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Recode.net : Mossberg: The PC is being redefined

Mossberg: The PC is being redefined

Keep your eye on the software, and on Apple.

If you became a frequent computer user starting anytime between, say, 1990 and 2007, there’s a good chance that your idea of a PC is a desktop or laptop running a mouse-and-keyboard driven graphical user interface — most likely Microsoft Windows or, to a lesser extent, Apple’s (recently renamed) macOS.

But if you got attached to computing in the last 10 years, you very likely find it more natural and comfortable to do your digital tasks on a multi-touch device lacking a keyboard or mouse and running a new, simpler and cleaner kind of operating system. This certainly includes an Android or Apple smartphone or, possibly, a tablet running Android or iOS. These devices have become by far the most commonly, frequently and extensively used personal computers. They are the new PCs.

Even older people have taken to Android and iOS in a huge way, though they still rely on their traditional Windows and Mac laptops.

Of course, personal technology never turns over entirely, especially in as short a period as a decade. So the redefinition of the PC is an ongoing thing. Even students who might otherwise be permanently attached to their phones are still likely to use a MacBook, Windows laptop or Chromebook some of the time.

Also, there’s a difference between the two newer types of PCs. Despite maturing, smartphones are still wildly popular. But tablets — including the powerful, market-leading Apple iPad — are still too often viewed as unsuitable for productivity and creativity. Their sales have fallen sharply in recent years, partly because their replacement cycle is long.

And there are all kinds of special factors that affect these changes. For instance, people who work in giant companies with rigid IT staffs may still be forced to use heavy laptops for tasks an iPad or even a smartphone could perform as well or better. Open-minded tech tinkerers may still prefer traditional PCs for work because they allow much more customization than, say, an iPad. And, even for those who recognize the speed and capability of tablets, the detachable keyboards available for them may be too inferior to the built-in keyboards on laptops to make it easy to rely on them as the principal device.

But I believe this massive redefinition is real, and that there are signs of optimism for even the lagging tablet part of it.

Signs of a tablet revival?

The tablet — or perhaps more aptly, the large-screen mobile device — is showing new signs of interest.

First, some clamshell devices — laptops — are getting ARM processors, the type that power most smartphones and tablets, and for which iOS and Android were built. That’s a big deal because the typical laptop has run on an Intel or Intel-compatible processor for eons.

Google has even trademarked a name for the processor used in its newly released ARM-driven Chromebook Plus. Microsoft has announced that it’s making it possible to run classic Windows apps on ARM devices.

While Apple has been silent on this matter, I believe there’s a good chance it will introduce ARM-based Macs. This is partly because it has an entire silicon design arm that creates wicked fast, efficient, proprietary ARM chips that get produced in large quantities for iOS devices and run rings around the lowest, most battery-sipping Intel processor Apple uses in its smallest MacBook.

In addition, Samsung just announced a new tablet, the Galaxy Tab S3, which is essentially an Android clone of Apple’s smaller iPad Pro. Both are squarely aimed at productivity. Both were built to use a detachable keyboard and a stylus. There's definitely something going on when the premium tablet designs from every major vendor are converging on the same idea.

It’s the software, stupid

But the signs of a shift to ARM only set the stage for a bigger development: The migration of the most important modern software platforms, Android and iOS, to laptops and other traditional hardware that once defined the old kind of PC.

This is an exciting idea, for sure. But, I believe it won’t matter much until Apple builds an ARM-based laptop running iOS. Here’s why.

Google and Samsung have just tried to do this with the Chromebook Plus. It’s the first Chromebook built from the ground up to run both the cloud-based Chrome OS and Android apps, so popular on smartphones. Sadly, the Android part of this device is currently a miserable failure, although it’s still in beta. This is mainly because there are few Android apps that have been optimized to run well on a large screen — even a typical tablet screen — and it will take a long time to change that.

Microsoft, by contrast, does have a modern breed of multi-touch apps that work properly on a tablet or clamshell screen, and some are included on every Windows tablet and laptop. Unfortunately, partly because Microsoft has no smartphone business to speak of, it also lacks a critical mass of these new-style apps and, even on its tablets, relies instead on classic Windows apps.

Apple, by contrast, boasts 1.3 million tablet-optimized apps for the iPad, and these could presumably easily run on a small laptop with a built-in keyboard and touchscreen. This is more than a small advantage; it’s the reason people might buy this type of device instead of a traditional laptop.

It’s up to Apple to save the iPad

So … only Apple is well positioned to transform the laptop by creating one that runs just iOS. I am emphatically not talking about a traditional Mac, running macOS on ARM. Nor am I proposing a Mac that also runs iOS apps. I am talking about a laptop that only runs iPad apps, including the many productivity and creativity apps that have been built for that tablet.

