Morgan Stanley sees SpaceX value growing to more than $50 billion

Elon Musk, CEO for SpaceX, speaks during the International Astronautical Congress in Guadalajara, Mexico, on Sept. 27, 2016.

Susana Gonzalez | Bloomberg | Getty Images

Elon Musk, CEO for SpaceX, speaks during the International Astronautical Congress in Guadalajara, Mexico, on Sept. 27, 2016.

Elon Musk is making rocket launches mundane and that could be worth tens of billions of dollars.

SpaceX could become a $50 billion juggernaut through its launch of a satellite broadband network, a team of Morgan Stanley analysts wrote in a report Thursday.

The private space company on Wednesday launched its 15th rocket this year, and the second this week. More importantly, the Falcon 9 rocket launch was the third time SpaceX reused the first stage booster, and with each of these so-called “flight-proven” launches, it should be easier to attract new customers.

Morgan Stanley says SpaceX developing reusable rockets is “an elevator to low Earth orbit.”

“When Elisha Otis demonstrated the safety elevator in 1854, the public may have struggled to comprehend the impact on architecture and city design. Roughly 20 years later, every multistory building in New York, Boston, and Chicago was constructed around a central elevator shaft,” Morgan Stanley said. “It all comes down to SpaceX.”

Reducing the cost to launch a satellite to about $60 million, from the $200 million that United Launch Alliance charged through most of the last decade, was a monumental breakthrough. SpaceX is trying to reduce its cost to $5 million per mission, and Morgan Stanley says the launch business “generates limited operating income.”

The cash cow, to Morgan Stanley, is the SpaceX plan to launch a satellite broadband network in two years and send humans to Mars in seven.

“The goal of the satellite internet business is to generate enough cash to be able to go to Mars” the research firm said, adding that it believes Musk is serious about his goal of planetary expansion.

SpaceX has denied that it is preparing an initial public offering, but Morgan Stanley says the prospect should not be counted out. Upcoming projects will require significant amounts of money. “It seems reasonable to us to consider whether the company could look to access capital in the public markets,” the analysts said.

With “substantial room to increase the investment in space,” Morgan Stanley says that “public investors will start to pay more attention to space when or if SpaceX decides to IPO.”

Tesla’s Growing Moat – Tesla Motors (NASDAQ:TSLA)

While everyone and their cat are focused on when Tesla will manufacture the 497th unit of a product that will likely sell in the millions, I keep my eye on the long ball.

Investment Thesis

One of Tesla’s (TSLA) several durable competitive advantages revolves around its vast and growing Supercharger network. Not a single traditional automaker even has plans to offer half of what Tesla offers today.

Why are Superchargers Important?

Superchargers allow an individual to have the piece of mind that an electric car can be used for both short and long trips, which makes a ubiquitous network of fast chargers critical.

That’s it.

The argument is as simple as that, but its implications are extensive. It means that an electric vehicle does not have to be a luxury purchase as a beach house is. With Superchargers, an electric vehicle can be someone’s primary car, or the only car. Without Superchargers, the consumer has to think about what they will drive for long trips; and having to own another car for long trips, just throws off the math.

In other words, without a ubiquitous network of fast-charging stations, demand for a manufacturer’s electric vehicles is limited.

Aha!

Maybe this is what the traditional automakers mean when they claim that consumers do not yet want electric vehicles.

But then, how do they explain the nearly half of a million people that paid cash deposits for a product unfinished, unseen, untested, and 18 months in advance?!

Hmm.

Maybe by, “consumers do not yet want electric vehicles,” they mean, “consumers really want electric vehicles.” Then I would agree, because that’s exactly what the facts show. Not the manufactured facts; the actual facts!

Or maybe, since this is a bit of a chicken-or-egg problem, if traditional automakers build their own networks, then they could also enjoy a waitlist longer than… the number of tweets that certain Tesla bears spew, per hour.

Smh.

Solution?

What Tesla did is they basically manufactured the chicken, so the egg can come out. Tesla built it, and they came.

This isn’t rocket science.

At the time of the Model 3 Reveal Event on March 31, 2016, Tesla had 3,600 Superchargers worldwide. On that day, this is what Elon Musk promised:

By the end of next year, we will double the number of Superchargers.

That would have meant 7,200 Superchargers by December 31, 2017.

As of October 12, Tesla has nearly 7,100 Superchargers already installed, and the network is expanding almost daily. At the current rate, Tesla will achieve its goal two months in advance.

Tesla now plans to have 10,000+ and 18,000+ Superchargers by the end of this year and next, respectively. This sure is an ambitious goal, to say the least.

While we’re on the subject: Everyone needs to take a step back, take a deep breath, take the chill pill, and understand that Elon Musk & Team always shoot for the moon, and sometimes hit, but sometimes miss, but they always land among stars.

