fortune--2020-01-29--Renault turns to a former rival to lead the French carmaker out of the Carlos Ghosn era

Luca de Meo, the 52-year-old Italian, has long been considered one of Europe’s best and brightest auto executives, even if still largely unknown beyond the industry. Renault’s board though knew precisely what they were getting in selecting him on Tuesday to become the French automaker’s new chief executive.
For insiders, the biggest question surrounding his appointment might have been why it took the former boss of Seat, Spain’s only carmaker, so long to finally take his place at the top rung of a major auto brand. Few can boast of such a varied resume that includes key stops at Toyota, Fiat and Volkswagen.
A marketing buff credited with resurrecting the Fiat 500 back in 2007 and, more recently, turning around Seat, he was once considered a candidate to replace the late legendary Fiat Chrysler boss Sergio Marchionne.
Come July, de Meo will soon face his greatest challenge—breathing life back into a moribund Renault.
“De Meo is a sales and marketing expert. He knows all the brands and what appeals to mass market consumers. That’s where his strengths lie,” Bernstein analyst Thanos Hadjiantonis told Fortune.
In the process, the Milan native beat out Clotilde Delbos, Renault’s finance chief and interim boss ever since the board sacked Thierry Bollore in November in a bid to rekindle the ailing alliance with Nissan.
Mired in troubles ever since Japanese authorities arrested then-CEO Carlos Ghosn over a year ago for alleged white-collar crimes, Renault warned on profits in October and scheduled a complete strategic overhaul. Shares lost a quarter of their value last year even as European auto peers collectively posted gains of 15 percent.
On Wednesday, Japanese brass weighed in with their approval of the hire. “I am very happy with the Renault Board’s decision to appoint Luca de Meo as CEO,” Nissan Motor Co. representative executive officer, president and CEO said Executive Officer, President and CEO Makoto Uchida, said in a statement. “We are all looking forward to working closely with him and our Alliance partners in our efforts to support mutually profitable growth.”
A “visionary” strategist
“Luca de Meo is a great strategist and visionary of a rapidly changing automotive world,” said Renault Chairman Jean-Dominique Senard. “His expertise, but also his passion for cars, make him a real asset for the Group.”
Until de Meo’s 2009 defection to Volkswagen, he was being groomed as successor to Marchionne at Fiat Chrysler. While still in his 30s, he assumed responsibility for the flagship brand of the same name, later cementing his claim to the Fiat throne by adding Alfa Romeo to his portfolio.
The abrupt departure north surprised many—the position of marketing boss for the VW brand was one that kept him far from the boardrooms of Wolfsburg. It represented an apparent step down on his career ladder and his future there seemed uncertain given a hierarchical culture unforgiving to outsiders—even to Germans.
No longer in the limelight, De Meo went about quietly building on his accomplishments. In 2012 he was promoted to sales and marketing chief at VW’s premium brand Audi, where he soon clashed with Germans advising him to glorify its past accomplishments.
Instead de Meo chose to push Audi as the most progressive premium brand, preferring to outfit Marvel’s Iron Man with an electric R8 sports car than fight Mercedes-Benz for product placements in the Jurassic Park film franchise.
“I’ve worked for brands (like Alfa) that have a much bigger tradition and no present,” he told reporters at the time. “I’d prefer to have a present and future than look back at how nice things were 50 years ago.”
His instincts proved right as Audi sales grew by a quarter during his three-year tenure. In the immediate aftermath of the diesel scandal, Volkswagen’s board then picked him in November 2015 to run the group’s low-profile Seat brand.
There he took a company that was breaking even to one that was able to increase volumes at a double-digit rate for three years in a row. Not only did Seat turn into one of the fastest growing carmakers in Europe, it became the leading entry point into the group for new customers by winning large numbers from rivals.
In the process, De Meo convinced Wolfsburg that Seat should return to the crowded Chinese market, winning him the plum assignment to develop for the group a new low-cost platform that will underpin a family of small, affordable electric vehicles. He also launched the Cupra performance sub-brand, patterning it on his revival of Fiat’s Abarth, to more effectively challenge Alfa Romeo.
His to-do list
Only an hour after Renault’s announcement on Tuesday, interim Seat boss Carsten Isensee took a moment during a car presentation to praise his former boss, thanking de Meo for “his effort and dedication over the past years to take this company to another level.”
Renault is a different animal to Volkswagen, however, and de Meo will face two key shareholders at odds with each other in the interventionist-prone French state and a reluctant Nissan that together own 30% of the company.
Bernstein’s Hadjiantonis believes de Meo knows how to navigate his way through sticky situations. When Barcelona-based Seat, the 1950s brain child of centralist Spanish dictator Francisco Franco, found itself in the middle of Catalonia’s push for independence in 2017, de Meo managed to deftly steer clear of the volatile politics. Paired with the operationally strong like Delbos, the two could form a formidable duo, he argues.
“That he survived for so many years at Volkswagen as a non-German tells you a lot,” said Hadjiantonis.
UPDATE: This story has been updated to include in paragraph eight a statement from Nissan Motor Co. on the hire of Luca de Meo.
More must-read stories from Fortune:
—Wells Fargo is the big bank that investors like least
—What we can learn from the man who tried to sell the Eiffel Tower—twice
—Why it’s time for a futures market in health care
—Retailers reuse and recycle their way to increased growth
—3 things investors can bank on in the uncertain 2020s
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-29--Getting into China gets more difficult as airlines cancel flights to fight virus spread

Why a drug that costs $ 2.1 million per dose is on a sales streak

Airlines across the globe suspended more flights to China, as governments clamped down on travel to help stop the spread of the deadly Wuhan virus.
British Airways halted daily routes to Beijing and Shanghai from London’s Heathrow airport, after U.K. officials advised against non-essential travel. The U.K. flag carrier said it would reassess over the next few days.
Hong Kong’s Cathay Pacific Airways Ltd. said separately it would cut capacity to China by 50% or more starting Thursday, while United Airlines Inc. in the U.S. said it would reduce flights to Beijing, Shanghai and Hong Kong.
A woman (L), who recovered after being infected by a new coronavirus, speaks to the press as she walks out of a hospital in Bozhou, in China’s eastern Anhui province on January 29, 2020. STR—AFP via Getty Images
The global airline industry is starting to feel the impact of stepped-up efforts to stop the spread of the virus, which started in the Chinese city of Wuhan. With clusters now cropping up in countries like Germany, airlines have placed other Chinese destinations off limits, and oil traders have dumped contracts for jet fuel in anticipation of an extended slowdown.
Almost 9% of flights scheduled to or from China were scrapped between Jan. 23 and Jan. 27, according to research from Cirium, which analyzes air travel.
The increased alarm has already had an effect within China, after the government imposed restrictions on travel during the Lunar New Year holiday, when millions typically head home to see loved ones. Domestic travel in China fell 7.4% between Jan. 10 and Jan. 28, People’s Daily reported, citing the Ministry of Transport.
Several South Korean carriers have also halted flights to Chinese cities, including Asiana Airlines Inc., Jeju Air Co. and Jin Air Co., while Finnair Oyj, Lion Air in Indonesia, Jetstar Airways’ Singapore operations and Air Macau Co. are among those taking similar steps.
The number of confirmed cases in China soared to 5,974 — overtaking the country’s official count of SARS patients — while 132 people were reported to have died of the coronavirus. Germany said Tuesday it identified a cluster of local patients infected by a woman from Shanghai who had been visiting Europe, a worrying sign as it suggests the potential for additional spread outside China.
Widening Threat
When SARS became a global epidemic, it hit the industry hard initially but the effect was fleeting, said Jozsef Varadi, chief executive officer of Wizz Air Holdings Plc.
“It fell like a stone in the first month but then it started recovering and after four months everything went back to normal,” Varadi said on an earnings conference call Wednesday. “Probably this is going to be a better controlled issue so I wouldn’t expect the same impact as from SARS.”
China Southern Airlines Co. could face the largest blow among the country’s “big three” carriers as it controls 30% of Wuhan’s seat capacity, with routes to and from the capital of Hubei province accounting for 3.6% of its seats, said Bloomberg Intelligence analysts James Teo and Chris Muckensturm. That compares with 1.5% for Air China Ltd., which is also vulnerable, the analysts wrote in a report.
Wuhan’s airport, which was largely closed on Jan. 23, handles about 25 million passengers a year.
Passenger traffic at airlines such as Cathay and China Southern plunged 32% to 37% in the first half of 2003 because of the SARS pandemic, Teo and Muckensturm added. This time, “international airports’ swift implementation of preventative measures can help blunt the impact,” they said.
China Southern shares fell as much as 6.7% as trading resumed in Hong Kong following the Lunar New Year break, while Air China slid 5.5% and China Eastern Airlines Co. dropped as much as 7.7%.
More must-read stories from Fortune:
—Europe may be next in Trump’s trade war offensive
—Berlin’s ‘ghost’ airport might finally open, billions over budget and 8 years late
—The long ocean voyage that helped find the flaws in GPS
—Mysterious GPS outages are wracking the shipping industry
—Into the ‘crucible’: How the government responds when GPS goes down
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-29--Fortune’s Blue Ribbon Companies 2020

