Posts Tagged ‘Apple Inc.’

Apple Expects to Pay $38 Billion Tax on Repatriated Cash

January 17, 2018

Bloomberg

By Alex Webb

 Updated on 
  • Company also plans $30 billion in U.S. capital expenditures
  • Apple has largest offshore cash holdings of any U.S. company
Bloomberg’s Mark Gurman reports on Apple’s plan to repatriate overseas cash.

Apple Inc. said it will bring hundreds of billions of overseas dollars back to the U.S., pay about $38 billion in taxes on the money and invest tens of billions on domestic jobs, manufacturing and data centers in the coming years.

The iPhone maker plans capital expenditures of $30 billion in the U.S. over five years and will create 20,000 new jobs at existing sites and a new campus it intends to open, the Cupertino, California-based company said Wednesday in a statement. Apple’s shares gained less than 1 percent to $177.27 at 1:26 p.m. in New York.

“We are focusing our investments in areas where we can have a direct impact on job creation and job preparedness,” Chief Executive Officer Tim Cook said in the statement, which alluded to unspecified plans by the company to accelerate education programs.

In its December approval of the most extensive tax-code revisions since 1986, Congress scrapped the previous international tax system for corporations — an unusual arrangement that allowed companies to defer U.S. income taxes on foreign earnings until they returned the income to the U.S. That “deferral” provision led companies to stockpile an estimated $3.1 trillion offshore.

By switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a two-tiered levy on that accumulated foreign income: Cash will be taxed at 15.5 percent, less liquid assets at 8 percent. Companies can pay over eight years.

Apple has the largest offshore cash reserves of any U.S. company, with about $252 billion in at the end of September, the most recently reported fiscal quarter.

The company, which opened a new headquarters in Cupertino last year, said it also plans to open another site in the U.S. focused initially on employees who provide technical support to Apple product users. Apple said it will announce the location of the new campus at a later date. The company already has a sprawling campus in Austin, Texas, for supply chain and technical support employees.

“These are probably many capital expenditure initiatives and new site build-outs that Apple was already planning on doing regardless of repatriation,” said Michael Olson, an analyst at Piper Jaffray, who has the equivalent of a buy rating on the stock. “What’s not said in this release is that there is more potential for increased buybacks for shareholders and acquisitions that might not have taken place if it were not for the cash influx from overseas.”

— With assistance by Mark Gurman, and Alexis Leondis

https://www.bloomberg.com/news/articles/2018-01-17/apple-expects-38-billion-tax-bill-on-overseas-repatriated-cash

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Silicon Valley Reconsiders the iPhone Era It Created

January 9, 2018

Debate over iPhone use by young people reflects the misgivings some in the industry feel toward smartphones’ ubiquity

A tussle this week between prominent investors and Apple Inc. over iPhone use by young people comes amid a nascent re-evaluation of the smartphone’s social consequences within the industry that spawned it.

The smartphone has fueled much of Silicon Valley’s soaring profits over the past decade, enriching companies in sectors from social media to gaming to payments. But over the past year or so, a number of prominent industry figures have voiced concerns about the downsides of the technology’s ubiquity.

They include Apple executives who helped create the iPhone and now express misgivings about how smartphones monopolize attention, as well as early investors and executives in Facebook Inc. who worry about social media’s tendency to consume ever more user time, in part by pushing controversial content.

Those are the kinds of concerns spotlighted in a letter to Apple on Saturday from Jana Partners LLC and the California State Teachers’ Retirement System, or Calstrs, which control about $2 billion of Apple shares. The letter urged the tech giant to develop new software tools that would help parents control and limit phone use more easily, and to study the impact of overuse on mental health.

On Monday, Tony Fadell, a former senior Apple hardware executive involved in the iPhone’s creation, also called on Apple to do more, saying on Twitter that adults are struggling just as much as children with smartphone overuse. Mr. Fadell, who started publicly voicing concerns about smartphones last spring, said Apple and Alphabet Inc.’s Google should add features to their mobile-phone operating systems to allow people to track device usage.

“Just like we need a scale for our weight we need a scale for our digital lives,” Mr. Fadell said in an interview. He said he became concerned about the issue in recent years as he saw families at resorts spending time with devices rather than each other, or couples taking selfies on ski slopes rather than enjoying the views.

Apple late Monday issued a statement defending its parental controls and other protections for children who use its iPhones, noting that it started offering some of them as early as 2008. It said many of those tools can be found in the settings section of its devices.

Mr. Fadell’s comments echoed similar remarks last year by venture capitalists affiliated with Facebook, including Chamath Palihapitiya and Roger McNamee. Mr. Palihapitiya, a former Facebook executive, and Mr. McNamee, an early investor and adviser, have raised concerns about social media’s tendency to encourage users through emails and notifications to open an app, causing people to live in front of their screens.

Facebook last year acknowledged for the first time the negative consequences of time spent on its service, noting that passively consuming information on Facebook leads many users to report “feeling worse.” And Chief Executive Mark Zuckerberg pledged to spend this year working to address misuse of its products in part by “making sure time spent on Facebook is time well spent.”

“There’s a dawning realization of the effects these companies have had on us and a sense that we should no longer just go along with it,” said Roger Kay, an analyst with Endpoint Technologies Associates.

The smartphone has transformed society unlike any previous device. Its ability to substitute for the radio, TV, computer and gaming console has made it so powerful that U.S. consumers now spend more than three hours a day on average on their mobile devices, according to research firm eMarketer. That is an increase of more than a one hour from 2013.

A handful of developers have responded to rising smartphone use by introducing apps designed to help curtail time on devices, including Checky, which tracks how often users unlock a device, and Menthal, which provides a scorecard for device usage. Alex Markowetz, who co-founded Menthal, said Apple should already offer a similar time-spent measurement on the iPhone because customers increasingly want to protect their most important assets—time and intellect.

“That’s the one resource you should be willing to pay for to look after,” Mr. Markowetz said.

Mr. Fadell, who helped develop the iPhone’s hardware, said he has broken “out sometimes in cold sweats” thinking about the device’s social impact. Speaking at the Computer History Museum last May, Mr. Fadell compared creating the device to Steve Martin’s movie “The Jerk.” In the movie, Mr. Martin portrays an inventor who creates a bridge to hold glasses on people’s nose. The bridge sells well until people go cross-eyed and sue Mr. Martin’s company.

“I think about that and when the kids are looking at the digital screen and different pictures are coming up and there’s grandpa, me—am I going to be hated by them for what we created? Or are we going to be like Alexander Graham Bell?” Mr. Fadell said.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

https://www.wsj.com/articles/silicon-valley-reconsiders-the-iphone-era-it-created-1515493801

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Intel’s Chip Vulnerabilities — ‘It Can’t Be True.’ — Inside the Semiconductor Industry’s Meltdown

January 8, 2018
  • Technology titans work in secrecy for months to fix key flaws
  • Researchers uncover security holes too big to believe
 Image result for Intel logo, signage
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The Mounting Concerns Over Intel’s Chip Vulnerabilities

It was late November and former Intel Corp. engineer Thomas Prescher was enjoying beers and burgers with friends in Dresden, Germany, when the conversation turned, ominously, to semiconductors.