No. They land on Mars.

No. They travel to another universe through a black hole, which has never been attempted, then come back in one piece, before their competitors even get out of bed. On the wrong side, if I may add.

Speaking of Competitors… Where Are They?

I’m not aware of even one traditional automaker with its own network of fast-charging stations, even if we define “network” loosely, as five.

Who knows when competitors will offer a compelling all-electric car, build a multi-billion dollar battery manufacturing facility, offer solar energy options so that their customers’ electricity bills don’t double, and in the meantime, rebuild an island so people don’t suffer.

Competitors Have A Plan!

BMW (OTCPK:BMWYY), Daimler’s Mercedes (OTCPK:DDAIF), Ford (F), and Volkswagen’s (OTCPK:VLKAF) Audi (OTCPK:AUDVF) and Porsche announced in November of 2016 that they created a joint-venture with the goal of building 400 stations, at least initially, starting in 2017.

The group reportedly also said that by 2020, “customers should have access to thousands of high-powered charging points.” In July of 2017, or eight months after the initial announcement, Porsche installed the first charger in Berlin. We also learned in last month that Porsche is bringing its ultra-fast charger to Atlanta, but we don’t know how many or what the expansion plans are going forward.

Then there is Volkswagen’s Dieselgate settlement, named Electrify America, which plans to invest $2 billion over the next 10 years, so by 2027. You can read more about where this endeavor stood as of July here, but in summary, it has not yet progressed much with less than 100 chargers, which are slower than Tesla’s Superchargers.

So How Will Competitors Compete?

That’s a great question, to which the answer is not yet clear. There are, however, three theories swirling around:

  1. Some say that competitors are not really interested in entering the electric vehicle space, that they simply are putting out press releases and pushing out just enough electrified vehicles to meet mandates – aka “compliance” cars.
  2. A second theory says competitors will work out a deal with Tesla to use its Superchargers. That may be possible, as Tesla seems open to that option if other automakers share the capital cost, but the lack of an agreement in the last three years has me wondering.
  3. A third theory says competitors will one day expand on their nascent networks of fast chargers.
  4. Finally, a fourth theory says that fast-chargers licensed and offered by individuals and small businesses can proliferate, providing Tesla’s competitors with an opportunity to expand their electrified fleets without having to invest the billions of dollars of capital expenditures that Tesla has been investing in the last several years.

I have not yet seen enough evidence to believe that traditional automakers have ambitions beyond manufacturing just “compliance” cars. Once Tesla’s competitors break ground on a mass-scale battery manufacturing facility, like Tesla’s Gigafactory, then I will consider theories #2 or #3 as possible.

The fourth theory is also unlikely to materialize in a large enough scale, because the technology behind charging a battery is a lot more complicated than filling out a gasoline tank, and compatibility among manufacturers is very difficult to achieve. This is why many online guides (here, here, and here) exist to walk non-Tesla electric vehicle owners through various charging levels and connector types. Yuck! Because of the ubiquity of Tesla’s Superchargers, Tesla customers, even today, do not need to worry about this problem.

Bottom Line

Ladies and gentlemen. LET’S GET READY TO RUMMMBBLLLEE!!!

Introducing first. From the red corner. Weighing more than 10,000 Superchargers. They hail from Palo Alto. And were rated by many, as the Winner, the best pound for best electric fighter of the last decade. With hundreds of thousands of deliveries, 30 of them coming by the way of knockout, and undefeated. It is, the defending luxury sedan champion, the roaring luxury SUV champion, and the future MASS-MARKET CHAMPION OF THE WORLD!!!

And from the blue corner… I don’t know.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tesla’s Growing Warranty Liability – Tesla Motors (NASDAQ:TSLA)

For some time now I have been accumulating articles on companies using Tesla (TSLA) vehicles in commercial operations from rentals to limo services to scheduled transport services operating as links between major cities.

These commercial operations around the globe not only are taking advantage of Tesla’s unlimited mileage warranties, they are taking advantage of free Supercharging as well in many areas. Tesla is introducing Superchargers to city interiors to boost sales to non-homeowners without access to home charging. We should expect to see an increasing number of commercial operators taking advantage of the free power for inner-city services such as taxis as some are now doing in the cases you are about to read.

Finland

We will start our global tour in Finland where taxi driver Ari Nyyssönen broke through 400,000 kilometers (about 250,000 miles) in August 2017 with his Model S85 Tesla sedan. In an interview, he discussed his biggest concerns and how the warranty has covered the largest repairs to date.

Having logged over 400,000 kilometers of taxi service in his 2014 Model S with 85 kWh battery pack, Nyyssönen had the vehicle’s motor replaced and battery pack serviced under warranty. “They are the biggest worries,” Nyyssönen said, “but they are not very bad because the most important defects have been repaired according to the guarantee.”