I believe this would accelerate the redefinition of the PC. It would also resuscitate the iPad, albeit in a different form factor, which would complement, not replace, the current slate and the macOS laptop.

There would be many tradeoffs to be decided. For instance, should the screen detach to become a regular iPad? (I personally wouldn’t care.) Would you still need a trackpad? (Probably.) Would it be called a Mac, an iPad something-or-other, or an entirely new thing? (Probably not a Mac.)

I asked Apple about this. I got a stock statement of allegiance to the current iPad and Mac, and a refusal to discuss future products.

But Apple has just started a new ad campaign pitting the iPad Pro against PCs, and nothing in it mentions the clamshell or built-in keyboard. (Microsoft has run similar ads claiming its tablets are better than MacBook laptops.)

Bottom Line

The definition of a PC, a personal computer, is already undergoing a profound change. A great laptop running the new kinds of user interfaces and apps that people now love on phones and tablets would be a big, exciting event that would help seal the deal. But there hasn't yet been a product that emphatically suggests the era of the traditional PC is fading. And it feels like an opportunity only Apple can seize.

FT : EU cannot enforce €60bn divorce bill, say Lords

EU cannot enforce €60bn divorce bill, say Lords

UK could walk away without paying a penny, upper house committee claims

The EU cannot enforce a penny of a possible €60bn divorce bill if Britain crashes out of the bloc without an agreement, according to a report by a Lords committee.

The report published on Saturday admits there are “competing interpretations” on the issue of how much if anything the UK will have to produce to leave the EU.

The Lords’ European Union committee concedes that generous payments might be “impossible” to avoid, for example to ensure future access to the single market.

But it says: “We conclude that if agreement is not reached, all EU law — including provisions concerning ongoing financial contributions . . . will cease to apply and the UK would be subject to no enforceable obligation to make any financial contribution at all.”

The UK currently pays about 12 per cent of the EU’s budget, meaning its withdrawal will impose bigger financial burdens on other net contributors such as France and Germany.

With the British government expected to trigger Article 50 this month, beginning the process of departure, the divorce bill is expected to prompt the first major row between the two sides.

A heavy bill would enrage some Eurosceptics given that the possibility of an exit charge never featured in last year’s EU referendum campaign.

In theory the government could spread some of the payments over many years into the future. But Mrs May’s administration wants a clean break that does not involve any “hire purchase” payments which — in the words of one insider — look like “pseudo or associate member status”.

Senior EU figures have suggested repeatedly that any talks on a new free-trade deal will have to wait until the issue is resolved.

The tab includes liabilities such as pension pledges, infrastructure spending plans and nuclear decommissioning.

So far Downing Street has remained silent on the issue, refusing to say whether or not it will pay the divorce bill and — if so — how much. On Friday Number 10 said the issue was still “hypothetical”.

The Big Read

The nuclear fallout from Brexit

When Britons voted to leave the EU few realised the implications for its nuclear industry

Instead Theresa May used her Lancaster House speech in January to say Britain might make “appropriate” payments in future for some specific programmes — such as the Erasmus student exchange programme.

The Lords report says the question of whether Britain would also have to pay for market access will be a matter of negotiation. “It is likely to involve trade-offs between the level of access sought, the structure and level of other payments and more general political considerations,” it says. “The price that it is asked to pay could be proportionately higher than that demanded of Norway.”

The peers found that many MEPs believed that the UK had a “moral, if not legal” obligation to meet its agreed commitments.

But the committee published an opinion from its own legal adviser arguing that if no agreement was reached within two years it could mean “the most disorderly of withdrawals”.

“It follows that, under EU law, Article 50 TEU allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget, unless a withdrawal agreement is concluded which resolves this issue,” it said.

Lord Tebbit, a former chairman of the Conservative party under Lady Thatcher, told the FT earlier this week that the E60bn claim was “silly nonsense” and argued that Britain should not be responsible for the pensions of UK officials who had “taken an oath of loyalty to the EU.”

>>> Softbank Vision Fund could see about 10 parties including Apple, Qualcomm, A

Softbank Vision Fund could see about 10 parties including Apple, Qualcomm, Abu Dhabi govt join fund

About 10 companies and parties, including Apple Inc. [NASDAQ: AAPL] and Qualcomm Inc. [NASDAQ: QCOM], are expected to join the private technology investment fund to be formed by Softbank Group Corp. [TYO: 9984] and the Public Investment Fund of the Kingdom of Saudi Arabia, the Nihon Keizai Shimbun reported.

Other participants of the investment fund, called Softbank Vision Fund, will include an investment fund backed by Abu Dhabi government of United Arab Emirates, and Hon Hai Precision Industry Co., Ltd. [TPE: 2317], the Japanese newspaper report said, without citing sources.

