FT : Japan’s reverence for the Sony Walkman is a deadweight

Japan’s reverence for the Sony Walkman is a deadweight
The burden is onerous when demographics suggest its days of disruptive verve are over

Nobody does nostalgia, geekiness and the worship of manufactured gadgetry quite like Japan. But even by those standards, installing a huge statue of a yellow Sony Walkman in the heart of Tokyo’s Ginza district is a triumph.

Its presence — pitched somewhere between trumpet-tooting jubilance and sombre consecration — marks the 40th anniversary of Sony’s revolutionary music player. An accompanying exhibition, curated with sniper-like accuracy to appeal to tech-sentimentalists like me, tracks the Walkman’s many iterations through the 1980s and 90s as it transformed the way the world thought about gadgets, music and Japanese industry.

The displays and their poetic legends are exquisitely evocative of an era before cassettes and mini-discs faded into obsolescence. They transport anyone above a certain age back to that first moment of sliding lightweight stereo headphones on to one’s head and suddenly gaining the power to soundtrack everyday life.

The whole thing, starting with that Walkman statue, is lovely but pernicious. For many reasons, Sony — and Japan in general — has a right to celebrate the Walkman and the 400m devices sold under that name.

When it first appeared in 1979, it wasn’t just a new gizmo, but an impudent encashment of two big ideas: that electronic entertainment could be portable and personalised and that Japan’s reputation for relentless manufacturing refinement would define global consumer markets.

At the time of the Walkman’s birth, industrialists already knew that Japanese cars, components, chemicals and speciality steels (to name a small selection of its manufactured goods) were shaping up to be formidable competitors in the global market. The Walkman, handily clipped over the waistband and marketed as a thrilling bite of the future, helped the general public grasp that fact.

But there is a problem with all the Walkman-worship. Nostalgia is a deadweight anywhere, but the burden is especially onerous in a society that is ageing as quickly as Japan’s, whose demographics suggest rather too convincingly that its days of disruptive verve are in the past.

The problem is that for both Japanese and outsiders, the Walkman represents the perfect encapsulation of a bygone halcyon era. It is a readily accessible metaphor for both Japanese industry’s greatest qualities, and for the various aspects of its competitive decline. Despite the product’s palpable absence from daily life in 2019, the Walkman statue sits there anchoring two views about Japan, which the 40th anniversary has only reanimated.

The first of these — and one that a particular type of investor repeats as a mantra — is the idea that the Walkman tells you all you need to know about Japan’s shortcomings. The brand’s reign, as the exhibition painfully reminds us, ended with the arrival of the iPod, digital music players, and the many brutal questions they raised. Why was Japan suddenly losing a technology battle? Why had it misread the market? And why was Sony — after all that painstaking overseas mergers and acquisition work to turn itself into a music company — suddenly watching Apple eat its lunch? The general theory here works on the flawed principle that if something is true for a product as iconic as the Walkman, it must be true for the rest of corporate Japan.

The second, no less flawed, view is that the Walkman is a kind of magnetic north in the quest for Japan’s lost pre-eminence — evidence that the nation, having once cracked the secret of global success in technology, would be bound to crack it again.

Seen through this prism, the issue is not that the nature of technology and the treasure chests of hardware manufacturing have fundamentally moved, but that Japan’s engineers just need to keep toiling away until they hit upon another classic.

Both of these interpretations remain seductive even though, with the most gentle of prodding, they quickly fall apart. The Walkman’s 40th birthday marks the perfect moment to refute them once and for all — and to declare this remarkable machine’s irrelevance as a means of understanding either the future of tech engineering or the world’s third-biggest economy.

>>> US After Hours Summary: RNG +12%, MEDP / V



After Hours Summary: RNG +12%, MEDP / VRNS +10%, MDR -32%, SSNC -20%, TACO -14%, BYND / TEX -13%, RMBS -9% among notable earnings/guidance movers

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: RNG +12.2%, MEDP +10%, VRNS +9.5%, NBIX +8.7%, TREX +7.7%, CHGG +6.5%, RH +4.1%, JJSF +2.3%, TXRH +1.6%, NTR +0.9% (light volume)

Companies trading higher in after hours in reaction to news: MPLX +2.5% (rebounding from late move lower), EXAS +1.6% (following MadMoney CEO appearance), WSM +0.8% (RH sympathy), TME +0.6% (initiated with Outperform at Oppenheimer)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: MDR -32%, SSNC -20.2%, TACO -14.3%, BYND -13.2%, TEX -13.2%, RMBS -9.2%, PI -8%, APPF -6% (light volume), TBI -5.8% (ticking lower), CGNX -5.4%, ELVT -4.4%, PKI -3.5% (light volume), ILMN -1.8%, RIG -1.3%

