fortune--2020-09-08--Why the Democratic Party must make a clean break with Wall Street

If the Democratic Party wants to earn working people’s votes this November, they must show they’re willing to take our side over Wall Street executives’.
In 2016, some seven years after the Great Recession, Wall Street was raking in profits after public bailouts, as working people continued to feel the impact of the downturn. Four years later, under the deregulation-friendly Trump administration, Wall Street has twisted the rules and grabbed even greater control over the economy and our democracy—mercilessly destroying jobs and communities at the same time.
The ongoing COVID-19 pandemic has revealed just how greedy and conniving Wall Street’s executives can be. With millions laid off, many without health insurance or severance, Wall Street executives continue to rake in millions of dollars, with little to no meaningful oversight from the Trump administration or its Republican congressional accomplices.
So it was disappointing to see that, at its weeklong convention in August, the Democratic Party didn’t go far enough in reining in the Wall Street greed and excess that have created a crisis for working people, particularly in retail.
Twenty-three years ago, a job at Art Van Furniture was a foothold for a brighter future. It was the definition of a good job, with strong benefits and an even stronger culture that valued all employees. But after more than two decades as a dedicated employee, this March I found myself cleaning out my barren and liquidated store in Taylor, Mich., and frantically trying to figure out how to take care of my expenses. After weeks without an income due to Art Van’s closure, I now have a job, but without health insurance. Currently, I’m paying 10 times more out of pocket for my diabetes medication and putting off surgery because I simply can’t afford it. Adding insult to injury, my coworkers and I were offered only a pittance of severance to tide us over through this incredible time of uncertainty.
You might think my job was an unfortunate victim of the coronavirus economy. But in actuality, the greed of a Wall Street private equity firm drove my employer into bankruptcy long before quarantines and social distancing became the new norm. After Thomas H. Lee Partners LP (THL) bought out Art Van in 2017, it spent the next two and a half years turning it from a profitable powerhouse and top retailer in the Midwest, to what one commentator called a “house afire.” We experienced management cutting staff, liquidating real estate, and leaving customers’ orders unfulfilled. And eventually we learned that THL would be bypassing the WARN Act and declining to give hundreds of workers the required 60 days’ notice to prepare for being jobless.
THL is not just a single bad apple but part of an expansive industry that’s rotten to its core. In statements to the press, THL has said that it was a challenging retail environment that brought down Art Van, and that its investors lost their money too when the company collapsed. But that claim ignores a bigger pattern: Since 2009, private equity has destroyed over 1.3 million jobs by bankrupting retail companies and stripping them for parts to line their own pockets, using cost-cutting tactics like we saw at Art Van.
The retail industry is the most prominent victim of Wall Street’s looting, but no sector is safe. Even our hospitals are being taken over and hollowed out by Wall Street.
Wall Street has proven to be one of the biggest enemies of working people, but the Democratic Party’s 2020 platform mentions Wall Street only four times, with zero mention of the pain private equity firms like THL inflict on communities like mine.
Yet, regardless of the DNC platform’s inattentiveness to this issue, it demands urgent attention: COVID-19 has made the risk of Wall Street destruction even greater, as firms look to opportunistically buy up struggling companies. The rate of retail bankruptcies today rivals the aftermath of the 2008 financial crisis.
Working people who have lost our jobs and health insurance to private equity have been forced to fight back against their greed ourselves. We’ve done it with success, winning a $20 million hardship fund following the bankruptcy of Toys “R” Us and winning the historic passage of guaranteed severance for New Jersey workers laid off after employer bankruptcy. With United for Respect, a multiracial, national nonprofit organization fighting for bold policy changes that improve the lives of people who work in retail, we are demanding that THL provide meaningful financial relief to Art Van employees like myself who were left hung out to dry in the middle of a pandemic.
The Democratic Party now has a crucial opportunity to join our fight and use their platform to ensure private equity can no longer destroy the livelihoods of workers left and right without any accountability. The party can join with us to ensure that corporations no longer exploit this moment for selfish greed, and that all Americans, regardless of wealth or circumstance, have access to paid family and medical leave, and quality, affordable health care as a right and not a privilege.
That’s why we launched a petition and coalesced with working families across the country to push Democratic Party delegates to prioritize, among other things, regulation for private equity and—in these uncertain times and also for the long term—to create an economy that benefits all workers, not just Wall Street billionaires.
At the very least, this would include supporting the Stop Wall Street Looting Act (SWSLA), introduced by Sen. Elizabeth Warren (D-Mass.) and Rep. Mark Pocan (D-Wis.) last year. SWSLA would stop Wall Street firms from looting businesses and destroying jobs for profit by forcing them to share liability and put workers first in the event of bankruptcy by providing for severance and pensions. The Democratic Party can further establish itself as the party of working families by supporting the FAMILY Act and the Medicare for All Act in its platform, which would ensure everyone in the nation’s workforce has paid family and medical leave, and everyone in our society has access to quality health care even during economic downturns.
Working people—especially Black women like myself—have had every obstacle put in our way by corporations and politicians on the path toward economic security. While I may not have the money to attend fundraising dinners with the Democratic Party’s leaders, I deserve a party—and an economy—that returns as much benefit to me as I provide to it.
I vote in the state of Michigan, a state that will make or break this year’s presidential election. When it comes down to it, Democrats can win when they clearly stand with people like me and my family—and not Wall Street billionaires.
Shirley Smith is a leader with United for Respect and a former Art Van employee in Taylor, Mich.


fortune--2020-09-08--IBM and Schlumberger just partnered on a big oil initiative

COVID-19 infection lingers in the gut , even after it clears the respiratory system , researchers say

IBM and oil industry services giant Schlumberger have partnered on a major initiative involving the buzzy technology of hybrid cloud computing.
The two companies revealed the partnership on Tuesday, pointing to the role of IBM’s Red Hat business in supplying the underlying technology that helps customers more easily build and run applications that operate in internal data centers and third-party cloud-computing data centers.
IBM and Schlumberger declined to comment about the deal’s financial details.
Schlumberger CEO Olivier Le Peuch explained that the partnership would result in technology that embodies the ongoing digital transformation of the oil industry. Although the oil industry has traditionally relied on heavy-duty equipment like deep-hole drilling machines, these devices were typically not connected to the Internet or configured to work with more cutting-edge analytical systems.
In theory, connecting oil equipment to the web and to cloud data centers lets engineers aggregate data across their entire fleet of devices, which can help companies more accurately track the performance of each device or improve specific operations like drilling. This so-called industrial IOT (or Internet of things) idea is becoming increasingly more popular among industries like energy and manufacturing.
But it’s difficult for companies to connect their machinery to both their internal data centers and cloud computing services without a lot of work. That’s why companies are increasingly using a type of data center technology, called container technology, which lets developers create apps that can run in multiple data centers—both internal and in the cloud.
IBM and Schlumberger began talking about an ambitious container project about a year ago and spent the past six months working on a proof-of-concept system for oil companies to use. Le Peuch described the new technology as helping geophysicists collect seismic data—which can be stored in a company’s internal data center, for instance—and then using different cloud machine-learning tools to analyze that information in order to perform a more precise “exploration of the well.”
IBM CEO Arvind Krishna said these data analytics projects for the oil industry can be more complex than tasks like weather modeling or other so-called high-performance computing jobs.
“These equations make them look like kindergarten work,” Krishna said.
Schlumberger has previously partnered with cloud-computing companies like Google and Microsoft to help power some of the machine learning services it offers clients. The new technology created with IBM presumably would help Schlumberger’s customers continue to use those cloud data-analytics services without having to move their data into third-party cloud data centers.
The idea of hybrid, or multi-cloud computing has become more popular among businesses that may be worried about storing all of their data with one cloud computing service, a notion referred to in the tech world as vendor lock-in. Additionally, Le Peuch said the new hybrid-cloud tech would be helpful for oil companies that must comply with government regulations limiting where they can store their data.
“That’s a game changer for us; it’s a game changer for our industry,” Le Peuch said.
An IBM spokesperson said that the companies have not disclosed pricing details and that the new services “will be offered by region in the months to come.”


fortune--2020-09-08--Apple is holding a Sept. 15 online event, where it’s likely to unveil its latest Watch

Apple Inc. said it will hold an online event Sept. 15, where the company is expected to unveil its latest Apple Watch. The event will be streamed from the company’s website starting at 10 a.m. Pacific Time.
The technology giant usually organizes a slick hardware-focused show every fall from its Cupertino, California-based headquarters or another location in Silicon Valley. This event will be only online due to the Covid-19 pandemic. That follows Apple’s developers conference in June, which worked well as a virtual event.
The event announcement on Apple’s website doesn’t have its typical tag line that hints at what is to be announced. But the invitation to media says “Time Flies,” indicating the announcement is related to the Apple Watch, not iPhones. The new iPhones won’t launch until October, Bloomberg News has reported.
The company is preparing new high-end and low-end Apple Watches as well as a redesigned iPad Air with an edge-to-edge screen. It’s also working on a smaller HomePod and the first pair of Apple-branded over ear headphones for release as early as later this year.
The new iPhones, coming later, will have redesigned cases, updated cameras, and 5G capabilities. Apple also plans to announce the first Mac running its own processors, replacing Intel Corp., before the end of the year. The next updates to iPhone and iPad software are due to be released this month, with Apple Watch, Apple TV and Mac software updates coming in the fall.
The company’s shares have surged this year on rising demand of iPhones, iPads and other tech gear needed to work and study from home during the pandemic.
It’s also facing increased antitrust scrutiny and complaints from App Store developers including Epic Games.