Fortune’s Blue Ribbon Companies 2020

These 51 companies appeared on at least four of our ten most rigorous 2019 annual rankings—the Fortune 500, Global 500, 100 Best Companies to Work For, Change the World, Future 50, World’s Most Admired Companies, Fastest-Growing Companies, Most Powerful Women, Most Powerful Women International and Businessperson of the Year. Now they’re on one more: our Blue Ribbon list.
Here are the companies that made the Blue Ribbon list this year:
Companies with 7 list appearances
Accenture (ACN)
No. 15 on Businessperson of the Year
No. 21 on Change the World
No. 46 on Future 50
No. 9 on Most Powerful Women
No. 298 on the Fortune Global 500
No. 61 on the 100 Best Companies to Work For
World’s Most Admired Companies
Facebook (FB)
No. 49 on Future 50
No. 6 on Most Powerful Women
No. 48 on Most Powerful Women International
No. 22 on Fastest-Growing Companies
No. 184 on the Fortune Global 500
No. 57 on the Fortune 500
World’s Most Admired Companies
Companies with 6 list appearances
Alibaba (BABA)
No. 16 on Businessperson of the Year
No. 37 on Change the World
No. 11 on Future 50
No. 10 on Most Powerful Women International
No. 182 on the Fortune Global 500
World’s Most Admired Companies
Apple (AAPL)
No. 16 on Change the World
No. 32 on Most Powerful Women
No. 11 on Most Powerful Women International
No. 11 on the Fortune Global 500
No. 3 on the Fortune 500
World’s Most Admired Companies
Bank of America (BAC)
No. 8 on Change the World
No. 50 on Most Powerful Women
No. 58 on the Fortune Global 500
No. 25 on the Fortune 500
No. 92 on 100 Best Companies to Work For
World’s Most Admired Companies
IBM (IBM)
No. 22 on Change the World
No. 4 on Most Powerful Women
No. 30 on Most Powerful Women International
No. 114 on the Fortune Global 500
No. 38 on the Fortune 500
World’s Most Admired Companies
JPMorgan (JPM)
No. 10 on Businessperson of the Year
No. 38 on Change the World
No. 26 on Most Powerful Women
No. 41 on the Fortune Global 500
No. 18 on the Fortune 500
World’s Most Admired Companies
Progressive (PGR)
No. 6 on Businessperson of the Year
No. 11 on Most Powerful Women
No. 391 on the Fortune Global 500
No. 99 on the Fortune 500
No. 76 on 100 Best Companies to Work For
World’s Most Admired Companies
Salesforce (CRM)
No. 49 on Change the World
No. 9 on Future 50
No. 39 on Fastest-Growing Companies
No. 240 on the Fortune 500
No. 2 on 100 Best Companies to Work For
World’s Most Admired Companies
Companies with 5 list appearances
Adobe (ADBE)
No. 25 on Future 50
No. 33 on Fastest-Growing Companies
No. 339 on the Fortune 500
No. 22 on 100 Best Companies to Work For
World’s Most Admired Companies
Alphabet (GOOGL)
No. 18 on Future 50
No. 10 on Most Powerful Women
No. 37 on the Fortune Global 500
No. 15 on the Fortune 500
World’s Most Admired Companies
Amazon (AMZN)
No. 31 on Future 50
No. 11 on Fastest-Growing Companies
No. 13 on the Fortune Global 500
No. 5 on the Fortune 500
World’s Most Admired Companies
Best Buy (BBY)
No. 32 on Change the World
No. 18 on Most Powerful Women
No. 276 on the Fortune Global 500
No. 74 on the Fortune 500
World’s Most Admired Companies
Centene (CNC)
No. 7 on Change the World
No. 78 on Fastest-Growing Companies
No. 168 on the Fortune Global 500
No. 51 on the Fortune 500
World’s Most Admired Companies
Mastercard (MA)
No. 8 on Businessperson of the Year
No. 2 on Change the World
No. 33 on Most Powerful Women International
No. 210 on the Fortune 500
World’s Most Admired Companies
Microsoft (MSFT)
No. 1 on Businessperson of the Year
No. 16 on Most Powerful Women
No. 60 on the Fortune Global 500
No. 26 on the Fortune 500
World’s Most Admired Companies
Nvidia (NVDA)
No. 26 on Future 50
No. 7 on Fastest-Growing Companies
No. 268 on the Fortune 500
No. 38 on 100 Best Companies to Work For
World’s Most Admired Companies
SAP (SAP)
No. 43 on Most Powerful Women
No. 27 on Most Powerful Women International
No. 427 on the Fortune Global 500
No. 28 on 100 Best Companies to Work For
World’s Most Admired Companies
Walgreens Boots Alliance (WBA)
No. 13 on Change the World
No. 26 on Most Powerful Women International
No. 40 on the Fortune Global 500
No. 17 on the Fortune 500
World’s Most Admired Companies
Walmart (WMT)
No. 5 on Change the World
No. 15 on Most Powerful Women
No. 1 on the Fortune Global 500
No. 1 on the Fortune 500
World’s Most Admired Companies
Companies with 4 list appearances
AbbVie (ABBV)
No. 381 on the Fortune Global 500
No. 96 on the Fortune 500
No. 63 on 100 Best Companies to Work For
World’s Most Admired Companies
American Express (AXP)
No. 270 on the Fortune Global 500
No. 72 on the Fortune 500
No. 13 on 100 Best Companies to Work For
World’s Most Admired Companies
Anthem (ANTM)
No. 5 on Most Powerful Women
No. 79 on the Fortune Global 500
No. 33 on the Fortune 500
World’s Most Admired Companies
Boeing (BA)
No. 25 on Most Powerful Women
No. 68 on the Fortune Global 500
No. 28 on the Fortune 500
World’s Most Admired Companies
Capital One Financial (COF)
No. 387 on the Fortune Global 500
No. 98 on the Fortune 500
No. 39 on 100 Best Companies to Work For
World’s Most Admired Companies
Cisco (CSCO)
No. 225 on the Fortune Global 500
No. 64 on the Fortune 500
No. 6 on 100 Best Companies to Work For
World’s Most Admired Companies
Costco Wholesale (COST)
No. 9 on Businessperson of the Year
No. 35 on the Fortune Global 500
No. 14 on the Fortune 500
World’s Most Admired Companies
CVS (CVS)
No. 17 on Most Powerful Women
No. 19 on the Fortune Global 500
No. 8 on the Fortune 500
World’s Most Admired Companies
Delta Airlines (DAL)
No. 260 on the Fortune Global 500
No. 69 on the Fortune 500
No. 97 on 100 Best Companies to Work For
World’s Most Admired Companies
FedEx (FDX)
No. 152 on the Fortune Global 500
No. 47 on the Fortune 500
No. 95 on 100 Best Companies to Work For
World’s Most Admired Companies
General Dynamics (GD)
No. 7 on Most Powerful Women
No. 343 on the Fortune Global 500
No. 92 on the Fortune 500
World’s Most Admired Companies
General Motors (GM)
No. 2 on Most Powerful Women
No. 32 on the Fortune Global 500
No. 13 on the Fortune 500
World’s Most Admired Companies
Goldman Sachs (GS)
No. 204 on the Fortune Global 500
No. 62 on the Fortune 500
No. 62 on 100 Best Companies to Work For
World’s Most Admired Companies
Hilton (HLT)
No. 41 on Change the World
No. 345 on the Fortune 500
No. 1 on 100 Best Companies to Work For
World’s Most Admired Companies
Home Depot (HD)
No. 20 on Most Powerful Women
No. 62 on the Fortune Global 500
No. 27 on the Fortune 500
World’s Most Admired Companies
Intel (INTC)
No. 24 on Change the World
No. 135 on the Fortune Global 500
No. 43 on the Fortune 500
World’s Most Admired Companies
Intuit (INTU)
No. 21 on Future 50
No. 482 on the Fortune 500
No. 24 on 100 Best Companies to Work For
World’s Most Admired Companies
Johnson & Johnson (JNJ)
No. 35 on Most Powerful Women
No. 109 on the Fortune Global 500
No. 37 on the Fortune 500
World’s Most Admired Companies
Lockheed Martin (LMT)
No. 1 on Most Powerful Women
No. 197 on the Fortune Global 500
No. 60 on Fortune 500
World’s Most Admired Companies
Micron Technology (MU)
No. 3 on Fastest-Growing Companies
No. 409 on the Fortune Global 500
No. 105 on Fortune 500
World’s Most Admired Companies
Morgan Stanley (MS)
No. 45 on Most Powerful Women International
No. 218 on the Fortune Global 500
No. 63 on Fortune 500
World’s Most Admired Companies
Northrop Grumman (NOC)
No. 13 on Most Powerful Women
No. 416 on the Fortune Global 500
No. 108 on Fortune 500
World’s Most Admired Companies
Paypal Holdings (PYPL)
No. 11 on Businessperson of the Year
No. 24 on Future 50
No. 204 on Fortune 500
World’s Most Admired Companies
PepsiCo (PEP)
No. 42 on Most Powerful Women International
No. 154 on Fortune Global 50
No. 48 on Fortune 500
World’s Most Admired Companies
Procter & Gamble (PG)
No. 36, 37 on Most Powerful Women International
No. 146 on Fortune Global 500
No. 45 on Fortune 500
World’s Most Admired Companies
Prudential Financial (PRU)
No. 30 on Change the World
No. 156 on Fortune Global 500
No. 50 on Fortune 500
World’s Most Admired Companies
Publix Super Markets
No. 342 on Fortune Global 50
No. 91 on Fortune 500
No. 12 on 100 Best Companies to Work For
World’s Most Admired Companies
Starbucks (SBUX)
No. 28 on Most Powerful Women
No. 40 on Most Powerful Women International
No. 121 on Fortune 500
World’s Most Admired Companies
Synchrony Financial (SYF)
No. 4 on Businessperson of the Year
No. 24 on Most Powerful Women
No. 173 on Fortune 500
No. 51 on 100 Best Companies to Work For
USAA
No. 400 on Fortune Global 500
No. 101 on Fortune 500
No. 30 on 100 Best Companies to Work For
World’s Most Admired Companies
Yum China Holdings (YUMC)
No. 14 on Businessperson of the Year
No. 17 on Most Powerful Women International
No. 362 on Fortune 500
World’s Most Admired Companies
More must-read stories from Fortune:
—The World’s Most Admired Companies in 2020
—Will retiring baby boomers crash the stock market?
—Millions have been purged from voter rolls—and may not even realize it
—Mysterious GPS outages are wracking the shipping industry
—Google CEO Sundar Pichai on managing a tech giant’s growing pains
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-30--H&M’s first female CEO takes over from founding family scion after fast-fashion pioneer struggles

