With all the renewed talk of a Sprint-T-Mobile merger in recent months, one big assumption has been that the Trump administration would view it much more favorably than the Obama administration did, and that it wouldn’t therefore be shot down this time as it was last time. However, Bloomberg reports today that the staff lawyers at the Department of Justice are mostly the same as under the previous administration, even if the leadership and presidency has changed in the interim, and that the lawyers themselves are likely to reach much the same conclusion today as then. In other words, if the deal is to be approved by the DoJ, it will likely happen over the objections and recommendations of the staff rather than with their support. That’s certainly not a deal-killer – SoftBank Chairman Masa Son has cozied up to the Trump administration on issues like job creation, and would presumably curry some favor on that basis. But this does make it more challenging for the deal to go through than many might have assumed. Last time around, the deal was called off before it even formally went through regulatory approval on the basis that it wouldn’t succeed, so I would guess that Son and others would be feeling out the regulatory authorities quietly behind the scenes again this time around to ensure smoother passage.
Google Acquires Podcast App 60db (Oct 10, 2017)
Business Insider is reporting that Google has acquired a podcasting app called 60db, which specialized in shorter audio segments, among other things. Interestingly, 60db had earlier published a blog post on Medium announcing the acquisition, only to take it down immediately after, though not before it was captured by a publication covering the podcast market. In that post, the company said it was joining Google News, which is an interesting wrinkle given that Google’s current podcasting efforts sit within Google Music and not Google News. That suggests that the podcast app might perhaps complement web-based news with audio news, conceivably as part of Google Home. Podcasts have become a big focus for other companies in the last couple of years after Apple was almost the only big player in the market for a long time, and it still dominates overall listening, in part by virtue of being the only platform with a dedicated podcast app installed on its devices. But Spotify, Amazon, and now Google are all taking the space more seriously, which will mean some meaningful competition for those users who care enough to look for alternatives to the default apps that come with their phones.
via Business Insider
GM’s Cruise Automation unit has acquired Strobe, a startup which has been working on “chip-scale” LIDAR technology for use in self-driving cars. LIDAR is one of the big bottlenecks in autonomous tech development, both expensive and low-volume at present, with Velodyne currently the dominant supplier. As this Recode piece points out, GM is a bit more deeply invested in autonomous driving than most other legacy carmakers, having acquired Cruise itself as the “brain” of the system and also running various experiments of ride sharing and other services through Cruise and the GM Maven brand, and this acquisition extends that integration. My guess is that the technology was at a fairly early stage – the company seems to have just 11 employees – and it’s therefore unproven, though GM had an existing investment and may know something other potential acquirers didn’t, allowing it to swoop in at an opportune moment to take it off the market. Waymo and Uber, of course, are battling in court over the latter’s attempts to make its own in the image (or otherwise) of Waymo’s.
Amazon has acquired Body Labs, a startup which makes software for creating detailed and realistic 3D maps of people’s bodies, for somewhere between $50 and $100 million. The technology has an obvious connection to Amazon’s Echo Look, one of its more marginal Echo devices, but one which has potential to drive strong ties with the burgeoning clothing side of Amazon’s e-commerce business. Beefing up the capabilities of that device and the associated app-based capabilities for evaluating fashion looks and the like could therefore pay off in a big way for Amazon as it looks to differentiate itself from other clothing retailers.
Walmart is buying New York same-day delivery specialist Parcel, which currently performs that function for a variety of smaller e-commerce companies and will continue to do so alongside becoming Walmart’s in-house vehicle for doing so. This acquisition echoes that made a while back by Target, when it bought Grand Junction, another company specializing in delivery in New York City. New York continues to be something of a unique market – I’m visiting this week, and have seen ads for almost nothing but delivery services on the subway trains I’ve been on, while the products being delivered range from groceries to food from restaurants to other essentials. The population and residential density in NYC is unmatched in pretty much any other locale in the US, and so it lends itself uniquely well to good economics for rapid delivery. None of this feels particularly scalable across the US, but as Amazon has long demonstrated, that’s not to say it doesn’t make for a multi-tiered approach to delivery in various places across the country, with ever faster deliveries in the biggest and most densely populated urban areas.