fortune--2020-09-08--Nikola stock surges 40% on General Motors partnership news

Stock in electric and fuel-cell vehicle startup Nikola exploded by nearly 40% Tuesday morning on news that it would partner with General Motors to design and manufacture the startup’s Badger electric pickup truck and use GM battery and fuel-cell technology in other vehicles. In exchange for its tech and engineering, GM will receive $2 billion in newly issued Nikola common stock, giving the legacy automaker an 11% stake in the startup.
GM shares also gained more than 6% in early trading. Meanwhile shares in Tesla dropped by as much as 17%. That dip, however, appears mostly the result of Tesla’s not being added to the S&P 500, rather than the GM-Nikola deal.
Analysts have expressed some caution about the Nikola Badger, for which the company began taking preorders before announcing its manufacturer. The announcement of GM as that manufacturing partner is, on the face of it, a massive coup for the startup. GM manufactures the GMC and Chevrolet line of pickups, which together have a 35% share of the lucrative U.S. pickup market, just behind Ford. GM’s role in making the Badger, then, will almost certainly help bolster buyers’ faith in the truck’s build quality.
“Nikola is one of the most innovative companies in the world. General Motors is one of the top engineering and manufacturing companies in the world,” Nikola founder Trevor Milton said in a statement. “You couldn’t dream of a better partnership than this.”
In addition to partnering to manufacture the Badger, General Motors will be the exclusive supplier of hydrogen fuel-cell technology for Nikola’s planned line of commercial freight trucks, with the exception of Europe. GM will also provide battery system technology to Nikola.
Markets clearly see the deal as a win for both companies. The association with GM gives Nikola a much-needed credibility boost—the startup has battled skeptics of its technology and business model, particularly since its stock was publicly listed earlier this year.
GM, meanwhile, has an uneven history in the EV market: It notoriously killed off a trailblazing electric car, the EV1, in the late 1990s. But more recently its Chevy Bolt became a mass-market game changer, and GM has announced a slate of 20 new EV models arriving by 2023. Partnering with Nikola bolsters that expansion strategy. In particular, GM CEO Mary Barra noted that the deal will expand the scale of GM’s battery production, a key element of reducing EV battery unit costs.
At the same time, however, the announcement could accentuate some investors’ concern that Nikola controls relatively little of the technology, manufacturing, and engineering behind its vehicles. This could limit the company’s profitability. GM, for instance, will receive ongoing payments for manufacturing the Badger, on top of the equity it is receiving. It is also unclear how the use of GM’s battery technology will impact Nikola’s declared plan to develop its own battery.
Production of the Badger truck is expected to start in late 2022.


fortune--2020-09-08--Trump has long wanted to kill a Russia-Germany natural gas pipeline. Navalny’s poisoning could do it

Trump has long wanted to kill a Russia-Germany natural gas pipeline. Navalny’s poisoning could do it for him

Thanks to the Kremlin, U.S. President Donald Trump may soon see one of his dearest wishes come true.
Nord Stream 2, a nearly completed project that would pipe natural gas from Russia under the Baltic Sea to Germany, has thus far withstood major diplomatic assaults from the United States. But now, with the poisoning of Russian opposition leader Alexei Navalny, there is growing pressure on German Chancellor Angela Merkel to kill the $11 billion scheme.
If Merkel does reverse her long-standing support for Nord Stream 2, as she has for the first time hinted she might do, the beneficiary would likely be the U.S.
Here’s a rundown of why Nord Stream 2 matters so much, and why the U.S. is so keen to see it fail.
‘Totally controlled by Russia’
Nord Stream 2 represents the expansion of an existing Russia-to-Germany gas system called—you guessed it—Nord Stream. The original system was completed in 2012. Nord Stream 2, running mostly in parallel to the existing Nord Stream system, would double its annual capacity to 110 billion cubic meters.
Construction on Nord Stream 2 began in 2018, after Germany granted planning permission for its end point in the northeastern German town of Lubmin.
It did not take long for Trump to express outrage. “Germany is totally controlled by Russia,” he declared during a mid-2018 meeting with NATO top brass. The President tied the matter to his often-stated desire for NATO countries other than the U.S. to step up their defense spending. “So we’re supposed to protect you against Russia, and you pay billions of dollars to Russia, and I think that’s very inappropriate,” he griped.
The key issue here is Germany’s world-leading transition to renewable energy, known locally as the Energiewende. Nuclear and coal are being phased out in favor of wind and solar, but the transition will take time, and in the meantime some energy source has to fill the gap.
The dilemma was outlined crisply in a Tuesday Der Spiegel interview with Manuela Schwesig, the Social Democratic (SPD) state premier of Mecklenburg–Western Pomerania, the state where Nord Stream 2 will come ashore.
“Mecklenburg–Western Pomerania already covers its electricity needs entirely from wind power and so on, but Germany is an industrial nation with over 80 million inhabitants,” Schwesig said. “We need, at least for the transition period, natural gas to ensure a secure energy supply in Germany.
“If we don’t get the gas from Russia, the alternative is fracking-derived gas from the U.S.,” she noted. “This is certainly the worse alternative from an ecological standpoint, and more expensive too.”
As Trump put it at the start of this year (before COVID-19 and the oil-price crash threatened the viability of U.S. shale): “With an abundance of American natural gas now available, our European allies no longer have to be vulnerable to unfriendly energy suppliers either…We urge our friends in Europe to use America’s vast supply and achieve true energy security.”
Growing criticism
The U.S. put muscle behind its criticisms of Nord Stream 2. Following an early-2019 warning from then–American Ambassador to Germany Richard Grenell, Washington followed through in December by formally threatening to impose sanctions on any company aiding the construction of the pipeline.
Allseas, the Swiss-owned contractor that was laying the pipeline, immediately suspended its work, leaving the project 6% shy of completion.
Gazprom, the Russian state-owned energy giant that is behind Nord Stream 2, responded by bringing in its own pipe-laying ship, the Akademik Cherskiy, though work on the system is still yet to resume. And this work is also being threatened by the U.S. Last month, U.S. Republican Senators Ted Cruz, Tom Cotton, and Ron Johnson wrote to the operators of Germany’s nearby Mukran port, warning them not to service Russian vessels that are trying to complete the pipeline.
But Merkel has so far backed Nord Stream 2 very firmly, despite criticism not only from the U.S., but also from closer to home.
Germany’s eastern neighbors, particularly Poland, have long criticized the scheme because they fear their own energy security is at stake.
Just last month, the Polish antitrust authority fined Gazprom—the state-owned Russian energy firm that owns Nord Stream 2—$59 million for its lack of cooperation in an investigation into the pipeline’s construction. Apart from Gazprom, the project is also backed by Austria’s OMV, Germany’s Uniper and Wintershall, France’s Engie, and the Anglo-Dutch Shell.
Central European countries don’t like the leverage Nord Stream 2 might give Moscow, and France is nervous about the same potential problem.
Many in Germany also oppose Nord Stream 2. A notable critic is Norbert Röttgen, the hawkish chair of the Bundestag’s foreign affairs committee, and one of the candidates to replace Merkel at the end of her current term next year. However, even Röttgen balked at the aggression of the U.S. over the matter, saying last year that sanctions would be “a heavy blow to trans-Atlanticists” such as himself.
“Russia is driving a wedge between Germany and its eastern neighbors, between Germany and the E.U., and between Germany and the United States,” Röttgen complained 11 months ago.
Then came Navalny
The calculus of the controversy shifted last month, with the poisoning of Navalny.
The anti-corruption crusader was taken ill on a domestic Russian flight. His team claimed he had ingested poison, probably through some tea he had drunk. After some resistance, Moscow allowed him to be flown to Berlin’s Charité hospital for treatment. At the Charité, doctors concluded that Navalny had been poisoned with Novichok, a banned nerve agent that had also been used in the attempted murder of Russian dissident Sergei Skripal in the U.K. in 2018.
Novichok was a Soviet weapon, making it something of a calling card of the Russian intelligence services. So last Wednesday Merkel decried the “attempted murder by poison of one of Russia’s leading opposition members” and said there were “very serious questions now that only the Russian government can answer, and must answer.”
Thus far, Russia has refused to cooperate with Germany’s investigation of the Navalny affair, with the Kremlin denying any involvement.
Röttgen was quick to spring into action, saying on Friday that Germany has to engage in “hard politics” by speaking in the “only language” President Vladimir Putin understands: “That is gas sales.”
Annegret Kramp-Karrenbauer, the head of Merkel and Röttgen’s Christian Democratic Union (CDU) party, also weighed in with this: “I’ve always said that Nord Stream 2 is not a project close to my heart.” And here’s Jens Spahn, the health minister: “There’s no economic issue that would be more important to us than our foreign and security policy interests.”
Foreign Minister Heiko Maas jumped into the fray on Sunday, warning of possible sanctions on Russia. Then he dropped what most interpret as a threat against the pipeline project: “I hope that the Russians will not force us to change our position on Nord Stream 2.”
That hint was at odds with Merkel’s repeatedly stated position on the project; indeed, she said just last week that Nord Stream 2 should be “decoupled” from the Navalny case.
But on Monday, the Chancellor’s spokesman said she “aligned herself with the foreign minister’s statement,” and she believes “that it’s wrong to rule something out from the start” in Germany’s potential action over the Navalny case, given Russia’s unwillingness to help the investigation.
To be sure, a Merkel U-turn on Nord Stream 2 would come at a cost. The CDU’s junior coalition partner, the SPD, still backs the project, so the stability of their pact could be threatened (though it should be noted that Maas is a member of the SPD).
There’s also a risk that, by pulling out, Germany could be seen as bowing to U.S. pressure. As the SPD’s Schwesig said in her Tuesday interview, “Germany must be able to decide for itself from where and how it gets its energy.”
But a potential reversal now looks far more likely than it did before.


fortune--2020-09-08--How a bottled-water founder became the richest man in China (for a moment)