The new fund is expected to be formed early this month, with funds in management to exceed JPY 10tn (USD 87.5bn), and will target companies engaged in the medical business, as well, the newspaper report said.

Softbank Vision Fund plans to run the second fundraising sometime mid-this year, according to the report.

(ZH) "This Is Watergate": Trump Accuses Obama Of Wiretapping The Trump Tower

"This Is Watergate": Trump Accuses Obama Of Wiretapping The Trump Tower

President Trump on Saturday morning alleged that his predecessor Barack Obama had “wired tapped” the Trump Tower before Election Day, tweeting the accusation without however providing evidence so far.

“Terrible! Just found out that Obama had my ‘wires tapped’ in Trump Tower just before the victory. Nothing found. This is McCarthyism!” he wrote.

“Is it legal for a sitting President to be "wire tapping" a race for president prior to an election? Turned down by court earlier. A NEW LOW!” he added in subsequent tweets. “I'd bet a good lawyer could make a great case out of the fact that President Obama was tapping my phones in October, just prior to Election!”

Trump compared Obama's alleged activity to Nixon's bugging of the Watergate hotel. "How low has President Obama gone to tapp my phones during the very sacred election process. This is Nixon/Watergate. Bad (or sick) guy!"

It was not immediately clear what evidence or report Trump was referencing. On Friday night, Breitbart News reported on conservative radio host Mark Levin’s claim that Obama executed a “silent coup” of Trump via “police state” tactics.

Since Trump has a tendency to tweet about things he has just seen on TV or read in the press, and since there has been no definitive report on that topic, Trump may be referencing an internal report. And since the allegations in his tweets are material, and will surely provoke a response by Barack Obama (at least his twitter account), this may escalate significantly.

Also on Saturday, prior to the wiretapping tweet, Trump had also linked Obama to Attorney General Jeff Sessions’s meetings last year with Russia’s U.S. ambassador.

“The first meeting Jeff Sessions had with the Russian Amb was set up by the Obama Administration under education program for 100 Ambs,” he tweeted.

Trump on Saturday also blasted Obama for meeting with Kislyak 22 times while president, as the Daily Caller reported first on Friday, tweeting: “Just out: The same Russian Ambassador that met Jeff Sessions visited the Obama White House 22 times, and 4 times last year alone.”

The Trump administration has sought to push back on accusations of being cozy with Moscow, by pointing out instances of Democrats meeting with Kislyak. Critics have responded that the issue isn’t that Sessions met with the ambassador, but that he falsely told Congress he hadn’t while under oath. So far, according to some media outlets, Trump has failed to "fend off" the Russia questions, which continue to reemerge virtually every night in some new front page story on the WaPo, NYT, in a recurring pattern as described in the following blog post.

(BFW) Aberdeen Asset, Standard Life Said to Mull GBP11b Merger: Sky

>>> Weekly update

Weekly Market Update: Fed Speak Moves Hike Expectations to March; Dow Tips 21,000

The stock markets started the week on hold as investors slowed down the pace and strength of the recent bull run. Markets were muted at the beginning of the week, awaiting President Trump's speech to Congress on Tuesday evening. Investors were looking for some concrete details on economic policy including tax reform, which the speech failed to deliver. Trump did, however, strike what many considered a much more presidential tone while promising a $1 trillion infrastructure spending spree. Global stock markets received the comments extremely well sending the Dow up above the 21,000 mark for the first time. For the week, the DJIA gained 0.9%, the S&P500 rose 0.7%, and the Nasdaq added 0.4%.

Reflation trade flows picked up again helped by NY Fed president Dudley's comments on Tuesday clearly hinting at a likely rate at the March FOMC meeting. That foreshadowed what would be the narrative by a chorus of fed speakers through the week’s end, culminating Friday with Chair Yellen . The probability of a rate hike, determined by Fed Fund futures prices, jumped Monday from 35% to 50%, on the back of continued strong economic data. By Wednesday that probability had jumped to above 80% after a spate of hawkish commentary from Fed officials supporting the notion of a ‘live’ FOMC meeting on March 14-15.

The 10-Year Treasury Yield started the week at 2.35% and continued to rise, closing Friday at 2.51%. A stronger sell off in the shorter end of the curve caused the yield curve to flatten with the 10-year/30-year spread decreasing from 62bps to 59bps, and the 5-year/30-year curve decreasing 6bps to 106bps. The US dollar continued to rally as a March rate hike was priced in with the British Pound losing 1% over the week, the dollar index up 1.1%. By Friday gold prices dropped back towards the 90 day moving average for the first time in nearly a month.