How AI , satellites and drones could help plant a trillion trees

Hennes & Mauritz AB appointed Helena Helmersson as the first female chief executive officer of the fast-fashion pioneer, taking over from founding family scion Karl-Johan Persson, who struggled to contain competition from cheaper rivals and online platforms that revolutionized shopping.
Helmersson was previously head of operations, and Persson moves to the supervisory board after more than a decade, where he succeeds his father, Stefan Persson, as chairman. Stockholm-based H&M announced the changes as it reported quarterly earnings that beat analyst estimates, pushing the shares to their biggest gain in more than seven months.
The stock move is a much-needed boost for investors who have watched H&M shares gain just 10% during Persson’s tenure, while rival Inditex, the owner of Zara, has surged almost fourfold in the period. Long the go-to place for Scandi-inspired, well-designed staples like blouses and jeans, H&M has ceded its pacemaker role to the likes of Primark that undercut it in price, or Internet specialists like Asos Plc and Zalando SE that promised shoppers more instant gratification.
Inditex also pioneered the concept of branching out into sub-brands for different tastes and budgets. H&M has emulated the idea with units including COS or Arket, which aim at a wide-ranging shopping experience, selling everything from clothing to make-up to home-decoration trinkets like candles and flower pots.
When Persson, 44, took over in 2009, he was in his early 30s and had spent a few years on the company board, overseeing expansion, business development as well as brands and new business. At the time, H&M enjoyed major successes recruiting seasonal guest designers ranging from Karl Lagerfeld to Roberto Cavalli, collaborations that were huge hits because they offered luxury-fashion names at ultra-competitive prices.
But the going got tougher over the years. Physical shops began looking outdated, the guest-designer concept was running out of force and acquisitions like Cheap Monday, the company’s first-ever, flopped. Moving into home decoration, a lucrative niche where Zara and more upmarket brands like Armani had long established themselves, proved hard, as was the shift to online. As a result, inventory built up, forcing the company into a series of missed targets and profit warnings in recent years.
Family Control
The Persson family retains outsize control over the company. Founded by Erling Persson in 1947, the family is by far the biggest shareholder and has steadily lifted its stake over the years, particularly after operational troubles depressed the stock. Stefan Persson, who took over from Erling, ran the business for more than a decade. He’s the richest Swede, and ranks 15th in Europe, with a net worth of about $19.7 billion, according to the Bloomberg Billionaires Index.
Helmersson is herself a long-standing H&M employee. She started in 1997 as an economist in the company’s purchasing department, and did a five-year stint as sustainability manager. She’s been COO for just over a year.
“I feel confident in handing over the CEO role to Helena, who is an experienced and great leader who embodies our values,” Persson said. “Helena will continue to work on the plan that we have adopted for 2020 and onwards.”
The timing of the handover suggests H&M may be through the worst. The retailer said fewer markdowns contributed to an improvement in profit for the full year and in the fourth quarter, leading to a pretax profit of to 5.4 billion kronor ($561 million) in the three months through November, more than the 4.8 billion kronor that analysts had expected.
Over the past year, shares in H&M have gained more than 35%, beating the OMX Stockholm index, which is up 19%. Of the 33 analysts surveyed by Bloomberg, seven recommend buying H&M stock, while the rest are advising clients to either hold on to the shares they have or sell.
More must-read stories from Fortune:
—Europe may be next in Trump’s trade war offensive
—Berlin’s “ghost” airport might finally open, billions over budget and 8 years late
—The long ocean voyage that helped find the flaws in GPS
—Mysterious GPS outages are wracking the shipping industry
—Into the ‘crucible’: How the government responds when GPS goes down
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-30--Deutsche Bank’s ‘annus horribilis’ reveals the true cost of negative interest rates