It’s hard to deny the stock market’s love affair with technology companies—the sector has come to dominate over the past decade and even more so in the pandemic, with Apple’s now $2.1 trillion valuation pushing it above oil giant Saudi Aramco’s $1.9 trillion.
But here’s a break from that narrative: Nongfu Springs, China’s top bottled-water distributor, jumped as much as 85% in its first day trading on the Hong Kong stock exchange on Tuesday, catapulting founder Zhong Shanshan briefly into the position of China’s richest man.
Yes, China, where tech giants such as Alibaba and Tencent nest. At one point in the stock’s debut, Zhong commanded a net worth of about $59 billion thanks to his 84% stake in the bottled water company, putting his wealth briefly above that of Alibaba founder Jack Ma and Tencent founder Pony Ma, who are valued at $57 billion and $52 billion respectively.
Investors’ bullishness on the company comes in part because Chinese consumers lack access to safe drinking water, with about 80% of groundwater declared unsafe for consumption by the government in 2016, per my Hong Kong-based colleague Grady McGregor.
While Nongfu’s stock has since cooled slightly and shaved Zhong’s net worth down to $51 billion, it’s a reminder that despite all the tech, in Maslow’s hierarchy of needs, at least, you still need to eat (or hydrate).
BOUGIE INVESTING: Here’s a fun one. Despite fears of doom and gloom, the stock market has remained (perhaps alarmingly) resilient to the point of overvaluation. Now investors are looking for yield in non-traditional places, including, apparently, in shares of bankrupt companies (ahem Hertz) and in luxury goods and collectibles formerly possible only for the ultra-wealthy.
Of course, Main Street investors, for the most part, can’t afford to throw down millions of dollars for a race horse, classic car, or art piece. So fintech startups that sell fractional stakes in those assets have surged during the pandemic. Masterworks, which sells stakes in artwork for as low as $20, has apparently added 10,000 users a month during the pandemic, its founder told Bloomberg. Read more.
BOOK RECOMMENDATIONS FROM 40 UNDER 40: Fortune polled its 40 Under 40 in Finance list for their book recommendations. Here is the selection.
JOIN US: The pandemic has rewritten how employees work. Fortune is hosting a virtual discussion with experts across industries (Intel, Slack, Citi, Universal Pictures) to explore how leaders can keep their organizations motivated in a time of intense change. Register here for free to join on September 16 at 2:00-3:00 p.m. EDT.
Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com
VENTURE DEALS
- Byju’s, an Indian ed-tech, has raised $500 million in funding that values it at $10.8 billion. Silver Lake led the round and was joined by investors including Tiger Global, General Atlantic, and Owl Ventures. Read more.
- Mollie, an Amsterdam-based startup with an API-based way to integrate payments into a site or an app, raised €90 million ($106 million) in funding. TCV led the round. Read more.
- LinkDoc Technology (Beijing) Company, a Chinese-based provider of medical data solutions and oncology big data services, raised 700 million yuan ($102 million) in extended Series D funding. Investors were not disclosed. Read more.
- Livspace, a Singapore-based platform for shoppers to book interior designers and purchase home decor, raised $90 million in Series D funding. Kharis Capital and Venturi Partners co-led the round. Read more.
- Melio Payments, a New York-based B2B payments platform, raised $80 million. Investors include Coatue Management and General Catalyst.
- Tingyun, a Chinese application performance management service platform managed by Beijing NetworkBench, raised 400 million yuan ($57 million) in Series C funding. Investors include CICC Capital’s sub-fund CICC Fengtai, China Universal Asset Management Company, GF Securities’ GF Qianhe, and Mangrove Capital. Read more.
- Thunes, a Singapore-based startup developing a cross-border payments network, raised $60 million in Series B funding. Helios Investment Partners led the round and was joined by investors including Checkout.com, GGV Capital and Future Shape. Read more.
- Gaana, an India-based music streaming app, raised $50 million in funding. Tencent and Times Internet led the round. Read more.
- AnyVision, an Israel- and New York-based maker of facial recognition tech, raised $43 million in funding. The backs weren’t disclosed.
- BIMA, a London- and Stockholm-based provider of life and health insurance policies, raised $30 million in funding. CreditEase’s Fintech Investment Fund led the round and was joined by investors including LeapFrog Investments and insurance giant Allianz.
- Oncomfort, a Belgian maker of a virtual reality platform for treating pain and anxiety, raised €10 million ($11.8 million) in Series A funding. Debiopharm and Crédit Mutuel Innovation led the round.
- ThoughtRiver, a London-based legaltech startup applying A.I. to contract screening, raised $10 million in Series A funding. Octopus Ventures led the round and was joined by investors including Crane, Local Globe, Entrée Capital, and Syndicate Room. Read more.
- Sumsub, a London-based identity verification platform for fintechs, raised $6 million in Series A funding. MetaQuotes led the round.
- Athennian, a Canada-based developer of legal entity management software, raised $8 million in Series A funding. Arthur Ventures led the round and a previously undisclosed $2 million seed financing round from Q3 2019.
- Lokalise, a Riga, Latvia-based localization software startup, raised $6 million in Series A funding. Mike Chalfen led the round and was joined by investors including capital300.
- Myst AI, a San Francisco-based startup using A.I. to forecast electricity supply and demand, raised $6 million in Series A funding. Valo Ventures led the round and was joined by investors including Gradient Ventures.
- Silk and Sonder, a San Francisco-based mental wellness subscription company, raised $3.4 million in seed funding. Redpoint led the round.
- Freshket, a Thailand-based e-commerce marketplace for farmers, restaurants, and consumers, raised $3 million in Series A funding. Openspace Ventures led the round.
- HumanForest, a U.K.-based dockless, shared and ad-supported e-bike service, raised £1.8 million ($2.3 million) in funding. Investors included Cabify founders Juan de Antonio and Vicente Pascual. Read more.
PRIVATE EQUITY
- Apollo Global Management and Lone Star Funds are preparing rival bids to buy Asda, the U.K. supermarket chain, the Telegraph reports. Financial terms weren't disclosed. Read more.
- Centerbridge Partners led a €150 million ($177 million) round of funding in Auxmoney, a Düsseldorf, Germany-based credit marketplace. Centerbridge will acquire shares from existing investors. Foundation Capital, Index Ventures and Union Square Ventures remain fully on board. Read more.
- Innovative Discovery, a portfolio company of Silver Oak Services Partners, has acquired Integro, an Englewood, Co.-based provider of information governance solutions. Financial terms weren't disclosed.
- Innovery, backed by Wise Equity, acquired NB Service, an Italian system integrator in the cybersecurity market. Financial terms weren't disclosed.
- Three private equity groups have submitted final bids to Serie A, Italy’s soccer league, per Reuters. CVC Capital Partners has submitted a joint bid with Advent and Fondo Strategico Italiano, valuing a 10% stake in Serie A’s media business at about 1.6 billion euros ($1.89 billion). Another consortium is led by Bain Capital, while another has been formed by Fortress, Apax, and Three Hills Capital Partners. Read more.
- Levine Leichtman Capital Partners acquired Tropical Smoothie Cafe, a Atlanta-based franchisor of fast casual cafes with over 870 units across 44 states. Financial terms weren't disclosed.
- Royston Group, a portfolio company of Industrial Opportunity Partners, acquired the assets of ProImage Wholesale Signs, a Jacksboro, Tenn.-based wholesale manufacturer of retail signage. Financial terms weren't disclosed.
- Warburg Pincus agreed to invest in Infoniqa, an Austria-based provider of HR software and service solutions in DACH countries. Financial terms weren't disclosed.
OTHERS
- Louis Dreyfus, the commodities trader, is discussing the sale of a stake in itself to Abu Dhabi sovereign wealth fund ADQ, per Bloomberg. Read more.
- Empower Retirement agreed to acquire MassMutual’s retirement plan business. Financial terms weren't disclosed.
EXITS
- Progress (NASDAQ: PRGS) agreed to acquire Chef, a Seattle-based provider of developer operation tools, for $220 million in cash. Backers of Chef include Battery Ventures and DFJ.
IPOs
- Hensoldt, a German aerospace company, plans to go public in Frankfurt. KKR backs the firm.
F+FS
- GI Partners, private equity firm, raised $1.8 billion for its Data Infrastructure Fund.
- Mountain Capital, a growth equity firm, raised about $414.8 million for its second flagship fund, per the SEC. Read more.
- Brightspark Capital, a venture firm, raised CAD$60 for its third Brightspark Canadian Opportunities Fund (BCOF) towards an ultimate fund size of CAD$75 million.