Companies trading lower in after hours in reaction to news: BDSI -7.3% (light volume; files for $125 mln mixed securities shelf offering and 12,797,289 share common stock offering by selling stockholder), CMO -3.2% (commences public offering of 9.0 mln shares of common stock), QURE -1.2% (downgraded to Neutral at Guggenheim), EIX -1.1% (commences public offering of 25.0 mln shares of common stock), HLI -0.9% (announces secondary public offering of 3,377,935 shares of Class A common stock by selling 

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance
:

  • CTB -9.9%, OIS -6.2%, NSP -3.2%, IX -2.6%, PFE -2.2%

Other news:

  • LXRX -48.2% (provides preliminary update for Zynquista (Sotagliflozin) Type 2 Diabetes Phase 3 program; Sanofi (SNY) provides disputed termination notice; LXRX will provide update during earnings call Aug 1 )
  • SMSI -5.7% (modestly pulling back following last week's strength)
  • EXAS -5.4% (Genomic Health to combine with Exact Sciences (EXAS) for $72.00 per share in a cash and stock transaction valued at $2.8 billion)
  • BXMT -1.6% (files for mixed securities shelf offering)
  • NVS -1.2% (provides update on Phase III PARAGON-HF trial in heart failure patients with preserved ejection fraction; PARAGON study narrowly misses statistical significance on the primary endpoint; overall safety profile confirmed)
  • DOW -1% (mixed securities shelf offering)
  • CDLX -0.8% (files for $100 mln mixed securities shelf offering and 4 mln share common stock offering by holders)

Analyst comments:

  • RARX -5.8% (downgraded to Mkt Perform from Strong Buy at Raymond James)
  • POWI -3.4% (downgraded to Under Perform from Market Perform at Northland Capital)
  • DISH -2.7% (downgraded to Underweight from Equal Weight at Barclays)
  • MYGN -2% (downgraded to Hold from Strong Buy at Needham)
  • PYPL -1.5% (downgraded to Sell from Neutral at Guggenheim)
  • NTAP -1.3% (downgraded to Neutral from Buy at Longbow)
  • SBUX -1.2% (downgraded to Neutral from Overweight at JP Morgan)
  • NUVA -1.1% (downgraded to Neutral from Outperform at Robert W. Baird)
  • UPS -0.9% (downgraded to Hold from Buy at Stifel)
  • AAL -0.8% (downgraded to Neutral from Outperform at Macquarie)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance
:

  • TSEM +11.2%, BAH +7.1%, ONDK +7.1%, SITC +2.6%, SNY +2.4%, AWI +0.8%

M&A news:

  • MYL +14.4% (Mylan N.V. confirms agreement to combine with Pfizer's (PFE) off-patent branded and generic established medicines business)
  • TRI +0.8% (confirms that it and Blackstone (BX) are in discussions related to a possible acquisition of Refinitiv by the London Stock Exchange Group)

Other news:

  • PRQR +6.4% (granted access to the PRIority MEdicines (PRIME) program by the EMA)
  • MAXR +5.3% (confirms partnership in a network team led by Alberta Innovates that was selected by the Government of Canada for a Strategic Innovation Fund investment)
  • GNFT +4.9% (granted Orphan Drug Designation by FDA & EMA for elafibranor for the treatment of Primary Biliary Cholangitis)
  • TEVA +4.8% (in sympathy with MYL)
  • GRUB +4.5% (European online food delivery rivals Takeaway.com and Just Eat announce $10 bln merger)
  • GHDX +2% (Genomic Health to combine with Exact Sciences (EXAS) for $72.00 per share in a cash and stock transaction valued at $2.8 billion)
  • BHC +1.8% (in sympathy with MYL)
  • AZN +1.7% (in sympathy with SNY)
  • BUD +1.4% (continued strength)
  • PRGO +1.1% (in sympathy with MYL)

Analyst comments:

  • EHTH +5.1% (upgraded to Strong Buy at First Analysis Sec)
  • NVCR +2% (upgraded to Buy from Hold at SunTrust)
  • SHAK +1.8% (initiated with a Buy at Goldman)
  • GILD +1.5% (upgraded to Top Pick from Outperform at RBC Capital Mkts)
  • CMG +1.3% (initiated with a Buy at Goldman and also added to Conviction Buy List; tgt $1000)
  • RMD +0.7% (upgraded to Buy from Neutral at UBS)