H & M ’ s first female CEO takes over from founding family scion after fast-fashion pioneer struggles

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.
Guten morgen, Bull Sheeters. Yes, there’s going to be a bit of German in today’s newsletter.
But first….the Asian and European markets are in the red, as are the U.S. futures as I write. The Wuhan coronavirus (death toll at 170 and cases above 7,700) is dragging the markets lower. But there’s also the mixed earnings picture (Tesla good, Facebook bad) and diverging central bank maneuvers (will the BOE cut?… what’s the Fed thinking in holding pat?) that have given investors reason to hit the “pause” button.
Let’s go back to earnings. This morning, early out of the gates, we had Deutsche Bank reporting its Q4 results. And they were bad. Deutsche Bank is a stock to watch. It has a host of problems, many self-inflicted. But it’s also been hammered by negative interest rates—or negativzinsen in German. Since the European Central Bank dropped the nominal deposits rate below zero in June 2014, DB shares have sunk more than 70%. CEO Christian Sewing last year said negative rates “ruin the financial system.”
And here’s why. Negative rates obliterate banks’ loans business. This is true everywhere. If you comb through a bank’s quarterly results you’ll see a line item called “net interest income.” It’s a good indicator for how the banks’ loans and accounts business, a traditional profit-driver, is doing.
Banks’ net interest income has been falling for several quarters in Europe, and negative rates is the primary reason. But this phenomenon is also spreading across the Atlantic, as today’s chart shows, with the decline in nominal interest rates taking hold more broadly across the retail banking sector.
The cost of low and negative rates
***
I looked at the last four quarters for DB and its American peers. The trend—showing quarter-on-quarter declines (by percentage)—looks worryingly similar for all four. Net interest income—the fees collected for things like issuing loans and opening new accounts—is going down, down, down. At Wells Fargo, the trend is particularly acute with net interest income declining 11% last quarter relative to Q4 2018. JP Morgan Chase, the powerhouse of the sector, is the least exposed, but it’s not entirely immune from this phenomenon either. Its Q4 2019 net negative income came in 2% lower than the year-ago period. Deutsche Bank’s fell 5.5% last quarter.
In this low and negative rates environment, the banks have had to reinvent their core business by, for example, moving into trading and wealth management, two sectors that are less exposed to central banks’ rates policy.
At the start of today’s session, Deutsche Bank shares were trading lower this morning on the poor results. Meanwhile, JP Morgan Chase, BofA and Wells Fargo are all down year-to-date.
The Germans have a word for what some American investors are feeling about now: fremdshaeman. They feel your pain.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
Today's reads
Where credit's due. Good news (for some of us). FICO is updating how it calculates consumers' credit scores, an often murky indicator that defines so much about Americans' lives. The new ratings system is supposed to be more straightforward and beneficial to those who keep their finances in line. Here's how it will affect you.
Stop the presses. Warren Buffett is a newspaper man. But you won't find them in his portfolio anymore. On Wednesday he sold off the newspaper holdings of Berkshire Hathaway, which include the Buffalo News and his hometown Omaha World-Herald, for $140 million. The reason is a familiar one: the businesses are shrinking at an unsustainable rate.
What the candidates think. In partnership with Time’s Up, Fortune reached out to all the 2020 presidential candidates with a list of questions about the economic issues that most directly affect working women and working families (such as paid family leave, sexual harassment, the gender pay gap, and more). Thirteen of the remaining 15 candidates—including President Trump—participated, with many doing exclusive video interviews with Fortune. Check it out here.
Market candy
The personal price of quarantine. In this age of super bugs and global travel, most countries have stringent plans for how to contain communicable diseases such as the coronavirus. A common measure: quarantine orders, enforced with fines and threat of imprisonment. In the U.S., if you ignore that order you could be punished by "a fine of not more than $1,000 or by imprisonment for not more than one year, or both." Such fines—not to mention government-mandated sick camps and police powers to kidnap high-risk offenders—is too steep a price to pay to fight disease, the American Institute for Economic Research argues. What do you think? Time to rewrite the rulebook for fighting disease?


fortune--2020-01-30--Renault’s new CEO will benefit from Carlos Ghosn’s wild optimism