fortune--2020-09-08--The complaints of the entitled workers of Silicon Valley

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Thirteen years ago, Google topped Fortune’s annual preposition-ending “100 Best Companies to Work For” list. I wrote an epic cover story that detailed the many perks of being a Googler. Of course, there was the food, always the food, but also dry cleaning, oil changes, fitness centers, massages, language classes, and on and on and on. Google coddled its employees in ways that would leave most employers dumbfounded. Much of Silicon Valley, in a hyperbolically named “war for talent,” followed suit.
There were drawbacks. It’s questionable if an over-coddled workforce truly produces returns for shareholders. I recall arriving at Google for an evening event and seeing employees carrying dinners boxed in takeout containers getting on massive coaches that would drive them home. They clearly had stuck around just long enough to get a free meal—not exactly the point of the free food. It reminded me of my colleagues in Tokyo a decade earlier, who would go out drinking after work and then come back to the office for a free car-service ride home so they wouldn’t have to take public transportation—not because they were working late.
I dredge all this up having read a New York Times expose about bickering at tech companies, particularly Facebook, by childless workers who resent the special treatment being afforded stressed-out parents. It’s understandable that people would lack the empathy or the foresight to realize parents have a particular set of challenges. After all, their companies have so skewed the meaning of being an employee by instilling such a sense of entitlement that this kind of response is predictable.
The leadership of the tech companies have only themselves to blame.
***
California’s infamous law that aims to require Uber, Lyft, and others to classify their contractors as employees had a bevy of unintended consequences. It ensnared freelancers like writers, musicians, and others who gig for a living and get paid by multiple benefactors. The state quietly fixed its mistake last week with a new law that exempts those individuals. The fight over ride-hail and delivery drivers rages on.
***
In the mid-1970s, my dad took me to one of my first baseball games, a Cubs-Cardinals matchup at Wrigley Field in Chicago. When Lou Brock, who died Sunday at age 81, came up to bat, I booed him because, well, he was on the other team. My father quickly admonished me: “You don’t ever boo a superstar,” he said. I’d like to think I never did again.
Adam Lashinsky
@adamlashinsky
adam.lashinsky@fortune.com
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
Extra, extra, read all about it. Why do press-shy top executives suddenly go on a big media tour? Theories: Their stock price needs a boost, they are about to do something else, they have a new book. It seems like option #3 with Netflix CEO Reed Hastings, whose stock price is skyrocketing, has pledged to stay at his company for another decade, but has a book, No Rules Rules, coming out today. Hastings is suddenly everywhere, including in the Wall Street Journal, Variety, the New York Times, and the Financial Times. Probably worth reviewing if you are into the streaming wars. Most quotable quotes:
On working from home: "I don’t see any positives."
On politics: "The leaders who get elected are leaders who are facile or a liar."
On his employees: "They don’t have to be at Netflix forever."
Success isn't a result of spontaneous combustion. All the time this summer while we've focused on Elon Musk, Mark Zuckerberg, and Kberg and the Whit, SoftBank Group's billionaire founder Masayoshi Son was hard at work behind the scenes propping up the tech market. Turns out SoftBank bought options on about $50 billion worth of tech stocks, likely fueling some of the summer's big rally. Now maybe it's unwinding the position. The stock market continued to unwind on Friday after Thursday's plunge, with stocks like Google, Zoom, and Facebook down another 3%.
Pedaling as fast as we can. As the new normal sinks in, even companies in premium market segments are taking note. Exercise equipment and programmer Peloton Interactive is cutting the price of its entry-level bike by about 15% (while introducing a new high-end model) and debuting a new treadmill about 30% cheaper than its current offering, Bloomberg reports. Similarly, Microsoft will announce a budget $300 version of its new Xbox gaming console, while the regular Xbox will cost $500.
Believing I had supernatural powers I slammed into a brick wall. More back and forth in the legal battle of Epic Games v Apple. Turned down in its pursuit of a temporary restraining order against Apple, Epic on Friday night filed for a preliminary injunction to force Apple to put Fortnite back in the iPhone app store. The number of active Fortnite users has dropped 60% since the ban, Epic says. In other Big Tech competition matters, Italian authorities opened an antitrust probe of Google, Apple, and...Dropbox. Huh.
Cool cats and kittens. In wireless world, another victory for Verizon in the semi-annual Rootmetrics rankings for best mobile network. These are the ones based on professionals driving around and conducting tests under similar conditions (as opposed to others who do crowdsourced rankings from speed test apps). Also, Verizon agreed to buy almost $7 billion of 5G gear from Samsung over the next few years, seemingly winning out over Nokia.
FOOD FOR THOUGHT
Magazine ads, sites, word of mouth? All marketing techniques are falling behind the champion of 2020: Instagram. In a compelling case study for Fortune, writer Stephanie Cain explains how the 'gram has revamped the wedding business.
An overwhelming number of wedding professionals, from stationers and musicians to event planners, say that Instagram is the most important platform for their marketing. Gone are the days when couples would meet with wedding vendors in person to discuss details. Today's couples are searching for, following, and even booking their wedding vendors via Instagram. Direct messages have become the new phone calls, and the feed is the new portfolio.
“The Instagram rabbit hole is a real thing, especially for engaged couples,” explains Marcy Blum, the event planner behind Marcy Blum Associates. “The platform is very visual. It’s very easy for a couple to see a wedding or design that resonates with them. Most couples will check out a planner’s Instagram before they are even interested in communicating with them.”
ON THE MOVE
Bankrupt telecom firm Frontier Communications is getting a new executive chairman courtesy of creditors. It's former Verizon executive John Stratton...HTC CEO Yves Maitre resigned for personal reasons after less than a year on the job. Co-founder Cher Wang becomes CEO again...David Perry, CEO of Boston agriculture tech startup Indigo Ag is out after six years and acting COO Ron Hovsepian takes over. Hovsepian is the former CEO of Novell...former Disney, Hulu, and Quibi exec Tim Connolly joins Apple's video unit in an unknown role...and in some news we missed on vacation, Stripe last month hired GM's CFO Dhivya Suryadevara as its own.
IN CASE YOU MISSED IT
How this Black woman tech CEO learned to be ‘unapologetically ambitious’ By Maria Aspan
Why the coronavirus pandemic has made 5G more essential than ever By Cristiano Amon and Sergio Buniac
TikTok’s appalling ‘Holocaust challenge’ signals Facebook-style problems ahead By Jeff John Roberts
Majority of tech employees and potential founders say big tech needs more regulation By Lucinda Shen
‘Don’t wait to be perfect:’ 4 top startup tips from a unicorn’s founder and investor By Beth Kowitt
TikTok: Everything to know about tech’s biggest soap opera By Danielle Abril
Podcast recommendations for a better life and career from Fortune’s 40 under 40 By Aric Jenkins
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
BEFORE YOU GO
Space is full of beautiful sites. NASA released a library of new images mainly from the Chandra X-ray Observatory, with additions from other stargazers like the Hubble. It's a weird and wonderful way to start the week.
Aaron Pressman
@ampressman
aaron.pressman@fortune.com


fortune--2020-09-08--It’s been a tough year for female founders. This investor and CEO have some advice

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! Women are getting bad financial advice, Paris Hilton is still building her brand, and an investor and founder share their top startup tips. Have a productive Tuesday.
– Advice for female founders. The last few months have been tough on some female-founded brands. As the fight for racial injustice and the pandemic have demanded more of the business world, several firms—Reformation, Refinery29, Ban.do, Glossier—have come under fire for failing to meet the expectations of employees and customers, and, in some instances, even those they’ve set for themselves.
At a Fortune Most Powerful Women’s “Paying It Forward” virtual event last week, Cowboy Ventures founder Aileen Lee and Rachel Carlson, co-founder and CEO of Guild Education (Lee was an early investor in the edtech unicorn), addressed the trend head-on.
In short, it’s not an easy time to be a female founder.
“You’ve just got to be super careful about everything you do because people are just looking to throw stones at every female CEO out there,” Lee said.
“Our employees expect more out of us, and that’s okay,” Carlson said of being a mission-driven company in the middle of a pandemic, “but in this chapter it’s been really, really hard to acknowledge when we can’t do as much as we had hoped.”
On the childcare front, for instance, Guild is building a daycare center, but it can’t open due to COVID-19. “At the end of the day there’s only so many things I can do to step into the homes of our employees,” Carlson says.
In this moment, Lee and Carlson offered up tips for those in the startup space. Among them? Find investors and customers who fit your mission.
During the Fortune event, Carlson recalled having to end talks with a potential client, a pizza chain, after its CEO made racist comments. “These are tough conversations you have to have internally,” she says.
Claire Zillman
claire.zillman@fortune.com
@clairezillman
ALSO IN THE HEADLINES
- Suspect advice. A new study of financial planning firms in Hong Kong found that women are more likely to be pushed into chancier investments. "Advisers think they can fool the women and get away with selling them advice with sub-par results,” study co-author Utpal Bhattacharya said. The approach could backfire, however. A separate Bank of America study found that wealthy female investors who have bad experiences with financial advisers are more likely than men to fire them. Bloomberg
- Parental perks. Employers, especially tech companies known for doling out workplace perks, have rushed to bestow additional pandemic-era benefits on parents as they navigate at-home learning and closed daycare centers. In some corners, the policies have sparked backlash from workers without kids, who argue that they're shouldering heavier workloads as colleagues with children get preferential treatment. New York Times
- On defense. As President Donald Trump denies the bombshell Atlantic report that he disparaged military veterans, he's lashed out at two women by name. He demanded that Fox News fire reporter Jennifer Griffin after she confirmed parts of The Atlantic story (Griffin's colleagues defended her), and he attacked Laurene Powell Jobs, The Atlantic's majority owner.
- VP vaccine. Another target of Trump? Kamala Harris. The Democratic VP nominee said this weekend that she would be skeptical of any COVID-19 vaccine approved by the Trump administration, unless a "credible" source agreed it was safe. Trump, who's tied his reelection hopes to a vaccine approval, accused Harris of sabotaging U.S. efforts to develop a coronavirus vaccine at record speed. Politico
MOVERS AND SHAKERS: Girls Who Code Chief Operating Officer Tarika Barrett is joining the board of McGraw Hill.
IN CASE YOU MISSED IT
- According to Archambeau. Shellye Archambeau ran an enterprise software company now known as MetricStream for 15 years, making her one of the first (and still very few) Black women to be CEO of a Silicon Valley tech company. She stepped down in 2018. Archambeau is out with a new book and tells Fortune's Maria Aspan she's pleased that talking about race is no longer taboo. Fortune
- Paris on Paris. Emma interviewed Paris Hilton about an upcoming documentary that examines Hilton's legacy as the original influencer. She's far from her Simple Life days, but she's still working to expand her personal brand and is "excited for the next phase." Fortune
- The face of TikTok. How did Charli D’Amelio, a teenager from Connecticut who's amassed over 6 billion likes and 82 million followers, become the face of TikTok? The competitively-trained dancer's self-assuredness and approachable choreographies make her a 'safe' recommendation for TikTok's algorithm, which has catapulted her to stardom. New Yorker
ON MY RADAR
Nearly 250 women have been fatally shot by police since 2015 Washington Post
17 extremely useful productivity tips from Fortune's 2020 40 Under 40 Fortune
In a mostly white genre, country artist Mickey Guyton has a breakout moment Washington Post
PARTING WORDS
"My commitment is to finding solutions, and I am more than willing to work with him."
-Anita Hill on her plans to vote for Joe Biden, despite Biden overseeing the 1991 confirmation hearing of then-U.S. Supreme Court nominee Clarence Thomas. Hill was the star witness.