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • MYL +23.6%, GHDX +12.5%, TSEM +10.5%, TEVA +7.4%, PIRS +5.3%, RP +4.4%, YNDX +3.8%, VOD +3%, SNY +2.5%, GME +2.2%, ORAN +2.2%, PSO +2.1%, SBGL +2%, BHC +1.8%, BAH +1.8%, NVCR +1.6%, NVMI +1.6%, AZN +1.6%, BUD +1.3%, GILD +1.2%, PRGO +1.2%, TRI +1.1%, RDS.A +0.9%

Gapping down:

  • LXRX -51.8%, TTM -5.6%, SMSI -5.2%, VSTM -4.1%, ARWR -2.6%, NWL -1.7%, PYPL -1.5%, DISH -1.5%, SBUX -1.5%, MU -1.5%, NVS -1.3%, SOHU -1.3%, UPS -1.1%, HSBC -1.1%, LIN -0.9%, AMAT -0.8%, DB -0.8%, TWTR -0.7%, STM -0.7%

Barron's : Why Hybrid Vehicles Could Drive the Auto Industry’s Next Decade

Why Hybrid Vehicles Could Drive the Auto Industry’s Next Decade

“Git ‘er done!” shouts one of the safety vest-wearing everymen in a Ford video that came out on Tuesday. In it, an all-electric prototype of the F-150 pickup tows a train, then repeats the job with a load of 42 gas-burning F-150s “representing 42 years of America’s best-selling truck.”

Cable news was happy for the footage, even if it didn’t quite electrify the public, with less than a million YouTube views by Friday morning. Strong men, after all, have been pulling trains with their hands since handlebar mustaches were in fashion.

The Ford Motor (ticker: F) video is prescient nonetheless. Electric vehicles are the future, and not just because they cut carbon or save on gas. They will one day make gas-burners look weak. When that day comes, even proud truck traditionalists will buy.

That day, however, is still a long way off, which presents a dilemma for stock investors. Companies making all the money have high exposure to internal combustion engines, and breakdown stock valuations to match. The top electric pure-play, Tesla (TSLA), is not yet a reliable producer of profits or free cash, and has an ambitious valuation.

Ford’s pickup plans suggest one path for stock buyers. While promoting its all-electric truck, Ford will bring a hybrid one to market next year.

The H-word may bring to mind the Prius, Toyota’s compact car for environmentalists. In fact, hybrids could become a default choice for internal combustion engines in the 2020s. To see why, look at the 2019 Audi A8, a top-rated luxury sedan. Shoppers will find it hard to miss frequent mentions of its 335 horsepower, but might not notice that it is what’s called a 48-volt, or mild hybrid.

“Mild” here means such cars operate well below the deadly voltages of pure electrics, which helps make them cheaper to build, even compared with full hybrids. They can turn the engine off at stop lights and supply extra oomph during acceleration, which saves on gas, cuts emissions, and helps car makers meet regulatory targets. Put it together, and mild hybrids bring an estimated 70% of the benefit of full hybrids at 30% of the cost.

Extra juice can mean more luxury, too. Typical gas-burning cars have 12-volt electrical systems, about a 10th of what household outlets provide. They have all they can do to run the air conditioning, heat the seats and power the dashboard infotainment. At 48 volts, manufacturers might as well throw in a heated windshield for the winter.

Barclays analyst Brian Johnson likens the path for the car industry to that of ship makers in the mid-1800s. Sails were the industry standard then. Steam engines were the hot new technology. But they couldn’t go far enough, and passengers had coal anxiety—fear of running out at sea. Hybrid ships relied on a mix of wind and steam during a 30-year transition period. Today, Johnson predicts 58% compounded yearly growth for mild hybrids through 2025, and 34% growth for plug-in hybrids.

In the U.S., plug-ins might just be a niche; if the charging infrastructure isn’t ready for all-electric cars to take off just yet, why bother with plugs? Still, that new F-150 plug-in hybrid will have enough stored energy to power tools from an outlet in the bed, which could tempt buyers who take their trucks to work sites.

There is more potential in Europe, where a majority of households have one car, and carbon targets are aggressive. Plug-ins are just the thing for city drivers worried about battery range during weekend trips to the countryside. Diesel’s fall from grace makes hybrids all the more important to car makers in Europe for carbon-cutting.