Ari is predicting his car should easily go 1,000,000 kilometers. No doubt in large part to the eight-year, unlimited mileage warranty on his S85 that will not expire until 2022.

Netherlands

In October 2014 the Schiphol Airport, Amsterdam’s largest, took additional measures to reduce its carbon footprint by launching a three-company all-electric taxi service using 167 Tesla Model S sedans.

(source: gas2.org)

One of the companies, Taxi Electric, had been promoting and expected to use the newest Nissan Leaf (OTCPK:NSANY) but discovered that the Model S was a better choice. I have no doubt the unlimited mileage warranty and large national EV incentives played a major role in the Model S decision. Even today the Nissan Leaf only has five-year/60,000 mile drivetrain and eight-year/100,000 mile battery warranties. For high mileage operations, the eight-year/unlimited mileage Tesla warranty for both the drive train and battery pack could potentially save tens of thousands of dollars in repairs on each unit in just electric motor or battery pack replacements. Since the Model S was only two years old at that time, the warranty would be a serious deal maker for any operator analyzing the unknown long-term battery performance and costs. The Tesla warranty limits that exposure. The eight-year term gives any operator plenty of time to fully recover the entire cost of the car several times over.

Canada

Montreal Tesla owners already are complaining about having to share Superchargers with the local taxi service which operates 24/7. Located in downtown Montreal the flow of taxis using the Superchargers is constant.

(source: teslamotorsclub.com)

The complaints seem to be more about the reduction in the charging rate than about taxis taking up spaces and causing long wait times.

(source: teslamotorsclub.com)

Once again Tesla’s current policies (free supercharging) are impacting Tesla’s bottom line and these costs will only increase over time. If projected sales of Model 3’s are focused in larger cities without home charging, demand for more Supercharger stalls will grow in the same places commercial operations will naturally grow as well. Tesla’s 2017 Supercharger goals are looking tough to meet having just reached 7,000 stalls with 1,000 locations. Tesla had committed to 10,000 stalls by year end. It seems they may be trying to meet that goal by just building more stalls in fewer new locations.

After reading about the taxi drivers putting Tesla’s into service in Europe, Christian Roy of Quebec City replaced his aging 300,000-plus mile Subaru Legacy with a new Model S 85. In 30 months from February 2014 to August 2016, Roy logged his first 100,000 miles spending only for tires, brakes, and other normal wear and tear items. The article (here) about his exploits is titled in part “Why Every Taxi Driver Should Consider Going Electric.” Investors need to hope they do not all choose Tesla vehicles.

United States

A two-year old startup in California named Tesloop offers transit/ridesharing services between key Southern California cites a-la commuter plane style, where each passenger buys one or more seats (not counting the “pilot”). They operate on set schedules between San Diego, Los Angeles and surrounding areas, and Palm Springs. Expansion into Santa Barbara and even into Texas and south Florida is in the plans.

They are focusing on markets where Supercharging is readily available. Launched in 2015, they will be profitable within a year thanks to virtually free fueling and to the eight-year, unlimited mileage warranty. Their highest mileage Model S just passed 300,000 miles. Tires have been their biggest expense to date. The long-distance nature of their driving limits wear on things like brakes and other normal wear and tear items. Cars driving the Los Angeles to Palm Springs route are racking up 17,000 miles per month using Tesla-provided electricity.

Summary

Tesla cannot change the warranty and supercharging abilities for existing cars. Even so, that means over 200,000 Teslas are on the road today that could find themselves in commercial operations. Used two-year old Teslas offer even greater profit potential since six years is about the average lifespan of a taxicab in NYC. But with the potential for free fueling via lifetime Supercharging, the 300,000-mile range of an NYC cab could be doubled or tripled by longer range driving like the Tesloop operation in Culver City.

Tesla only has warranty reserves of about $2,000 per vehicle. That could prove hugely inadequate for any vehicle operated for commercial purposes or driven upwards of 50,000 miles per year on average.

There is little Tesla can do for now. With the very hyped message that Tesla is about reducing greenhouse gases and creating a cleaner environment, putting any sort of limitation on commercial operations could appear disingenuous to the public since Tesla has clearly not been about making a profit for 14 years now.

The flip side of this coin is the shorter warranty term (120,000 miles) of the Model 3 will make these cars unattractive to ride sharing or other services when compared with new or used Model S sedans. The small price difference of $10,000 to $20,000 between a loaded Model 3 and a Model S 75D is inconsequential when we are talking about a car’s earning potential of $10-$15,000 per month. For any commercial operator the three biggest costs are fuel, drivers pay, and maintenance. For self-employed operators, you take out the driver pay. With Tesla currently offering virtually free fueling and maintenance, choosing a Tesla product is truly a no-brainer option. But the long-term costs to Tesla could prove catastrophic.