The UK Brexit bill experienced a minor setback this week as the upper house endorsed an amendment to safeguard the rights of EU citizens in the country. PM May has stated her invocation of Article 50 remains on track for this month and she has asked the House of Commons to throw out the amendment when they debate the bill again March 13 and 14. In France the far-right anti EU candidate, Marine Le Pen, has begun to fall behind in the polls to the independent candidate Macron, who enjoys a more than 20 point lead in polling for the May run-off election. However, EGBs were subdued and core bonds continued to fall in price as inflation data for Germany was higher than expected.

As earnings season winds down, some key retailers reported this week and continued to paint a worrying picture for the sector. Best Buy’s Q4 earnings came in above estimates, but revenue lagged, driven by weakness in gaming, tablets, wearables and phone sales. Target shares plunged after missing profit estimates amid unexpected softness in stores, and the retailer guided a decline in SSS for next year, warning its investment into lower gross margins may present headwinds to short-term performance. Costco underperformed on the top and bottom line, and announced it would increase membership fees for the first time in six years. On the positive side, Lowe's shares surged on continued strong results and outlook. Snap Inc’s long-awaited Wall Street IPO finally debuted, and despite cautious comments from analysts, shares of the social media/tech firm were up 61% by the end of the week.

SUN 2/26

GSK.UK Has conducted the world's first drug trial under "real world" conditions, as the company looks to to prove the value of its medicines in a cost conscious health system - FT

MON 2/27

*(EU) EURO ZONE JAN M3 MONEY SUPPLY Y/Y: 4.9% V 4.8%E

*(EU) EURO ZONE FEB BUSINESS CLIMATE INDICATOR: 0.82 V 0.79E; CONSUMER CONFIDENCE (FINAL): -6.2 V -6.2E

*(US) JAN PRELIMINARY DURABLE GOODS ORDERS: 1.8% V 1.7%E; DURABLES EX-TRANSPORTATION: -0.2% V +0.5%E

TUE 2/28

(FR) FRANCE FEB PRELIMINARY CPI M/M: 0.1% V 0.4%E; Y/Y: 1.2% V 1.5%E

(FR) FRANCE Q4 PRELIMINARY GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.2% V 1.1%E

TGT Reports Q4 $1.45 v $1.50e, R$20.7B v $20.7Be; Will invest in lower gross margins

JPM Guides FY17 core loan growth +10% y/y - ahead of analyst day

- Guides Q1 trading rev up modestly y/y; Q1 invest banking largely flat q/q; FY17 NII $11B v $10B y/y

VRX Reports Q4 $1.26 v $1.24e, R$2.40B v $2.35Be

(IN) India Q4 GDP Y/Y: 7.0% v 6.1%e; GVA Y/Y: 6.6% v 6.0%e

*(US) Q4 PRELIMINARY GDP ANNUALIZED Q/Q: 1.9% V 2.1%E; PERSONAL CONSUMPTION: 3.0% V 2.6%E

(US) Q4 PRELIMINARY GDP PRICE INDEX: 2.0% V 2.1%E; CORE PCE Q/Q: 1.2% V 1.3%E

(US) Feb Chicago Purchasing Manager: 57.4 v 53.5e (highest since Dec 2014)

(US) FEB RICHMOND FED MANUFACTURING INDEX: 17 V 10E

(US) FEB CONSUMER CONFIDENCE: 114.8 V 111.0E (highest since 2001)

(US) Fed's Williams (moderate, non-voter): sees March hike getting serious consideration - comments in Santa Cruz

CRM Reports Q4 $0.28 v $0.25e, R$2.29B v $2.27Be

(AU) AUSTRALIA Q4 GDP Q/Q: 1.1% V 0.8%E; Y/Y: 2.4% V 2.0%E

(CN) CHINA FEB MANUFACTURING PMI (govt official): 51.6 V 51.2E

(CN) CHINA FEB CAIXIN MANUFACTURING PMI: 51.7 V 50.8E (8th consecutive expansion)

(HK) Macau Feb Gaming Rev MOP22.99B v MOP21.5Be; y/y: 17.8% v +10%e

WEDS 3/1

(DE) GERMANY FEB FINAL MANUFACTURING PMI: 56.8 V 57.0E

*(UK) FEB MANUFACTURING PMI: 54.6 V 55.8E (7th month of expansion)

BBY Reports Q4 $1.95 v $1.66e, R$13.5B v $13.6Be; raises dividend 21% to $0.34 from $0.28 (indicated yield 3.22%)