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Months earlier, cybersecurity researcher Anders Fogh had posted a blog suggesting a possible way to hack into chips powering most of the world’s computers, and the friends spent part of the evening trying to make sense of it. The idea nagged at Prescher, so when he got home he fired up his desktop computer and set about putting the theory into practice. At 2 a.m., a breakthrough: he’d strung together code that reinforced Fogh’s idea and suggested there was something seriously wrong.

“My immediate reaction was, ‘It can’t be true, it can’t be true,’” Prescher said.

Last week, his worst fears were proved right when Intel, one of the world’s largest chipmakers, said all modern processors can be attacked by techniques dubbed Meltdown and Spectre, exposing crucial data, such as passwords and encryption keys. The biggest technology companies, including Microsoft Corp., Apple Inc., Google and Amazon.com Inc. are rushing out fixes for PCs, smartphones and the servers that power the internet, and some have warned that their solutions may dent performance in some cases.

Prescher was one of at least 10 researchers and engineers working around the globe — sometimes independently, sometimes together — who uncovered Meltdown and Spectre. Interviews with several of these experts reveal a chip industry that, while talking up efforts to secure computers, failed to spot that a common feature of their products had made machines so vulnerable.

“It makes you shudder,” said Paul Kocher, who helped find Spectre and started studying trade-offs between security and performance after leaving chip company Rambus Inc. last year. “The processor people were looking at performance and not looking at security.”

All processor makers have tried to speed up the way chips crunch data and run programs by making them guess. Using speculative execution, the microprocessor fetches data it predicts it’s going to need next.

Spectre fools the processor into running speculative operations — ones it wouldn’t normally perform — and then uses information about how long the hardware takes to retrieve the data to infer the details of that information. Meltdown exposes data directly by undermining the way information in different applications is kept separate by what’s known as a kernel, the key software at the core of every computer.

Researchers began writing about the potential for security weaknesses at the heart of central processing units, or CPUs, at least as early as 2005. Yuval Yarom, at the University of Adelaide in Australia, credited with helping discover Spectre last week, penned some of this early work.

QuickTake Q&A: All About That Big Chip Security Weakness

By 2013, other research papers showed that CPUs let unauthorized users see the layout of the kernel, a set of instructions that guide how computers perform key tasks like managing files and security and allocating resources. This vulnerability became known as a KASLR break and was the foundation for some of last week’s revelations.

In 2016, research by Felix Wilhelm and others demonstrated how an early version of speculative execution could make chips vulnerable to data leaks. Jann Horn, a young Google researcher credited with first reporting the Meltdown and Spectre weaknesses, was inspired by some of this work, according to a recent tweet.

Graz team members Michael Schwarz, from left, Moritz Lipp, and Daniel Gruss

Photographer: Helmut Lunghammer for TU Graz

At Black Hat USA, a major cybersecurity conference in Las Vegas, in August 2016 a team from Graz Technical University presented their research from earlier in the year on a way to prevent attacks against the kernel memory of Intel chips. One of the group, Daniel Gruss, shared a hotel room with Fogh, a malware researcher at G Data Advanced Analytics, an IT security consulting firm. Fogh had long been interested in “side-channel” attacks, ways to use the structure of chips to force computers to reveal data.

Fogh and Gruss stayed up late at night discussing the theoretical basis for what would later become Spectre and Meltdown. But, like Prescher more than a year later, the Graz team was skeptical this was a real flaw. Gruss recalls telling Fogh that the chipmakers would have uncovered such a glaring security hole during testing and would never have shipped chips with a vulnerability like that.

Fogh made the case again at Black Hat Europe, in early November 2016 in London, this time to Graz researcher Michael Schwarz. The two discussed how side-channel attacks might overcome the security of “virtualized” computing, where single servers are sliced up into what looks, to users, like multiple machines. This is a key part of increasingly popular cloud services. It’s supposed to be secure because each virtual computing session is designed to keep different customers’ information separate even when it’s on the same server.

Despite Fogh’s encouragement, the Graz researchers still didn’t think attacks would ever work in practice. “That would be such a major f*ck-up by Intel that it can’t be possible,” Schwarz recalled saying. So the team didn’t dedicate much time to it.

The Players

Cybersecurity researchers from across the world teamed up to lay out the extent of the flaw

Note: Fogh was not part of the team that worked on the Meltdown and Spectre papers.

In January 2017, Fogh said he finally made the connection to speculative execution and how it could be used to attack the kernel. He mentioned his findings at an industry conference on Jan. 12, and in March he pitched the idea to the Graz team.

By the middle of the year, the Graz researchers had developed a software security patch they called KAISER that was designed to fix the KASLR break. It was made for Linux, the world’s most popular open-source operating system. Linux controls servers — making it important for corporate computing — and also supports the Android operating system used by the majority of mobile devices. Being open source, all suggested Linux updates must be shared publicly, and KAISER was well received by the developer community. The researchers did not know it then, but their patch would turn out to help prevent Meltdown attacks.

Fogh published his blog on July 28 detailing efforts to use a Meltdown-style attack to steal information from a real computer running real software. He failed, again fueling doubts among other researchers that the vulnerabilities could really be used to steal data from chips. Fogh also mentioned unfinished work on what would become Spectre, calling it “Pandora’s Box.” That got little reaction, too.

The Graz team’s attitude quickly changed, though, as summer turned to fall. They noticed a spike in programming activity on their KAISER patch from researchers at Google, Amazon and Microsoft. These giants were pitching updates and trying to persuade the Linux community to accept them — without being open about their reasons sometimes.

“That made it a bit suspicious,” Schwarz said. Developers submitting specific Linux updates usually say why they’re proposing changes, “and on some of the things they didn’t explain. We wondered why these people were investing so much time and were working on it so hard to integrate it into Linux at any cost.”

To Schwarz and his fellow researchers, there was only one explanation: A potentially much bigger attack method that could blow open these vulnerabilities, and the tech giants were scrambling to fix it secretly before every malicious hacker on Earth found out.

Unbeknownst to the Graz team and Fogh, a 22-year-old wunderkind at Alphabet Inc.’s Google called Jann Horn had independently discovered Spectre and Meltdown in April. He’s part of Google’s Project Zero, a team of crack security researchers tasked with finding “zero-day” security holes — vulnerabilities that trigger attacks on the first day they become known.

On June 1, Horn told Intel and other chip companies Advanced Micro Devices Inc. and ARM Holdings what he’d found. Intel informed Microsoft soon after. That’s when the big tech companies began working on fixes, including Graz’s KAISER patch, in private.

By November, Microsoft, Amazon, Google, ARM and Oracle Corp. were submitting so many of their own Linux updates to the community that more cybersecurity researchers began to realize something big — and strange — was happening.

Tests on the patches these tech giants were advocating showed serious implications for the performance of key computer systems. In one case, Amazon found that a patch increased the time it took to run certain operations by about 400 percent, and yet the cloud leader was still lobbying that every Linux user ought to take the fix, according to Gruss. He said this made no sense for their original KAISER patch, which would only ever impact a small sub-section of users.