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
Carlos Ghosn may be gone from the automobile business, but he is not forgotten. He was, after all, the first true electric car enthusiast in the industry. Wired magazine once said he was “either a brilliant visionary, or crazy as a loon.” His forecasts a decade ago were wildly optimistic—see my 2012 interview with him here, where he predicted 10% of new cars would be electric by 2020. (The actual number will be closer to 2%.) But he was directionally correct. And the new CEO of Renault, Luca de Meo, will benefit from his wild optimism in the years to come. Perhaps both adjectives—brilliant and crazy—apply. (He’s not the only auto executive for whom that’s true.)
Who is Luca de Meo? While not widely known, he is a consummate car executive, as Christiaan Hetzner details in his fascinating Fortune profile here. Indeed, those in the industry wonder why he hasn’t gotten a top job before now. He is credited with resurrecting the Fiat 500 back in 2007, more recently he turned around Spanish carmaker Seat, and he was once considered a candidate to replace Fiat boss Sergio Marchionne, who died in 2018. It’s a fascinating resume for a man only 52 years old.
The Italian beat out Clotilde Delbos, Renault’s finance chief and interim boss since the board booted Thierry Bollore last fall. I interviewed her at the Fortune Global Forum in November, and without talking about Ghosn, she made it quite clear what the Ghosn legacy means for Renault: “On electric [cars], it is not PowerPoint for us. It is real life. And contrary to others, we are not bleeding, we are very close to profitability.”
Asked about Tesla, she answered: “We are not competing with Tesla. We welcome Tesla. They helped prove an electric car can be a premium car. We are more a mass-market producer. The Renault DNA is to be able to do the exact car people want, affordable.” If the electric car future ever comes, Carlos Ghosn will have to be given a giant helping of the credit for getting us there.
Meanwhile, Nissan is not doing so well in the post-Ghosn era. Reuters reports it is planning a big round of cuts, eliminating 4,300 white-collar jobs and shutting two manufacturing sites. “The situation is dire. It’s do or die,” a person “close to Nissan’s senior management and the company’s board” told Reuters.
As for Ghosn, he is as outspoken as ever. In an interview with CNBC from Beirut, Lebanon, where he is hiding from Japanese authorities, he said: “If you’re a foreigner working in Japan, you have to be very careful, because unless the system changes, you’re playing with your life.”
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Les Wexner
Les Wexner is reportedly in discussions to step down as CEO of L Brands, the company behind Victoria's Secret (which may now be sold off to private-equity firm Sycamore Partners) and Bath & Body Works. Wexner has run the business for 57 years, making him the longest-serving CEO of an S&P 500 company. Wall Street Journal
H&M succession
H&M COO Helena Helmersson is to take over as CEO of the world's second-largest fashion retailer. Current CEO Karl-Johan Persson, who has held the role for over a decade, will replace his father Stefan as chairman. H&M just reported its first rise in annual profit since 2015, suggesting successful efforts by the Swedish giant to adapt to changes in the market. Reuters
Facebook fall
Facebook stock price fell 7% in after-hours trading following better-than-estimated Q4 revenues, but relatively high expenses. It seems Wall Street expects more outperformance than Facebook delivered this time. Growth is slowing in mature markets, and perhaps there is a hint of the firm's regulatory woes starting to catch up with it. Guardian
Facebook settlement
Staying with Facebook: the company has agreed to pay $550 million in one of the largest-ever consumer-privacy settlements. Pending judicial approval, the payout will help Facebook avoid a trial over its collection of user biometric data without consent. This is all about Facebook's face-scanning in photos, which has already provided major regulatory hiccups in Europe. Fortune
AROUND THE WATER COOLER
Shell shares
Shell's share price has tumbled by more than 4.5%, after the Anglo-Dutch energy giant reported a 23% profit drop between 2018 and 2019. The culprits are lower oil and gas prices and the global economic slowdown, which Shell warned could impact the timescale of its $25 billion share buyback program. CNBC
Deutsche Bank
Deutsche Bank reported its fifth annual loss in a row, this time of a larger-than-expected $6.3 billion. This largely reflects costs associated with CEO Christian Sewing's massive turnaround effort, which involves the cutting of 18,000 jobs by 2022. Reuters
Smartphone shipments
Smartphone shipments for 2019 were down 2.2% on the year before, according to preliminary figures from analyst house IHS Markit. On the plus side, the decline was a little better than the 2.4% drop experienced between 2017 and 2018. Samsung is still the market leader, and Huawei is still in second place—at least, based on the year as a whole. Look at the fourth quarter, and Apple is the one snapping at Samsung's heels. According to Strategy Analytics, Apple may have even taken the top spot in Q4. Bloomberg
Huawei EU
Speaking of the contentious Chinese telecoms giant, the EU has come up with a loose common plan for how to address its role in new 5G networks. It's no hard ban, but rather an agreement to allow EU member states to limit Huawei's role in the next-generation networks—much as the U.K. just opted to do. Politico
This edition of CEO Daily was edited by David Meyer.


fortune--2020-01-30--Bumble parent told to implement workplace reforms after sexism allegations

How middle managers can manage up , down , and still get things done

MagicLab, the parent company of well-known dating sites Bumble and Badoo, should reform its workplace policies following allegations of sexual harassment, a U.K. law firm has found.
MagicLab hired Doyle Clayton, a British firm specializing in employment law, to investigate allegations of a misogynistic and hostile work environment for women raised in a July Forbes story.
Following a six month investigation, Doyle Clayton said in statement released late Tuesday that Magic Lab should enforce “appropriate employee conduct at company parties and social events,” make it easier for whistleblowers to come forward, and report misconduct and improved diversity and inclusion training for employees.
Doyle Clayton said MagicLab’s board had unanimously accepted its eight recommendations. The firm released its statement less than 48 hours before Blackstone, the private equity group, completed its $3 billion purchase of MagicLab. The deal formally closed Thursday morning.
As part of that deal, MagicLab’s founder and CEO Andrey Andreev is selling his stake in the company and leaving the business. Whitney Wolfe Herd, the co-founder and CEO of Bumble, a dating app that markets itself as empowering women with its “women make the first move” policy, is taking over as CEO of the parent company.
Blackstone was not immediately available for comment on the Doyle Clayton report.
In its statement, Doyle Clayton said there was “a lack of credible evidence in relation to most” of 24 specific allegations Forbes raised in its story, including “the more serious ones.” It did, however, find there was evidence to support three allegations, which it described as “minor,” and to partially support three other “minor allegations.” It did not specify in the statement, however, which allegations it was referring to.
“The central allegation made by the Forbes article—that there is currently a misogynistic atmosphere at [MagicLab’s] London office is incorrect,” the Doyle Clayton’s statement says. “Nevertheless, the investigation did identify a small number of current and former employees who feel that there are elements of sexism at MagicLab.”
MagicLab founder Andreev tells Fortune he is not at liberty to reveal more about Doyle Clayton’s report. But he says he “feels relief” at the firm’s findings.
He added that he was “sad” female employees who were concerned about sexism never brought those concerns to his attention. “My duty as CEO was to fix the problem, any problem,” he says. “I am still sad that people have been hurt and they never told me.”
Andreev says that he considers Doyle Clayton’s recommendations for improvements to MagicLab’s employee procedures and training fair. “I think Whitney and management will have a lot of things to do to implement the recommendations,” he says.
The Forbes story alleged there was a boorish work culture at the London office of Badoo, which claims more than 460 million users globally and is one of the most popular dating apps in Latin America. The London office also serves as the headquarters for MagicLab and the main engineering office for its dating apps, which in addition to Bumble and Badoo, include Lumen, a dating app aimed at over-50-year-olds, and Chappy, a gay dating app. Bumble’s headquarters and marketing operations are based in Austin, Texas.
Among the most serious allegations in the Forbes story was a claim that a female employee was pressured to watch a video of a male colleague receiving oral sex from a prostitute, that the firm had been too lenient with male employees accused of sexual harassment and bullying, that sexual banter was often used in the office, that managers, including Andreev, made frequent comments about women’s appearance and used misogynistic language, and that the company’s female marketing officer was told to “act pretty” for investors and was once asked to give a job prospect a massage.
Andreev founded Badoo in 2006. It pioneered the freemium business model for dating apps that was later adopted by Tinder and others. Wolfe Herd had been an executive at Tinder, but left amid claims she was sexually harassed by Tinder co-founder Justin Mateen after she ended a relationship with him. She and Andreev launched Bumble as a kind of “anti-Tinder” in late 2014.
The Russian-born entrepreneur is circumspect about his next steps but says he is planning to launch “a big revolutionary project for the charity world.” Andreev says he “will bring digital to the charity world same as we brought digital to the dating world many years ago.” With Blackstone’s permission, he says, 20 MagicLab employees are leaving to join this new venture.
Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today


fortune--2020-01-30--How AI, satellites and drones could help plant a trillion trees

