fortune--2020-09-14--The North American box office isn’t bouncing back that fast

Moviegoing audiences in North America are not rushing back to the theater just yet and “Mulan” is also faltering in its China release as the global box office slowly comes back online in the COVID-19 era.
In the second major weekend for U.S. and Canadian movie theaters, Christopher Nolan’s “Tenet” earned only $6.7 million from 2,910 locations, according to studio estimates Sunday. Warner Bros’ sci-fi thriller was viewed as the main litmus test for whether audiences were ready to embrace the theatrical experience again, after nearly six months of shuttered theaters due to the pandemic.
Although it was enough to top the scattershot domestic releases, it also isn’t enough to jumpstart the struggling exhibition industry. Warner Bros. has already pushed back its next major release, “Wonder Woman 1984,” even further.
The weekend’s only major new opener was Sony’s PG-13 rom-com “The Broken Hearts Gallery,” which earned an estimated $1.1 million from 2,204 North American locations. The film, from first-time writer director Natalie Krinsky and executive produced by Selena Gomez, is about a 20-something gallerist played by Geraldine Viswanathan who creates an art exhibit with souvenirs from her past relationships.
The studio is optimistic about its performance and potential.
“The early numbers are really encouraging,” said Adrian Smith, the president of president of Sony Pictures domestic distribution.
Smith noted that the film will have a slow roll out as more theaters continue to open in the U.S.
Roughly two-thirds of the domestic market is open and theaters are operating at limited capacity and with limited showtimes. Two of the country’s biggest markets, New York and Los Angeles, remain closed. Other still-closed markets include North Carolina, Michigan, New Mexico and the cities of Seattle and Portland.
Other notable domestic weekend numbers include Disney’s “The New Mutants,” which added $2.1 million from 2,704 locations in its third weekend and Solstice’s Russell Crowe pic “Unhinged,” which earned an additional $1.5 million in week four.
“Every week is a bit of a litmus test about how potential moviegoers are feeling about going to the theater,” said Paul Dergarabedian, Comscore’s senior media analyst. “I think audiences are slowly going back.”
But, he noted, “you can’t apply the norms of how we analyze or report the box office.”
Comscore has not even been able to report a traditional “Top 10” chart because of the unusual marketplace which Dergarabedian likened to a “relaunch” or a “reboot” of the movie theater.
The landscape is more encouraging internationally, where “Tenet” this weekend added over $30 million, pushing its global total to $207 million.
But new movies are not enough on their own. In China, The Walt Disney Co.’s “Mulan” had a disappointing debut of only $23.2 million. The low launch nonetheless claimed the film the No. 1 spot in the country where an estimated 91% of theaters are open but limited to 50% capacity. The studio noted that its opening is around the same level as “Cinderella” and “Maleficent: Mistress of Evil.”
Globally, “Mulan” has earned $37.6 million to date, although that number is not representative of the total earnings. The live-action epic, which has also been embroiled in controversy over its filming location, is not playing in North American theaters. Instead, it is available for a $29.99 rental on the company’s Disney+ service. The streaming earnings were not made available.
But pre-COVID metrics of success and failure are difficult to apply, especially to the first films out of the gates. And, according to Dergarabedian, it might be that way for a while.
“We are not in a traditional marketplace and we are not in a traditional mode of analyses,” Dergarabedian said. “It’s going to take some time to properly assess the long-term impact of the pandemic.”


fortune--2020-09-14--Eastern Europe leads the world in cryptocurrency adoption—legal and otherwise

To win in November , Trump would need to pull off an even bigger upset in 2020 than he did @ @

New data provided to Fortune by the cryptocurrency research firm Chainalysis finds that Ukraine and Russia rank first and second, respectively, in the adoption of cryptocurrencies like Bitcoin. But while the vast majority of this activity is legitimate, Eastern Europe also leads the world in the illicit use of cryptocurrency on darknet marketplaces and in ransomware schemes.
Ukraine ranked first worldwide on Chainalysis’s Global Crypto Adoption Index, which includes measures of cryptocurrency value received, exchanged, and deposited. Over a 12-month period from July 2019 to June 2020, Ukraine sent $8.2 billion worth of cryptocurrency and received $8 billion worth. Russia ranked second on a population-adjusted basis, sending $16.8 billion and receiving $16.6 billion worth of cryptocurrency.
Overall, Eastern Europe accounted for 12% of global cryptocurrency activity in the period. The study tallied activity in more than a dozen different cryptocurrencies.
According to Roman Sannikov, a Russia specialist with cybersecurity firm Recorded Future, the high volume of legitimate cryptocurrency use in Eastern Europe is a legacy of the Soviet Union and its collapse. For roughly a decade beginning in the early 1990s, he says, former Soviet citizens didn’t have good access to the global banking system. They became used to alternative ways of sending money internationally, including cryptocurrency precursors such as e-gold, even for mundane uses like eBay purchases.
People in Eastern Europe are also generally very tech-savvy, Sannikov says, while the Russian ruble has been unstable in recent years, adding to the popularity of cryptocurrency there.
But not all cryptocurrency users in the region are above-board. Chainalysis found that Eastern Europe was the only part of the world where a darknet marketplace, a hidden website offering illegal goods such as drugs for purchase with cryptocurrency, ranked among the top 10 highest-volume cryptocurrency services. The Russian darknet market Hydra ranked as the sixth-highest volume cryptocurrency service in the region, outranking popular (and legal) cryptocurrency exchanges including Kraken and BitMEX. Chainalysis concludes that Eastern Europe accounts for more overall darknet market-related cryptocurrency activity than any other region.
Eastern Europe also leads the world in ransomware payments. In ransomware schemes, hackers lock victims’ files or computers and demand payment—usually in cryptocurrency—to unlock them. Chainalysis found that 23% of all funds sent from ransomware addresses were funneled to Eastern Europe, indicating that the region is the home to the world’s highest-earning ransomware operations.
Criminal applications, however, made up less than 2% of the activity Chainalysis tracked in Eastern Europe.


fortune--2020-09-14--Nikola releases fuller denial of short seller Hindenburg’s allegations

Nikola Corp. made a fuller-throated denial of a report last week that claimed the electric-truck maker had deceived investors, accusing a short seller of mischaracterizations and distortions.
Hindenburg Research, a short seller whose report sent Nikola shares tumbling last week, made false and misleading statements that were designed to manipulate the market, Nikola said Monday. The Phoenix-based company’s shares pared a decline of as much as 16% in pre-market trading.
Nikola said Hindenburg took a comment made by an employee of Robert Bosch GmbH, a supplier and investor in the company, out of context and underestimated its capabilities to produce hydrogen for its fuel cell-powered trucks. The Phoenix-based company also said it terminated a former chief financial officer and that his departure was unrelated to the company refunding reservation deposits for its first truck prototype, as Hindenburg suggested.
Some of the responses to claims made by Hindenburg, which stands to gain from Nikola shares falling, are more so counterarguments than rebuttals. For example, the short seller took the company to task for claiming to have been working on its own inverters, but releasing a video recently that showed it had been using another company’s component with a piece of tape covering the product-description label.
Nikola confirmed it does use third-party components in prototype vehicles but that they may be swapped out for its own parts in production versions. The company said it has been working on its own inverters.
Hindenburg also panned the Nikola One, the company’s first semi truck, calling it “not a real truck” and said it corroborated a Bloomberg story from June about the company exaggerating its capabilities. Although Nikola said in its statement that the One was designed to be powered and driven by its own propulsion, its founder has said it never drove under its own power.
“The Nikola One was an incredibly successful proof of concept,” the company said Monday. In response to Hindenburg’s criticism of a promotional video that showed the truck rolling down a hill, Nikola retorted that it never said the truck was propelling itself.
Nikola shares pared a decline of as much as 16% before the start of regular trading. The stock was down 1.5% as of 8:35 a.m. in New York.


fortune--2020-09-14--Verizon is buying TracFone Wireless for $6.25 billion

Verizon Communications Inc. has agreed to buy TracFone Wireless Inc. from America Movil SAB for $6.25 billion, as the largest U.S. wireless carrier seeks to expand its mobile business into the so-called prepaid market.
Verizon will pay $3.125 billion in cash and $3.125 billion in stock, with as much as $650 million additional tied to performance goals. TracFone, a U.S. prepaid mobile service, is a subsidiary of Carlos Slim Domit’s Mexico-based America Movil wireless. It’s the largest U.S. prepaid service, with 21 million subscribers.
The acquisition comes as Verizon faces new pressure from an enlarged T-Mobile US Inc., which concluded its merger with Sprint Corp. earlier this year. T-Mobile has 20.6 million prepaid subscribers, with the largest group under the Metro brand. AT&T Inc. has 18 million prepaid subscribers, most under its Cricket brand.
Though Verizon is the largest wireless carrier overall, with 116 million regular monthly subscribers, it has only 4 million prepaid customers.