Disclosure: I am/we are short TSLA VIA PUT OPTIONS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Apple Check out Collection 3 Fitness, Physical exercise Charm Growing

Apple’s smartwatch hasn’t exactly blown away the levels of competition in the marketplace for wearable smart gadgets, but its attraction is escalating for some unique end users. And it may perhaps get even far more practical for them soon after Apple’s envisioned unveiling of its latest watch design, the Collection 3, on Tuesday.

The unique Apple Check out, which the firm announced a few several years ago, was not exactly a dud, but it never ever turned the breakout hit that quite a few had predicted. More basic physical fitness trackers from the likes of Fitbit and Jawbone sold much better. So previous calendar year, in its next Check out, the Collection 2, Apple doubled down on work out and sporting activities functions. With GPS and monitoring of far more forms of work out routines, product sales jumped, with Tim Cook bragging about a 50% raise in the course of his firm’s quarterly earnings contact previous thirty day period.

Now the watch is about to get even far more practical for physical fitness fiends and athletes. Which is simply because the extensively rumored major new attribute Apple is including is mobile connectivity. With its own mobile relationship, most of the watch’s functions will operate even when their homeowners are not carrying their iPhones.

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Which is not all that pleasing to most people, who nonetheless carry their phone with them just about almost everywhere they go, primarily if the mobile relationship will come with the trade off of decrease battery life. But runners, bikers, and other physical fitness aficionados are far more interested in going phone-cost-free, analysts stated. House owners will nonetheless likely need an Iphone to established up the watch, incorporate new apps, and for some other capabilities.

“Working with a phone, primarily an high-priced and fragile a person, is always a soreness position,” suggests Neil Shah, associate at Counterpoint Study, who also notes that display screen sizes are obtaining bigger on quite a few new telephones, producing them even far more unwieldy. Providing the watch its own mobile relationship addresses “a major soreness position Apple can fix,” Shah suggests.

The recently-freed Apple Check out may perhaps also be an pleasing combination with other Apple goods, like the firm’s wireless headphones and streaming new music support. “This standalone Apple Check out additionally Apple Tunes additionally Airpods would be a killer combo for Apple loyalists,” Shah suggests.

The mobile relationship offers Apple Check out a phase up on the just-announced Fitbit (in good shape) smartwatch, called Ionic, as well. Coming from the opposite close of the marketplace as Apple, Fitbit is hoping to incorporate smartwatch functions, like apps and mobile payments, to its line of far more basic trackers. The Ionic has GPS but are unable to stream new music specifically from the Net. It nonetheless demands a close by smartphone or Computer to load new music. On the other hand, the Ionic’s battery lasts for 4 days or far more and the product has a sophisticated sleep monitoring application that Apple presently lacks.

Apple is also envisioned to selling price its new watch with mobile connectivity at a premium—probably far more than $450, in accordance to analysts, in contrast to the latest Apple Check out Collection 2, which begins at $369 (the more mature Collection 1 is nonetheless on sale starting at $269). The new Ionic will promote for just $300. And wireless carriers normally charge one more $5 or $10 a thirty day period for smartwatch mobile support.

Most new watches from rivals also deficiency mobile connectivity. Fashion models like DKNY, Armani, and Michael Kors produced new luxury smartwatches working Google’s (googl) Android Wear program this calendar year. But the emphasis is on eye-catching design and style and vogue more than connectivity.

And mobile connectivity on your own will only make the new Apple watch marginally far more eye-catching, suggests Jan Dawson, chief analyst at Jackdaw Study. Apple will also incorporate the “common” pace and energy enhancements and it’s possible some new types of sensors, Dawson suggests. Maybe far more substantially, Apple also likely will present previous year’s styles at cut-price charges, which could assist extend the firm’s (aapl) marketplace share further.

“I also be expecting the charges on previous year’s styles to drop and thus improve the addressable marketplace some far more, all of which must assist continue to keep product sales ticking more than properly,” Dawson suggests. “I really do not foresee large growth in product sales, but we could undoubtedly see the current first rate growth keep on.”

The High Five: looking up, growing up and still dancing

Will Taylor Swift’s new album eclipse all others? Did I permanently damage my eyeballs this week? How did Patrick Swayze pull off that lift dance move? We had a lot of questions this week—check out some of the week’s top-searched trends.

Eyes on the sky

On Monday, some searched the sky for the eclipse while others searched on Google: “Where is the solar eclipse right now?” and “When will the solar eclipse happen near me?” And what about the people who neglected the proper eyewear? Search interest in “retina damage” spiked 760% on the day of the eclipse, with searches like “How to tell if you have damaged your eyes during the eclipse” and “Why is the solar eclipse bad for your eyes?” It took the solar eclipse a century to make a comeback, but Jim Steinman and Bonnie Rait’s “Total Eclipse of the Heart” only took 34 years—search interest in the 80’s hit was at an all-time high this week.