This is the web version of The Loop, Fortune’s weekly newsletter on the revolutions in sustainability. To get it delivered daily to your inbox, sign up here.
This morning I spoke with Diego Saez Gil, the co-founder and CEO of Pachama — a Y Combinator graduate bringing machine learning to the tricky business of reforestation. In short, Pachama ensures that when a company says it’s offsetting emissions by planting trees, the planting actually gets done.
“We use remote sensing, including satellite images and Lidar data, to monitor and verify the claims of the forest carbon projects,” Saez Gil says, adding the platform wants to bring greater transparency to the carbon offset market — which trades increasingly in trees.
Just last week, the World Economic Forum strong-armed leaders into supporting its 1 trillion trees initiative — a platform that hopes to unite the world’s various reforestation campaigns, including the similar-sounding Trillion Trees Initiative, which aims to plant a trillion trees.
Critics have warned the PR push on forests distracts from the greater and more difficult challenge of actually reducing carbon emissions and I’m inclined to agree. Tree growth is also a tediously slow process, so the promised offsets won’t happen until well into the future and could even then be negated by a wildfire, drought or some other disaster. But there’s another issue.
“Today there’s more demand than certified supply for tree planting as a carbon offset,” Saez Gil says. That doesn’t mean there isn’t enough potential land to host one trillion trees. According to researchers at ETH Zurich, there’s 0.9 billion hectares of land worldwide that’s viable for reforestation, which could home 1.2 trillion trees and store 205 billion tonnes of carbon.
The problem, Saez Gil says, is in the certification process, which assesses how much carbon a proposed reforestation project would capture. The current process, which relies a lot on manual checks, takes years. Pachama is trying to speed the system up.
“We train deep learning algorithms using Lidar data — collected from flyovers using drones or an airplane — field plots — which is data collected on the ground by forest services — and also satellite images. The algorithms start to learn that a certain combination of colors, shapes and tree species contain a certain amount of carbon and, eventually, we can start making predictions of carbon absorption rates,” Saez Gil says.
Once Pachama has certified a plot of land, it can be sold on the carbon market and then the plot’s growth can be tracked through the start-up’s user dashboard. So if a tree falls, someone knows about it.
Microsoft, which last week pledged to turn carbon negative by 2030, has partnered with Pachama to achieve that goal and if Pachama’s system reaches scalability it could help hundreds others conscientiously plant trees. But Saez Gil gladly admits that reforestation is “not a silver bullet.”
“We need to reduce emissions and move away from fossil fuels. We can’t keep business as usual just because we keep planting trees,” says Saez Gil.
***
Another carbon sequestration start-up that caught my eye this week is Texas born Hypergiant Industries, which is experimenting with algae blooms as a means to remove CO2 from the environment. According to CEO Ben Lamm, the company’s Eos Bioreactor — an AI-monitored, fridge-sized unit that houses an algae sludge — is 400 times more efficient in carbon uptake than trees.
The product, which is in beta at the moment, attaches to the exhaust pipe of an industry’s heating, ventilation and air conditioning (HVAC) system, where the algae can feed on the CO2.
“We are running up against a ticking clock and unfortunately trees do not grow fast enough to rapidly reduce the growing atmospheric carbon levels…In the context of carbon sequestration and combating climate change, there are more powerful and faster alternatives that should be prioritized,” Lamm says.
***
Eamon Barrett
Eamon.Barrett@Fortune.com
CARBON COPY
The usual
Two climate researchers say that the “business as usual” case for global warming often cited by scientists and media is actually an increasingly unlikely worst-case scenario. The projection in question, RCP8.5, represents a carbon emissions pathway leading to global temperature rise of 5°C, but the author say real “business as usual” would lead to an average rise closer to 3°C. Lest this error be seized by climate change deniers, however, the authors point out it doesn’t make climate action less urgent. “The need to limit warming to 1.5°C…does not depend on having a 5°C counterpoint. Nature
The tax man
The Trump Administration threatened to “react” against the EU’s proposed carbon tax, with Commerce Secretary Wilbur Ross warning the carbon tax could be “in its essence protectionist.” Ross likened the proposed tax to plans from various EU countries to impose a “digital service tax,” that impacts companies like Google and Facebook. The White House has opposed that tax, too. Financial Times
Gender and growth
The International Union for the Conservation of Nature has reported a link between climate change and increased violence against women. As climate change puts increased stress on resources, that scarcity creates situations where women are either exploited or vulnerable to attack. Cate Owren, one of the report authors, says, “Gender-based violence is one of the most pervasive but least talked-about barriers that face us in conservation and climate work.” The Guardian
IN CASE YOU MISSED IT
Running on EV: The race to solve lithium-ion battery recycling before it’s too late by Tamara Warren
The 2020 candidates’ positions—and records—on economic issues that affect women by Emma Hinchliffe
Recycling hasn’t changed in years, but America is on the cusp of a reckoning by Tracey Lindeman
Fortune poll: Investors want corporations to focus on more than just shareholders by Lance Lambert
Why microgrids are key to solving energy poverty worldwide by Rajiv J Shah and Natarajan Chandrasekaran
How businesses can see big changes coming ahead of time by Rita McGrath
CLOSING NUMBER
56%
Climate change is coming for your cabernet. According to researchers at the University of Alcalá, Spain, an average global temperature rise of 2°C would make 56% of global wine country unsuitable for viticulture. A rise of 4°C would cut back the vineyard by 85%. The study was limited — for example, it only considered 11 of the more than 1,000 grape varieties available — and there’s other reasons not to panic: wine makers could adapt by diversifying their vineyards with different grapes, while warming temperatures would open up new regions to greater wine growing.


fortune--2020-01-30--3 key takeaways from Tesla’s blockbuster fourth-quarter earnings

Tesla CEO Elon Musk and CFO Zachary Kirkhorn sounded plenty optimistic on a conference call with investors Wednesday night. But not all of the insights they provided were upbeat.
The call came after Tesla released financial results for the fourth quarter. For the second time in a row, the electric vehicle maker blew away Wall Street projections, and the stock jumped more than 11% in after-hour trading.
But the investor call focused less on the past than on what to expect in 2020 and after, including some clear headwinds, as Tesla continues to pursue growth. Here are the most important things Musk and Kirkhorn revealed.
Full self driving is months away, and may not work well
Easily the most surprising part of Tesla’s conference call with investors on Wednesday was a significant shift in the expected release schedule – and even capabilities – of Tesla’s Full Self-Driving features. Thousands of Tesla customers have already paid substantial deposits for the technology, which Musk said as recently as October he hoped could be released in 2019.
That goal wasn’t met, and Musk’s statements about a new date of availability were somewhat vague.
“We got pretty close,” said Musk. “It’s looking like we might be feature complete in a few months,” suggesting that Tesla drivers shouldn’t expect the feature during the current quarter, and that investors shouldn’t expect its associated revenue.
Musk also downplayed the near-term functionality of FSD, which despite its name, is not synonymous with fully autonomous driving. “Feature complete just means [the car] has some chance of going from your home to work without intervention. That doesn’t mean the features are working well.” Musk further specified that the FSD software will provide an “above zero” chance that your car can successfully guide itself from one place to another.
The New Year could be rocky
Kirkhorn was surprisingly direct in warning that Tesla’s results for the first quarter of 2020 could be underwhelming compared to the second half of 2019. “For Q1, keep in mind that the industry is always impacted by seasonality,” the CFO said.
This could be read, at least partly, as confirmation of analyst warnings that the expiration of tax incentives in key markets helped boost fourth-quarter results, at some cost to the current quarter.
Profits will also be impacted by continued spending. Kirkhorn highlighted continuing heavy investment in increasing production capacity, such as a new factory in Germany. Musk and Kirkhorn also emphasized Tesla’s efforts to increase its battery production capacity, which they framed as a limiting factor for overall vehicle production.
“We’re spending money as fast as we can spend money in sensible ways,” said Musk.
A challenging first quarter in 2020 would continue something of a trend for Tesla, which also posted disappointing results in the first half of 2019 – and despite its two banner quarters, finished $775 million dollars in the red last year.
China may not save the day
Finally, Kirkhorn revealed that Model 3s being produced in a new Shanghai factory may not have a huge impact on Tesla’s profitability overall. There has been some expectation that lower costs in China would translate to the bottom line, but Kirkhorn reminded investors that the sales price of Chinese Model 3s will also be lower. That, Kirkhorn said, means the profitability of Chinese-made Teslas will be about the same as those produced in the U.S.
Finally, the call revealed that the coronavirus outbreak in China will likely have a material impact on Tesla. Kirkhorn said there will be at least a one-week or one-and-a-half-week delay in the ramp-up of Model 3 production in Shanghai because of a government-mandated factory shutdown. That, of course, could become more serious depending on conditions on the ground. And with growth in the U.S. slowing, China is increasingly vital to Tesla’s overall growth trajectory.