fortune--2020-09-09--Book recommendations from Fortune’s 40 under 40 in health

Trump wants to end U.S. reliance on Chinese manufacturing ‘ once and for all.
’ U.S. firms aren ’ t @

An eye-opening examination of the U.S. health care system that begs the reader to consider a new perspective; a guide to building effective business relationships while staying true to yourself; and one of the most lauded memoirs in business.
Here is a selection of book recommendations from this year’s 40 Under 40 in health.
The Moral Corporation by P. Roy Vagelos and Louis Galambos
I frequently refer back to The Moral Corporation, [cowritten] by P. Roy Vagelos, MD, who is not only Regeneron’s chairman but also a fellow Greek-American and a role model of mine. I connect strongly with his concept of making medicine that is both useful for public health and conducive to building a successful company. His commitment to societal good helps shape my own career aspirations. —Christos Kyratsous, vice president, research, infectious diseases and viral vector technologies, Regeneron Pharmaceuticals
The Attention Revolution: Unlocking the Power of the Focused Mind by B. Alan Wallace
I got it 10 years ago from my former boss, a Buddhist, who later invested in our company via his VC fund. He gave it to me before I went to live on a cattle ranch in Brazil, where I wouldn’t have any connection with the outside world for months. This book taught me how to meditate, back when Headspace didn’t exist and mindfulness wasn’t so sexy. Before reading the book, I thought that meditation was fake and a bunch of gobbledygook. However, with long stretches of nothing to do at the ranch, I began practicing the techniques in the book and actually noticed progress. Every day I could focus just a bit more, and my mind grew calmer. Since then, I’ve been meditating regularly. It got me through some pretty tough times at my company. In my opinion, success is all about weathering crises, which means that a calm mind is such a powerful ally to have. —Michael Kapps, founder and CEO, Vitalk Health
Managing Oneself by Peter Drucker
The most precious thing we have is our own time. This little essay helps focus on self-knowledge in what you’re best at, and how you should prioritize your time. I turn back to it every few years. —Kate Ryder, founder and CEO, Maven Clinic
The best book that has helped me in my career involves foxes and hedgehogs. Philip Tetlock, in his book, Expert Political Judgement, helped me garner the strength required for an entrepreneurial journey. In his book, Tetlock proves that “hedgehog” expertise (academic and single-topic) fails at predicting the future, while “fox” expertise (one that is formed through lessons from different parts of the woods) does better. I always felt I didn’t have the skill set to lead a company in making an impact on the future, because I didn’t pursue a doctorate and instead had a “fox-like” career. The book taught me otherwise. —Yonatan Adiri, founder and CEO, Healthy.io
Mountains Beyond Mountains by Tracy Kidder
The book that inspired me to work in health care was Mountains Beyond Mountains. The story of Dr. Paul Farmer’s journey from Harvard to tackling malaria in Haiti and Peru opened my eyes to impact-driven innovation. It pushed me to look beyond degrees and accolades, beyond words, and even beyond actions, to a singular focus on scalable impact.—Kate Rosenbluth, founder and chief scientific officer, Cala Health
Catastrophic Care: Why Everything We Think We Know About Health Care Is Wrong by David Goldhill
Goldhill’s writing and our conversations have had a profound impact on my views on the ideal health care system. I admire his unwavering view that patients should be in complete control of their health care, even when that idea is extremely unpopular among the health care establishment. —Zachariah Reitano, cofounder and CEO, Ro
Crucial Accountability: Tools for Resolving Violated Expectations, Broken Commitments, and Bad Behavior by Kerry Patterson, Joseph Grenny, David Maxfield, Ron McMillan, and Al Switzler
I love Crucial Accountability, which is centered around how to have hard conversations with people. Internally, our No. 1 principle is “Be super transparent, but be nice about it.” This is extremely difficult to pull off, but if you can do it—and teach other people to do it—the reward is tremendous. As we’ve grown the company, we have new folks joining who are very talented but who haven’t spent the last 14 years with me, and so I’ve had to learn to have frank conversations with new peers in order to build an unbreakable team. In some ways, this is the hardest part of building the company. Crucial Accountability helped me learn the strategies for tackling these hard conversations in a way that builds relationships and addresses issues and roadblocks, without hindering forward progress. These principles have not only impacted how we work internally, but have permeated our core behavior change product as well. Because open communication is so foundational for building anything—whether building a product, getting a team to gel, or getting your spouse to support you on a new health or fitness journey. —Artem Petakov, cofounder and president, Noom
Expect to Win: 10 Proven Strategies for Thriving in the Workplace by Carla A. Harris
Expect to Win by Carla A. Harris is a book that continues to motivate and drive me toward my career goals. I’ve found the clear-cut advice to be applicable no matter what my work setting may be. I turn to it often as I transition between roles. More than anything, the title alone helps me reframe my thoughts and approach to every role I pursue. —Lauren R. Powell, vice president, head of Time’s Up Healthcare, Time’s Up Foundation
The Celestine Prophecy by James Redfield
I love The Celestine Prophecy, a book I read 20 years ago. Its thesis is simple: There is a reason and purpose behind every interaction you have with a person, no matter how well you know them. In my line of work, I meet people all the time. One of the things that drives me personally is trying to authentically understand the reason for meeting this one person out of the 7 billion people on the planet. The book dives into this and discusses the power of these often serendipitous connections. Whether it’s the deeper connections we have or one-off conversations, it has helped me frame the importance of every person I meet. —Ambar Bhattacharyya, managing director, Maverick Ventures
Shoe Dog: A Memoir by the Creator of Nike by Phil Knight
I really enjoyed the book Shoe Dog by Phil Knight. In many ways I aspire to build a business like Nike with a global footprint and recognizable brand. I appreciated how much Knight wrote about the early days of Nike and what a struggle it was to get the business off the ground. I also loved how he was clearly maniacal about those early shoes and how much every detail mattered to him. —Will Ahmed, founder and CEO, Whoop


fortune--2020-09-09--Trump wants to end U.S. reliance on Chinese manufacturing ‘once and for all.’ U.S. firms aren’t comp

Trump wants to end U.S. reliance on Chinese manufacturing ‘once and for all.’ U.S. firms aren’t complying

Want to understand why tech stocks are crashing ?
This metric explains it all

A survey of American businesses in China released on Wednesday found that a majority of U.S. companies in China don’t have plans to move manufacturing out of China and into the U.S., despite President Donald Trump’s recent remarks that doing so was a national priority.
Trump, speaking at a White House press conference on Monday, said he would create “made in America” tax credits, impose tariffs “on companies that desert America to create jobs in China and other countries,” and prohibit federal contracts with companies that outsource to China.
Trump said his administration would “make America into the manufacturing superpower of the world” and “end our reliance on China once and for all.” The comments put a finer point on Trump’s long-standing pledge to oversee a mass re-shoring of U.S. manufacturing currently based in the mainland.
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But according to a survey by the American Chamber of Commerce in Shanghai, which was conducted in June and July, more than 70% of U.S. companies that own or outsource manufacturing in China do not plan to shift production outside China. Just 3.7% said they are shifting some production to the U.S. from China.
Nor are a majority of the 346 surveyed companies planning to move jobs from China to the U.S. In fact, two-thirds of respondents said they planned to maintain or increase the number of staff in China. The one-third of companies that do plan to cut jobs in China are doing so mostly because of the pandemic, AmCham Shanghai president Ker Gibbs told Bloomberg.
While most U.S. companies aren’t planning to relocate manufacturing from China, the pandemic has dampened their investment outlooks for China and their global profitability forecasts. Almost half of respondents expect their 2020 global revenue to be lower than 2019 totals, and 28.6% plan to increase their investment in China, compared with 47.2% in 2019.
Almost 80% of surveyed companies were profitable last year, and for nearly 50% of the firms, revenue growth was higher in China than in the rest of the world, despite the U.S.-China trade dispute and ongoing political tensions between the two countries.
But the feud has led to some pessimism. The share of companies saying that the U.S.-China trade tensions could last indefinitely rose 10 percentage points, from 16.9% in 2019 to 26.9% in 2020. That’s a projection, not a hope, according to Mark Gilbraith, management consulting leader for PricewaterhouseCoopers China, which worked with AmCham on the survey. “U.S. businesses in China would like to see the two countries resolve their outstanding issues quickly and reduce tensions,” he said in a statement.


fortune--2020-09-09--China’s top chipmaker could be Trump’s next target in the trade war