fortune--2020-09-14--Move over, Intel. Nvidia’s the best chipmaker now

This is the web version of Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.
Some seemingly momentous changes are temporary.
One day the U.S. Centers for Disease Control will return to being the world’s preeminent public health organization, unaffected by the actions of norm-busting political appointees. And Oracle, which has been sucking at the government’s teat since its earliest days, will never be a consumer company, though its opportunism to grab grubbily at the political moment is unparalleled.
Far more momentous is the changing of the guard in the semiconductor industry. For decades there has been one cock of the roost in the chip business. That was Intel, first a giant of memory chips and then, in a paranoia-driven strategic shift for the ages, the king of microprocessors for PCs and similarly functioning servers.
Intel’s era is over now, thanks to the dominating run of its crosstown rival, Nvidia. The younger company had already surged past Intel, thanks to its attention to chips powering the graphics of video games, technology that came in handy for all sorts of artificial intelligence-fueled applications. With its $40-billion acquisition of ARM from a faltering SoftBank, Nvidia will compete on every important semiconductor application in the technology landscape.
Nvidia isn’t a household name in the way that Intel was, a feat Intel accomplished with epic marketing that convinced consumers who wouldn’t know a byte from a bite that they needed Intel to be inside their computers. Instead, Nvidia has won in the marketplace, with nary a consumer marketing campaign.
To come up to speed on Nvidia, read Andrew Nusca’s masterful 2017 profile of its CEO, Jensen Huang, a Taiwanese-born American success story.
***
Tomorrow at 12:30 Pacific I’m interviewing Peter Strzok, the FBI agent at the center of the Hillary Clinton email server imbroglio and the investigation into Russian interference in the 2016 elections. We’ll discuss his new book, Compromised: Counterintelligence and the Threat of Donald J. Trump. Suffice it to say Strzok is not a fan of the 45th President of the United States. Register for the event here.
Adam Lashinsky
@adamlashinsky
adam.lashinsky@fortune.com
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
My loophole has developed a little loophole. Big news over the weekend almost erased all of Friday's news from the headlines. But don't sleep on Apple's new app store developer guidelines. For many kinds of free apps like Wordpress or Hey that offer access to a premium service, the revisions should allow developers to avoid drawing Apple's wrath. But the revised rules that seemingly allow cloud gaming services like Microsoft's xCloud are offering terms that can't realistically be met, so gamers probably should remain sad.
The heat is on. One thing in common between the Nvidia-ARM deal and the Oracle-TikTok deal is that both will be subject to tremendous regulatory scrutiny from antitrust authorities. So, too, the just-announced deal for Verizon to buy the top prepaid wireless service, TracFone, for $6.3 billion.
Dousing the flames. With wildfires burning across many western states, Facebook said over the weekend that it is removing posts falsely blaming political groups for starting the blazes.
Not exactly a win-win. Many tech companies are planning on incorporating more remote workers in their future plans, even after COVID-19 recedes. But it's not all good news for workers who want to live away from expensive cities like San Francisco. Bloomberg reports companies like Twitter and VMware that plan to allow workers to move away also plan to cut their salaries if they move to places with a lower cost of living.
Shall we play a game. Getting over the embarrassment of being beaten by a computer, now some human chess champions are working with the computer to improve the game. A team including world champion Vladimir Kramnik used DeepMind's AlphaZero program to experiment with nine rules variations on traditional chess. After seeing the computer play millions of games, Kramnik felt the most interesting variants were a ban on castling and allowing pawns to move sideways.
Colonel Mustard in the parlor with a candlestick. I spent Saturday on a long bike ride. Tesla CEO Elon Musk woke up hankering for a new Twitter fight. Asked about Bill Gates' recent statement that electric battery tech was great for cars but not big trucks, Musk tweeted: "He has no clue." We may learn more on that subject at Tesla's upcoming battery reveal on September 22. Elsewhere in EV land, Nikola released a point-by-point rebuttal of short seller Hindenburg Research's attack on the company, but it's not helping. After Nikola's share plunged 14% on Friday, they are down another 7% in pre-market trading on Monday.
The Skynet funding bill is passed. Following in Amazon's footsteps, Microsoft got approval from the Federal Communications Commission to try connecting its cloud computing platform with orbiting satellites, or what some refer to as the Internet of Space.
FOOD FOR THOUGHT
One reason Apple's app store rules are so important is that the app economy has grown into hundreds of billions of dollars per year. But many of those dollars come from spending in casino-like mobile games, as Cyrus Farivar reports for NBC News. Big Fish Games recently settled two lawsuits for $155 million that alleged its games were a form of illegal gambling.
While some players are happy to recoup some of their losses, gambling addiction experts and some lawmakers say it does not go far enough to help those whose lives have spiraled out of control after they got hooked on social casino games. They call for further regulation of the industry.
"What we would have welcomed as part of this settlement as a wake-up call for the industry is a change in practices," said Keith Whyte, the executive director of the National Council on Problem Gambling.
"I think their model is so lucrative and in some ways so aggressive that they're doubling down, and it's going to do a lot more harm. I think it's going to eventually be reined in, but it appears they are prioritizing short-term profit over long-term sustainability and responsibility," Whyte said.
IN CASE YOU MISSED IT
Will Oracle’s reported TikTok deal satisfy Trump? By David Meyer
Why even the best stocks have to crash By Ben Carlson
Need to entertain your kids? These educational apps may help By Michal Lev-Ram
‘Going to Vegas:’ Newbie options traders face a reckoning as the tech stock rally fades By Jeff John Roberts
Voting by mail is more secure than the President says. How to make it even safer By Jenny Blessing, McCoy Patiño, Julian Gomez, and Tran Nguyen
How a vacation—or a pandemic—can help you adopt better habits now By Kristen Berman
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
BEFORE YOU GO
The all-time classic movie about rock and roll has to be Cameron Crowe's paean to 1970s bands, Almost Famous, which hit its 20th anniversary over the weekend. It's also a pretty good primer on how to write a great magazine feature story (Crowe's first superstar career before he went to Hollywood). Ellen Johnson weighed the movie's continued relevance over at Paste, while many of the cast and crew reminisced on Instagram and Twitter.
Aaron Pressman
@ampressman
aaron.pressman@fortune.com


fortune--2020-09-14--Naomi Osaka wins her second U.S. Open title with a powerful message

This is the web version of The Broadsheet, a daily newsletter for and about the world’s most powerful women. Sign up to get it delivered free to your inbox.
Good morning, Broadsheet readers! Vanessa Pappas leads TikTok through its crisis, women in Japan say they haven’t seen the results of “womenomics,” and Naomi Osaka wins a U.S. Open title with a powerful message. Go get your Monday.
– Game, set, match. Naomi Osaka is a U.S. Open champion twice over. The 22-year-old tennis star defeated Belarusian player Victoria Azarenka on Saturday to win this year’s title.
Osaka’s first U.S. Open win was marked by its circumstances: her emotional 2018 match against Serena Williams, and questions about the referee’s treatment of Williams during play. This victory also comes with its own unique context—though this time shaped by events transpiring far beyond Arthur Ashe stadium.
Osaka, as we’ve followed throughout the Open, wore the names of Black people killed by police on her face masks throughout her seven matches, starting with Breonna Taylor and ending with Tamir Rice. The athlete, who has become one of the most vocal voices in sports for the Black Lives Matter movement, fought for victories on the court months after history-making nationwide protests and during a pandemic, without crowds in the stands to cheer her on. Still, she deftly turned attention back to the cause.
When asked, “What was the message you wanted to send?” Osaka responded, “What was the message that you got was more the question. I feel like the point is to make people start talking.” On Sunday, the U.S.-based star, who plays for Japan and is also of Haitian heritage, made another powerful statement as she showed gratitude for her win: “I would like to thank my ancestors,” she tweeted, “because every time I remember their blood runs through my veins I am reminded that I cannot lose.”
Osaka’s win also served as yet another reminder of the Williams’ sisters legacy, even as Serena Williams was knocked out in the tournament’s semifinal on Thursday. From the record 13 Black women who competed in this year’s event to the athletes “modeling their style of play on that of Serena and her sister Venus, dominating with grit and panache,” Williams’s impact on the sport—and on the next generation, like Osaka—is bigger than her own records.
And now, thanks not just to this title but to her powerful use of her own voice, Osaka’s own legacy is deservedly and decidedly bigger than the painful victory we watched two years ago.
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
ALSO IN THE HEADLINES
- TikTok on the clock. How is interim CEO Vanessa Pappas guiding TikTok through its most challenging chapter yet—one that may have concluded with Oracle's reported winning bid for the app's U.S. operations? The executive is profiled by both the NYT and the WSJ. Pappas says she is not involved in sale talks and is instead focused on "what TikTok’s future could look like if the app’s ownership is bifurcated."
- Womenomics. As Japanese Prime Minister Shinzo Abe prepares to leave office, women in Japan reflect on his "womenomics" plan to help women succeed throughout the country's workforce. Many say they have yet to see the results of his proposals and remain shut out from promotions or full-time work. New York Times
- Girls' night goes wrong. USA Today Washington bureau chief Susan Page is set to moderate next month's vice presidential debate between Sen. Kamala Harris and VP Mike Pence. That gig, however, has drawn attention to a report that Page hosted a "Girls' Night Out" event for Centers for Medicare and Medicaid Services administrator Seema Verma in 2018 (Verma is under the microscope for use of taxpayer funds). Some think that the event violated journalistic boundaries, while Page's employer has said that the gathering was of a sort that is "'routinely hosted' by female journalists to 'honor significant accomplishments of both Democratic and Republican women.'" Washington Post
MOVERS AND SHAKERS: EXOS hired Yvette Pasqua as chief technology officer. ServiceNow hired SAP's Vanessa Smith as SVP, global go-to-market. American Eagle promoted Aerie global brand president Jennifer Foyle to chief creative officer.
IN CASE YOU MISSED IT
- Daughter's view. Samantha Cohen, 24, watched her father, Michael Cohen, spend a decade in President Trump's orbit. In a new interview, she discusses her "icy" relationship with Ivanka, her friendship with Tiffany Trump, comments she says Trump made about her appearance when she was a teenager, and what she diagnoses as her father's "Stockholm syndrome." Vanity Fair
- Friendly skies? Two longtime flight attendants sued United Airlines, saying the airline packs charter flights for professional athletes with "young, blond crews" and bars older employees from working the lucrative routes. "The flight attendants included in our sports team charter program are largely representative of our overall flight attendant population in regards to age and race," the company said. Bloomberg
- Calling for action. Actor Hilary Swank sued SAG-AFTRA's health plan for denying coverage for ovarian cysts. In a statement, Swank draws attention to not just her own struggle with the insurer relied on by much of Hollywood but to how insurance companies, she says, "diminish the significance of [women's] problems." The SAG-AFTRA health plan said in a statement that it "covers diagnosis and treatment of endometriosis and ovarian cysts when medically necessary." People
ON MY RADAR
The Gen Z founders of a boutique skincare brand tackling chronic skin conditions and stigma Fortune
Wonder Woman 1984 is being delayed again Fortune
Florence Howe, ‘mother of women’s studies,’ dies at 91 New York Times
PARTING WORDS
"It’s like going grocery shopping when you’re full; if I feel like I have too many good things going on, I can’t say yes to another good thing."
-Chrissy Teigen on balancing multiple projects