They grow up so fast

This week, Former President Obama parked his car in the Harvard Yard—Malia moved to college, and she’s following in Dad’s footsteps by donning Harvard crimson. People are following along the move-in journey, searching, “What dorm is Malia Obama in?” “What is Malia studying at Harvard?” and “Does Malia Obama have secret service protection now?”

Still having the time of our lives

Decades later, no one puts Dirty Dancing in a corner. The film turns 30 years old this week and people are feeling nostalgic (and curious) with searches like, “How old was Jennifer Grey when she did Dirty Dancing?” “How old were the characters in Dirty Dancing supposed to be?” and “Is Dirty Dancing on Netflix?” The top region searching for Dirty Dancing is the state where it was filmed, North Carolina.

snake_blog.jpg

Snake it off

This week Taylor Swift teased her new album, Reputation, with a series of snake videos on her Instagram, and fans searched for the reason behind the reptilian reveal: “Who called Taylor Swift a snake?” and “Taylor swift snake meme.” But in the end, it’s all about the music— search interest in “Taylor Swift Reputation” was 440% higher than “Taylor Swift snake.”

Winner winner

The odds of winning the lottery are wicked low, but people still have some questions about Thursday’s $759 million Powerball ticket: “Who won the powerball?” “Where was the winning powerball ticket purchased?” and “What is power play in powerball?” Though the winning ticket was sold in Massachusetts, regions searching the most for Powerball were Wisconsin, New Hampshire, Rhode Island, Delaware and West Virginia.

The 101 video games kids should play before growing up

Introducing a young person to a work of art is a uniquely fulfilling moment, for both mentor and mentee. “Aren’t you reading any books that set your world on fire?” my professor asked when I came in 25 years ago to argue about my grade in “Sociology of Prisons.” When I told him not really, he slid over a dog-eared paperback of Ragtime, and a love of historical fiction was born.

In that spirit, Ben Bertoli, a contributor at Kotaku and a guy I wrote about when I worked there, is publishing a book called 101 Video Games to Play Before You Grow Up. The premise alone is enough of a conversation-starter. Yes, someone, somewhere, has an essential game that he didn’t list. Hashing that out is part of the fun here.

As a first draft, this is a well considered catalog, speaking to a very personal love of video games. It’s a list that touts Kingdom Hearts beside Costume Quest; SSX with a mainstay like FIFA; Patapon and Katamari and Ni No Kuni with cornerstones such as Portal and Galaga.

Some really big names are not in here (no Call of Duty, no Grand Theft Auto, not even Uncharted) mainly because this is a kids’ book, so the list is holding to titles that minors can buy themselves. It’s still intriguing that no Metroid nor Castlevania games make an appearance, but the metroidvania Guacamelee! does.

Bertoli, a middle-school teacher, is curating a list of fun for the kind of kids he sees every day. Each entry comes with a space for the reader to check off playing, it, give it a rating, and jot down thoughts about why it appealed to them.

His book will be published Oct. 1. Here are the 101 games he suggests. It’s fun to go through them and think of the ones I’ve played, and when, and maybe even why I haven’t played them in such a long time. How many can you check off?


Honeywell Adds Google Home To Its Growing List Of Smart Home Integrations

In addition to Google Home voice control, consumers can control their Honeywell thermostats with Google Assistant on Google/Android devices, using a number of different commands. If a home has multiple heating or cooling zones, it is possible to control them independently by informing Google Home which thermostat corresponds to a specific zone. Consumers can also continue to adjust the temperature, set up schedules or make other changes with Honeywell’s Lyric or Total Connect Comfort (TCC) app, and directly on the thermostat interface.

Honeywell knows a smart, connected home must not only be safe and secure, but also comfortable. This is why Honeywell continues to collaborate with more than 200 companies in the smart home space via the Works With Honeywell program of integrations and partnerships. Works With Honeywell helps by providing customers with more flexibility to add into and personalize their homes with a wide collection of the best connected products and services, from comfort and control to savings and safety.

“Honeywell technology is already found in more than 150 million homes worldwide,” said Scott Harkins, vice president, IoT partner programs, Honeywell Connected Home. “Now with our Google Home integration, we’re thrilled to have the first thermostats integrated with every major smart hub. It is another way we are helping consumers more easily bring smart technology into their homes and lives, regardless of how they want to get started, their home’s unique needs or which smart hub they have.”

To learn more, please visit https://yourhome.honeywell.com, and the Works With Honeywell page at https://yourhome.honeywell.com/partners. You can also follow Honeywell on Twitter (https://twitter.com/Honeywell_Home) , and connect with us on Facebook (https://facebook.com/HoneywellHome).