(DE) GERMANY FEB PRELIMINARY CPI M/M: 0.6% V 0.6%E; Y/Y: 2.2% V 2.1%E

(US) JAN PCE CORE M/M: 0.3% V 0.3%E; Y/Y: 1.7% V 1.7%E

(US) JAN PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.2% V 0.3%E

(US) JAN PCE DEFLATOR M/M: 0.4% V 0.5%E; Y/Y: 1.9% V 2.0%E

*(US) FEB ISM MANUFACTURING: 57.7 V 56.2E; PRICES PAID: 68.0 V 68.0E (Manufacturing Activity highest since Aug 2014)

(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED

(US) Atlanta Fed cuts Q1 GDP forecast to 1.8% from 2.5% on 2/27

AVGO Reports Q1 $3.63 v $3.48e, R$4.14B v $4.06Be

(KR) White House reportedly considering options against North Korea, including possible use of force, as part of strategy review - press

(AU) AUSTRALIA JAN TRADE BALANCE (A$): +1.3B V +3.8BE; 3rd straight surplus

THURS 3/2

DTE.DE Reports Q4 adj Net €973M v €959M y/y, adj EBITA €5.3B v €5.1B y/y, Rev €19.5B v €19.0Be; Takes €2.2B writedown ; proposes 9% dividend increase to €0.60/shr

ABI.BE Reports Q4 $0.43 v $0.98e, EBITDA $5.25B v $5.64Be, Rev $14.2B v $13.8Be

*(EU) EURO ZONE FEB ADVANCE CPI ESTIMATE Y/Y: 2.0% V 2.0%E (highest level since Feb 2013); CPI CORE Y/Y: 0.9% V 0.9%E

*(EU) EURO ZONE JAN UNEMPLOYMENT RATE: 9.6% V 9.6%E (matches its lowest level since May 2009)

(US) INITIAL JOBLESS CLAIMS: 223K V 245KE (lowest since Mar 1973); CONTINUING CLAIMS: 2.07M V 2.06ME

(US) Fed's Powell (moderate, voter): Rate hike in March is on table for discussion; we're certainly getting very close to 2% inflation goal - CNBC interview

SNAP IPO opens for trade at $24.00

(US) Attorney General Sessions: To recuse himself from any investigations related to the Trump campaign

COST Reports Q2 $1.17 v $1.35e, R$29.1B v $30.0Be; To increase membership fees by $5-10/year (+8.3-9.1%)

(HK) HONG KONG FEB COMPOSITE PMI:49.6 V 49.9 PRIOR; 2nd month of contraction

FRI 3/3

(US) FEB FINAL MARKIT SERVICES PMI: 53.8 V 54.0E

GM Peugeot board reportedly met today and approved Opel acquisition; to announce the deal on Monday – press

(US) Fed Chair Yellen: Raising interest rates at March meeting would probably be appropriate if economy evolves as expected - comments in Chicago

DBK.DE Confirms undertaking preparatory work for a potential €8B capital increase and further strategic measures including reintegration of Postbank

(US) US Trump administration to announce it will reopen 2022-2025 vehicle emissions standards for review next week - press

Barron's : Snap’s Stock Price Could Be Cut in Half

Snap’s Stock Price Could Be Cut in Half

The parent of Snapchat surged 50% from an already full IPO valuation. Investors will need to be very patient.

Snap investors better be more patient than Snapchat users. The company’s shares look ridiculously valued after surging 59% to $27 from an initial public offering price of $17 on Wednesday, giving the company a market value of $37.8 billion. That’s a stunning 93 times its 2016 revenue of $405 million. The parent of Snapchat, a popular instant-messaging service, isn’t expected to be profitable until 2019 or 2020.

Even assuming strong growth, it’s hard to justify more than half the current stock price. Snapchat looks more like Twitter (ticker: TWTR), which fizzled, than Facebook (FB), which sizzled. Bears argue Snap (SNAP) will be constrained by a large but limited user base, which skews toward those 24 years or younger in North America and Western Europe.

Snap is now worth more than CBS (CBS), which is valued at $28 billion. Snap lost $515 million last year and its red ink deepened quarter by quarter in 2016.

A flurry of cautious analyst notes did appear in the wake of the Snap IPO, but they did little to damp investor enthusiasm for what bulls view as the next Facebook.

Nomura/Instinet analyst Anthony DiClemente began coverage of Snap with a Reduce rating and a $16 target. He cited four negatives: slowing user growth, slowing growth in monetization of users, fierce competition from Facebook, and a “rich valuation relative to current and future growth.”

The bull case for Snap is that it offers a unique advertising platform targeting a young demographic that’s difficult to reach through television and other traditional media and that brand advertisers will pay to get.

However, huge advertising growth is already reflected in Snap’s stock price. The company is valued at some 34 times projected 2017 revenue of $1 billion based on its enterprise value (market value less net cash). Facebook fetches 10 times sales.