fortune--2020-09-15--Meet Snowflake, one of the buzziest tech IPOs ever

Veteran tech executive Frank Slootman was retired and racing sailboats last year when an old friend reached out. Mike Speiser, managing director at Sutter Hill Ventures, had a huge problem and a huge opportunity to offer him at Snowflake, a startup hoping to revolutionize how businesses store, analyze, and share data.
Seven years after its founding, Snowflake had perfected an amazing new way to run databases on cloud servers, but it was struggling to attract enough big corporate customers.
Slootman, seeing the potential, signed on as CEO, selling some of his sailboats and giving others away. “It sucked me in,” he tells Fortune, quoting the famous line from the third Godfather movie. “Just when I thought I was out, they pull me back in.”
Today, Snowflake is among the hottest of this year’s growing crop of tech IPO candidates. This week, it’s expected to go public with a market value of around $30 billion. That would make Snowflake, which will trade under the ticker “SNOW”, the most valuable software startup ever to go to public and the fifth most valuable tech startup ever—above Google, Lyft, and Snap, according to Renaissance Capital.
Investors are buzzing about Snowflake, among the leaders in what is known as data warehousing, which helps companies that generate vast amounts of information analyze their data in real time.
Mobile gaming companies, for example, slice and dice the trillions of interactions by their users to learn when to offer advancements for free and when to ask for in-app payments.
Now it’s branching out to meet database uses beyond the data warehouse. Hedge funds are using Snowflake’s services to connect to other data sources like retail sales or weather reports —hundreds simultaneously, in some cases—to guide investing decisions. Other companies use Snowflake to track all activity on their networks, and then apply A.I. to identify rogue logins and hacking attacks.
As more companies move to the cloud, Snowflake’s technology, which separates stored data from the computing power needed to analyze it, is gaining momentum. Last year, the company’s revenue jumped 174% to $265 million. It was also the fastest growing business application of 2019 by usage, according to research firm Okta.
Customers tend to increase their spending over time. Year-old customers combined spent 58% more in the first half of 2020 that they had a year earlier, contributing to Snowflake’s total sales rising another 133%.
Thanks to the growth, Slootman is hardly the most influential convert to Snowflake’s cause. Last week, the company announced that in addition to its plans to raise nearly $3 billion for itself in the IPO, Warren Buffett’s Berkshire Hathaway and Marc Benioff’s Salesforce would each also invest $250 million in the company at the same time.
Still, even with its big-name backers, Snowflake doesn’t have the cloud database market to itself. Oracle, the king of pre-cloud databases, is increasingly wooing its customers with cloud products while all three major cloud platforms—Amazon, Microsoft, and Google—also have their own cloud database services. They are all joined by legions of other hot startups, like Panoply, Incorta, and Yellowbrick.
The rivals are all racing to serve the many companies seeking better and cheaper ways to store and analyze data in the cloud, says Rebecca Wettemann, CEO and principal analyst at research firm Valoir. “The data warehouse area is arguably the last of the large enterprise tech areas to go cloud,” she says. “Snowflake has big untapped growth potential.”
Oracle, with annual revenue of almost $40 billion and profit of more than $10 billion, has long dominated the database market. But the shift to the cloud offers an opening for Snowflake, says Dan Elman, senior analyst at Nucleus Research. “Oracle isn’t going anywhere, but with so much moving to the cloud, there’s an opportunity for Snowflake to capture a lot of that,” he says.
Two laptops and a white board
Like many Silicon Valley success stories, Snowflake arose from frustrations of an earlier era.
Database scientists Benoit Dageville and Thierry Cruanes had each toiled at Oracle for more than a decade, helping the software giant eek out incremental improvements in its applications. But by 2012, the pair of French immigrants foresaw cloud computing as a way of not just reducing some of their customers’ problems, but eliminating them altogether. In August, they left Oracle and started meeting in a small apartment on El Camino Real in San Mateo, Calif., the heart of Silicon Valley.
Brainstorming with just a couple of laptops and a white board, they realized that database users were wasting huge amounts of money buying powerful servers that they only occasionally needed to use fully. Additionally, the amount of data being collected by companies was exploding, but they usually spread it across many storage facilities and kept it in incompatible formats. And a promising open source software tool for handling big data known as Hadoop was hitting the scene, but it had huge challenges producing results as quickly as business executives desired.
The cloud could solve all three problems. Computing power and storage could be increased and reduced on demand. Data could be formatted in more flexible ways. And big data could be processed in real time, avoiding the delays of Hadoop.
They quickly formed Snowflake and recruited Marcin Zukowski, a brilliant developer who had invented a new way to process database analysis requests. Venture capitalist Mike Speiser, one of the earliest backers, came up with the company name in honor of the team’s love of skiing.
“Also, snow comes from the clouds,” Dageville tells Fortune. “It’s a cloud connection. And it’s white. If you name your company rain, it’s not as exciting. Snow is pure. Each flake is different.”
For seven years, the company moved forward, but by early 2019 some problems had become evident to board members like Sutter Hill’s Speiser. Sales had stalled among large customers. Rollouts of new feature and products seemed uncoordinated. And the kinds of core corporate functions needed to take the company public, like legal and HR, needed to be revamped.
That’s where Slootman came in.
‘Have to shift gears’
The 61-year old Dutch executive’s first CEO job was at an early-stage startup called Data Domain that made specialized storage hardware. After joining almost at the start in 2003, Slootman helped lead it through an IPO in 2007 and then, in 2009, a $2.4 billion sale to EMC, now part of Dell Technologies.
In 2011, Slootman was recruited to run ServiceNow, at the time a small software developer focused on the help desk market. He saw the potential for ServiceNow’s suite of software, which included messaging and event tracking, to appeal to a much wider audience. He bolstered the sales staff and set out after new customers in finance, healthcare, and other industries. It worked. Taking the company public in 2012 at a valuation of about $2 billion, ServiceNow today has a stock market value of almost $90 billion.
Stepping down as CEO in 2017, Slootman followed his passion into the world of regatta sailboat racing known as Pac52 for the high-tech 52-foot long sailing vessels involved. Slootman describes it as the “NASCAR of sailing” because of the high speeds approaching 25 knots. His boat, named Invisible Hand, won the “Transpac” race from Long Beach, Calif., to Hawaii that year.
But after many more races and two years at sea, he was ready to hear Speiser’s pitch to go back to the office. “Two years straight, that’s a lot of sailing,” Slootman says now. “I got my fill a bit.”
The issues facing Slootman at Snowflake were similar in some ways to his prior companies, unique in others.
Snowflake started out going after just one part of the database market, the data warehouses that stored big data and fed business analytics apps. But even before Slootman joined, the company realized it had the ability to attack a much larger market and offer all kinds of database functions. It has even moved beyond database apps to create a marketplace for using the underlying sets of data as a sort of super-powered Bloomberg Terminal. Instead of just storing their own data, customers can pay to access data from others and integrate it into their spreadsheets and machine learning apps, for example. One of the most popular data sets right now contains detailed tracking of COVID-19 outbreaks across the U.S.
To attack the new markets, Slootman has bulked up Snowflake’s sales staff and recruited sales teams that specialize in landing large accounts. Since he took over, the company’s overall workforce has doubled to over 2,000.
At the same time, Slootman promoted co-founder Dageville to chief product officer while eliminating four separate positions that previously had oversight of various offerings. “There were too many cooks in the kitchen,” the CEO says.
And to prepare for going public, Slootman recruited some executives he’d worked with at past jobs. At the top of the list is Snowflake’s new CFO, Michael Scarpelli, who joined a year ago after working with Slootman at ServiceNow, EMC, and Data Domain.
While the expansion has cost a lot of money—Snowflake lost $171 million in the first half of 2020—Slootman hopes to get the company’s out of the red, though without getting too specific.
“You cannot gas the company and throw unlimited resources at problems and hope for the best, which a lot of startups do and this one did as well,” he says. “Eventually you’re going to have to shift gears.”
Answering the impossible question
So far, the moves seems to be working. As of the end of July, Snowflake had 56 customers that spent at least $1 million over the preceding 12 months, more than double the 22 it had in July 2019.
One large customer is Office Depot, which replaced four different data systems, including a data warehouse and a data backup service with Snowflake. It’s halved the cost of supporting the systems and sped up the time to build new applications, says Andrew Parry, vice president for application development and support at Office Depot. Beyond speeding up typical applications, Snowflake allows the company to answer “data questions that were once impossible,” Parry adds.
Even some of 2020’s other IPO candidates are Snowflake customers. Food delivery service DoorDash says moving its data to Snowflake in early 2019 has doubled the average speed of a data request at half the cost of its old system.
But the competition is not letting up. Oracle just reported that its quarterly cloud services and licensing revenue grew 2% to almost $7 billion. And the always pugnacious competitor has plenty to say about its sexier, younger rival founded by former Oracle employees.
“Snowflake took a number of shortcuts to bring its single-purpose product to market quickly, but filling those gaps is going to be a much harder job,” Jenny Tsai-Smith, a vice president for product management at Oracle, tells Fortune. “Snowflake is a data warehouse-only technology. Customers don’t want multiple specialized databases as that leads to data fragmentation, management burdens, and security issues.”
Snowflake may also have a hidden vulnerability. Neil Carson, the CEO of rival data startup Yellowbrick, admits that Snowflake’s software is a “brilliant innovation.” But he points out that Snowflake is completely dependent on running its apps via the cloud platforms of Amazon, Microsoft, and Google, also its biggest competitors. That means the three rivals could raise the price of running Snowflake, Carson argues. Yellowbrick makes its own proprietary hardware systems to run database programs and sells them to customers directly or places them in cloud data centers for rent.
Snowflake is “going to get this continual massive direct competition from their landlords, basically,” Carson says. “It’s going to be tough later.”
Then there is the issue of valuation. With trailing 12-month revenue of just over $400 million, Snowflake’s IPO value is climbing dangerously close to an almost certain kiss of death in prior stock market history: going public at more than 100-times sales. Perhaps the last company to do so was Castlight Health in 2014, which subsequently lost over 95% of its value, but most prior examples occurred during the Internet bubble in 1999 and 2000 and ended up disappearing altogether.
Still, none of those companies had anywhere near the size and visibility of Snowflake (Castlight’s revenue was just $13 million at its IPO), not to mention the imprimatur of investors Buffett and Benioff. While $30 billion is a considerable market cap for a newly public company, business software-oriented Workday is worth nearly $50 billion and VMware almost $60 billion. At the high end, Oracle has a market cap of $183 billion, Salesforce is worth $$225 billion, and Adobe is over $230 billion.
And though cloud computing was once somewhat controversial, Buffett’s interest now shows it has become “a part of the traditional investor’s canon,” Valoir analyst Wettemann notes.
CEO Slootman takes nothing for granted, however. “We have formidable competition, three of the four largest companies in the world, which makes this an interesting contest,” he says. “But if you’re going to be anywhere in the world of software, this is a heck of a cool place to be.”
(Update: This story was updated on September 15 to correct that Frank Slootman’s nationality is Dutch.)