Gruss and other researchers became more suspicious that these companies weren’t being completely honest about the rationale for their proposals. Intel said it is standard practice not to disclose vulnerabilities until a full remedy has been put in place. The chipmaker and other tech companies have also said their tests show minimal or no impact on performance, although certain unusual workloads may be slowed by as much as 30 percent.

In late November, another team of researchers at IT firm Cyberus Technology became convinced that Intel had been telling its main clients, such as Amazon and Microsoft, all about the issue, while keeping the full scale of the crisis hidden from Linux development groups.

Prescher, the former Intel engineer, was part of the Cyberus team. After his late-night discovery in Dresden, he told Cyberus Chief Technology Officer Werner Haas what he’d found. Before their next in-person meeting, Haas made sure to wear a Stetson, so he could say to Prescher, “I take my hat off to you.”

On Dec. 3, a quiet Sunday afternoon, the Graz researchers ran similar tests, proving Meltdown attacks worked. “We said, ‘Oh God, that can’t be possible. We must have a mistake. There shouldn’t be this sort of mistake in processors,” recalled Schwarz.

The team told Intel the next day — around the same time Cyberus informed the chip giant. They heard nothing for more than a week. “We were amazed — there was no response,” Schwarz said.

On Dec. 13, Intel let Cyberus and the Graz team know that the problems they found had already been reported by Horn and others. The chipmaker was initially reluctant to let them contribute. But after being pressed, Intel put both groups in touch with the other researchers involved. They all began coordinating a broader response, including releasing updated patches at the same time.

Once inside the secret circle of the large tech companies, the Graz researchers expected they would have the typical 90 days to come up with comprehensive fixes before telling the world. “They said we know it, but will publish it at the beginning of January,” Schwarz said. It had been roughly 180 days since Google unearthed it, and keeping such issues under wraps for more than 90 days is unusual, he noted.

A group of 10 researchers coalesced and kept in touch via Skype every two days. “It was a lot of work on Christmas. There wasn’t a single day where we didn’t work. Holidays were canceled,” Schwarz said.

Their public security updates soon attracted the attention of The Register, a U.K.-based technology news site, which wrote a story on Jan. 2 saying Intel products were at risk.

Usually, flaws and their fixes are announced at the same time, so hackers don’t quickly abuse the vulnerabilities. This time, the details emerged early and patches weren’t ready. That led to a day and a night of frantic activity to arrange what all the companies would say in unison.

Intel put the statement out at 12 p.m. Pacific Time on Jan. 3 and held a conference call two hours later to explain what it said was a problem that could impact the whole industry.

The solidarity was a mirage, though. Rival AMD issued its own statement shortly before Intel’s call began, saying its products were at little or no risk of being exploited. After more than six months of coordinated work, Intel went into lock-down in the final hours and didn’t consult with its erstwhile partners to speed up a public statement, according to a person familiar with what happened.

Steve Smith and Donald Parker, the two Intel executives questioned on the call, argued things progressed in the measured way that Intel approaches any report of a threat to its technology. The difference this time was that their work ended up “in the spotlight,” according to Smith. They would have preferred to complete the work in secret.

Indeed, Intel’s reticence rankled some outside researchers. The company operates on a need-to-know basis, said Cyberus’s Haas, who worked at Intel for about a decade. “I’m not a huge fan of that.”

“Our first priority has been to have a complete mitigation in place,” said Intel’s Parker. “We’ve delivered a solution.”

Some in the cybersecurity community aren’t so sure. Kocher, the former Rambus cryptographer who helped discover Spectre, thinks this is just the beginning of the industry’s woes. Now that new ways to exploit chips have been exposed, there’ll be more variations and more flaws that will require more patches and mitigation.

“This is just like peeling the lid off the can of worms,” he said.

— With assistance by Mark Bergen, and Dina Bass

https://www.bloomberg.com/news/articles/2018-01-08/-it-can-t-be-true-inside-the-semiconductor-industry-s-meltdown

iPhones and Children Are a Toxic Pair, Say Two Big Apple Investors

January 8, 2018

Two activist shareholders want Apple to develop tools and research effects on young people of smartphone overuse and addiction

Teens took a group selfie with a smartphone in New York’s Times Square on Dec. 1.
Teens took a group selfie with a smartphone in New York’s Times Square on Dec. 1. PHOTO: DREW ANGERER/GETTY IMAGES

The iPhone has made Apple Inc. and Wall Street hundreds of billions of dollars. Now some big shareholders are asking at what cost, in an unusual campaign to make the company more socially responsible.

A leading activist investor and a pension fund are saying the smartphone maker needs to respond to what some see as a growing public-health crisis of youth phone addiction.

Jana Partners LLC and the California State Teachers’ Retirement System, or Calstrs, which control about $2 billion of Apple shares, sent a letter to Apple on Saturday urging it to develop new software tools that would help parents control and limit phone use more easily and to study the impact of overuse on mental health.

The Apple push is a preamble to a new several-billion-dollar fund Jana is seeking to raise this year to target companies it believes can be better corporate citizens. It is the first instance of a big Wall Street activist seeking to profit from the kind of social-responsibility campaign typically associated with a small fringe of investors.

Adding splash, rock star Sting and his wife, Trudie Styler, will be on an advisory board along with Sister Patricia A. Daly, a nun who successfully fought Exxon Mobil Corp. over environmental disclosures, and Robert Eccles, an expert on sustainable investing.

The Apple campaign would be unusual for an activist like Jana, which normally urges companies to make financial changes. But the investors believe that Apple’s highflying stock could be hurt in coming decades if it faces a backlash and that proactive moves could generate goodwill and keep consumers loyal to Apple brands.

“Apple can play a defining role in signaling to the industry that paying special attention to the health and development of the next generation is both good business and the right thing to do,” the shareholders wrote in the letter, a copy of which was reviewed by The Wall Street Journal. “There is a developing consensus around the world including Silicon Valley that the potential long-term consequences of new technologies need to be factored in at the outset, and no company can outsource that responsibility.”

Obsessive teenage smartphone usage has sparked a debate among academics, parents and even the people who helped create the iPhone.

Two teenage boys use smartphones in Vail, Colo., in June 2017.
Two teenage boys use smartphones in Vail, Colo., in June 2017. PHOTO: ROBERT ALEXANDER/GETTY IMAGES

Some have raised concerns about increased rates in teen depression and suicide and worry that phones are replacing old-fashioned human interaction. It is part of a broader re-evaluation of the effects on society of technology companies such as Google and Amazon.com Inc. and social-media companies like Facebook Inc. and Snap chat owner Snap Inc., which are facing questions about their reach into everyday life.

Apple hasn’t offered any public guidance to parents on how to manage children’s smartphone use or taken a position on at what age they should begin using iPhones.

Apple and its rivals point to features that give parents some measure of control. Apple, for instance, gives parents the ability to choose which apps, content and services their children can access.