China’s best bet for a domestic semiconductor maker could become the latest target in the Trump administration’s trade war with Beijing.
On Saturday, Reuters reported the White House is considering adding Semiconductor Manufacturing International Corp. (SMIC) to the Commerce Department’s so-called Entity List, a blacklist of companies that U.S. suppliers require special permission to work with.
“The Company is in complete shock and perplexity to the news. Nevertheless, SMIC is open to sincere and transparent communication with the U.S. Government agencies in hope of resolving potential misunderstandings,” SMIC said in a statement Saturday.
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On Monday, the Chinese chipmaker’s Hong Kong–listed shares tumbled 22%, wiping out $4 billion in value. Shares in SMIC, which relies on American-made components for production, continue to trade down as of Wednesday.
In a note sent Monday, Morningstar analyst Phelix Lee advised investors to wait out the uncertainty but added that, if a ban does come into place, “the longer-term outlook is inevitably negative.”
Introducing SMIC
Since starting a trade war with China in 2018, the Trump administration has wielded U.S. dominance in semiconductors as one of its most powerful weapons. The dreaded blacklist has been deployed with devastating effect against Huawei Technologies, which the U.S. has managed to isolate from its most advanced computer chip suppliers.
SMIC, mainland China’s largest contract chip manufacturer with $3 billion in revenue last year, is an obvious next target.
Founded in 2000, SMIC is Beijing’s answer to the Taiwan-based Taiwan Semiconductor Manufacturing Co. (TSMC)—the world’s largest contract chipmaker and pioneer of the “pure play foundry” business model. A pure play foundry focuses solely on manufacturing, rather than designing and selling its own-brand generic chipsets.
SMIC follows the same business model as TSMC and, in fact, has previously imitated TSMC much too closely. The Shanghai company’s founder, Richard Chang, is a former TSMC executive. He left TSMC in 2000 to start SMIC, with backing from the Chinese government. TSMC sued the new venture for theft of trade secrets and patent infringement three years later. SMIC settled for $175 million in 2005 but violated the settlement terms and was sued again in 2006 in a California court, settling once more in 2009.
Richard Thurston, TSMC’s legal counsel at the time, told Fortune during an interview earlier this year that he thought SMIC submitted to the U.S. court’s ruling because the Chinese company was so dependent on the U.S. market.
“At the time, SMIC was interested in selling in the U.S., so they had to abide by U.S. decisions. But now they sell mainly in China, so perhaps today it is harder to prevail against them,” Thurston said. According to its latest annual report, China accounted for 60% of SMIC sales in 2019. But the U.S. is SMIC’s second-largest buyer, providing 26% of the chipmaker’s revenue last year, down from 32% in 2018.
Chipping away
Beijing accelerated its push for a domestic semiconductor champion in 2018, after U.S. sanctions brought production lines at China’s state-owned telecom manufacturer ZTE to a halt. The sanctions blocked ZTE’s access to U.S. computer chips, alerting China’s officials to the potential danger of overreliance on the U.S.
Beijing responded by funneling billions of dollars into funds for its domestic chip industry. SMIC raised $2.5 billion in government-led funding in May in preparation for a secondary listing in Shanghai, where it raised $6.6 billion in July. But the war chest has yet to produce a champion.
“It’s not possible for SMIC to surpass TSMC within the next five years,” Brady Wang, an analyst at Counterpoint Research, told Fortune. A semiconductor’s sophistication relates to the space in between each transistor on the chip, measured in nanometers (nm). The smaller the gap, the more advanced the chip.
According to Wang, TSMC will soon begin producing 3nm chips, while SMIC’s most advanced production is just 14nm. That’s not sophisticated enough for A.I., smartphones, or autonomous vehicles, Wang says. If SMIC loses access to U.S. components—such as the industrial tools it uses to manufacture semiconductors—catching up will become virtually impossible.
The sudden slump in SMIC’s share price this week shows investors recognize its weakness.


fortune--2020-09-09--Global stocks climb—and futures jump—after Tuesday’s sell-off

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. What’s this? Green on the screens? Investors are buying European shares and bidding up U.S. futures this morning. Yes, Nasdaq futures too. That’s despite a blow of bad news on a pivotal COVID vaccine trial.
Let’s check in on the action.
Markets update
Asia
The major Asia indexes are all in the red in afternoon trading, with the Shanghai Composite leading the way, down nearly 1.9% .
are all in the red in afternoon trading, with the Shanghai Composite leading the way, down . China’s IPO market remains as hot as ever. Nongfu Springs was trading up nearly 3% on Wednesday. Earlier this week, the bottled water brand spiked nearly 85% , briefly making its founder China’s richest man.
remains as hot as ever. Nongfu Springs was trading on Wednesday. Earlier this week, the bottled water brand spiked nearly , briefly making its founder China’s richest man. The #BoycottMulan call is growing louder, putting Disney in a tough spot after rolling out the Mulan reboot last weekend on its streaming platform.
Europe
The European bourses were flat at the open, before gaining. The Stoxx Europe 600 was up 0.6% an hour into trading.
were flat at the open, before gaining. The was up an hour into trading. AstraZeneca shares were down 0.8% in early trading on Wednesday (it sank more than 6% in the premarket). That’s after the drugmaker disclosed it’s had to halt its COVID vaccine trials when one participant fell ill.
shares were down in early trading on Wednesday (it sank more than 6% in the premarket). That’s after the drugmaker disclosed it’s had to when one participant fell ill. Following the apparent poisoning of Russian opposition politician Alexei Navalny, the calls have grown louder for Germany to pull out of the controversial Nord Stream 2 natural gas pipeline. Seemingly nothing would please the Trump Administration more.
U.S.
U.S. futures have been gaining ground all morning, even tech futures. That’s after the Nasdaq closed in correction territory on Tuesday.
have been gaining ground all morning, even tech futures. That’s after the Nasdaq closed in on Tuesday. The Nasdaq’s three-day plunge from an all-time-high to correction is, yes, a new record.
to is, yes, a new record. Tesla, which lost a record 21% yesterday, epitomizes so much of the volatility in tech stocks. Its market cap loss over the past 24 hours exceeds the combined value of Ford and General Motors. And, this marks the second bear market for Tesla shares this year. Oh, it’s also up 294% YTD.
Elsewhere
Gold is down, trading steady below $1,940/ounce .
is down, trading steady below . The dollar is flat.
is flat. Crude is rebounding, with Brent trading above $40/barrel.
***
What happened to the value investor?
Value stocks are having a bad pandemic. But you know what? Those troubles predate COVID. They’ve been slumping since the housing bubble last decade, and just haven’t recovered.
“The last ten years have seen the worst returns ever for US value stocks versus growth, even worse than during the dotcom bubble,” BofA Securities analysts wrote in a recent investment note. “In the last 3 years value has given up all of its gains since the year 2000.”
A quick refresher on what constitutes a value stock: they’re stocks that trade at a low price relative to fundamentals such as dividends, earnings and sales.
I know. An investment strategy that relies on metrics like P/E sounds so antiquated, kinda like your buddy’s car that features a CDs-only sound system.
Value stocks do well in times of strong economic growth, actual inflation, solid interest rates, and, in turn, appealing Treasury yields. (Remember those things?)
Banks and utilities come to mind. For starters, they reliably pay dividends and have solid top-line prospects.
Growth stocks, meanwhile, tend to do well when there’s a big shock, such as a pandemic. They trade on the belief they’ll outperform the rest of the market. It’s partly a bet the stock will do well. And partly a bet that the economic conditions are so lousy that value stocks don’t stand a chance. If you’re long on growth stocks you’re probably pessimistic about the prospects of the overall economy.
“The most powerful explanation for the death of value is the global economic slump,” BofA writes. “The value factor is intimately tied to economic growth & inflation, and as both of those have become more scarce, so too have returns on any assets linked to them.”
The problem with this particular rally in growth stocks is that it comes at the expense of just about everything else. When investors don’t see any decent returns in anything but growth, the herd mentality takes hold. Popular trades become crowded trades, inflating asset bubbles.
And bubbles pop.
***
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
Tesla snub. Tesla bulls were banking on the EV pioneer's inclusion in the S&P 500 this month. Spoiler: it didn't happen, and the stock has crashed. So what was the reason behind the mega snub? Fortune's Anne Sraders hits up her contacts on the Street, who offer up this explanation.
Tax holi-daze. President Trump's executive order granting Americans a temporary tax holiday is turning into a washout. ADP, the biggest payroll systems provider in the U.S., says it now won't participate. The state of Arizona announced shortly afterwards it too won't green-light it as it saves having to slam employees with a double-tax whammy in January.
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
50.1
That's the price to earnings ratio of the biggest Nasdaq listings, or the Big Ten, as Fortune's Shawn Tully calls them. That's not just incredibly expensive, it's one of the primary reasons why we're witnessing this meltdown in tech stocks right now.


fortune--2020-09-09--Why PayPal’s Dan Schulman gave workers pay increases, without the market requiring it

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
PayPal CEO Dan Schulman is one of the most passionate proponents of stakeholder capitalism that I know, and is unabashed in his advocacy.
“I’m a big fan of capitalism, but like everything else, it needs an upgrade,” Schulman told Ellen McGirt and me in the latest episode of Leadership Next. “This idea of just counting on market forces to create a just and equitable society isn’t working.” He gave the following example from his own experience:
“I saw that firsthand within PayPal. We pay at or above market rates in every place in the world where we hire. We did a study and we looked at net disposable income, how much money they had after taxes and essential living expenses. For call center workers, entry level workers, which is a large percentage of our workforce, their net disposable income was below 10%. We feel like 20% is the bare minimum you need to have savings, to not struggle, and to make ends meet at the end of the month…You can’t have passionate employees if every month they are worried about how they are going to make ends meet.”
The result: he gave pay increases to PayPal workers, even though the market didn’t require it.
Schulman argues his actions on pay have worked just fine for shareholders. “The people who argue profit and purpose are two different things, I think, don’t understand that they don’t really work against each other.” And for now, at least, PayPal’s performance has justified his approach. “We just had a record quarter across almost every important metric in our business” thanks to the rise in digitization, he says. The company’s stock price is up 75% since the first of the year.
You can hear the whole interview with Schulman here. More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Selloff pause?
Yesterday's big selloff in the U.S. (S&P 500 down 2.8%, Nasdaq down 4.1%, blame tech stocks again) continued into Asian markets today, with the Nikkei falling 1% and the Shanghai Composite down 1.9%. But things picked up when European markets opened; the Stoxx 600 was up 0.5% at the time of writing, with U.S. futures rising slightly too. Wall Street Journal
Vaccine pause
AstraZeneca and the University of Oxford's trials of a potential coronavirus vaccine are on hold, as the scientists evaluate why one participant came down with an unexplained illness. AstraZeneca says this is merely standard procedure, but investors took fright and the company's share price dropped 6%. Fortune
Huawei chips
South Korea's Samsung and SK Hynix are reportedly set to bow to U.S. pressure and stop supplying Huawei with their chips. The suspension of trade will apparently kick in next week. New U.S. sanctions introduced last month forbid non-American firms from selling Huawei components that are made using American technology, unless they get U.S. approval to do so. The Verge
Apple strikes back
Apple has filed counter claims against Epic Games for lost App Store fees and other damages, following the Fortnite maker's suit against Apple over its App Store conditions (30% commission on in-app payments, plus required use of Apple's payment system.) Epic instituted its own payment feature in the popular game, leading Apple to pull it from the App Store. Reuters
AROUND THE WATER COOLER
Google Ireland
Google has backed out of plans to lease a 202,000-square-foot piece of office space in Dublin. The office would have had enough space for 2,000 workers. Google has not said why it pulled out, but insists that it will "continue to invest" in its Irish operations—handy, as its European headquarters are in Dublin. CNBC
Testing times
The U.K.'s health secretary has laid into Britons for getting coronavirus tests when they aren't displaying symptoms. "About 25% of people who are coming forward don't have symptoms and aren't eligible," Matt Hancock complained, as those trying to book tests via the government's online portal remain greeted with the message that the "system is unavailable." Sky News
Labor rights
New York Magazine's Intelligencer has an interesting interview with American Compass founder and former Mitt Romney adviser Oren Cass, who sets out his vision of organized labor done the conservative way. He argues for the widespread rollout of works councils, and for a form of collective bargaining—and potentially striking—that takes place at a sectoral level, rather than being a matter for a particular firm and its employees. Intelligencer
TikTok sale
The forced sale of TikTok's U.S. operations is the opposite of being "tough" on China, according to the U.S. Naval College's Rebecca Lissner, who writes for Fortune: "If democracies make shortsighted decisions and retreat to their own digital shores, they will leave China with more room to control information how it pleases and help other repressive states to do the same. By closing off the U.S. to China, Washington is actually making it easier for China to write the global rules governing 21st-century technologies." Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-09-09--Hong Kong’s citywide COVID-19 testing has become a barometer of public trust