Apple Has Acquired a Small French Photo Analysis Company (Sep 29, 2017)
Apple has made another one of its characteristic quiet, small acquisitions of a technology company, this one a French business specializing in computer vision for photo analysis. Unlike some other photo analysis tools, however, this one isn’t so much about recognizing the content of photos as determining which photo in a group might be technically best, or which photos are duplicates. It’s easy to see those technologies being used in future version of Apple’s Photos app on the iPhone to select the best picture from a burst of photos, or to manage a photo library on a Mac. Apple has put enormous attention into its cameras almost from day one of the iPhone, but its photo management software hasn’t kept pace for much of that time, though recently it’s began to invest more seriously in it both on the iPhone itself and on the Mac. This small acquisition is a sign that it plans to continue to make incremental improvements, if nothing else.
This has been a long-running saga with several false starts in reporting a conclusion of the deal, but Toshiba has now finally announced an agreement on the sale of its memory business to a consortium led by Bain Capital for two trillion yen, or roughly $18 billion. Apple is among several companies providing funding for the deal, and it looks like it’ll end up paying about $1.5 billion for its stake. Ensuring that Toshiba’s memory business remained a going concern and that it secured its share of its output was paramount to Apple given the constraints and competitiveness in the global memory market, which has pushed up costs and prices over recent months while boosting Samsung’s memory business enormously. Given the frustrations Apple has experienced in having to rely on Samsung as a supplier for OLED screens in an equally constrained market, this long-term imperative will have taken on even greater significance lately. There are additional complexities in the deal because Western Digital, which owns several joint ventures with Toshiba, continues to oppose it, but it looks like it should now go ahead.
I said in commenting on last week’s Reuters story about Sprint and T-Mobile merging that the one element that didn’t ring true was SoftBank ending up with 40-50% of the combined entity, and Bloomberg is now reporting that majority owner SoftBank is willing to accept something close to its current market price for Sprint, leaving it with closer to 30%, which feels much more in line with what I would have expected. It’s not a great exit for SoftBank, which bought 72% of Sprint for $7.65 a share in July 2013, while shares are trading at $7.83 at the time I’m writing this, having dropped 8% during the day so far, presumably on the back of this news about valuations. However, the stock had traded as low as $2.66 early last year, so SoftBank is at least poised to get about what it paid for Sprint in return for a decent minority share in what could be a much more promising company once the integration goes ahead. Sprint’s valuation, of course, has been bid up significantly over the past year partly off the back of its own improving business but in large part also because a deal with T-Mobile has seemed more likely since last fall’s US presidential election. Its price rose from around six dollars to over nine in the period immediately following that election, so the drop today is likely a reflection of the fact that expectations for a premium are dissipating.
Imagination Technologies, whose GPUs Apple said it would soon stop using back in April, prompting a massive selloff in the stock and a decision to explore strategic options, has announced that it’s agreed to sell most of its business to a Chinese-backed private equity firm, Canyon Bridge, with Silicon Valley investment fund Tallwood Partners buying the MIPS business it had previously said it might sell separately. Apple, of course, announced a GPU designed in-house at last week’s iPhone event, which means its abandonment of Imagination Tech as a chip supplier is going even more quickly than we might have thought. Since April, the story of Imagination has been a cautionary tale about what a double-edged sword being an Apple supplier is – on the one hand, a huge boon to your business, and on the other hand a massive risk that it someday pulls the plug because it’s found an alternative supplier or simply decided it can do things itself. It’s good to see Imagination find a way out, but the acquisition price of 182 pence per share, a significant premium over its recent share price, is still way below its high of 291.50 right before the Apple news came out.