fortune--2020-01-30--Facebook says its ad machine is being weakened by privacy changes

Facebook’s mean, green ad targeting machine is expected to be increasingly impacted by new privacy regulations and tools that give users more control over their data.
“While we’ve experienced some modest impact from these headwinds to date, the majority of the impact lies in front of us,” David Wehner, Facebook’s chief financial officer, said during the company’s fourth-quarter earnings call on Wednesday.
Facebook said its future revenue growth is expected to “decelerate” compared to the fourth-quarter, when ad sales grew 25%. That represented Facebook’s slowest quarter of ad revenue growth in at least two years.
Facebook’s has been able to grow its massive business by offering advertisers the ability to target specific audiences among the 2.9 billion users of its family of apps. Facebook combines the data it collects about user activity on its service with data provided by third-parties to help categorize users and serve them with more targeted ads.
But as Facebook gives users more control over the data collected about them and complies with new global privacy regulations, targeting users with ads is becoming more challenging.
Facebook is already subject to Europe’s General Data Protection Regulation, a privacy law that went into effect in 2018, and the California Consumer Privacy Act, a similar but stricter state law implemented in January. But other states and individual countries are working on additional rules.
On top of that, big tech companies are starting to announce changes to their services that will allow users to take more control of their privacy. Google, for example, recently said it plans to phase out support in Chrome for third-party cookies, or software that tracks user behavior online, within two years. Facebook said such changes are also expected to weaken its ad targeting capabilities because it relies on cookies to track what users do outside of Facebook.
“There’s a lot of unknowns across the ad space as cookies increasingly go away,” said Ron Josey, analyst at JMP Securities. “It’s another risk we have to monitor.”
Meanwhile, Facebook also recently gave users more control over the data the company collects about them. For example, users can block Facebook from serving them ads based on what they do on its social network and based on data from third parties.
Regardless of the headwinds, analysts are mostly positive about Facebook’s financial future. Baird Equity Research analyst Colin Sebastian said there’s “no change to our positive thesis on Facebook,” crediting its stable number of monthly and daily users as well as fourth-quarter ad revenue that beat analyst expectations.
Josey, from JMP, said that advertisers still consider Facebook the best bang for their bucks, and that there are only few rivals that can compete with the company.
“We see user engagement going up still, and as long as that continues, we should see advertisers go up as well,” he said.
Facebook reported $70.7 billion in revenue for the year, up 27% from 2018. It also introduced a new metric that tracks the total amount of users across its family of apps. Facebook said it had 2.9 billion monthly users across its apps, 2.5 billion of which use Facebook’s core app.
Following its fourth-quarter earnings, which beat analysts’ estimates, Facebook’s stock fell 7% to $207 per share. The drop was likely driven by slowed revenue and a 51% increase in costs largely associated with legal fees and settlements as well as research and development.
More must-read stories from Fortune:
—The long ocean voyage that helped find the flaws in GPS
—Atari-themed hotel deal punctuates the gaming pioneer’s turnaround
—Into the ‘crucible’: How the government responds when GPS goes down
—This tech giant says A.I. has already helped it save $1 billion
—What is tech doing to protect the whistleblower’s identity? Not much
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-30--Microsoft’s cloud soars, while consumer businesses like Xbox slide

As long as Microsoft’s cloud continues to soar, investors will forgive a few of the company’s weaker consumer businesses.
Microsoft stock jumped 4.3% to $175.26 in after-hours trading after the technology titan reported its earnings for another solid quarterly earnings. Overall sales jumped 14% to $36.9 billion in Microsoft’s fiscal second quarter, beating analyst expectations of $35.7 billion.
On a call with analysts, Microsoft CEO Satya Nadella pointed to the company’s cloud and related enterprise software business as the key drivers for growth. Indeed, sales in its cornerstone Azure cloud computing unit rose 62%, a slight increase to the previous quarter when revenue (which Microsoft doesn’t disclose) rose 59%. Azure’s slight sales bump in its most recent quarter reversed a two-year trend of slowing growth, albeit still substantial gains that any company would crave.
But while Nadella bragged about the company’s various enterprise focused services, ranging from artificial intelligence technologies to so-called hybrid cloud products, he glossed over some of the company’s less rosy businesses.
For instance, Microsoft’s gaming business dropped “$905 million or 21%” year-over-year in its latest quarter, the company said without revealing a specific number. Sales of the company’s flagship Xbox consoles declined 43%, which Microsoft CFO Amy Hood attributed to the upcoming launch of Microsoft’s newer Xbox console during the 2020 holiday season. Hood did highlight a positive note about Microsoft’s current weak Xbox sales—it’s gross margins, or profits, benefited “from lower console sales.”
Nadella did mention that there are now “hundreds of thousands of people participating in initial trials” of the company’s ambitious Xcloud service, which will let people stream powerful video games to smartphones and computers. But it will likely take years before that service makes a significant impact to Microsoft’s current gaming businesses, considering it hasn’t been widely debuted to the public.
In the mean time, Nadella mentioned rival Sony as an example of a customer who can use some of the same underlying Azure cloud gaming technology for their own services, implying that Microsoft sees big money in selling game-streaming tools to other companies, as opposed to merely being a consumer business.
Meanwhile, sales of Microsoft’s Surface lineup of laptops and computers rose 6% year-over-year to $1.98 billion. Hood mentioned that while sales of Surface devices to businesses were strong, Microsoft faced unspecified “execution challenges in the consumer segment,” underscoring difficulties the company is facing pitching the Surface devices to the broader public.
Hood also mentioned “lower Bing volume,” suggesting that the company’s Google search engine rival Bing failed to grow as expected. Indeed Bing’s sales growth (Microsoft doesn’t break out specific Bing advertising sales) was only 6% year-over-year in its latest quarter, compared to the previous quarter when it grew 11 % year over year.
Despite some of the challenges Microsoft’s various consumer businesses face, not one analyst on the earnings call wanted to probe the problems. Instead, they generally congratulated Microsoft for another successful quarter, thanks to the cloud.
More must-read stories from Fortune:
—The long ocean voyage that helped find the flaws in GPS
—Atari-themed hotel deal punctuates the gaming pioneer’s turnaround
—Into the ‘crucible’: How the government responds when GPS goes down
—This tech giant says A.I. has already helped it save $1 billion
—What is tech doing to protect the whistleblower’s identity? Not much
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-30--Facebook to pay $550 million in one of largest privacy settlements in U.S. history