At the Hong Kong Park Sports Center in central Hong Kong, just opposite the U.S. consulate, the basketball hoops are tucked up into the rafters, and volleyball nets are hidden out of sight. In their place, dozens of chairs are spread six feet apart. Ten COVID-19 testing stations manned by medical workers in full personal protective gear encircle the seats.
The gym, usually a hub for basketball, badminton, and volleyball leagues, as well as pickup games, has become a makeshift testing center. It’s one of 141 sites across Hong Kong that the government is using to conduct its Universal Community Testing Program, which offers a free, voluntary COVID-19 test to every resident of the city of 7.5 million.
A woman standing in line for a coronavirus test asks one of the officials if the test—a nose and throat swab—hurts. No, the official says.
The nose swab, if not painful, is certainly intrusive, as a Fortune reporter found out. It feels like a strong tickle in a space behind the eyes and is capable of inducing tears. The throat swab is less invasive, requiring only a quick brush of the back of the tongue. Once the plastic sticks, one for each sample, are retracted and sealed in a bag marked “biohazard,” the residents are hustled out of the facility.
They’re informed of their test results by text message. A Fortune reporter who got tested received a ping from the Hong Kong government almost exactly 48 hours later: “Your result is negative,” it said.
Mass-testing apparatus
The Hong Kong Special Administrative Region is in the middle of an ambitious scheme to test the majority of its residents for COVID-19 in less than two weeks as it battles a “third wave” of COVID-19 that has more than tripled the city’s caseload. Hong Kong now has 4,896 coronavirus cases and 99 deaths. No small feat, the scheme has deployed 2,000 medical professionals to more than 100 stations across the city where tests are administered from 8 a.m. to 8 p.m. daily.
But the initiative, which began on Sept. 1 and is being carried out in partnership with China’s central government, is measuring more than the infection rate; it’s become a barometer for public trust in the government of the embattled city—both local officials in Hong Kong and China’s central authorities in Beijing.
Immediate controversy
The universal testing scheme was controversial as soon as it was announced, coming amid months-long social unrest that has strained the relationship between Hong Kong residents and their leaders.
According to the Hong Kong Public Opinion Research Institute (PORI), trust in both the local and national government has fallen to all-time lows, with distrust of local leadership at more than 60%. The decline accelerated last year when Hong Kong’s government pushed a bill that would have allowed extraditions to mainland China.
Local residents line up for nucleic acid testing for the COVID-19 coronavirus at a testing site on Sept. 1, 2020, in Hong Kong, China. Authorities have set up 141 testing sites across the city to test as many Hong Kong citizens as possible. Li Zhihua—China News Service/Getty Images
The bill kick-started a year of intense protest by Hong Kongers, which the local government failed to quell. Tired of the unrest, Beijing imposed a sweeping national security law in Hong Kong in June. The law, aimed at silencing dissent, shattered the notion that Hong Kong’s legislature is independent from Beijing.
Since the law’s enactment, local authorities have used it to restrict protests and free speech.
The latest crackdown occurred on Sunday, when crowds took to the streets to oppose the government’s decision to postpone for an entire year legislative council elections that were supposed to take place on Sunday. Police in riot gear—and others camouflaged in plain clothes—made nearly 300 arrests, citing the majority for “unlawful assembly.”
The government says the elections were put off because of COVID-19 risks, but critics see irony in potential polling places now being used as mass testing sites; if it’s safe for Hong Kongers to stand in line for COVID-19 tests, they argue, Hong Kongers would be safe queuing to vote. Critics believe the elections were postponed because the pro-Beijing government fears an embarrassing groundswell of support for pro-democracy councillors.
Hong Kong Chief Executive Carrie Lam says drawing parallels between the transmission risk of citywide voting and citywide COVID-19 testing are “inappropriate and unreasonable.” Unlike the elections, Lam says, the universal testing scheme is not being carried out on a single day.
Virus strategy scrutiny
The government’s response to the pandemic itself also has fueled public distrust. Hong Kong was swift to recognize the threat of the coronavirus outbreak in Wuhan, China, but residents have criticized the government for not doing enough to prevent transmission.
“I think the Hong Kong government has failed over a matter of months to convince the public that they have a solid strategy for controlling the virus,” said Ma Ngok, an associate professor of government and public administration at the Chinese University of Hong Kong.
A man wearing a “Voting Is a Right” placard faces off with riot police during an anti-government protest on Sept. 6, 2020, in Hong Kong. Pro-democracy activists in Hong Kong have called for boycotts of the city’s universal testing program. Anthony Kwan—Getty Images
Last month, for example, the government banned dining in restaurants as part of its effort to suppress the third wave, effectively forcing manual laborers to eat on the street. Following public outcry, the government backpedaled on the dining ban a day later.
The government also was slow to plug a loophole that had allowed over 200,000 people to enter Hong Kong without undergoing quarantine—an exception experts say is responsible for starting the third onslaught of the virus.
Concerns about state control
The increase in Hong Kong’s oppressive policies under the new national security law has created fear that the universal testing scheme is just another apparatus of state control. Local media reports that Beijing initiated the idea of universal testing, rather than Hong Kong’s Legislative Council, have compounded those concerns.
Democratic Party councillor Ted Hui told the Wall Street Journal that the people of Hong Kong are “deeply worried” their DNA could be harvested during testing and used by the local police or Beijing for “other purposes, like what has happened in Xinjiang in the concentration camps.” Central government authorities were accused last year of tracking China’s oppressed Uighur minority in Xinjiang using DNA samples collected under the ruse of free health checks.
The Hong Kong government denies that the COVID-19 tests would even provide a viable sample from which to extract a person’s DNA. It also says that samples will be anonymized, not transported from Hong Kong, and destroyed within a month.
Yanzhong Huang, senior fellow for global health at the Council on Foreign Relations, says such fears are “not entirely illegitimate” given reports of similar incidents in mainland China. BGI Genomics, the Shenzhen-based lab Hong Kong is using to conduct COVID-19 tests, is also one of the world’s leading genetic sequencers. “I don’t doubt that it has the ability to collect genetic data in Hong Kong,” Huang says.
‘Nothing confidential about myself’
Evidently, not everyone is concerned. As of Monday, 1.2 million Hong Kong residents had registered for the free coronavirus test. At the sample station in the Hong Kong Park Sports Center last week, an office worker undergoing the test told Fortune she was not afraid of the data collection.
“There is nothing confidential about myself actually,” said the woman, who declined to give her name. “I think the most important thing is to consider what is good for the overall community, and we all want the overall society to recover as soon as possible.”
Chief Executive Lam has said it is everyone’s “civic responsibility” to get tested, but the local leader refused to set a mandatory quota for how many tests would be carried out. So far, the turnout is well below the government’s early predictions of 5 million.
Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor speaks to the media during a news conference about an outbreak of the coronavirus on March 31, 2020, in Hong Kong. Lam has denied allegations that Hong Kong would share genetic data from its mass-testing program with Beijing. Qin Louyue—China News Service/Getty Images
Ivan Hung, head of the infectious diseases division at Hong Kong University, told local broadcaster RTHK that the number of tests carried out was “still a little bit low if the population is 7 million.” Hung said that at least 1 million people would need to be tested before experts could estimate the number of asymptomatic cases in Hong Kong.
Meanwhile, other experts have questioned the efficacy of Hong Kong’s mass testing as a preventative measure since people are still free to circulate around the city. Hong Kong is currently easing restrictions on public gatherings that it imposed five weeks ago amid the third spike in cases. Daily infection numbers began rising at the end of June and peaked at 149 on July 30. On Tuesday, there were six new cases.
Lam has responded to the testing scheme’s critics, accusing experts who oppose the effort of “smearing” Beijing in an attempt to “sever Hong Kong’s relations with the central government.”
The head of Hong Kong’s Public Doctors Association, Arisina Ma, retorted that medical experts were only pointing out flaws in the system and recommended that high-risk groups receive testing, rather than trying to include everyone.
As of Monday, Hong Kong’s push for universal testing had covered 856,000 people and turned up 16 positive results—four of which were already known cases. At a press conference on Friday, Civil Service Secretary Patrick Nip declined to say how much the scheme had cost to date, and he extended the operation until Sept. 11.
“Even if we find just one case, this is very important,” said Health Secretary Sophia Chan. “Actually it’s a good sign that we’re not uncovering many cases. If we didn’t look for the cases, we wouldn’t know if there are lots of people infected in the community or not.”
Testing tradeoffs
Worldwide, few jurisdictions have attempted universal testing. In the first months of the pandemic, South Korea’s test and trace methods were widely praised as exemplary, demonstrating how the technique can reduce transmission by isolating the infected and other potential carriers from the general populace. South Korea’s testing was extensive, but it was hardly universal.
The closest parallel to Hong Kong’s scheme occurred in Wuhan, where authorities tested 6.5 million people over 10 days in May, identifying over 200 cases. Residents were compelled to participate. Roving medical workers made house calls to test people with restricted movement and visited construction sites to test migrant workers. The sweeping tests allowed the city where the pandemic began to relax after months of intense lockdown. Known and suspected cases were isolated while those cleared were free to move around.
“Wuhan is an exception because they have very strong community management, and, at that time, they can strictly control people moving from place to place,” Ma said.
According to Ma, without that level of government control, a universal testing scheme needs public trust in local leadership. Hong Kong has neither.