Reuters reports that Sprint and T-Mobile are nearing agreement on key terms of a merger deal, and suggests that due diligence and other steps would need to come before announcement of a merger agreement in October. This is a follow-up to an earlier report this week that the two companies were in serious discussions, and fleshes out one or two details, though at least one seems off. The report suggests SoftBank’s stake might be as high as 40-50% after the merger, which seems much too high given the relative value of Sprint and T-Mobile and SoftBank’s stake in the former. Sprint’s Nextel merger had disastrous results in large part because the Nextel portion was valued much too highly in a touted “merger of equals” and the company spent the next several years slashing costs fiercely in a bid to justify the price with synergies, something which led to its terrible network performance and decline in the years afterwards. So neither Sprint nor T-Mobile should want to make that mistake again. With SoftBank driving the deal, I would expect it to make concessions and end up with a much smaller stake at the end of the day. But big synergies could indeed follow as the companies merge, and their combined scale would drive much more competitive network and advertising spend, retail presence, and other big benefits in their competition with the two big carriers.
Google and HTC finally announced the deal that’s been rumored for a while and for which many details leaked yesterday. Google is in the end only acquiring 2000 employees and some non-exclusive intellectual property, for $1.1 billion, an amount over half of HTC’s market cap before the deal was announced. The 2000 are around half the research and design team at HTC (and a fifth of the total workforce), while the other half will remain and work on a streamlined portfolio of first-party HTC hardware including a new flagship already in the works. Google’s blog post about the deal is remarkably vague and unhelpful, and it’s equally remarkable that there’s no SEC filing or press release on Alphabet’s investor relations site about the deal given its magnitude. It’s almost as if Google doesn’t want to talk about the deal or its details, but HTC very much wants to, emphasizing both the financial boon – the money to be paid in cash once the deal closes in early 2018 – and its ongoing commitment to making smartphones and VR devices.
The deal has echoes of Microsoft’s bailout acquisition of Nokia a few years back – HTC is a far less important strategic partner to Google, but this very much feels like Google offering a financial lifeline to the very unprofitable and shrinking HTC in return for some assets it needs. Those assets are IP necessary to make Pixel phones without being sued by HTC or anyone else but also the research and design skills necessary to build those phones exactly to Google’s specifications and needs rather than having to work off HTC’s foundation and platform, originally built for other devices. That optimization and the integration with Android it should enable are going to be critical for Google to squeeze the most out of its hardware efforts, though it also needs to go deeper on the chips side, something it’s been reported to be doing separately.
One of the things I’ve been asked about by reporters over the last 24 hours or so is what effect this will have on other Android OEMs. The simple answer is that it clearly strengthens Google’s first party hardware capabilities, which for now aren’t much of a threat. But it’s not as if those OEMs can do anything about it – Android is the only viable open smartphone platform out there today, and if OEMs aren’t producing top-notch, differentiated hardware, Google’s efforts in the space are far from their only problem. One thing is notable: Android engineering head Dave Burke is apparently in Taipei – which is interesting because Google hardware has been said to run at arm’s length from Android team, like any other OEM, so there’s no real reason why Dave Burke would need to be involved in this transaction, and yet there he is in HTC’s home city as this deal is announced.
From HTC’s perspective, the cash infusion will give it breathing room to continue working on a strategy that can again provide sustainable profits in the long run, presumably with its Vive VR business at its core, given that even a shrunken smartphone team isn’t likely to be profitable at its current (or smaller, Pixel-less) scale. I do wonder why Google didn’t just buy the whole company – at under $2 billion market cap, Google could presumably have paid roughly double what it is and had the whole thing, taking what it needed, including manufacturing capability, VR hardware expertise, and other useful pieces, and shut the rest down. This deal is certainly simpler and less painful from an integration perspective, but I’m still not sure I see a viable future for HTC even with this investment and the attendant changes.
