4 model, will be used to analyse contracts and conduct due diligence. But PwC insists that the start-up will not provide direct legal advice or replace lawyers.

Another such model is run by the start-up Scissero, founded by Mathias Strasser, a former counsel at the US law firm Sullivan & Cromwell. Scissero has launched a chatbot called Mike (also the name of a fellow lawyer of Harvey’s in the television series Suits), which has been trained on real-world legal scenarios to draft emails and mark up legal documents.

Strasser argues that the core competence of lawyers is reading, interpreting and writing language. That is also the core competence of generative AI models. “The legal industry is based on words. Lawyers are outsourced word processors,” Strasser tells me. “With GPT, you can call on a whole army of paralegals.”

But just as senior lawyers should always take responsibility for the briefs written by their over-caffeinated human paralegals at 3am, so they must critically scrutinise the output of generative AI models and be aware of their flaws. Things can, and do, go wrong. Just ask the unfortunate Schwartz.

Evaporating half a yard is a good start at least

A year ago Gary Gensler was in London, and in a speech on the SEC efforts to reform the fixed income markets jokingly lamented that “there are no meme bonds, at least not yet”.

So, it’s not strictly speaking a plain vanilla bond . . . but Alphaville reckons that this could a good contender?

The cocaine bear in question is called the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF. For those that don’t speak financial gobbledegook, that means that its an exchange-traded fund managed by Direxion that uses leverage to deliver three times the daily return of long-term Treasuries. You can read its prospectus here.

The problem with leveraged ETFs is that they also get absolutely smashed when the market moves in the opposite direction. And in the long run, high management fees and the constant rolling of the underlying derivatives tends to incinerate money. They’re basically only useful as short-term trading instruments for bros with eToro and Robinhood accounts.

For example, TMF (the aforementioned ETF’s stock market ticker) has an 1.06 per cent annual expense ratio even before the cost of the roll, compared to 0.03-0.1 per cent for plain vanilla equity ETFs. And then there’s the fact that duration-heavy, rate-sensitive Treasuries were brutalised last year.

Here is the performance of TMF over the past five years:

But as Bloomberg’s Katie Greifeld points out, TMF suddenly seems to have sucked in a lot of money from retail punters betting that the fabled Fed pivot is coming.

Sizewise its almost $2bn of assets under management is still dwarfed by its unleveraged cousin, BlackRock’s $36bn iShares 20+ Year Treasury Bond ETF, or TLT. Underscoring the peaking-rates-bet frenzy, TLT has taken in over $10bn this year.

But TLT is probably just too sedate to ever qualify as the first ever meme bond. To use Katie’s terminology, its cocaine bear energy is de minimis. While it’s still early days for TMF, if performance starts matching and eventually reinforcing flows, you could see it gain more traction on Reddit.

The fact that it’s actually taken in a net $2.4bn of capital since inception and incinerated half a yard of it already is certainly very meme-y.