The basic idea behind socially responsible investing is that good corporate citizenship can also be good business. Big investors and banks, including TPG, UBS Group AG and Goldman Sachs Group Inc. are making bets on socially responsible companies, boosting what they see as good actors and avoiding bad ones.

Big-name activists increasingly view bad environmental, social or governance policies as red flags. Jana plans to go further, putting its typical tools to work to drive change that may not immediately pay off.

Apple is an ambitious first target: The combined Jana-Calstrs stake is relatively small given Apple’s nearly $900 billion market value. Still, in recent years Apple has twice faced activists demanding it pare its cash holdings, and both times the company ceded some ground.

Chief Executive Tim Cook has led Apple’s efforts to be a more socially responsible company, for instance on environmental and immigration issues, and said in an interview with the New York Times last year that Apple has a “moral responsibility” to help the U.S. economy.

Apple has shown willingness to use software to address potentially negative consequences of phone usage. Amid rising concerns about distracted driving, the company last year updated its software with a “do not disturb while driving” feature, which enables the iPhone to detect when someone is behind the wheel and automatically silence notifications.

The iPhone is the backbone of a business that generated $48.35 billion in profit in fiscal 2017. It helped turn Apple into the world’s largest publicly listed company by market value, and anticipation of strong sales of its latest model, the iPhone X, helped its stock rise 50% in the past year. Apple phones made up 43% of U.S. smartphones in use in 2016, according to comScore , and an estimated 86 million Americans over age 13 own an iPhone.

Jana and Calstrs are working with Jean M. Twenge of San Diego State University, who chronicled the problem of what she has dubbed the “iGen” in a book that was previewed in a widely discussed article in the Atlantic magazine last fall, and with Michael Rich of Harvard Medical School and Boston Children’s Hospital, known as “the mediatrician” for his work on the impact of media on children.

The investors believe both the content and the amount of time spent on phones need to be tailored to youths, and they are raising concern about the public-health effects of failing to act. They point to research from Ms. Twenge and others about a “growing body of evidence” of “unintentional negative side effects,” including studies showing concerns from teachers. That is one reason Calstrs was eager to support the campaign, according to the letter.

The group wants Apple to help find solutions to questions like what is optimal usage and to be at the forefront of the industry’s response—before regulators or consumers potentially force it to act.

The investors say Apple should make it easier and more intuitive for parents to set up usage limits, which could head off any future moves to proscribe smartphones.

The question is “How can we apply the same kind of public-health science to this that we do to, say, nutrition?” Dr. Rich said in an interview. “We aren’t going to tell you never go to Mickey D’s, but we are going to tell you what a Big Mac will do and what broccoli will do.”

Write to David Benoit at david.benoit@wsj.com

Appeared in the January 8, 2018, print edition as ‘Investors Prod Apple On Child iPhone Use.’

https://www.wsj.com/articles/iphones-and-children-are-a-toxic-pair-say-two-big-apple-investors-1515358834

The Limits of Amazon

January 1, 2018

Amazon.com Inc. is a colossus. In the near future, it could even surpass Apple Inc. as the world’s largest publicly traded company.

But whether you think it will get there depends on how big you think the market is for the products and services Amazon is best at. One secret to Amazon’s amazing scalability is this: Not everything is an Amazon business.

Amazon is the largest online retailer in the U.S. by a huge margin. In cloud-computing services, it is the world leader by nearly every measure. With the Echo speaker, it was the surprise early leader in voice-based computing, and that business has exploded as well.

Meanwhile, Amazon is leasing planes and buying semi trailers to compete with FedEx and UPS for delivery of its own goods. This year it is on track to spend as much on video content as Netflix did in 2017.

A wide-body aircraft emblazoned with Amazon's Prime logo is unloaded at Lehigh Valley International Airport in Allentown, Penn., in December 2016.

A wide-body aircraft emblazoned with Amazon’s Prime logo is unloaded at Lehigh Valley International Airport in Allentown, Penn., in December 2016.PHOTO: MARK MAKELA/REUTERS

And though no one knows what Amazon will do with Whole Foods, its push into physical retail has rival Wal-Mart scrambling to match Amazon in other ways, such as e-commerce.

All of these moves fit into Amazon’s core mission as a data-driven instant-gratification company. Its fanaticism for customer experience is enabled by every technology the company can get its hands on, from data centers to drones. Imagine the data-collecting power of Facebook wedded to the supply-chain empire of Wal-Mart—that’s Amazon.

There is one major problem with the idea that Amazon will eat the entire universe, however. Amazon is good at identifying commodity products and making those as cheap and available as possible. “Your margin is my opportunity” is one of Chief Executive Jeff Bezos’s best-known bon mots. But this system isn’t very compatible with big-ticket, higher-margin items.

Could Amazon’s Lab126—famous for both the successful Echo and the failed Fire phone—ever produce something as premium as an iPhone or an OLED TV? Its success in electronics has come from driving their prices to the very bottom.

The same goes for Amazon’s other businesses. For example, could Amazon Studios, which has shown little ability to create hits, ever produce a franchise like Marvel’s Avengers or HBO’s Game of Thrones?

Amazon Chief Executive Jeff Bezos and MacKenzie Bezos, his wife, at the Vanity Fair Oscar party after the 89th Academy Awards in February 2017.

Amazon Chief Executive Jeff Bezos and MacKenzie Bezos, his wife, at the Vanity Fair Oscar party after the 89th Academy Awards in February 2017. PHOTO: DANNY MOLOSHOK/REUTERS

How Amazon Does It

Amazon now increasingly makes its money by extracting a percentage from the sales of other sellers on its site. It has become a platform company like Facebook Inc. or Alphabet Inc.’s Google, which serve as marketplaces for businesses with less reach of their own.

There are likely a million active sellers on Amazon’s marketplace, says Euromonitor International, a consumer-spending research firm. (Amazon says it has two million sellers total, but many may not be active.) In 2017, 66% of the money Amazon shoppers spent world-wide was for goods sold by companies other than Amazon, Euromonitor estimates. Amazon typically takes a 15% margin from other sellers, and can generate extra revenue by warehousing and delivering their goods, as well.

Eventually, Amazon could become the ultimate platform for retail, the “retail cloud” upon which countless other online retail businesses are built, said Juozas Kaziukėnas, founder and chief executive of Marketplace Pulse, a business-intelligence firm focused on e-commerce. “Maybe eventually you can even outsource your manufacturing to Amazon,” he added.

Amazon famously adheres to the rule that any new business should be built by a team small enough to be fed with two pizzas. These teams are “a way to scale thousands of product categories,” said Benedict Evans, partner at venture-capital firm Andreessen Horowitz, because they are nimble and can have independent profit-and-loss statements.

A customer at a coffee bar in front of an Amazon.com pop-up store inside a Whole Foods store in Chicago in November.

A customer at a coffee bar in front of an Amazon.com pop-up store inside a Whole Foods store in Chicago in November. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

Think of Amazon as an umbrella company composed of disconnected and sometimes competing businesses, though critically they can access common infrastructure, including the retail platform and cloud services.