HTC has formally announced that its shares will halt trading for a material announcement tomorrow, and Bloomberg is reporting that it will be that Google is acquiring at least part of the company’s smartphone operations. Other sources – including Taiwanese site Apple Daily and as I understand it shortly also the Wall Street Journal – are saying that it’s the smartphone design operations specifically that Google will acquire, for a relatively small sum in the hundreds of millions of dollars. As I’ve said before, there’s a strong logic to this acquisition despite the history with Motorola. The biggest change since that earlier acquisition is that Google is now far more clearly serious about hardware, with a consolidated division about to announce a second generation of major products at an October 4th launch event. In addition, acquiring a very focused slice of HTC would be a very different proposition from buying what was at the time a much larger and more diverse Motorola business, which was subsequently run largely at arm’s length inside Google. I would expect Google to bring the HTC assets deeply into its own hardware division and to use the new capabilities to drive much more optimized and integrated hardware design relative to the ODM approach used for Pixel hardware, which likely relied heavily on existing designs and platforms from HTC.
All of this is, of course, further validation along with Microsoft’s Surface push of the approach Apple has long taken to tightly integrating hardware and software. It’s increasingly clear that the best results in hardware are achieved by those who can combine hardware and software in such a way, preferably with tight control of the whole process, and Google would get a lot closer to that goal through this acquisition. The big question still remains what happens to whatever’s left of HTC, which presumably will abandon making smartphones and focus on its Vive VR efforts, something that’s going to be a tough proposition in an increasingly competitive market. I’m still surprised that Google isn’t taking over the whole thing, because it could clearly benefit from the Vive assets as it seeks to deepen its own Daydream VR capabilities.
CNBC reports that T-Mobile and Sprint are in active discussions about a stock-for-stock merger, with Deutsche Telekom likely to end up the majority owner and SoftBank a significant minority shareholder. This has always seemed the likeliest merger to come out of the recent resumption of deal talks after the end the 600MHz spectrum auction and its associated quiet period came to an end, but it’s felt like the sticking point was T-Mobile’s unwillingness to be bought out by Sprint/SoftBank. A stock-for-stock deal with Deutsche Telekom and T-Mobile ultimately calling most of the shots is likely a lot more palatable, especially for TMO CEO John Legere, who’s arguably been enormously successful running the company over the last few years and would understandably be reluctant to cede control to the Sprint side. It sounds like the two sides are still some way from a deal, and of course even if it’s finalized it will take months to go through regulatory approvals, a period that would likely see Sprint lower its investment and manage for cash flow and profitability, something that’s likely to lessen competition in the US market even before a deal closes. Following such a deal, the combined entity would at least theoretically be in a much more competitive position given its combined scale, though many of the synergies would take some time to flow through.
NBC News reports that Amazon has been talking to traditional TV companies about taking some of their lower-profile networks off their hands. Four specific examples cited in the article linked below are VH1 and CMT at Viacom and Adult Swim and Boomerang at Turner. Big TV companies have been shutting down cable networks over the last few years and focusing their efforts on a smaller number of successful channels with big audiences as cord cutting begins to really bite, so there are potentially quite a few channels with smaller audiences out there for the taking, and NBC says Amazon might buy “scores” of them, though that number might be a bit of a stretch. At any rate, the question becomes what Amazon would do with them, and the obvious answer is either bundling them into Prime or selling them as add-ons to Prime. But another really interesting angle to think about is advertising, where Amazon has been quietly building a big online business but with very little action so far on the video side. Owning lots of linear channels would allow it to build a much bigger video ad business as a complement to its online ad business, and potentially do cross-platform targeting across them. It’s also a fascinating alternative to spending ever more to commission and/or acquire original content for its streaming service – it could probably snap up some of these channels pretty cheaply and run them for less than it would cost to build up equivalent amounts of original content from scratch. Importantly, some of these networks have small audiences but lots of distribution – VH1 is in well over 80 million homes, for example. That would be pretty good relative to Amazon’s own domestic distribution through Prime.
via NBC News