About Honeywell Home and Building Technologies
Honeywell Home and Building Technologies (HBT) is a global business with more than 44,000 employees worldwide. HBT creates products, software and technologies found in more than 150 million homes and 10 million buildings worldwide. We help homeowners stay connected and in control of their comfort, security and energy use. Commercial building owners and occupants use our technologies to ensure their facilities are safe, energy efficient, sustainable and productive. Our advanced metering hardware and software solutions help electricity, gas and water providers supply customers and communities more efficiently. For more news and information on Honeywell Home and Building Technologies, please visit http://www.honeywell.com/newsroom.

Honeywell (www.honeywell.com) is a Fortune 100 software-industrial company that delivers industry specific solutions that include aerospace and automotive products and services; control technologies for buildings, homes, and industry; and performance materials globally.  Our technologies help everything from aircraft, cars, homes and buildings, manufacturing plants, supply chains, and workers become more connected to make our world smarter, safer, and more sustainable.  For more news and information on Honeywell, please visit www.honeywell.com/newsroom.

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Samsung facing growing threats despite record profits

But the world’s top smartphone maker, one of the huge family-run chaebols which dominate the South Korean economy, will be confronted by tougher challenges in the future as Chinese rivals take aim at its semiconductor business and questions emerge over the firm’s leadership.

Samsung took observers by surprise this week when it posted a forecast-beating 14.1 trillion won (US$12.6 billion) in operating profits in the second quarter — a 73 percent jump from the previous year — putting it on course to better rival Apple for the first time.

Consensus forecasts of Apple’s operating profits, due to report this week, are estimated at around $10.6 billion.

Samsung said huge sales of its new Galaxy S8 smartphone and demand for its memory chips were behind the jump in the April-June period and predicted another blockbuster report for the current quarter to September.

Samsung took markets by surprise this week when it posted a forecast-beating 14.1 trillion won (US.6 billion) in operating profits in the second quarter — a 73 percent jump from the previous year — putting it on course to better rival Apple for the first time.

The firm has been battling to overcome an embarrassing recall last year of its flagship Galaxy Note 7 smartphone over exploding batteries, which cost it billions of dollars and dealt a severe blow to its reputation.

“I would argue Samsung turned that corner pretty quickly, at least from a financial point of view,” said Jan Dawson, chief analyst at Jackdaw Research.

Dawson noted the 28 percent increase in sales in Samsung’s mobile division, contrasting it to the 15 percent drop the firm saw during the third quarter of last year when the recall crisis was at its peak.

– ‘Ready to be picked’ –

The biggest driver of the rapid recovery was Samsung’s semiconductor business, which raked in 8.03 trillion won in operating profit in the second quarter, up 204 percent from the previous year. Samsung provides chips to other companies including Apple.

Geoffrey Cain, author of an upcoming book on the Samsung empire, said the firm was simply riding the wave of “huge investments in strategic industries like chipsets and OLED panels” it made years ago.

“Samsung has plantations of fruit ready to be picked, even if a few like its Note 7 went rotten,” Cain told AFP.

Rising global demand for semiconductors has pushed prices high to Samsung’s benefit, said Chung Sun-Sup, an expert who runs the website Chaebol.com that tracks the corporate assets and practices of South Korean conglomerates.

“The company will enjoy the global semiconductor boom over the next few years,” Chung said.

The firm’s de facto leader Lee Jae-Yong is in custody after a February indictment over a nationwide bribery scandal that toppled then-president Park Geun-Hye.

But the bigger challenge for Samsung is what happens after the harvest, as the firm faces questions over its “untested” leader and the growing threat from Chinese rivals.

The firm’s de facto leader Lee Jae-Yong is in custody after a February indictment over a nationwide bribery scandal that toppled then-president Park Geun-Hye.

The leadership vacuum will not affect day-to-day operations of the Samsung empire, Chung said, largely due to the company’s dispersed management structure.

But with a handful of its key executives battling allegations of bribery, Samsung’s ability to take major decisions on long-term business investment will be compromised.

– ‘Untested’ –

Lee is accused of bribing Park and her secret confidante with millions of dollars to seek government favours to smooth his succession to the Samsung empire. He has denied any wrongdoing.

A court ruling on Lee’s case is expected before August 27, when his arrest warrant expires.

But even if Lee returns to work, Cain says the Samsung heir “remains untested on the market”.

“Few people outside Samsung truly know what he’s capable of, because his succession has always been guaranteed,” he said.

Samsung said huge sales of its new Galaxy S8 smartphone and demand for its memory chips were behind the jump in April-June and predicted another blockbuster report for the current quarter to September.

Lee has effectively been at the helm of the group since his father suffered a heart attack in 2014.