All of this suggests that investors have peeled out too quickly in fleeing suppliers of gas-burning cars. Most of these companies have diversified into electric content that will keep them relevant. Johnson highlights BorgWarner (BWA). It’s best known for turbochargers and clutches, and makes drive systems for hybrids and all-electrics, too.

Borg trades just under 10 times this year’s estimated earnings, even though earnings per share are expected to climb 9% compounded over the next four years. That is two points better growth than is expected for Coca-Cola (KO), which goes for 25 times earnings.

Investors feel better about the outlook for fizzy drinks than for engines, and they have a point. Car companies must contend not only with long-term disruption from technology but also short-term swings in orders. Credit Suisse analyst Dan Levy calls this the “two clocks.” This past Thursday, Borg reported flat organic sales amid the industry’s declines. It guided margins lower, which seems to be partly related to China, where it has a healthy hybrid and electric backlog, but where industry volumes have been soft. Shares dipped. Levy says they are nonetheless headed to $47 from a recent $39. Barclays’ Johnson says $44. The dividend yield is 1.7%.

Other car suppliers are gearing up for hybrids. Delphi Technologies (DLPH), six times earnings, makes car electronics and says its dollar content for vehicles will rise as electric power takes over. Dana (DAN), also six times earnings, makes e-axles, e-drive units, and more. Meritor (MTOR), seven times earnings, is investing in its electrification unit, but also in more familiar technologies. In May, it announced a purchase of AxleTech, with its $248 million in revenues, for $175 million.

These stocks aren’t as exciting as train-pulling-- except perhaps to investors who get a charge out of value.

BArron's : A U.K. Online Grocer Stock That Delivers

A U.K. Online Grocer Stock That Delivers

Ocado Group has been billed as the Amazon of the grocery market and the Microsoft of retail.

The British firm licenses artificial intelligence and robotic systems to help supermarkets deliver food ordered online. Its stock (ticker: OCDO.UK; it also has U.S. shares traded under the symbols OCDDY and OCDGF) has soared 375% over the past 18 months, to 1,218.94 British pence ($15.18), as Ocado has signed a raft of new licensing deals with supermarket giants, including America’s Kroger (KR) Canada’s Sobey, and Australia’s Coles Group (COL.Australia). But the shares could rise further.

Ocado is testing a one-hour delivery service, Zoom, that potentially could double its market. United Kingdom investment firm Numis Securities predicts that Ocado ’s 2021 Ebitda (earnings before interest, taxes, depreciation, and amortization) will hit £163 million, almost triple 2018’s £59.6 million. Numis rates the shares a Buy, with a target price of 1,700 pence, 39% above their recent close.

The FTSE100 firm has a market value of £8.5 billion, employs 14,163, and has 721,000 active customers. Spending heavily to promote growth, it had a pretax loss of £142.8 million in the six months through June 2019.

Set up by former Goldman Sachs bankers in 2000, Ocado pioneered its web-only delivery service by selling the high-end food of partner Waitrose (soon to switch to Marks & Spencer) in the U.K., plus its own Ocado-branded items. The service was an instant hit with consumers, and quickly helped Ocado morph from internet food merchant into technology firm, as other grocers sought to license its pioneering robotics.

At Ocado’s state-of-the art warehouse, in Hatfield, an hour north of London, a worker, dwarfed by aisles of boxes that stretch as far as the eye can see, stands at a packing station. Contents come to the packer via robots and conveyor belts. The worker selects items from them until the order is completed.

The potential economies of this system are huge, given that most supermarkets now fill online orders by sending workers around stores with a shopping cart and grocery list. There are few errors and substitutions at Ocado. It even uses AI to pick transport routes, ensuring that delivery deadlines rarely are missed.

Says Chief Executive Tim Steiner (no relation to me): “We are organizing ourselves to do both incremental, but also groundbreaking, innovations. We have an enormous amount of activity going on to ensure that we are the innovator for change in our own market and in our partners’ markets, as well.”

The online retail business still accounts for 92% of sales, but it has low 5.5% margins. The future value lies in selling rights to Ocado’s logistics system. This year, the company has signed a host of international deals.

But Simon Bower, a Numis analyst, thinks the shares haven’t priced in Zoom’s potential. Online grocers in the U.K. typically target customers spending in excess of £100. “Zoom looks to extend the reach of Ocado into smaller basket sizes around £40, delivered in a shorter time frame, under one hour,” Bower recently wrote to clients. “Ocado Zoom could be argued to double the total addressable market.”

While bigger is often better, smaller could be sweeter for Ocado investors.