Bulls are betting that Snap’s revenue can top $2 billion in 2018, but DiClemente is skeptical. “Snap has a niche audience. It doesn’t have the targeting tools of Facebook. It can’t customize advertising as well as Facebook,” he says.

PROBABLY THE MOST important financial measure to watch in coming quarters is revenue, followed by active daily users, which totaled 158 million in the fourth quarter. If Snap can’t hit $1 billion in 2017 revenue and $2 billion-plus in 2018, the stock could get crunched. Continued slow user growth also is a risk.

“Without meaningful reacceleration in user growth, which stood at just 3.3% in the fourth quarter (relative to the third quarter), we do not believe Snap will be able to reach an audience large enough to justify an aggressive valuation,” DiClemente wrote.

Other issues for Snap include the challenge of reaching out beyond top-100 brand advertisers to the small and midsize businesses that use Facebook and Alphabet ’s (GOOGL) Google. Then there is the potentially faddish nature of the Snapchat service and the difficulty in developing a large audience over 25. Snap users are believed to skew female, another possible limiting factor.

“Snap has a promising and innovative advertising offering, but so far it is still mostly unproven and difficult to quantify its ultimate scale,” wrote Brian Wieser of Pivotal Research Group, which began coverage of Snap with a Sell rating and a $10 price target. “Investors will also be exposed to what appears to be a suboptimal corporate structure operated by a senior management team lacking experience transforming a successful new product into a successful company.” IPO investors received nonvoting stock, giving them no say in the company controlled by Chief Executive Evan Spiegel and Chief Technology Officer Robert Murphy.

The IPO was skillfully handled by underwriters led by Morgan Stanley, which appeared to put shares in the hands of long-term holders and minimized the number of flippers who got IPO allocations, then quickly sold the shares. Flippers usually are big institutional investors who, by virtue of their relationship with Wall Street underwriters, are rewarded with allocations of hot IPOs they have no intention of keeping.

Cable giant Comcast (CMCSA) invested $500 million in the $3.9 billion deal (this assumes the full 230 million shares were offered). Buyers of a quarter of the IPO are expected to agree to a one-year lockup.

Bulls point to a huge opportunity, since Snap’s North America recent quarterly revenues of about $2 per user are just 10% that of Facebook. But Snap’s current valuation assumes it can substantially close that gap. Snap had 69 million daily active North American users at the end of the fourth quarter.

IF SNAP GETS TO 100 MILLION users and hits $20 per quarter of revenues per user ($80 per year), it would generate $8 billion in North American revenue. Assume a 40% operating margin and 35% tax rate, and Snap would generate $1.50 a share of net income based on the current share count of 1.4 billion. There would also presumably be non-U.S. income. Such a scenario, if possible, is a long way off.

Snap could continue to rally as institutions seek to build holdings, but recall that Twitter went public at $26 in 2013, and soon hit $74, before crashing to a current $16. Stay away from Snap. It’s priced for perfection.

Barron's : AstraZeneca Struggles to Justify Rejection of Pfizer

AstraZeneca Struggles to Justify Rejection of Pfizer

Hit by patent expirations and sagging shares, the pharma company has been seeking partnerships, cutting costs, and building a pipeline.

This could be the year that British drugmaker AstraZeneca finally starts delivering on the promise made to shareholders in 2014, when it claimed it would fare better alone than by accepting a $120 billion takeover bid from U.S. rival Pfizer.

Investors who stuck with the company haven’t had an easy ride. Pfizer ’s (ticker: PFE) final bid valued AstraZeneca (AZN) shares at about 55 pounds ($67.74) each. Today they trade around £47.

The pressures that AstraZeneca faces are common to most big pharmaceutical companies, battling to replace money-spinning blockbuster drugs as patents expire and cheaper generic alternatives sap revenue.

When AstraZeneca released earnings last month, it said this year could be a turning point, as the company gets beyond a series of major patent expirations and brings some important new drugs to the market. It sets particular store by its immuno-oncology treatments and others aimed at fighting respiratory and metabolic diseases.

“It is an exciting time as we rapidly approach the inflection point for our anticipated return to long-term growth, built on the solid foundations of a science-led pipeline,” AstraZeneca said in 2014.

KESTRA PRIVATE WEALTH SERVICES CEO Rob Bartenstein is an AstraZeneca fan, but he admits it’s a relatively risky bet. “I’ve gotten over 10% appreciation since early December, but this is not a position I would ever turn my back on,” he says.

He says the company is motivated to reward shareholders and has a healthy pipeline of treatments in clinical development. But he warns that the regulatory process is slow and full of pitfalls for even the most promising of new drugs.

“Even when you get to the final stage of trials, you can still have an implosion. We’ve seen that in related businesses, and we’ve seen it in this business,” Bartenstein says.