fortune--2020-09-15--The losses continue to pile up for hedge fund king Ray Dalio

Ray Dalio is having a very bad year.
So very bad, in fact, that the billionaire risks losing his coveted title as king of hedge funds.
Dalio’s $148 billion Bridgewater Associates has run up hefty losses this year, even as rivals have minted money in the topsy-turvy markets. The damage as of August: an 18.6% drop in the flagship Pure Alpha II fund.
Those losses, the worst in a decade, top a sprawling list of troubles that has plunged Bridgewater into a round of crisis management, according to more than 25 people with knowledge of the firm’s inner workings.
First, Bridgewater’s computer models initially misread the markets for a second year in a row. Then, big clients began to head for the exits. Investors pulled a net $3.5 billion during the first seven months of the year. Industry consultants expect more to follow.
If all that weren’t enough, Dalio lost an arbitration fight with ex-staffers, is feuding with his former co-chief executive and has axed dozens of employees.
It’s a remarkable turnabout for Dalio, 71, who has long prided himself on being a big thinker on the world economy, management and more. Bridgewater insiders are concerned that the firm lost its way as Dalio cultivated his iconoclast image, hit the Davos circuit and published his 2017 best-seller, “Principles,” his rules for life and business.
At virtual town hall meetings and in client letters, Dalio and his co-chief investment officers have tried to put an optimistic face on the situation. Human beings tend to learn more from mistakes than successes, they say, and this year, we are learning a ton.
Lagging Returns
Despite the turmoil, the firm is confident about its position, and its ability to perform for clients.
“Investors believe this environment, where the world is changing rapidly, is a strong environment for a firm like ours that is so committed to understanding how the world works,” Westport, Connecticut-based Bridgewater said in a statement.
The firm has 45 commitments from investors, including many in the $1 billion range, it said without specifying whether the money is heading into the high-fee Pure Alpha hedge funds or low fee long-only products.
But there’s no getting away from lagging returns during a year when assets from global stocks to gold have risen amid the turmoil. Rivals including Caxton Associates and Brevan Howard Asset Management have posted double-digit gains.
This year’s inability to turn big ideas into big returns may be the last straw for some investors after nearly a decade of low-single-digit gains coupled with high fees.
The problem, according to those with inside knowledge who asked not to be identified without permission to speak publicly about the firm, is that Bridgewater cut risk in March as the market crashed and was slow to ramp up again—even as the Federal Reserve unleashed an unprecedented support effort. So even though it correctly touted trades such as going long equities, buying gold and betting on the yen against the dollar, it failed to benefit from its own foresight.
It’s a mistake that recalls the firm’s approach in January last year, when Fed Chairman Jay Powell signaled he’d do whatever it took to keep the economy growing. Having made 14.6% in 2018 mostly thanks to forecasting December’s market meltdown, Bridgewater failed to switch its portfolio to a more bullish position and lost just over 5% in the first two months of 2019. In response, it tweaked its models to better respond to the paradigm shift.
Fixing Models
While rivals such as Renaissance Technologies use math-heavy quantitative methods, Dalio has built his firm and fortune on models that treat economics as a discipline akin to the timeless laws of physics.
Former employees said that Dalio’s broader profile has distracted him from the firm. He has also resisted changing the computer models, they said, including adding new types of data that’s standard at other firms such as tracking oil tankers and credit card activity.
One person close to the firm disputed that characterization and said that over the past five years Bridgewater has made significant improvements to its processes.
This year, after central banks around the globe flooded markets with liquidity in response to the Covid-19 pandemic, Bridgewater investment staff worked again to change the models, this time to account for the unprecedented intervention and the near-complete shutdown of the world’s major economies. They spent more than a month turning off strategies they didn’t think would work in the new environment, and tweaking ones they believed were applicable.
Dalio himself spent as much as 70 hours a week working on the issues, said the person close to the firm, and the risk levels have been at historic norms since about August.
Staff Jitters
Compounding the performance issues, however, are personnel disputes. Former co-CEO Eileen Murray sued Bridgewater in July over her deferred compensation, and alleged gender discrimination in an ongoing battle over her departure package. Investors and consultants said the dispute troubled them, especially given Murray’s status at the firm and in the financial industry overall.
Karen Karniol-Tambour, head of research, has also been at loggerheads with Bridgewater over unequal pay, the Wall Street Journal reported. After the story was published she said in a note to staff and investors her issue had nothing to do with gender.
Amid the difficulties, Bridgewater has cut dozens of employees, saying that fewer are needed because of the pandemic and because it expects to have a smaller number of clients (though not necessarily fewer assets) in the future. The firm has said it now has about 300 investors, down from around 350.
The clients that have stayed cite an annualized 10.4% gain since 1991, and unparalleled customer service. Roughly 200 employees, about half the investment staff, work with clients, and the firm publishes a newsletter with market analysis. It also produces bespoke reports for clients on their entire portfolio — everything from risk analysis to the impact of inflation.
But Bridgewater employees have been unsettled by the poor returns and the layoffs, according to people who have spoken to current staffers.
An arbitration case against two young money managers, Lawrence Minicone and Zachary Squire, who left Bridgewater and planned to start their own firm, Tekmerion Capital Management, also caused concern among staff. An arbitration panel found in July that Bridgewater had brought a theft of trade secrets case against the pair under false pretenses to slow down their progress.
Bridgewater, which fought the panel’s decision that it must pay the Tekmerion founders’ legal fees, has since settled the case.
Extreme Approach
The litigation highlights what some said is the firm’s extreme approach to departing staff. Among the measures: two years unpaid gardening leave for anyone who exits — including those who were fired — during which an employee must ask permission before taking a new job. There are also trade secret agreements for senior investment officials.
The contracts can be so strict that if enforced they could prevent an employee from, for example, trading equities or foreign exchange for the rest of their careers. About a fourth of the 200 people who work directly in investing at Bridgewater would find it very hard or impossible to take another job in finance, according to estimates from former employees, though a person close to the firm said that number was too high.
Bridgewater said in response to questions that its goals are to protect its intellectual property and to support employees in their careers after they leave.
“We won’t sacrifice the first goal for the second, but we work very hard to meet both goals,” it said in a statement. “We believe we are fair and reasonable partners and have no incentive to enforce the restrictions more broadly than necessary.”
Still, the buzz around the Tekmerion case caused the firm to hold an open forum where staff could discuss the issue.
This year’s changes to the models could eventually pay off—Bridgewater has famously thrived after downturns despite struggling at first. While it lost 20% during 2008’s financial crisis, it gained 45% and 25% in 2010 and 2011, respectively. And after losing 22% in the dot-com crash of 2000, it posted three straight years of returns over 20% from 2002.
A similar bounce back this time could come too late for some investors who may have already lost faith in Dalio. Since stepping back from CEO duties, his public persona has been shaped by his book, celebrity friends including Sean Combs and even attendance at last year’s Burning Man festival.
“I’ve been in the business for 30-plus years and seen a lot of hedge fund founders become billionaires and focus on other things besides their firms,” said Brad Alford, who ran hedge fund investments at Emory University and the Duke Endowment. “And I’ve seen firms where assets have exploded, and that growth brings really bad performance.”


fortune--2020-09-15--She was one of the world’s few female bank CEOs. Now she’s founding a fintech venture group