Ultimately, these smaller businesses must feed the core mission. Amazon’s video business isn’t just its own potential profit center; it’s also a way to keep people in Amazon’s world longer, where they spend more money, Amazon Chief Financial Officer Brian Olsavsky said in October. Amazon Prime Video also makes customers more likely to renew their Prime subscriptions, he said.

Whole Foods may one day prove to be a launchpad for swarms of same-hour delivery drones, though for now it’s a brick-and-mortar incentive to customers. Notice how prominently Amazon took credit for the grocery store’s recent price cuts, said Victor Rosenman, chief executive of Feedvisor, a company that helps sellers on Amazon’s marketplace price their goods.

“I grew up in Russia, and it reminds me of an old joke: When the summer is warm, they’d say it was because of the Communist Party,” Mr. Rosenman said. “They’re wanting to build awareness that thanks to Amazon, things are getting better—and cheaper.”

What Amazon Can’t Do

Amazon may be mastering commodity goods; its own Basics line went from about 250 products in 2013 to over 1,500 today. But making items widely available at low prices runs directly counter to the way higher-profit businesses work.

An Amazon Fire tablet in a Best Buy store in Valley Stream, N.Y., on Dec. 6.

An Amazon Fire tablet in a Best Buy store in Valley Stream, N.Y., on Dec. 6. PHOTO: RICHARD B. LEVINE/LEVINE ROBERTS/NEWSCOM/ZUMA PRESS

Amazon may be a dominant player in touch-screen tablets, for example, but to get to that position it not only undersold nearly every competitor, but it also killed off its own tablet lines that more closely resembled Apple’s iPad in quality and price.

Consider the makers of high-end handbags, which limit who can distribute their wares and, as a result, who can buy them. Not surprisingly, many of those brands refuse to sell on Amazon at all.

Yet fashion is one of Amazon’s fastest-growing retail categories, an Amazon spokeswoman says. The company recently launched Prime Wardrobe, which competes with other online retailers that ship assortments of clothes to customers and allow them to try on and return items they don’t want. The company also carries some luxury brands like Hugo Boss, Milly, AG Jeans and Stuart Weitzman.

Cloud computing might not seem to have anything in common with handbags, but Amazon Web Services has limitations similar to those of Amazon’s retail business.

Why hasn’t the massive success of Amazon Web Services hurt the revenue or valuation of its chief competitors? Yes, it’s partly because the pie has expanded so fast, every competitor is growing. But it’s also because Amazon offers a commodity—basic cloud services. Google, Microsoft Corp. and Salesforce.com Inc. offer more specialized services, and Oracle Corp., for one, charges a premium on white-glove treatment for business-essential assets.

Ultimately, the strategies that allow Amazon to continue growing will also be its limitation. “If the platform needs to be one-size-fits-all across many, many different product categories, it becomes difficult to create specific experiences for different kinds of products,” Mr. Evans said.

The bulk of our everyday goods and services may one day come from Amazon, and everyone from CVS to Uber should watch their backs. Even so, there will continue to be countless competitors that would never dream of branding any of their products “Basic.”

Write to Christopher Mims at christopher.mims@wsj.com

https://www.wsj.com/articles/the-limits-of-amazon-1514808002

Bain-Apple Group Sign Letter of Intent to Buy Toshiba’s Chip Business

September 13, 2017

Deal would be valued at more than $18 billion

Image result for Toshiba Corp, signage, photos

A group including private-equity firm Bain Capital and technology giant Apple Inc. signed a letter of intent to buy Toshiba Corp.’s chip business for more than $18 billion, according to people familiar with the matter.

An agreement with the group, which also includes Seagate Technology PLC and Dell Inc., could be announced later Wednesday in Japan, the people said. It is unclear who else may be in the group and its membership could still change.

The agreement would be the latest twist in a contentious sale process that is likely far from over.

Toshiba is seeking to unload the chip unit as part of a survival plan in the wake of huge losses at its U.S. nuclear unit Westinghouse Electric Co., which filed for bankruptcy earlier this year. The Tokyo company has said its plan centers around selling the profitable semiconductor unit, which makes NAND flash-memory chips used for data storage in smartphones, computers and other electronics products.

Write to Dana Mattioli at dana.mattioli@wsj.com

https://www.wsj.com/articles/bain-apple-group-sign-letter-of-intent-to-buy-toshibas-chip-business-1505280764

Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

December 21, 2016

As Donald Trump presses companies on U.S. manufacturing, city that became poster child for globalization has learned to adapt to economic shifts

Image may contain: skyscraper, sky and outdoor

Dec. 21, 2016 5:30 a.m. ET

SHENZHEN, China—U.S. President-elect Donald Trump’s threat to compel Apple Inc. and others to manufacture more at home should strike fear into this Chinese megacity where many of the world’s high-tech gadgets are made.

Once a sleepy village, Shenzhen today is the sprawling epicenter of China’s consumer-electronics industry, the country’s top export. At two Foxconn Technology Group factories here, some 230,000 workers make gear for Apple and global rivals, including Chinese communications giant Huawei Technologies Co., which has its base in Shenzhen.

Yet many executives here say they aren’t worried by Mr. Trump. The economic forces that transformed this once-poor backwater in Guangdong province into a sea of skyscrapers are too massive to be rolled back, their thinking goes. Even if Mr. Trump imposes tariffs on Chinese-made goods, as he has threatened to do, it’s now so efficient to engineer, produce and ship electronics from this region of southern China that it could still outcompete the U.S., they say.

“We are very relaxed about all the talk of tariffs, although the noise it creates is not good,” said a senior executive at a global consumer-electronics firm with operations in Shenzhen, who spoke anonymously to avoid entering the debate over Mr. Trump’s proposals.

Sources: China Customs (high-tech exports); National Bureau of Statistics
.

More than Mr. Trump, what worries businesses here is simply surviving the Darwinian competition of global commerce. While Shenzhen is mostly a winner in globalization, it is buffeted by the same competitive forces Mr. Trump is seeking to reverse in the U.S.—forces the president-elect has blamed for hollowing out American industry and jobs.

As wages rose since 2010, many of Shenzhen’s once-thriving clothing and toy factories moved to lower-cost regions of China and countries such as Vietnam. Now, some consumer-electronics makers are moving, too. Others are cutting labor costs by using robots instead of people.

“There is too much competition, too many low-price offerings on Amazon,” says Emily Wu, who is struggling to keep her Shenzhen Wonda Tech Co. Ltd. operation afloat. Wonda makes 40,000 cameras a month for brands sold on Amazon.com Inc. and elsewhere. Rising labor costs mean she is producing some orders at a loss.

Mr. Trump is using coercion and enticement to get firms to manufacture in the U.S. During the campaign, he vowed to get Apple to “build their damn computers and things” in America. This month, Apple supplier Foxconn said it may expand operations in the U.S.

But it remains unclear what operations or how many jobs such a move would generate. The other trend under way at Foxconn is a shift to more-automated factories using cost-saving robots. Foxconn declined to comment on its specific customers and plans.

“If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory,” said Christopher Balding, a finance professor at Peking University in Shenzhen. “It will be jobs for computer nerds, not the people who voted for Trump.”