On the positive side, investors awaiting AstraZeneca’s turnaround are being paid to hold tight. With a dividend yield of about 4.7%, the stock is returning considerably more than U.S. 10-year Treasuries. “If you’re going to pay me that much to ride it out, I’m inclined to be patient,” Bartenstein says.

He reckons that investors have reason to be optimistic. AstraZeneca is well exposed to emerging markets, where revenue growth is running at about 6%. In China, it’s around 10%, while Japan is also a promising market, he says.

“There’s great expansion in market share in Japan, which is one of the largest health-care markets in the world and the third-largest per capita spender on pharma, so there’s some great news to be had there,” Bartenstein says.

The patent on AstraZeneca’s top-selling Crestor cholesterol treatment expired last July, allowing cheaper competitors to chip away at its roughly $5 billion worth of annual sales. In 2016, as generic alternatives sprang up in the U.S., Crestor’s sales plunged 32%, to $3.4 billion. That impact was most pronounced in the fourth quarter, when sales more than halved to $631 million from a year earlier.

AstraZeneca has a pipeline of 132 projects making their way along the slow and uncertain regulatory trail. The company has sought to monetize the potential from some of those by forging so-called externalization deals, in which it partners with other companies that make upfront payments for the right to market the drug.

Externalization revenue helped cushion some of the impact from sliding Crestor sales, rising 58%, to $1.68 billion, over the full-year 2016. Still, not all investors are keen on such deals.

“For a company that is dealing with the patent cliffs of Crestor and others, you can say that’s a reasonable strategy because you need a stop-gap measure from a revenue standpoint,” says Bartenstein. But with 80% of that revenue nonrecurring, he adds, “You’ve got to wonder if you’re not robbing Peter to pay Paul.”

MORE IMPORTANT, ASTRAZENECA has made considerable progress in containing costs. In the fourth quarter, the amount it spent on everything from research and development to selling, general, and administrative expenses fell sharply from a year earlier. As a result, despite a 15% decline in product sales to $5.26 million over the period, net profit jumped to $1.84 billion from $808 million.

With annual sales down 7% last year at $23 billion, the $45 billion that AstraZeneca insisted it could hit by 2023 when it rejected Pfizer remains a daunting goal.

Bryan, Garnier analyst Eric Le Berrigaud has AstraZeneca at Buy with fair value of 5,400 pence, giving it 14% upside based on Friday’s closing share of 4,779 pence.

Says Berrigaud: “If one franchise can make AstraZeneca a different company, one that can be profoundly transformed in the coming years, and one able to see unparalleled earnings growth in the large-cap pharma space, it’s oncology.”

Barron's : Telecom’s Next New Thing: Connecting Things, Not People

Telecom’s Next New Thing: Connecting Things, Not People

Consumers expecting big advances to smartphones from 5G may be disappointed. But companies like Ericsson, Nokia, Ciena, and Juniper Networks will likely prosper.

In the elegant seaside city of Barcelona last week, the telecom industry outlined a plan for a world of wireless that will have less and less to do with humans and more to do with machines.

The setting was the Mobile World Congress, the biggest annual trade show for mobile phones and the phone networks they run on. The cause of the excitement was the sudden maturation of plans for a standard called 5G. It’s the next bump up in speed for wireless, promising handset and tablet connections will someday be faster than most home Internet connections. Verizon Communications (ticker: VZ) said it will be testing the new technology in 11 cities in the U.S. this year, early proof the stuff is almost ready for prime time. Full-scale deployment by many phone companies is expected in the next two years.

That should be a boon for companies that sell the radio equipment that powers 5G, such as Ericsson (ERIC) and Nokia (NOK) and for a whole host of networking companies, including Ciena (CIEN) and Juniper Networks (JNPR), whose gear is needed to boost the transmission of data inside the network.

It could be a less-momentous development for the human race. While phones will get faster, the real emphasis of 5G is to connect all sorts of things that aren’t human: self-driving cars, industrial equipment on factory floors, oil rigs, parking meters, even freight tankers with no human crew.

All this was explained by Ericsson’s chief strategy and technology officer, Ulf Ewaldsson, a witty, dapper-looking fellow relaxing in a conference room after days of meetings at the show.

He recalls that 5G got its start in 2013 at a dinner at a marina somewhere that he attended with a group of other big thinkers in telecom. And the inspiring first idea for 5G was that it should “create a performance that is amazing for connecting things, not just people.”

Unlike humans talking on their phones, machines have a very prickly requirement for latency—the time it takes for bits and bytes in a data stream to go from one machine to another. Machines, like connected cars, will require very low latency as they do things like navigate the highways, assisted by constant navigational input from computers far away.