For Rakefet Russak-Aminoach, part of being a good leader is knowing when to leave.
The former president and CEO of Bank Leumi, Israel’s largest bank by market cap, says no chief executive “should sit in their chair for dozens of years.”
It was partly for that reason that Russak-Aminoach, now 54, announced she was leaving Leumi in June 2019 and giving up her prominent role as one of the world’s only female bank CEOs.
“Leaving after a certain amount of time is part of [being a] role model,” she says.
Subscribe to The Broadsheet , a daily brief for and about the world’s most powerful women, delivered free to your inbox.
At the time, she didn’t give a reason for her resignation, but in an interview with Fortune earlier this month, she provided more context for her departure and revealed what she’s doing next.
On Tuesday, Team8, a Tel Aviv- and New York-based venture group backed by Microsoft, Walmart, Barclays, and Moodys, announced that Russak-Aminoach will be one of the leaders of its new arm, Team8 Fintech. She will be joined by two fintech founders, Yuval Tal of payments company Payoneer, and Ronen Assia of eToro, a social trading network and multi-asset brokerage. Both fintech startups are unicorns—industry slang for private companies valued at $1 billion or more. Galia Beer-Gabel, PayPal’s former head of business development in Eastern Europe, Israel, and Africa, is also joining the Team8 Fintech founding team.
Alums of Israel’s elite intelligence group Unit 8200 (similar to the U.S.’s NSA) launched Team8 in 2014 to build cybersecurity companies; the firm has since expanded with a venture capital arm and now a fintech division. (Russak-Aminoach says she first connected with Team8 co-founder, Nadav Zafrir, when she enlisted him for help after hackers tried to blackmail Bank Leumi.)
The new fintech division will build on Team8’s foundry model in which it partners with entrepreneurs to co-found new companies that receive Team8 funding. Team8 Fintech’s mission is B2B and B2B2C. Russak-Aminoach says a primary goal is to build startups that incumbent firms can tap as they work to go digital. That means the startups don’t have to acquire brand new customers, which can be a lengthy and expensive process.
“Our idea is let the customers be served where they are,” Russak-Aminoach said.
The first company Team8 Fintech is building will provide an engine to evaluate credit risk of small- and medium-sized enterprises in e-commerce. The division plans to co-found five to six companies over the next five years and invest $5 million to $8 million in each.
Russak-Aminoach’s decision to join Team8 is a stark departure from her prior role leading a legacy bank that dates back to 1902. Russak-Aminoach was CEO of Leumi for seven years and is credited with turning the bank around. She engineered the government-ordered sale of Leumi’s credit card division to U.S. private equity fund Warburg Pincus. She reduced the bank’s headcount to roughly 10,000 by offering thousands of workers extended severance or early pension arrangements and shrank the bank’s physical footprint by closing or merging dozens of brick-and-mortar branch locations. Russak-Aminoach also led the launch of Pepper, Leumi’s fully-mobile digital bank, in June 2017. During her tenure, the bank achieved record profits and market capitalization.
The landscape for bank CEOs changed dramatically midway through Russak-Aminoach’s tenure when Israel passed a law that capped bank executive’s compensation at 2.5 million shekels, or $730,000, a year. The law didn’t expedite her exit, she says, but allows, “It’s a factor, it’s not something you can ignore.”
Russak-Aminoach says her startup experience with Pepper is what motivated her to join Team8, versus taking another bank CEO role. She confirmed to Fortune reports that she was in contention for jobs at European banks and said she’d fielded an offer from a financial company in New York.
No matter the country, financial industry incumbents can have outdated systems and processes and lots of people, Russak-Aminoach says, meaning “how far you can go with your turnaround is limited.” The prospect of “building a new thing made me much more happy and excited than continuing to turn around a very large ship.”


fortune--2020-09-15--Announcing Fortune Connect, our new membership community

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
Today is a big day for Fortune. We are announcing the launch of a new membership community—Fortune Connect—created for mid-career professionals who are on the executive track, rising fast, and leadership bound.
Why are we doing it? Readers of this newsletter know that we believe business is changing… for the better. The change may not go as far as some would like, or as fast. But change is happening, driven by the demands of employees, customers, investors and the world at large. Society is making it clear that business has to do better, or risk losing its license to operate. And business leaders are responding.
Fortune Connect is designed to help the next generation of top leaders prepare for this change. We provide weekly programming aimed at allowing Fortune Connect fellows to interact with the leaders at the frontiers of business change, with a special focus on purpose-driven business, stakeholder capitalism and inclusive leadership.
At Fortune, we’ve worked to make business better since our founding 90 years ago. Our Most Powerful Women community, now two decades old, has helped increase diversity in the top ranks of business leaders. Our Best Companies to Work For franchise, also two decades old, has encouraged an increased focus on human capital. Our Change the World list and the related CEO Initiative, which was conceived at an historic meeting in Vatican City four years ago, have encouraged companies to use their superpowers to address the most pressing needs of society. Fortune Connect is the next step in the evolution of our purpose. If you are interested in learning more—for yourself or your executives—please go here, or shoot me a note.
Special thanks to our five inaugural Knowledge Partners for Fortune Connect: Accenture, Genpact, IBM, Salesforce and Workday. These are all companies that care deeply about talent development, and we welcome them as collaborators in this important project.
Also this morning, Ellen McGirt and I interview Lowe’s CEO Marvin Ellison on our podcast, Leadership Next (Apple/Spotify). He shared some interesting news about a new program Lowe’s is launching to get more products from small and minority-owned businesses on its shelves. Other news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
TikTok deal
The proposed tie-up between Oracle and ByteDance's TikTok will be reviewed by the Trump administration this week, Treasury Secretary Steven Mnuchin said yesterday. The deal would be a "technical partnership" rather than involving the sale of TikTok's U.S. operations, as the administration has demanded. Financial Times
Carbon neutrality
Facebook and Google have joined Apple and Microsoft in announcing plans to go completely carbon-neutral. But there are differences—Google is committing to entirely carbon-free energy use in all its data centers and campuses by 2030, and says it had retroactively offset all the carbon it has emitted since 1998; Facebook says it will become 100% supported by renewable energy this year, and ensure that its "value chain" is also net-zero-emissions by 2030. Guardian
Net neutrality
The EU's top court has for the first time interpreted the bloc's 2015 net-neutrality law, ruling that it forbids the practice of "zero rating." This practice involved operators allowing some services, such as Netflix and Spotify, to be used without counting towards the customers' data cap. Some had feared that the 2015 law left a loophole by not mentioning zero rating specifically, but it turns out that the loophole isn't really there. Fortune
Asian economy
The Asian economy will contract this year, for the first time in over six decades. That's according to the Asian Development Bank, which predicted tens of millions of people being thrown into poverty—but also forecast a "swoosh-shaped" recovery next year across the Asia-Pacific region. Channel News Asia
AROUND THE WATER COOLER
Nvidia and ARM
What's the deal with chipmaker Nvidia's controversial acquisition of ARM, the chip-design behemoth? Fortune's Jeremy Kahn dives into two key aspects: 1) Why the deal worries the U.K. tech sector so much; and 2) How the deal creates an A.I. computing juggernaut.
COVID tests 1
COVID-19 test-maker Becton Dickinson is investigating reports of false-positive results from around two dozen U.S. nursing homes that use its testing equipment. In this context, false positives could be catastrophic because they might lead to uninfected people being placed with infected people and catching the coronavirus. Wall Street Journal
COVID tests 2
The U.K.'s buckling coronavirus testing system has reached the point where people in COVID-19 hotspots such as Manchester can't get a test locally. "This is challenging," admitted Home Secretary Priti Patel in an interview. "There is no magic solution to say this is all going to be perfect." Bloomberg
Venusian intrigue
Astronomers have detected the chemical phosphine in the atmosphere of Venus, which is interesting because—as far as we know—the molecule can only be produced by bacteria or industrial processes. That makes it a potential "biosignature" of life on Venus; or at least somewhere in its atmosphere, because the planet's surface is a tad toasty (the mean temperature is 867 °F). Or, some kind of chemical process we don't know about could be creating the phosphine. Washington Post
This edition of CEO Daily was edited by David Meyer.


fortune--2020-09-15--The EU’s top court just closed a major loophole in Europe’s net-neutrality rules

Telecommunications providers in the European Union will have to pare back the practice of “zero rating,” where they bundle their Internet access with services whose use is exempted from customers’ data caps—data-intensive content-streaming services such as Spotify and Netflix, as well as operators’ own rivals to those services, are popular examples.
In a landmark ruling handed down Tuesday morning, the EU’s highest court, the Court of Justice of the EU (CJEU), confirmed it is illegal to block or slow down traffic once the user’s data cap is reached, just because that traffic isn’t part of a zero-rating deal.
This was the first time the court had been asked to interpret the wording of the EU’s 2015 net-neutrality law—the term “net neutrality” refers to the principle of equal treatment for all the traffic that passes over operators’ networks.
At the time of the law’s passage, net-neutrality advocates were deeply concerned that loopholes would allow operators to get away with practices that prioritize some traffic over other traffic, for commercial rather than technical reasons.
Zero-rating was a particular worry, because the law did not specifically mention it. Therefore, it seemed operators might be able to get away with blocking or slowing down customers’ general Internet use once they reached their data caps, while still allowing favored services to run unimpeded.
Clearer rules
The EU’s telecoms regulators decided in 2016 that the law’s terms technically allowed zero rating, as long as an assessment shows customers aren’t being steered away from services that compete with the bundled offer. Net-neutrality advocates took that as a victory, but it is only now that the CJEU has confirmed that zero rating is off the table.
And then some. The court didn’t just say it was illegal to block or slow down traffic just because it’s not part of a zero-rating deal—it said there was no need to assess the effects of such a policy on customers’ rights; just having the policy was bad enough.
“The requirements to protect Internet users’ rights and to treat traffic in a non-discriminatory manner preclude an Internet access provider from favoring certain applications and services by means of packages enabling those applications and services to benefit from a ‘zero tariff’ and making the use of the other applications and services subject to measures blocking or slowing down traffic,” the court said in its ruling.
The ruling does not stop operators from offering zero-rated services that are exempted from the customers’ data cap, as long as those services are also throttled like everything else when the general cap is reached.
The case involved Telenor Hungary, a former subsidiary of the Norwegian telecoms giant Telenor. The Hungarian telecoms regulator had told Telenor to scrap two packages that included zero-rated services—one package provided free data for messaging services such as WhatsApp; the other covered music services such as Spotify—but the operator appealed and the case ended up with the CJEU, which the Budapest High Court asked to interpret the EU law.
“Telenor Hungary has read and regrets the decision of the European Court of Justice,” the carrier said in a statement. “Nevertheless, our company remains committed to providing services that meet the real needs of our customers as an internet service provider.”
Net-neutrality advocates are ecstatic.
“We welcome this judgment,” said Maryant Fernandez, a senior digital policy officer at the European Consumer Organization (BEUC). “It draws a very strong red line for telco companies who try to deviate from the EU’s net neutrality rules. Zero-rating is detrimental to consumers, it compromises their freedom of choice. It’s the very purpose of net neutrality that consumers can access everything the internet has to offer.”
However, some say the CJEU’s decision is less relevant now than it might have been a few years ago.
Changing dynamics
“The industry dynamics have changed,” said Antonios Drossos, a Finland-based telecoms consultant whose firm Rewheel has analyzed EU zero-rating offers over recent years.
Drossos pointed out that operators are increasingly offering unlimited data to their customers, meaning there is no point in zero-rating specific services. Even when data is not unlimited, he said, operators such as those in France often provide as much as 100 gigabytes of usage for just €10-€15 ($11.89-$17.83).
“For the overwhelming majority of smartphone users, that’s more than enough to watch all the video you want—as long as you’re not using your smartphone as a modem to provide primary broadband at home,” he said.
Zero-rating is not just a European issue, by any means. In 2016, Facebook’s zero-rated “Free Basics” service was shuttered by India’s telecoms regulator, for breaking net neutrality.
And in the U.S., the Federal Communications Commission was preparing to crack down on the practice until the newly-installed Trump administration killed probes into AT&T and Verizon’s zero-rating of their own mobile video services, before gutting net neutrality more generally.
This article was updated to clarify that operators often zero-rate their own streaming services, to specify what sort of offending packages Telenor Hungary was offering, and to note that a form of zero rating might still be allowed as long as there is equality of throttling once the data cap is reached. Telenor Hungary’s statement was also added upon receipt.