Shenzhen’s global competitiveness has limits. China restricts the internet, meaning innovators have less access to open-source software and ideas. China’s weak intellectual-property protections mean entrepreneurs are constantly at risk of having their ideas stolen.

But the city has weathered economic shifts before. Former Chinese leader Deng Xiaoping in 1979 named Shenzhen as a special economic zone where market forces would have freer rein, sparking more than a decade of 40% annual growth as a low-cost manufacturer. Concerned textiles were becoming a dead end, Shenzhen brought in national universities to produce a higher-skilled workforce. In recent years, the city’s economy averaged 13% growth, according to official data—more than the national rate.

China's then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth.
China’s then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth. PHOTO: AFP/GETTY IMAGES
.

The city found its comparative advantage assembling smartphones and devices from a supply chain of specialized parts made in Japan, Taiwan and South Korea. Shenzhen’s army of university-trained engineers made it a global center for product prototyping.

Mock-ups that take weeks to produce in the U.S. can be done in a day for a fraction of the cost in Shenzhen, according to Duncan Turner, a venture capitalist who helps run Hax Accelerator, a workspace that sponsors inventors from around the world here.

“Shenzhen was known for making things cheap, then it was known for making things well,” says Mr. Turner, whose firm sits above a giant bazaar of electronics parts serving local engineers and factories. “Now, anyone who wants to prototype anything does it here.”

If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory.

—Peking University finance professor Christopher Balding

The growth rate of Shenzhen’s manufacturing has slowed while sectors like software and scientific research are surging ahead. Industry grew at 8% annually between 2012 and 2014, the latest year available, while research averaged 16%.

The proportion of Shenzhen’s economy related to industries such as manufacturing fell 7 percentage points in that period, while that related to information technology and research grew by 3 percentage points, according to the 2015 Shenzhen Statistical Yearbook.

The shift is easy to see. On the city’s manufacturing outskirts, more concrete factory bays are going vacant. Meantime, neighborhoods of gleaming office buildings are sprouting up in the high-tech districts.

Globally competitive firms relying on design and branding are taking root. Da-Jiang Innovations Science and Technology Co., among the world’s biggest makers of drones, is based in Shenzhen to take advantage of “access to the suppliers, raw materials, and young, creative talent pool necessary for sustained success,” according to its website.

A view of the Shenzhen skyline as seen from Tencent's new headquarters in the city.ENLARGE
A view of the Shenzhen skyline as seen from Tencent’s new headquarters in the city. PHOTO: BLOOMBERG
.

Daimler AG joined Chinese car maker BYD Co. Ltd. in 2011 to develop an electric car in Shenzhen. Apple is opening a research and development center in the city, where some 100,000 programmers produce software for Apple’s operating system. In a nod to Shenzhen’s rise as an innovation center, Chinese internet giants Baidu Inc. and Alibaba Group Holding Ltd. opened large offices.

Some small manufacturers are shifting to design and branding. In two years, Qiwo Smartlink Technology Ltd. has gone from a maker of cheap cameras and gizmos for others to a design house with $100 million in annual sales. “All the supply chains and related companies are here, I don’t think you can move this to the U.S.,” said James Guo, Qiwo’s head of exports.

If anything, higher U.S. tariffs would accelerate economic trends already under way, Shenzhen business owners say. Shenzhen’s factories may leave—but for low-wage provinces in China, not the U.S. Meanwhile, the city will add jobs in design, engineering and marketing.

That process is already under way. On a recent Thursday night at the Hax inventors’ workspace in Shenzhen, 26-year-old Junyi Song was working a robot arm he hopes to sell as cheaply as $7,000 a pop. At that price, even small factories could replace labor with automation.

“It’s the future,” said Mr. Song.

Write to John Lyons at john.lyons@wsj.com

http://www.wsj.com/articles/bring-back-jobs-from-china-in-shenzhen-they-arent-that-worried-1482316231

The Good News: U.S. Stocks Steady as Dow Nears 20000 — The Bad News: Will Trump Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

December 21, 2016

Blue-chip index closed at a record in previous session

Updated Dec. 21, 2016 9:50 a.m. ET

U.S. stocks were little changed Wednesday, leaving the Dow Jones Industrial Average within striking distance of 20000.

The blue-chip index edged up 6 points, or less than 0.1%, at 19980. The S&P 500 rose less than 0.1% and the Nasdaq Composite added less than 0.1%.

The Dow industrials have gained 9% since Election Day, buoyed by investors’ bets that President-elect Donald Trump’s administration will pursue policies such as tax cuts, regulatory rollbacks and infrastructure spending that could improve the outlook for U.S. companies. That has spurred a flood of money into stocks, particularly banks and industrial companies, pushing Goldman Sachs Group up 34% and Caterpillar up 11% since Nov. 8.

If the Dow gets to 20000 before Christmas, it will be the shortest amount of time between 1,000-point thresholds in the index’s history, according to Bespoke Investment Group. The Dow first settled above 19000 less than a month ago.

The total value of the global equity market has climbed by roughly $3 trillion since the Nov. 8 election, while the value of global bond markets has declined by roughly the same amount, according to Deutsche Bank research.

“We’ve ticked through everybody’s worries this year—Brexit, the U.S. election, the Italian referendum—and all the while, here we are higher,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

While hopes that Mr. Trump will reduce regulation and bring about tax reform have contributed to the rally in U.S. stocks, Mr. Trump’s election was largely a catalyst for the market to realize a fundamental improvement in the global economy, some analysts and investors said.

Federal Reserve Chairwoman Janet Yellen noted recent improvements in the U.S. economy on Monday, while the Bank of Japan raised its own assessment of the domestic economy.

The yield on the 10-year U.S. Treasury note was slightly lower at 2.549%, according to Tradeweb, from 2.566% Tuesday. Yields move inversely to prices.

Yields on long-dated U.S. government bonds have risen for eight of the past nine sessions amid expectations for stronger growth and inflation and tighter monetary policy in the U.S., Europe and Japan.

For most of 2016, “we worried about deflation and would the Fed tighten at all, and now we’ve moved from that pessimistic narrative to one of worrying about how high inflation does go and will the Fed tighten more than expected,” said Mr. Schutte.

In currency markets, the WSJ Dollar Index fell 0.3% after settling at a 14-year high on Tuesday. The euro rose 0.5% against the dollar to $1.0439, while the dollar fell 0.5% against the yen to ¥117.2690.

Some investors have been skeptical of the recent rally, however, pointing to uncertainty over which policies will be implemented next year under the new U.S. administration and the risks of a more protectionist stance on trade.

“We’re going to start 2017 on a very cautious note, because the way the market seems to be only discounting the good things Trump might do and pretending as though none of the bad is going to come to pass is rather worrying,” said Edward Smith, asset allocation strategist at Rathbones, who is reducing exposure to U.S. stocks and holding more in cash.

The outlook for European stocks is also cloudy, he said. Despite an improving economy, “to bet on European outperformance, you’d need to bet on a solution to the Italian banking crisis, and really I think it’s too early to call that,” he said.