fortune--2020-09-09--Some scientists downplay significance of AstraZeneca’s COVID-19 vaccine trial halt

AstraZeneca Plc stopped giving shots of its experimental coronavirus vaccine after a person participating in one of the company’s studies got sick, a potential adverse reaction that could delay or derail efforts to speed an immunization against COVID-19 for the world.
The pause stemmed from a standard review of the company’s vaccine trials after one person developed an unexplained illness, AstraZeneca said in a statement. The move was intended to give researchers time to examine safety data while maintaining the integrity of the trials, the company said.
The vaccine, which AstraZeneca is developing with researchers from the University of Oxford, has been viewed as one of the leading candidates to reach the market. The decision to tap the brakes jolted investors, sending AstraZeneca’s U.S.-traded shares down sharply, while boosting the stocks of some rivals developing different potential COVID-19 shots.
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“This is a routine action which has to happen whenever there is a potentially unexplained illness in one of the trials, while it is investigated, ensuring we maintain the integrity of the trials,” AstraZeneca spokeswoman Michele Meixell said in a statement. She said that it’s too early to determine the sick participant’s specific diagnosis.
Scientific Sprint
The development has the potential to disrupt one of the most closely watched scientific sprints in history. Companies have been working to find a vaccine in hopes of blunting a pandemic that has sickened more than 27 million people and killed over 894,000 worldwide. Health officials in the U.S. and President Donald Trump have repeatedly said that it’s possible to have an immunization before the end of the year, and potentially as early as next month.
The top U.S. official in charge of Operation Warp Speed, the Trump administration’s program to support the rapid development of COVID-19 vaccines and therapeutics, said experts monitoring the trials in the U.K. paused the late-stage trial in coordination with their U.S. counterparts.
Moncef Slaoui, the head of the Warp Speed initiative, said in a statement that Data Safety Monitoring Boards in the U.S. and U.K. are “conducting an in-depth review of the company’s vaccine candidate which is standard procedure when an adverse event occurs.”
A Data Safety Monitoring Board is a panel of outside experts that watches for potential harm from experimental drugs and vaccines during clinical trials. The bar to pause a vaccine trial is generally low since participants are healthy and may never need the immunization they have volunteered to receive.
The members of the monitoring board have unparalleled insight into clinical studies. Unlike doctors and researchers, they are told whether those participating received the vaccine or a placebo, and they are given regular updates on how each group is faring.
Oxford University’s Jenner Institute didn’t immediately respond to requests for comment.
‘Safety Precaution’
Some scientists downplayed the significance of the halt. Eric Topol, a cardiologist and clinical-trials expert at the Scripps Research Translational Institute in San Diego, said such pauses in large studies are “not uncommon at all.” There is a high likelihood the adverse event will turn out not to be related to the vaccine, he said in an email.
“It’s a safety precaution,” he said.
Paul Offit, a pediatrician and vaccine expert at the Children’s Hospital of Philadelphia, said the AstraZeneca shot involves giving large doses of a monkey adenovirus engineered so it can’t replicate. It is therefore important for researchers to investigate whether the adverse event wasn’t somehow being triggered by a reaction to that large viral dose, he said.
“When you have that kind of viral load, you can have side effects,” said Offit. The question is whether the adverse event could somehow be related to the large number of viral particles being given, or whether it is just a coincidence. If after investigating, the monitoring board is comfortable there are reasons unrelated to the vaccine to explain the adverse event, the trial will be able to continue, he said.
The U.S. and other governments have invested billions of dollars to develop a shot at an accelerated pace, and more than two dozen vaccines are now being tested in volunteers less than a year after the virus was first discovered. Eleven candidates are in late-stage trials.
Raised Questions
The setback comes as a group of international scientists raised questions over a fast-moving vaccine from Russia, saying some results of a study appeared improbable. The two incidents highlight the difficulty in getting an effective vaccine to the public quickly as the COVID-19 pandemic spreads unabated.
Politics have also complicated the pursuit of a vaccine. Amid concerns about the Trump administration politicizing the rollout of a vaccine before the elections, frontrunners in the race for a COVID-19 vaccine pledged to avoid shortcuts on science as they face pressure to rush a shot to market.
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said Tuesday that it’s “unlikely” a COVID-19 vaccine will be available to the public by Nov. 3.
In late trading in New York, AstraZeneca shares fell as much as 8.3%, while Moderna Inc. and BioNTech SE saw their shares rise. All three companies are participating in Operation Warp Speed. News of AstraZeneca’s trial setback was first reported by STAT.


fortune--2020-09-09--Want to understand why tech stocks are crashing? This metric explains it all

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If you’re wondering why Big Tech is crumbling, and whether the steep drop makes sense, the best guide is examining what drove their gigantic jump over the past year. Was it a durable improvement in their fundamentals, or runway momentum fueled by pollyanna-ish exuberance? We’ve all heard why these shooting stars really deserve seemingly-outrageous prices: Tech is the only place to find big growth and big gains when bonds barely match inflation. Post-Covid America will need much more of what they’re making for the new work-at-home world. Trillions in cash is parked on the sidelines, and poised to join the parade. The Fed will stop at nothing to keep the markets aloft. These justifications, say the optimists, trump the traditional metrics and explain why tech can keep churning higher.
But reviewing the trajectory of the ten most valuable tech stock suggests something different: a craze destined to end just as the 2000 and 2007 frenzies finished. Put simply, a group of mostly the same titans went from somewhat rich to stunningly expensive in just eleven months, as their prices exploded and their overall results showed zero improvement.
At the close of September 2019, the players counting the highest valuations were, from high to low, were Microsoft, Apple, Amazon, Alphabet , Facebook, Intel, Adobe, PayPal, Netflix, and Texas Instruments. That’s actually 11 constituents because the Nasdaq 100 counts both Alphabet A and B shares separately, but we’ll call the group our Top Ten. (We’ll consider Tesla a tech stock because that’s what its boosters call it, and use that label to justify it lofty valuation.)
At the time, the Top Ten’s total market cap amounted to $6.2 trillion, and accounted for 69% of the Nasdaq 100’s $9.0 trillion. As a group, they’d amassed GAAP net earnings over the past four quarters (from July 2018 through June 2019) of $218.2 billion. The biggest profit contributors were Apple ($53.5 billion) and Microsoft ($38.0 billion), the smallest PayPal ($2.6 billion) and Netflix ($1.36 billion). All told, the Big Ten featured a price-to-earnings multiple of 28.4. That’s well above the long-term average for the Nasdaq 100, but looks reasonable given that our group is packed with superstars, though big earners Apple, Microsoft, and Intel are veterans well past their jackrabbit growth phases.
In just eleven months, the Top Ten underwent an extraordinary metamorphosis. The group changed somewhat: Tesla jumped from nowhere to number 7 as its market cap exploded ten-fold to $465 billion, and Nvidia joined at number eight, while Intel and TI dropped off. But eight of the ten, and all the biggest names, stayed the same. At the summit on September 2, the new Top Ten boasted a total valuation of $10.54 trillion, an increase of $4.34 trillion, or 41%, from the $6.2 trillion mark at the end of the same month last year. Just before Labor Day, they’d captured approximately the same two-thirds share of a Nasdaq 100 that bid up by $7 billion.
What’s remarkable––and troubling––is that while prices rampaged, earnings slept. Today, the four-quarter trailing profits for the Top Ten stands at $210 billion. That’s 3.7% below the $218 billion figure in September of last year. Hence, more than 100% of the 41%, $4.34 trillion rise came from a spike in the prices investors were willing to pay for each dollar of earnings. Over those 11 months, the Top Ten’s overall P/E rose from 28 to 50.2. The stalwarts saw substantial increases in their P/Es, with the Apple going from 19 to 40, Microsoft 28 to 44, and Alphabet 27 to 35. The addition of Tesla at a P/E of over 1000, and towering valuations for PayPal and Nvidia (both around 170x) and Netflix (95x) made the mix a lot richer.
Starting at a P/E of 50.2 means that earnings must grow at an extremely rapid rate to give investors a decent return. Let’s assume the multiple falls to a still-premium-priced 30 in five years. For these stocks to deliver mediocre 5% gains, their earnings would need to rise 16% annually, and more than double from today’s $210 billion to almost $450 billion. If profits were depressed and due for a powerful surge, a P/E of 50 might be reasonable. But earnings were already healthy before the huge run-up, so it’s hardly surprising that they’ve gone flat. Nor does the end of the pandemic promise great times ahead, since tech’s been a standout in the downturn.
The Top Ten didn’t make more money over the past year, they just got far more expensive. Since September 2, the group has shed around $1.38 trillion or almost one-third of that $4.34 trillion gain. Big Tech has bounced back big before, and may rally again. Is this the inevitable reckoning? It’s impossible to tell. What’s certain is that reckoning is inevitable.