fortune--2020-09-15--Apple’s ‘Time Flies’ event: 5 things to look for

Apple holds its annual September event this Tuesday, but it’s expected to be quite different from the usual iPhone-dominated unveilings that the company held in the past. That’s because, due to the COVID-19 pandemic, Apple’s regular iPhone updates are not ready yet. So analysts and rumor trackers expect other products to take the spotlight. Here are five items to look out for:
Apple Watch Series 6
Apple is calling this week’s event “Time Flies,” so the next version of the company’s market-leading smartwatch is expected to garner much of the stage time.
The Series 6 is expected to extend Apple’s lead in the health and wellness sector by adding blood oxygen level sensing capability, also known as an SpO2 measurement. Apple was the first to introduce hearth rhythm tracking, a feature since added by Fitbit and Samsung. The blood oxygen level sensor could be particularly timely, as it could help provide an early warning for COVID-19 infections.
The metric is also used to diagnose sleep apnea. And as Apple has already announced new sleep tracking features in the next version of its Watch software, that could also be a headline feature of its next iteration.
The rumor mill has also found indications that Apple may release a second, cheaper new version of the Watch. Last year, alongside the Series 5, Apple continued to sell a version of its Series 3 Watch, which debuted in 2017, for under $200. This year, it seems Apple will follow its iPhone SE strategy and offer a brand new Watch with fewer features instead of keeping an older model for sale.
New iPads
Apple updated the high end of its tablet range back in March, but the mid-range iPad Air has gone 18 months without improvement. That’s expected to change this week. A revised iPad Air, which typically starts at $500, will follow the iPad Pro models and Apple’s phones in ditching the home button. But instead of getting facial recognition for logging in, the new iPad Air may use a side-mounted finger print sensor similar to the ones used on many recent Android phones.
Subscription services
Analysts are less sure about what else might make the cut for this week’s event, as Apple is expected to unveil new iPhones next month and laptops with its own chips sometime before the end of the year. But one additional possibility for this week is the introduction of cost-saving bundles for Apple’s fast-growing line up of online services like Apple Music, Apple News, and Apple TV+.
Website 9to5Mac found entries in the latest Android version of Apple’s music app referring to an “Apple One” subscription bundle. That matches earlier rumors that Apple would make its music app the centerpiece of a bundle or choice of bundles that would include various services at prices offering a modest savings to consumers. Whether Apple’s rumored new premium fitness offering, with virtual workouts and coaching, will appear as part of a bundle is unknown, but it could link with the introduction of the new Apple Watch.
Assorted other hardware
Apple has a variety of lesser products in development at all times and some could make a quick debut at this week’s event. The company has been rumored for sometime to be working on a less expensive follow-up to its flop smart speaker, the HomePod. There are also leaks about a new pair of over-the-ear headphones and possibly a set of tracking tags, dubbed AirTags, that could be attached to important items (similar to those from Tile).
Apple’s augmented reality glasses
Since Tim Cook took over for Steve Jobs in 2011, Apple has yet to introduce a category-busting next act product to follow the Macintosh computer, iPod music player, and iPhone, and the iPad. But the company has been working for years on a set of glasses or goggles that will overlay augmented reality elements on a user’s field of view. There hasn’t been any indication that the AR product is close to market, but Apple’s promotional video for this week’s event included a large, animated AR cartoon projected in front of its headquarters, sparking some speculation that we could see an AR product debut.


fortune--2020-09-15--Loo with a view: Would you dare to use Tokyo’s transparent public toilets?

This is the web version of Business By Design, a weekly newsletter exploring design’s transformative influence on industry and enterprise. Sign up to get it delivered free to your inbox.
PHILIP FONG/AFP via Getty Images
Shigeru Ban, the Pritzker Prize-winning Japanese architect, is renowned as a designer of visitor centers, museums, condominiums, and stylish private residences. He also is acclaimed for his work as a designer of emergency shelters for victims of earthquakes, floods, and war. This year, in conjunction with the now-postponed Tokyo Olympic Games, a Japanese foundation commissioned Ban to apply his prodigious talents to the creation of a lowlier structure: public toilets.
The result, unveiled August 5 in two locations near Shibuya ward’s Yoyogi Park, is attracting global attention. The reason? Ban’s restrooms are brightly lit boxes of colored glass—and completely transparent. Or at least they seem to be at first. The structures are fashioned from “smart glass” that renders them opaque after a user enters and locks the door.
Ban calls these structures “tomei toilets.” (Tomei is the Japanese word for “see-through.”) He says the design presented itself to him as the obvious solution to two questions everyone worries about when using a public toilet: Is it clean? And is it already occupied?
At night, the facilities radiate light “like a beautiful lantern.”
PHILIP FONG/AFP via Getty Images
Ban’s glowing boxes are part of the “Tokyo Toilet Project,” a series of 17 public toilets in Shibuya commissioned for redesign by the Nippon Foundation, the philanthropic organization founded by motorboat racing kingpin Ryoichi Sasakawa. Other creators enlisted in the effort include some of the biggest names in the world of Japanese architecture and design: Tadao Ando, Sou Fujimoto, Toyo Ito, Masamichi Katayama, Kengo Kuma, Fumihiko Maki, Nao Tamura, and Kashiwa Sato.
Modern Japan is famed for its attention to cleanliness and personal hygiene. And as the Guardian‘s Justin McCurry’s notes, Japan’s high-tech toilets have long fascinated—and perplexed—foreign visitors. Before the pandemic struck, luxury washlets made by Japan’s largest toilet maker, Toto Ltd., were a prized purchase for Chinese tourists visiting Japan.
But the Nippon Foundation, which also will pay to maintain the new facilities, says it wants to dispel misconceptions that public toilets are “dark, dirty, smelly, and scary.” The Foundation describes its goal as using advanced design to create structures that will be “accessible for everyone regardless of gender, age, or disability, to demonstrate the possibilities of an inclusive society.”
Certainly, visitors will be able to relieve themselves in style. The toilet designed by Tadao Ando for Jingu Dori Park is a circular structure with a tilted engawa roof that could pass for a cafe or a luxury boutique. Maki’s toilet in East Ebisu Park features an interior courtyard and graceful curved, white roof that looks almost as if it houses an art gallery.
Does it make sense to lavish this kind of creativity on a commode? Perhaps not. But public toilets have been a focus of human design efforts since the beginning of civilization, and in a sense, are one of the hallmarks of a civilized society. (Fun fact: The earliest known example of multiple flushing lavatories attached to a sophisticated sewage system were in the ancient cities of Harappa and Mohenjo-Daro in Indus Valley, dating from the mid-3rd millennium BC.) And there is something wonderfully democratic about applying design to such an everyday human necessity.
Seven of the structures have been built so far, with the remaining ten expected to open in coming months.
More design news below.
Clay Chandler
clay.chandler@fortune.com
NEWS BY DESIGN
Terence Conran
Terence Conran, the founder of British interior design studio Habitat and the London Design Museum, has died at age 88. Opening his first Habitat store in 1964, offering stylish furnishings at affordable prices, Conran became an icon of the Swinging Sixties—the U.K.’s vibrant and hedonistic post-war revival. Sir Conran was knighted in 1983. A restauranteur himself, Conran said he only used the title “Sir” to make reservations.
Boeing blame
Two Boeing executives that oversaw the development of the 737 MAX have defended Boeing’s aircraft design process as part of a congressional investigation into the fatal crashes of two 737 MAX planes. Earlier investigations have flagged a flawed system design in the 737 MAX’s autopilot software as a contributing factor in the crashes.
Data dive
Microsoft says it has proven that running a data center under the sea is viable, closing a two-year long trial in which the company encased 864 servers in a giant tube and submerged it 117-feet beneath the North Sea. Among the benefits of underwater storage: lower cooling costs.
New Tik on the Tok
YouTube is rolling out a new feature called Shorts, which is a direct competitor to beleaguered TikTok. Shorts is set to debut in India—TikTok’s largest market, before it was banned in June—and joins Instagram’s Reels in the league of TikTok imitators.
Recycling can
Pringles is trialing a new packaging design in the U.K., years after the current incarnation—a combination of metal, plastic, foil and paper—was dubbed the “number one recycling villain.” The new design is made of recycled paper but, unfortunately, is still in the shape of a tube too small to fit your hand inside.
EVENTS BY DESIGN
September
D&AD held its Pencils award ceremony last week, digitally. The industry body awarded 618 accolades, including four Black Pencils—D&AD highest honor. At the ceremony Yuya Furukawa, the chief creative officer at Japan’s Dentsu advertising agency, became the first Asian person to win D&AD’s President award in 58 years of the Pencils.
London Design Festival is running until September 20, with a stripped-down offline program that will target Londoners much more than international visitors. Other events will be online.
Design Matters in Copenhagen is going ahead September 23-24, although it is now selling tickets to view a livestream of the event.
October
Dubai had, perhaps, the misfortune of hosting the World Expo this year. Originally scheduled to open in October and run until April next year, the Dubai Expo 2020 has been delayed until October next year instead. World Expos come but once every five years, so perhaps waiting one more year is okay.
Italy’s materia independent design festival will return to showcasing young Italian designers October 2, taking the exhibition online via Instagram and Facebook.
November
Dubai’s inaugural architecture festival, d3 Architecture Festival, will run November 11-13 on the sidelines of Dubai Design Week. The event will focus on sustainability—an existential issue for the desert city.
QUOTED BY DESIGN
“We cannot continue designing cities and buildings as if nothing had happened.”
Says Vicente Guallart, whose Barcelona-based architecture firm won a design competition for a section of Xiong’an New City—an administrative district being built 80 miles outside of Beijing to house some fo the capital's government offices. Guallart’s design—created while Spain was under lockdown—is sensitive to the possibility of future pandemics and social distancing. Its houses feature roof-top gardens, drone pads for delivery, shared 3-D printers and space to work from home.
"Our proposal stems from the need to provide solutions to the various crises that are taking place, in order to create a new urban life based in the circular bio-economy," Guallart says.
This week’s edition of BxD was curated by Eamon Barrett. Email him tips and ideas at eamon.barrett@fortune.com