.

Markets in Europe and Japan have largely climbed back from a bruising start to 2016. The Stoxx Europe 600 inched down 0.3% on Wednesday amid losses in Southern European banks, after settling at its highest since 2015.

The stronger yen helped send Japanese stocks down 0.3% Wednesday, but the Nikkei Stock Average remained near its best level since 2015.

Markets elsewhere in Asia mostly closed with gains, boosted by the strong finish on Wall Street. Hong Kong’s Hang Seng added 0.4%, while Shanghai stocks rose 1.1%. Markets in Australia added 0.4%, with the basic-resources sector gaining as metals prices strengthened.

U.S. crude oil was up 0.4% at $53.50 a barrel after data showed a bigger-than-expected drop in U.S. crude stockpiles.

Write to Riva Gold at riva.gold@wsj.com

http://www.wsj.com/articles/european-stocks-steady-as-pre-christmas-lull-descends-1482309798

********************************

Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

As Donald Trump presses companies on U.S. manufacturing, city that became poster child for globalization has learned to adapt to economic shifts

Image may contain: skyscraper, sky and outdoor

Dec. 21, 2016 5:30 a.m. ET

SHENZHEN, China—U.S. President-elect Donald Trump’s threat to compel Apple Inc. and others to manufacture more at home should strike fear into this Chinese megacity where many of the world’s high-tech gadgets are made.

Once a sleepy village, Shenzhen today is the sprawling epicenter of China’s consumer-electronics industry, the country’s top export. At two Foxconn Technology Group factories here, some 230,000 workers make gear for Apple and global rivals, including Chinese communications giant Huawei Technologies Co., which has its base in Shenzhen.

Yet many executives here say they aren’t worried by Mr. Trump. The economic forces that transformed this once-poor backwater in Guangdong province into a sea of skyscrapers are too massive to be rolled back, their thinking goes. Even if Mr. Trump imposes tariffs on Chinese-made goods, as he has threatened to do, it’s now so efficient to engineer, produce and ship electronics from this region of southern China that it could still outcompete the U.S., they say.

“We are very relaxed about all the talk of tariffs, although the noise it creates is not good,” said a senior executive at a global consumer-electronics firm with operations in Shenzhen, who spoke anonymously to avoid entering the debate over Mr. Trump’s proposals.

Sources: China Customs (high-tech exports); National Bureau of Statistics
.

More than Mr. Trump, what worries businesses here is simply surviving the Darwinian competition of global commerce. While Shenzhen is mostly a winner in globalization, it is buffeted by the same competitive forces Mr. Trump is seeking to reverse in the U.S.—forces the president-elect has blamed for hollowing out American industry and jobs.

As wages rose since 2010, many of Shenzhen’s once-thriving clothing and toy factories moved to lower-cost regions of China and countries such as Vietnam. Now, some consumer-electronics makers are moving, too. Others are cutting labor costs by using robots instead of people.

“There is too much competition, too many low-price offerings on Amazon,” says Emily Wu, who is struggling to keep her Shenzhen Wonda Tech Co. Ltd. operation afloat. Wonda makes 40,000 cameras a month for brands sold on Amazon.com Inc. and elsewhere. Rising labor costs mean she is producing some orders at a loss.

Mr. Trump is using coercion and enticement to get firms to manufacture in the U.S. During the campaign, he vowed to get Apple to “build their damn computers and things” in America. This month, Apple supplier Foxconn said it may expand operations in the U.S.

But it remains unclear what operations or how many jobs such a move would generate. The other trend under way at Foxconn is a shift to more-automated factories using cost-saving robots. Foxconn declined to comment on its specific customers and plans.

“If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory,” said Christopher Balding, a finance professor at Peking University in Shenzhen. “It will be jobs for computer nerds, not the people who voted for Trump.”

Shenzhen’s global competitiveness has limits. China restricts the internet, meaning innovators have less access to open-source software and ideas. China’s weak intellectual-property protections mean entrepreneurs are constantly at risk of having their ideas stolen.

But the city has weathered economic shifts before. Former Chinese leader Deng Xiaoping in 1979 named Shenzhen as a special economic zone where market forces would have freer rein, sparking more than a decade of 40% annual growth as a low-cost manufacturer. Concerned textiles were becoming a dead end, Shenzhen brought in national universities to produce a higher-skilled workforce. In recent years, the city’s economy averaged 13% growth, according to official data—more than the national rate.

China's then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth.
China’s then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth. PHOTO: AFP/GETTY IMAGES
.

The city found its comparative advantage assembling smartphones and devices from a supply chain of specialized parts made in Japan, Taiwan and South Korea. Shenzhen’s army of university-trained engineers made it a global center for product prototyping.

Mock-ups that take weeks to produce in the U.S. can be done in a day for a fraction of the cost in Shenzhen, according to Duncan Turner, a venture capitalist who helps run Hax Accelerator, a workspace that sponsors inventors from around the world here.

“Shenzhen was known for making things cheap, then it was known for making things well,” says Mr. Turner, whose firm sits above a giant bazaar of electronics parts serving local engineers and factories. “Now, anyone who wants to prototype anything does it here.”

If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory.

—Peking University finance professor Christopher Balding

The growth rate of Shenzhen’s manufacturing has slowed while sectors like software and scientific research are surging ahead. Industry grew at 8% annually between 2012 and 2014, the latest year available, while research averaged 16%.

The proportion of Shenzhen’s economy related to industries such as manufacturing fell 7 percentage points in that period, while that related to information technology and research grew by 3 percentage points, according to the 2015 Shenzhen Statistical Yearbook.

The shift is easy to see. On the city’s manufacturing outskirts, more concrete factory bays are going vacant. Meantime, neighborhoods of gleaming office buildings are sprouting up in the high-tech districts.

Globally competitive firms relying on design and branding are taking root. Da-Jiang Innovations Science and Technology Co., among the world’s biggest makers of drones, is based in Shenzhen to take advantage of “access to the suppliers, raw materials, and young, creative talent pool necessary for sustained success,” according to its website.

A view of the Shenzhen skyline as seen from Tencent's new headquarters in the city.
A view of the Shenzhen skyline as seen from Tencent’s new headquarters in the city. PHOTO: BLOOMBERG
.

Daimler AG joined Chinese car maker BYD Co. Ltd. in 2011 to develop an electric car in Shenzhen. Apple is opening a research and development center in the city, where some 100,000 programmers produce software for Apple’s operating system. In a nod to Shenzhen’s rise as an innovation center, Chinese internet giants Baidu Inc. and Alibaba Group Holding Ltd. opened large offices.

Some small manufacturers are shifting to design and branding. In two years, Qiwo Smartlink Technology Ltd. has gone from a maker of cheap cameras and gizmos for others to a design house with $100 million in annual sales. “All the supply chains and related companies are here, I don’t think you can move this to the U.S.,” said James Guo, Qiwo’s head of exports.

If anything, higher U.S. tariffs would accelerate economic trends already under way, Shenzhen business owners say. Shenzhen’s factories may leave—but for low-wage provinces in China, not the U.S. Meanwhile, the city will add jobs in design, engineering and marketing.