More important, says Ewaldsson, was that the dinner was the first time the industry decided to focus their efforts on machines, not humans. Indeed, this new network, arriving in the next couple of years, will be built for machines first, with smartphone-toting humans coming along for the ride.

Ewaldsson likens it to Albert Einstein’s theory of relativity. First came “special relativity,” and only later was it broadened to what Einstein called “general relativity.” Ewaldsson means that humans were telecom’s special case for years, but now it’s looking to a broader future in which humans are just one of the many things that happen in the world.

The immediate implication is that if Ericsson, Nokia, and others help AT&T (T) and Verizon get it right, the volume of business for the telcos will increase dramatically as everything becomes connected.

Some people at the show were less optimistic, pondering, for example, completely unmanned tankers crossing the seas guided by wireless communications, with only an occasional visit by helicopter from a human crew. What would be the consequence if such a ghost ship was hacked into via its wireless connection and sent on a rogue mission to a foreign port?

Not all of the grand plans will come together, says Ewaldsson. “Sure, there’s a lot of stuff that will be built that will just be a mess. But that’s okay,” he says with a smile, “because it all requires connectivity, and we will sell connectivity to anyone who drinks it.”

Time for the machines to belly up to the bar.

Barron's : Two Chinese Tech Stocks With 25% Upside

Two Chinese Tech Stocks With 25% Upside

Shenzhen Huiding Technology and Egis Technology are providing Asian smartphone makers with fingerprint sensors to rival Apple’s.

Ever since Apple introduced fingerprint sensors on the iPhone 5S in 2013, rival smartphone makers have been playing catchup. They’re getting closer. In 2017, over half the smartphones shipped by vendors other than Apple will have the sensors. Two Asian stocks are the beneficiaries.

Shenzhen Huiding Technology (ticker: 603160.China), known as Goodix, has seen its stock soar 230% since going public in Shanghai last October, while shares of Taiwan’s Egis Technology (6462.Taiwan) advanced 70% in the past year. Both have at least 25% upside.

Goodix started designing algorithms for its fingerprint sensors in 2014, and has rapidly taken share from market leader Fingerprint Cards (FINGB.Sweden). In 2015, Fingerprint had 83% of Chinese original equipment manufacturers’ business. This year, Goodix is expected to take the top spot, with a 60% share, reckons Morgan Stanley ’s Charlie Chan.

Goodix has done two things right. First, it is the second-largest vendor of touch control chips—which are also used in smartphones—in China, and has been able to take advantage of existing relationships with smartphone makers. Fingerprint has had to rely on its module vendor, Shenzen O-film Tech (002456.China), to establish and maintain relationships with Chinese customers.

Second, Goodix has kept costs low. Whereas Fingerprint contracts with larger and more expensive foundries, such as Taiwan Semiconductor Manufacturing (2330.Taiwan) and Semiconductor Manufacturing International (SMI), Goodix has used a small Korean foundry. As a result, Goodix’s chips cost only US$ 2 to $3.20 each, about 20% to 30% below Fingerprint’s prices.

IN JUST TWO YEARS, Goodix’s fingerprint-sensor business has blossomed, accounting for about two-thirds of total sales. In 2016, revenue jumped 175% to $453 million. Morgan Stanley’s Chan thinks Goodix can increase its earnings per share by 48% to 3.28 yuan ($0.48) this year.

Not surprisingly, valuation is an issue. Goodix trades at 28 times forward earnings. Based on a cash-flow analysis, Chan reckons the stock is worth 115 yuan, about 24% higher. Chan warns that growth at Goodix could slow in 2018 as the market matures. Right now, it’s looking abroad for growth, and already has a deal to supply LG Electronics (066570.Korea), Goodix CEO David Zhang told Barron’s.

A cheaper, less-liquid option is Taiwan’s Egis, the market’s low-cost vendor. Its fingerprint-sensor algorithm allows smartphones to detect identities with fewer data points, so manufacturers can use smaller sensor chips and cut costs. Egis’ average price is only US $1.40 to $1.80, even lower than Goodix’s.

Egis started shipping fingerprint chips to Samsung Electronics (005930.Korea) last May and is expected to supply up to half of Samsung’s total orders this year. Having lost money for a decade, Egis broke even in the September quarter. Its next step is China. The Taiwanese company has won projects at Lenovo (0992.Hong Kong). Morgan Stanley estimates Egis can generate 20.83 New Taiwan dollars ($0.68) in earnings per share this year, thanks to Samsung. If it can gain a 10% share in China, Egis may earn NT$37.61 next year. The stock was trading at NT$262 last week; Morgan Stanley’s target is NT$360.

And Apple (AAPL)? It’s moving on to iris identification.