But Samsung’s success riding on its semiconductor business will face increasing headwinds, analysts warn, as it faces rapidly emerging Chinese rivals spending billions of dollars to dominate the global chip market.

“The Chinese chipset makers are studying, mimicking and playing catch-up in the realm of semiconductors,” Cain said, comparing the practice to what South Korea had done to Japan previously, and how Japan caught up with the United States in the 1950s and 1960s.

To become the next Samsung is the ultimate dream of these Chinese chipset makers, Cain told AFP, adding: “It’s entirely feasible, and Samsung should be terrified.”

Google Home Has Competitive Strengths In Fast Growing Smart Speaker Market – Alphabet Inc. (NASDAQ:GOOG)

Please take note this is only one aspect in weighing the attractiveness or non-attractiveness of the companies mentioned as an investment and should not be used independent of other factors. This article examines one segment of the companies’ businesses, and other factors such as valuation are not addressed.

Voice is growing as a user interface with which people interact with AI-based devices and AI-based digital voice assistants are expected to be a growth area going forward. A Senior Analyst at IDC said these devices have the potential to be the next computing platform.

AI-based voice enabled speaker usage is expected to grow 130% this year according to eMarketer with much of the interest being driven by Millennials.

Source: USA Today

Having been the first in the market, Amazon Echo powered by Amazon’s (NASDAQ:AMZN) AI assistant Alexa is the market leader while Google Home (NASDAQ:GOOG) (NASDAQ:GOOGL), powered by Google Assistant is second. Apple (NASDAQ:AAPL) recently announced it will be manufacturing a Siri-controlled smart speaker which may be shipped later this year. Microsoft’s (NASDAQ:MSFT) Cortana-controlled smart speaker “The Invoke” is expected to debut this fall.

Alibaba (NYSE:BABA) too has jumped into the market with its own smart home speaker – Tmall genie – however it only communicates in Mandarin and is only available in China. Tmall genie will be competing against JD.com’s (NASDAQ:JD) DingDong (available for sale since last year) and Baidu’s (NASDAQ:BIDU) Xiaoyu Zaijia (which means “Little Fish” in Mandarin).

Amazon Echo is forecast to command a 70% market share of the U.S. voice-controlled speaker device market while Google Home trails with a 23.8% market share according to eMarketer. The remaining share is shared among smaller players such as Lenovo (OTCPK:LNVGY), LG, Harmon Kardon and Mattel (NASDAQ:MAT).

Source: eMarketer

For Google to maintain its dominant position as the world’s leading source of information, the company needs to ensure that people keep using Google products not just on screen but also off-screen i.e., voice.

Although Google is playing catch-up in the smart speaker market, Google has significant competitive advantages which could help close the gap.

Amazon has an early mover advantage over rivals.

Source: Recode.net

Amazon first launched the Echo speaker in November 2014 and was officially available throughout the U.S. beginning in 2015. This early mover advantage, coupled with the fact that Amazon opened up its software for other companies to integrate their own actions, known as “Skills” to run on Alexa have helped it gain a substantial lead. In comparison Google released its AI assistant Google Home late last year and the software was opened to developers only last December; “Actions on Google” allows businesses to create custom actions on Google Assistant, which is similar to Alexa Skills. When Google announced the program in October last year, Alexa already had over 3,000 Alexa Skills. With Google opening the software the way it opened its Android smartphone OS – Google Home is expected to pose significant competition to Echo.

Data ownership is critical for AI. A report by Morgan Stanley views data as the “holy grail of AI”. Google is sitting on a treasure trove of user data and the company operates a large ecosystem of popular software services, from search, email, video, calendar, etc. Google Assistant, the AI platform which powers Google Home utilizes all of these software services to provide a seamless user experience. By contrast, Apple’s AI assistant Siri for instance, has been described as “patchwork” requiring software services from different vendors – “Yahoo here WolframAlpha there” which makes it difficult to be as cohesive as Google’s Google Assistant.

Furthermore, the data from Google’s vast ecosystem of popular software allows Google to train an AI platform such as Google Assistant in a way rivals might find difficult to match.

Google has invested heavily in artificial intelligence and machine learning and AI is actively used at Google. For instance, apart from using AI for image recognition, search and video recommendations, Google has also been using AI at the company’s data centers, in an effort to reduce the company’s energy costs. Google started using machine learning for its data centers a few years ago, searching for ways to reduce energy expenses which is one of the company’s top expenses. Last year, the more specialized AI tools from DeepMind were applied to solve the problem of cooling Google’s server farms. That reportedly helped cut the energy required for cooling by 40%.