That process is already under way. On a recent Thursday night at the Hax inventors’ workspace in Shenzhen, 26-year-old Junyi Song was working a robot arm he hopes to sell as cheaply as $7,000 a pop. At that price, even small factories could replace labor with automation.

“It’s the future,” said Mr. Song.

Write to John Lyons at john.lyons@wsj.com

http://www.wsj.com/articles/bring-back-jobs-from-china-in-shenzhen-they-arent-that-worried-1482316231

Dollar to Benefit if $2.5 Trillion in Cash Stashed Abroad Is Repatriated

November 26, 2016

President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to U.S.

The U.S. dollar has rallied against a basket of major trading partners toward 14-year-highs since the Nov. 8 presidential election. Above, one-dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington.
The U.S. dollar has rallied against a basket of major trading partners toward 14-year-highs since the Nov. 8 presidential election. Above, one-dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington. PHOTO: REUTERS
.

Updated Nov. 25, 2016 1:29 p.m. ET

Part of $2.5 trillion in profits held overseas by companies such as Apple Inc. and Microsoft Corp. could be heading back to the U.S., a move analysts say could further fuel the U.S. dollar’s powerful rally.

U.S. corporations have been holding billions in earnings and cash abroad to avoid paying a 35% tax that would be levied whenever the money is brought home. President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to the U.S. that can be spent on hiring, business development and funding Mr. Trump’s fiscal stimulus proposals.

Market optimism that the stimulus plan can generate U.S. economic growth and push the Federal Reserve to raise interest rates has buoyed the dollar against a basket of major trading partners toward 14-year-highs since the Nov. 8 presidential election.

 

Now, some say the prospect of companies repatriating perhaps hundreds of billions of dollars could offer more impetus to the U.S. currency’s rally.

“However small, however big this flow of money will be, it will be positive for the case of dollar strength,” said Daragh Maher, head of U.S. foreign-exchange strategy for HSBC Holdings. “There will most likely be an inflow into dollars.”

When a company repatriates earnings from abroad, it may have to exchange the local currency for the U.S. dollar. The $2.5 trillion hoard of overseas earnings is highly concentrated in the technology and pharmaceutical sectors, according to Capital Economics. Microsoft held about $108 billion in earnings overseas as of 2015, while pharmaceutical giant Pfizer Inc. had $80 billion. General Electric Co. had $104 billion overseas, according to Capital Economics. Analysts note that many companies already hold their overseas earnings in U.S. dollar assets, which would mute the demand for dollars.

Representatives for Microsoft, Pfizer and GE declined to comment. A representative for Apple didn’t immediately respond to a request for comment.

ENLARGE

Though companies typically don’t disclose the composition of their overseas earnings, analysts expect the euro, British pound and Japanese yen would come under pressure if repatriations pick up.

The U.S. last introduced a one-time tax cut for repatriations a decade ago, under the Homeland Investment Act of 2004. More than $360 billion was repatriated, according to Internal Revenue Service data, helping drive the dollar up 13% against a basket of six major peers in 2005, along with tighter U.S. monetary policy.

A similar tax cut “is probably the lowest hanging fruit of all the fiscal measures Mr. Trump has proposed,” said Mark McCormick, head of North American foreign-exchange strategy at TD Securities. “Democrats, Republicans, many people have found this a very easy policy to pursue.”

Mr. McCormick thinks the repatriation tax could be passed by Congress as early as 2017, though he expects the impact on the dollar to be relatively modest since many companies already hold their earnings in U.S. dollars.

A 2011 report from Congressional Research Service, drawing on data from 27 U.S. multinational companies, said that 46% of their overseas earnings were in U.S. dollar assets.

TD estimates that a repatriation “holiday” would spur around $330 billion in inflows, though the bank thinks only $100 billion would need to be swapped for the dollar.

Analysts at Bank of America Merrill Lynch estimate closer to $400 billion in foreign currencies would need to be exchanged for the dollar. Given the “potentially significant” foreign-exchange moves, they have recommended clients make bets that the dollar will rise against European and Asian currencies.

If Congress makes the repatriation tax mandatory, unlike the optional Homeland Investment Act tax, both banks say inflows into the dollar would be much larger.

Mr. McCormick sees another reason why the repatriation tax would be a boon for the dollar. It would likely shrink the U.S.’s $120 billion current-account deficit, making assets in the U.S. more attractive to overseas investors and supporting the dollar.

“Growth and interest rates are already favoring the U.S.,” he said. “If you get more capital inflows, that’s going to be very good for the dollar.”

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com

http://www.wsj.com/articles/2-5-trillion-foreign-profit-stash-could-be-another-boon-for-u-s-dollar-1480096695

China Does An About face On Uber

July 28, 2016

AP

BEIJING (AP) — China’s Cabinet issued its first rules for ride-hailing and told local officials Thursday to promote the booming industry, confirming the legal status of Uber Technologies Inc. and local competitors following run-ins with regulators.

The Cabinet document sets guidelines for registration, fares, employment of drivers and payments. It said details for each city will be decided by local authorities but told them to “encourage, support and guide” the industry.

China is one of a series of markets where Uber and competitors have grown fast but faced legal challenges to their business model, which lets customers summon a car using a smartphone app.

Uber’s offices in several Chinese cities were raided last year by police who accused it of operating unlicensed taxi services. Taxi drivers have protested over competition from such services.

Regulators last year banned Uber and Chinese competitors led by Didi Chuxing from using drivers without taxi licenses. The services adapted by working through vehicle-rental companies.

On Thursday, Uber and Didi Chuxing said they welcomed the rules and the official endorsement of the industry.

“The rules legalized online car-booking services at the national level for the first time, marking a milestone in China’s endeavor toward steady and healthy development of the rideshare industry,” Didi Chuxing said in a statement. “We believe the rules will usher in a new stage of growth for China’s online ride-booking ecosystem.”

The rules were less restrictive in some ways than a proposed draft that was issued in October.

The document issued Thursday said authorities would consider different types of labor agreements with drivers, while the earlier proposal would have required companies to sign contracts with them as fully-fledged employees. The latest version also dropped a proposal to limit drivers to working for no more than two ride-hailing companies.

Uber, headquartered in San Francisco, operates in more than 60 Chinese cities and plans to increase to more than 100 by the end of 2016.

“We look forward to working with national and local governments to put these regulatory guidelines into practice,” said a company statement.

Didi Chuxing, previously Didi Kuaidi, operates in some 400 Chinese cities. It said the company completed 1.4 billion rides in 2015.

The company said in June it raised $7.3 billion from investors in what it described as one of the world’s largest private equity funding rounds.

That included $1 billion from Apple Inc., which became a strategic investor alongside Chinese e-commerce giant Alibaba Group and Tencent Holdings Ltd., an online games and entertainment service. Other investors included China Life Insurance Co.

Last September, the company and Lyft of the United States agreed to link their services to allow travelers to use them in each other’s markets. In December, their alliance added India’s Ola and Southeast Asia’s GrabTaxi.