fortune--2020-09-15--Lowe’s teams up with Daymond John to diversify its suppliers with a virtual pitch competition

Our mission to help you navigate the new normal is fueled by subscribers. To enjoy unlimited access to our journalism, subscribe today.
In a new initiative called “Making It… With Lowe’s,” the home improvement retailer teams up with FUBU founder and Shark Tank star Daymond John to offer hundreds of small-business owners from underrepresented communities the chance to sell their products on Lowes.com and in store.
“This is just our way as a large company to allow everyday small businesses, who we all agree are the cornerstone of our economy, to get a chance to put products on the shelf of a major company,” Lowe’s CEO Marvin Ellison says on the latest episode of Leadership Next.
The search will cast a wide net and winnow the applicants down in a one-day, virtual pitch challenge hosted by John. The top 10 entrepreneurs will then pitch their products to a panel of Lowe’s executives.
This isn’t the first way that Lowe’s has prioritized helping minority business-owners since the coronavirus pandemic began. In partnership with the Local Initiatives Support Corporation, Lowe’s granted $55 million to support minority- and women-owned businesses, as well as enterprises in rural communities.
As one of only four Black CEOs to run a Fortune 500 company, Ellison says it didn’t take police violence or protests for him to see the racism rampant in America. That’s why he has been prioritizing this work and internal diversity and inclusion efforts at Lowe’s since he began his tenure there in 2018. He says he prefers to focus his efforts where they can drive the most change: at home with his college-aged children and at work with his 300,000 employees.
He said he wants to create a “workplace of choice,” with policies that allow anyone who desires to be successful within the company to find their path. And so far, it seems like he’s doing a good job of that, according to Fortune senior writer Phil Wahba. At around the 8:30 mark, retail reporter Wahba joins host Ellen McGirt to explain that Ellison is beloved by the rank and file at Lowe’s. “They really rally behind him,” Wahba says.
That’s a necessity if Lowe’s wants to make up ground against Home Depot, to which it has ceded quite a bit of business over the years. Lowe’s is currently on a hot streak, but the gap is wide, and closing it requires a leader like Ellison with devoted employees, according to Wahba.
“There’s a lot of work left to do,” Wahba says. “Home Depot are no shrinking violets. They’re an astounding retailer, so they’re not going to give market share up that easily.”
To hear more about Ellison’s leadership at Lowe’s, what went wrong at JCPenney (where he was CEO until 2018), and why he’s proud of his work there, listen to the episode of Leadership Next below.


fortune--2020-09-15--China retail sales are finally growing—but remain the ‘weakest link’ in China’s recovery

Retail sales in China grew in August for the first time since the outset of the pandemic at the start of 2020, heralding China’s continued economic recovery following the coronavirus-sparked slowdown.
Total retail sales of consumer goods grew 0.5% year-on-year last month, according to China’s National Bureau of Statistics. Retail sales in the first eight months of 2020 dropped 8.6% compared to the first eight months of 2019.
Despite the return to growth, retail sales momentum “remains the weakest link” in China’s economic recovery, Louis Kujis, head of Asia economics for consultancy and research firm Oxford Economics, said in an email.
Other metrics, like investment and industrial production growth, have shown stronger signs of recovery. China’s industrial production—which measures mining, manufacturing, and utilities activity—grew 5.6% year-on-year in August, higher than some analysts had estimated.
“Private consumption is lagging as consumers remain cautious about spending amid the pandemic,” according to a Tuesday report from China Renaissance Securities, an investment bank.
Sales of cosmetics grew 19%, car sales grew 11.8%, and sales of household appliances grew 4.3% year-on-year in August. Online retail sales overall increased 13.3% year-on-year, slightly slower than July’s 18.8% growth. Restaurant and catering sales fell 7% year-on-year in August, a slower pace than July’s 11% drop and June’s nearly 33% decrease.
Consumer spending—which typically accounts for over 60% of China’s gross domestic product (GDP) growth, according to McKinsey—has been a focus of government efforts to revive the economy in the wake of the pandemic slowdown.
When China began to ease domestic travel and lockdown restrictions in April, China’s city and provincial governments launched promotional campaigns to stimulate consumer spending. In August, China President Xi Jinping outlined a government plan for a more self-sufficient economy that hinges on the growth of domestic consumption.
“We expect household consumption to gather pace as the domestic impact of COVID-19 fades out,” Kujis said. “But we are still waiting for signs of a more significant improvement in employment, which could provide a more solid underpinning for consumption.”


fortune--2020-09-15--Is M&A back? Investors hope so, and that’s lifting global stocks

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. The week started off with an M&A-fueled bang, and that’s giving global markets some momentum today.
Let’s see where investors are putting their money.
Markets update
Asia
The major Asia indexes are mostly higher in afternoon trading, with Shanghai up 0.5% .
are mostly higher in afternoon trading, with up . China’s retail sales jumped in August, for the first time this year, led by tech and autos purchases. It’s a further sign that the No. 2 economy is well on its way to recovery , this time with the consumer leading the way.
jumped in August, for the first time this year, led by tech and autos purchases. It’s a further sign that the No. 2 economy is well , this time with the consumer leading the way. For the first time in 58 years, the Asian economy as a whole will shrink in 2020, says the Asian Development Bank. China is a notable exception.
Europe
The European bourses were flat at the open, before climbing. London’s FTSE was up 0.7% two hours into the trading day.
were flat at the open, before climbing. was up two hours into the trading day. Boris Johnson won an important first vote in Parliament late on Monday night as he looks to garner enough support from MPs on a watered-down Brexit divorce bill that’s not entirely legal and would likely lead to a no-deal breakup with the EU.
won an important in Parliament late on Monday night as he looks to garner enough support from MPs on a watered-down Brexit divorce bill that’s not entirely legal and would likely lead to a no-deal breakup with the EU. Meanwhile, the UK labor market has gone from bad to worse as the number of jobs now lost since the start of the pandemic nears 700,000 .
has gone from bad to worse as the number of jobs now lost since the start of the pandemic nears . Airbus shares were down 1.1% in morning trade after the French planemaker offered staff a two-month bonus should they accept voluntary severance.
U.S.
U.S. futures are off their highs, but point to another positive open. That’s after the Nasdaq climbed 1.9% yesterday as M&A mania once again lifted investors’ spirits.
are off their highs, but point to another positive open. That’s after the climbed yesterday as once again lifted investors’ spirits. The $69 billion in mergers —led by the Nvidia $40 billion acquisition of Arm Ltd.— struck in the past two days marks a record for the best start to a week, renewing hopes for heavy deal flow this autumn.
—led by the Nvidia acquisition of Arm Ltd.— struck in the past two days marks a record for the best start to a week, renewing hopes for heavy deal flow this autumn. Legendary money manager Bill Gross is recommending investors switch their trading tactics. Out are growth stocks, he says. In are dividend-paying value stocks, including banks and European stocks.
Elsewhere
Gold is up, trading above $1,970/ounce .
is up, trading above . The dollar is down.
is down. Crude is up too, but Brent is still trading below $40/barrel.
***
“Little money to be made”
“There is little money to be made almost anywhere in the world—COVID-19 vaccine or no.” That’s the prognosis of Bill Gross who is convinced the tech-fueled rally is losing steam, and that investors would be wise to recalibrate their portfolios.
As I note above, he’s long on value stocks and European equities.
It’s not as quaint an idea as it sounds. According to Goldman Sachs’ latest fund-flow data, investors are growing more bullish on Europe (note: they’re putting their money into Continental Europe, not into basket-case Britain). Spoiler: I write about investors’ rekindled love affair with Europe in the upcoming issue of Fortune; I’ll share more of that analysis in this space here next week.
As for value stocks, investors are getting the message on that front too. To wit, check out this latest ETF flow data from BoA Securities.
Like Warren Buffett, investors are pouring into Japan. They also like precious metals and debt of just about any flavor. They’re also shifting more of their money into value-stock ETFs. It’s not much, but it’s in the blue (positive) over the past four weeks.
At the same time, tech and health care—the heavy hitters in June, July and August—are down. At the bottom of the list you can find growth plays.
Ditching growth stocks for value stocks is a fairly logical strategy with Election Day around the corner, a mere 48 days away. There is widespread agreement on Wall Street that stocks, at best, will trade sideways in the run-up to Nov. 3. If the poll result gets dragged out, or, gasp, gets contested, that will add all kinds of volatility to the markets. Growth stocks don’t like volatility.
Value stocks, meanwhile, are a classic hedge against that uncertainty, a strategy Bill Gross knows all too well.
***
Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Meet the new "trusted partner." Does TikTok have a new American owner in Oracle, or not? Fortune's Jeff John Roberts reports that doubts linger from Silicon Valley to Washington to Wall Street over the exact terms and meaning of the deal. As one tech commentator tweets, "No one is buying TikTok."
Problems in WFH land. JPMorgan Chase has a work-from-home problem. It's not the only one, no doubt. According to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts, the bank chief observed that productivity slipped noticeably, particularly on these two days.
Some of these stories require a subscription to access. There is a discount offer for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.
Market candy
Mister Met
As a long-suffering fan of the New York Mets, I couldn't resist this news item: Billionaire hedge-fund manager Steven A. Cohen has signed an agreement to buy the MLB club in a record-setting deal valuing the Queens-based team at up to $2.5 billion, the Wall Street Journal reports. Now to the tough stuff: extend OF Michael Conforto and invest in a bullpen. And a starting rotation. And a catcher. And... and... and...