Compared to all companies that publish prolifically on artificial intelligence, Clarivate Analytics, an information services firm, ranks Google No. 1 by a wide margin. Apple published its first artificial intelligence research paper in December last year. By contrast, Google had 44 papers accepted this year to the International Conference on Machine Learning while Microsoft had 33, according to a post by a researcher at OpenAI, a non-profit AI research company.

A report by Edison Investment Research echoes the notion that Google has an advantage in AI applications. Large search engines such as Google and China’s Baidu (NASDAQ:BIDU) already have a vast database of user data that can be used to improve AI solutions and teach machines.

Source: Android Headlines

Google’s AI capabilities extend towards AI chips as well. Business and developers typically train their neural networks using GPU server farms, powered by GPUs (Graphics Processing Units) from companies such as Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). GPUs were originally designed to render graphics and were primarily sold to makers of PCs and game consoles.

Google’s TPU (Tensor Processing Units) chips were specifically designed to optimize deep learning algorithms and can train these neural networks considerably faster than existing processors. Deep learning is used by Google in its voice and image recognition algorithms. For instance, Google Assistant uses deep learning to allow multiple users to share a single Google Home unit. Deep learning involves feeding vast amounts of data into a computer system which it could use to “learn” and make decisions about other data. The data is fed through neural networks. Google’s TPUs are able to handle this workload at a lower cost, higher performance and lower energy usage than today’s processors.

Google’s AI developments could explain why comparisons between the major voice assistants find that Google Assistant tends to be ahead of the pack.

There have been suggestions that Google has potential to overtake Amazon in the voice assistant market.

Comparisons between Echo and Google Home found that Google Home tended to be better at understanding language and answering questions. A study by 360i revealed that Google Assistant is six times more likely to answer a question than Amazon Alexa. Each AI-enhanced assistant was asked 3,000 questions of which Google Assistant answered 72% while Amazon Alexa answered just 13%.

Another study from digital marketing agency Stone Temple asked the major voice assistants 5,000 general knowledge questions and found Google Assistant to be the clear leader (a study from ComScore found that the most common request of smart speakers was to answer general questions).

Source: Stone Temple Consulting

Google led the pack answering 68% of the questions, 90.6% of which were answered correctly. Microsoft’s Cortana came in second responding to 56.5% of the questions, of which 82% were answered correctly. Apple’s Siri and Amazon’s Alexa were off the pace by a large margin with both answering just about 20% of the questions.

Source: Business Insider

This perhaps may explain why Apple’s HomePod is reportedly more focused on acoustics than the virtual assistant that ships with it. Apple’s HomePod speakers are expected to have louder and more crisp sound than rival smart speakers.

In sum, Google’s AI efforts such as its Google Brain project, AI acquisitions such as DeepMind, and its massive ecosystem of popular software services give the company technological advantages which could help drive development of Google Assistant and (and thus potentially drive market share gains for Google Home) going forward.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Google adds more partners to growing smart home ecosystem

Android OS Compatibility with Google AssistantBI Intelligence

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Google’s smart home ecosystem continues to expand as the company adds new partners to make devices that are compatible with its Google Assistant and Google Home smart speaker. Over 70 companies in smart home automation have made their devices compatible with Google’s smart home assistant, CEO Sundar Pichai said on Alphabet’s earnings call. The company is looking to continue adding partners as it tries to wrest smart home dominance from Amazon and Alexa.

Partners are a critical part of the growth of a smart home ecosystem. Pichai singled out Honeywell, Logitech, and LG — all leading manufacturers of smart home devices — as key partners for the Google Assistant. Smart devices from these companies also work with Alexa, which is understandable given Amazon’s two-year head start on Google in the smart speaker space. And Alexa boasts far more voice-based apps, with a library of 15,000 of what Amazon dubbed “skills,” versus 378 for Google Assistant.

Google’s behind Amazon in the smart home and smart speaker market right now. Amazon has sold well over 10 million Echos by this point. That far outpaces sales of the Google Home. Google has a number of avenues into the smart home beyond just the smart speaker, though, as Google Assistant is available as a built-in feature on Android devices running Android 6.0 and above (that includes 43.3% of active Android devices). It’s also available for download on iOS, though it only has about 192,000 downloads in its first 60 days on the App Store, according to data from SensorTower.

But Amazon’s lead is far from insurmountable, especially given the performance gaps between the competing assistants. It’s still early enough that Google could close the gap if it can bolster its ecosystem and leverage its more accurate and context-aware assistant, provided it can also develop a more intuitive, natural user experience. 

Nicholas Shields, research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on the US smart home market that:

  • Analyzes current consumer demand for smart home devices based off results from BI Intelligence’s proprietary survey.
  • Forecasts future growth in the number of smart home devices installed in American homes.
  • Analyzes the factors influencing the proliferation of voice control devices in the homes.
  • Identifies and analyzes the market strategies of various companies that have integrated voice control into their smart home ecosystems.

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