fortune--2020-09-15--If the U.S. cripples Huawei, will China retaliate against Apple?

In August, the U.S. may have delivered a ‘death sentence’ to Chinese tech giant Huawei, potentially starving the phone and 5G equipment manufacturer of access to critical semiconductor chips. The eye-for-an-eye nature of the feud between the two superpowers begs the question: If U.S. does in fact kill or at least severely injure Huawei, how will China retaliate?
The U.S. does not have a global 5G equipment maker like Huawei that would give China a natural target for reprisal. But analysts trying to map out China’s alternatives have focused on a certain Cupertino-based giant.
“If the U.S. sucker-punches Huawei, Apple would be the obvious choice for retaliation,” Susquehanna semiconductor analyst Mehdi Hosseini recently told Barron’s.
That possibility looms as the U.S. government decides how severely it will enforce its August order, which bans any foreign chipmaker using American technology from supplying Huawei with semiconductors without getting a special license from the U.S. first. The order goes into effect Tuesday.
The ban poses an existential threat to Huawei. If the U.S. refuses to grant licenses to chipmakers, Huawei could run out of the advanced semiconductors it needs for its smartphones and 5G equipment by early 2021. Already, Huawei suppliers are bailing. South Korean media this week reported that South Korean technology firms Samsung, LG Display, and SK Hynix will stop supplying components to Huawei on Tuesday.
Apple’s vulnerability to Chinese retaliation for the U.S.’s Huawei actions is due to its exposure in China, which is unique among its American tech peers. China already has blocked many U.S. technology companies from operating on the mainland. Apple is an exception; it sells its products in China and heavily depends on the country for manufacturing. Chinese factories make an overwhelming majority of Apple’s iPhones, computers, and other products, and some 75% of Apple suppliers have at least one production site in China.
Apple is the one “global brand name” that China could retaliate against in the tit-for-tat manner that has guided U.S.-China relations for months, Hosseini said in a follow up note to Fortune. Apple did not respond to request for comment.
Apple’s reliance on China indeed makes it an obvious target for Beijing, but, experts say, that doesn’t mean China is interested in taking action against a company that it sees as an asset, one that has long played by its rules.
Unreliable entity list
Officially, China has never threatened Apple as a way to retaliate against the U.S. over Huawei. But reports in state media and a long-floated ‘unreliable entity list’ suggest the Chinese government is prepared to take action against the company.
Huawei products line the company’s global flagship store in Shanghai in August 2020. The latest U.S. salvo against Huawei threatens to starve the Chinese giant of vital semiconductors, which could prompt China to retaliate. Costfoto/Barcroft Media via Getty Images
On June 1, 2019, China’s Ministry of Commerce announced in a press conference that it was preparing a list of unreliable companies that cause “serious damages” to the rights and interests of Chinese companies. The ministry held the press conference just weeks after the U.S. added Huawei to the American government’s own Entity List, which banned Huawei from purchasing components from U.S. companies.
More than a year later, the Chinese government still has not released the list. But in May this year, Chinese state tabloid the Global Times singled out Apple, Cisco, Qualcomm, and Boeing as companies that may be subject to reprisal.
After the U.S. announced its latest Huawei order, the Global Times reiterated on Aug. 18 that China “was ready to retaliate” against those same firms if the U.S. cuts off Huawei’s chip supply.
In official statements, China’s ministry of foreign affairs has defended Huawei without making specific threats against Apple or other U.S. companies. “The Chinese government will continue to take necessary measures to safeguard Chinese companies’ legitimate rights and interests,” China’s foreign ministry spokesperson Zhao Lijian said in a press conference on Aug. 18 about the U.S. Huawei order.
Official threats or not, experts say Apple is exposed if China is looking for ways to retaliate.
“Apple is definitely a discussed target for a China response,” said Jeffrey Towson, a private equity investor in Beijing and former professor at Peking University. “And they are vulnerable.”
Towson says the company’s susceptibility is a result of Apple CEO Tim Cook going “all in” on China, especially in manufacturing.
Apple employs roughly 3 million people in China, either directly or through contractors like Foxconn, a workforce that produces the vast majority of its products, according to the Wall Street Journal. In recent years, Apple’s dependence on China has become more pronounced. Last year, Reuters found that between 2015 and 2019 Apple opened more assembly facilities in China than the rest of the world combined and that Apple now sources nearly half of its materials from Chinese companies.
What’s holding China back?
Still, China is unlikely to take the extreme measure of shutting down Apple’s supply chain because the repercussions would be too severe for China itself, analysts say.
Apple CEO Tim Cook visits a China Mobile shop in Beijing to celebrate the launch of iPhone 5S on Jan. 17, 2014. Cook has gone “all in” on China, experts say, which makes the company an obvious target for retaliation. VCG/VCG via Getty Images
China could restrict Apple from assembling phones at factories like Foxconn’s Zhengzhou plant, which constructs roughly half of the world’s iPhones, says Mauro Guillen, professor of international management at the University of Pennsylvania’s Wharton business school. It could also cut off to the Chinese companies that represent 48% of Apple’s component suppliers, said Guillen, who stresses that Apple also has suppliers in places like South Korea, Germany, and Taiwan.
In any case, such steps are unlikely in the view of Steve Tsang, director of the SOAS China Institute at the University of London. Cutting off Apple, he said, would “wreak huge damage to China as a reliable partner for the global supply chain.”
China prizes the jobs and the high-tech manufacturing ecosystem that Apple brings to the country, says John Zhang, director of the University of Pennsylvania’s Wharton China Center. And shutting down Apple’s assembly plants and cutting it off from Chinese suppliers would only encourage Apple and other foreign businesses to look elsewhere, thwarting China’s efforts to bolster its high-tech manufacturing capabilities.
A range of threats
Apple’s supply chain may be safe from reprisal, but China has a large “tool box” of other, less potent options that could hurt the company, Towson says.
He explained that China may increase Apple’s licensing requirements for factories and stores, or promote consumer boycotts similar to one the Chinese government orchestrated against South Korean automaker Hyundai in 2017 following a political spat between Seoul and Beijing.
In a piece for Wired last May, investor and president of River Twice Research Zachary Karabell suggested that China could enact more restrictions on Apple’s app store in China, force Apple to delete more apps, or place restraints on where Apple can open retail outlets.
If the U.S. follows through on denying Huawei its chips, Towson said he expects China to increase “regulatory requirements and investigations” of Apple’s China operations, which may include probes into senior, China-based managers at the company.
Such measures may limit Apple’s ability to grow sales in China by making iPhones and Apple products less attractive to Chinese consumers, Towson says. Apple’s iPhone currently owns 8.5% of China’s smartphone market compared to Huawei’s roughly 45% share, and sales in Greater China make up a significant portion of Apple’s global revenues; in the most recent quarter it accounted for 15%.
“Apple needs to be in China,” says Towson. “China is the [world’s] most dynamic consumer market, the manufacturing base for [Apple’s] electronics…and the global epicenter for innovation in smart devices and mobile apps.”
Pulled in two directions
Another reason Beijing may be hesitant to hit Apple is that the company has long accommodated Beijing’s demands. “If such an exemplary Western company cannot survive in China, does any other western company have a chance?” Zhang asked.
In February, Cook said Apple had deleted over 1,000 apps from its app store to comply with Chinese censorship requests. Earlier it had accommodated Beijing’s demand to remove the New York Times app from its mainland app store shortly after the newspaper published an investigation into China’s relationship with Foxconn, Apple’s largest contract manufacturer.
Last October, Apple took down an app called HKmap.live, which tracked movements of protesters and police during the 2019 Hong Kong anti-government protests. Critics argued that the app helped keep Hong Kong citizens safe by helping them avoid protests, but Chinese state media claimed protesters used it to target police.
But in recent weeks, Apple has signaled that it’s under pressure to take a stand against Chinese censorship.
Earlier this month, Apple released its first ever human rights policy that pledges to uphold values like free speech after shareholders pushed the company to answer for its censorship in China. In the policy, Apple states that it will still “respect national law” when such laws conflict with its principles. Nevertheless, activists called the policy groundbreaking since, at the very least, it seemed to acknowledge mounting shareholder pressure on the issue.
Zhang says that for now he doesn’t expect Beijing to retaliate against Apple for U.S. actions against Huawei given the value Apple brings to the country.
But the truce may hold only as long as Apple continues to play by Beijing’s rules.