Facebook will pay $550 million to resolve claims it collected user biometric data without consent in one of the largest consumer privacy settlements in U.S. history, according to a statement Wednesday by lawyers for consumers.
The accord, which requires a judge’s approval, will avert a trial that may have exposed the social networking company to billions of dollars in damages. Facebook fought unsuccessfully to persuade the U.S. Supreme Court to derail the class action case. The users alleged that the company’s photo-scanning technology violated an Illinois law by gathering and storing biometric data without their permission.
Facebook didn’t immediately respond to a request for comment. The settlement was disclosed to investors on a quarterly earnings call.
While Facebook has weathered controversy over privacy almost since its inception, the company has come under particularly harsh scrutiny in recent years, both in the U.S. and in Europe. Facebook reached a historic $5 billion deal in July with the U.S. Federal Trade Commission to settle an investigation into its privacy practices stemming from the Cambridge Analytica scandal that came to light in early 2018. The company is also facing probes by New York, California, Massachusetts and others over its third-party data practices.
Consumer privacy cases in U.S. courts occasionally have succeeded in making internet companies change their policies, but have rarely triggered payouts of more than $10 million. The lawsuit over photo scanning was brought under the Illinois Biometric Information Privacy Act of 2008, the toughest laws of its kind in the U.S.
“Biometrics is one of the two primary battlegrounds, along with geolocation, that will define our privacy rights for the next generation,” Jay Edelson, a Chicago-based lawyer representing consumers who sued, said in the statement.
Facebook has for years encouraged users to tag people in photographs they upload in their personal posts and the social network stores the collected information. The company has used a program it calls DeepFace to match other photos of a person.
Courts have struggled over what qualifies as an injury to pursue a privacy case in lawsuits accusing Facebook, Google and other internet companies of siphoning users’ personal information from emails and monitoring their web browsing habits. Suits over selling the data to advertisers have often failed.
Facebook contended that its collection of biometric data didn’t cause users to suffer any concrete injury such as loss of money or property. But a San Francisco federal judge rejected that argument, saying in 2018 that the alleged violation of the user-consent requirement in the Illinois law goes to “the very privacy rights the Illinois legislature sought to protect.”
Privacy advocates regard biometric data as especially sensitive because — unlike names, addresses, credit cards and even social social security numbers, which can be changed — scans of retinas, fingerprints, hands, face geometry and blood samples are unique identifiers.
U.S. District Judge James Donato allowed the case to proceed as a class action on behalf of millions of Illinois residents who had uploaded photos on the network since 2011. Facebook failed to get a federal appeals court or the Supreme Court to reverse Donato’s ruling.
Taking the case to trial would be risky because, under the Illinois law, the company could be fined $1,000 to $5,000 each time a person’s image is used without consent. If Facebook had lost it might have been forced to pay $6 billion, according to Matthew Schettenhelm, Bloomberg Intelligence litigation and government analyst.
More must-read stories from Fortune:
—The long ocean voyage that helped find the flaws in GPS
—Atari-themed hotel deal punctuates the gaming pioneer’s turnaround
—Into the ‘crucible’: How the government responds when GPS goes down
—This tech giant says A.I. has already helped it save $1 billion
—What is tech doing to protect the whistleblower’s identity? Not much
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-30--Three Senate Democrats from red states waver on impeachment votes

As the Senate impeachment trial grinds toward a climax, it remains unclear how three Democrats will vote on whether to toss President Donald Trump from office.
Sens. Doug Jones of Alabama, Joe Manchin of West Virginia and Kyrsten Sinema of Arizona are all question marks.
Unlike a quartet of wavering Republicans who could put Trump in peril as lawmakers decide whether to call witnesses and extend the proceedings, the three Democrats’ votes on whether to acquit him won’t likely affect the trial’s outcome. It seems certain that the GOP-run Senate will lack the 67 votes needed to remove Trump from office, no matter what the trio does.
But the Democrats’ decisions will color their political careers and this year’s presidential campaign. If one or more of them votes to acquit Trump — even voting against one article of impeachment while supporting the other, which many consider likely — it could alienate some Democratic voters, mark their legacies and let Trump spend his reelection campaign asserting that he was cleared by a bipartisan vote.
On the other hand, with Republicans now controlling the Senate 53-47, many Democrats aren’t willing to criticize moderates from swing states for voting in ways that will protect their political futures. All three wavering Democrats come from states Trump won in 2016 and where Democrats struggle to win elections.
“They have reputations for being independent actors,” said Democratic pollster Mark Mellman. “I think that’s what they’ll do here.”
“That’s very tough terrain,” Democratic pollster Celinda Lake said of their states. “They’re all people who’ll need Republican or independent votes to win, so I’m sure they’re thinking about that.”
The three Democrats are expected to back their party’s effort to call witnesses, particularly John Bolton, Trump’s former national security adviser. But with just four Republicans now seen as possible votes for witnesses — and even that appears to be a tough climb — opposition to witnesses by even one Democrat would probably kill that effort and infuriate the party.
“Anyone who votes against hearing the evidence, witnesses and documents will be judged harshly by history,” said Sen. Richard Blumenthal, D-Conn., who pointed out that he wasn’t singling out members of a particular party. “They will be haunted by history.”
GOP Sens. Susan Collins of Maine, Mitt Romney of Utah, Lisa Murkowski of Alaska and Lamar Alexander of Tennessee have all expressed a willingness to consider witnesses. But it is unclear how many of them will vote for witnesses in an initial showdown vote expected Friday.
Trump all but taunted the Democrats on Twitter on Wednesday.
“There is much talk that certain Democrats are going to be voting with Republicans on the Impeachment Hoax, so that the Senate can get back to the business of taking care of the American people. Sorry, but Cryin’ Chuck Schumer will never let that happen!” Trump tweeted, referring to Senate Minority Leader Chuck Schumer, D-N.Y.
Asked what he’d tell his undecided colleagues, Schumer said, “The only message I have is listen to the arguments carefully and make your own decision of conscience.”
Jones, 65, the only one of the three facing reelection this November, is running in a deep-red state and faces the greatest career risk. Voting to convict Trump could make it harder for him to pick off some Republican voters, while voting to acquit him could anger the Democrats whose votes, contributions and volunteering he’ll need to win.
Jones was noncommittal Wednesday about the outcome of the case , saying he wanted to evaluate all the evidence.
“Am I leaning? Sure, but I ain’t going to tell you,” he told reporters. “What I want to do is hear the evidence, and I think that a more compelling case has been made for witnesses.”
Manchin told West Virginia reporters Wednesday that while he wants to hear witnesses, he’s undecided about whether to acquit Trump.
He said the impeachment article alleging that Trump obstructed Congress by refusing to provide documents or White House witnesses was “the weakest” of the two charges. But he said the charge that Trump had abused power by pressuring Ukraine to provide dirt on former Vice President Joe Biden, a Democratic presidential hopeful, was “very serious.”
Manchin, 72, is a former governor and household name in a state where Trump is enormously popular. Now in his 10th year in the Senate and reelected to a six-year term in 2018, it is unclear whether he will run again for public office.
As the trial began, Sinema released a statement that shed no light on her views.
“I will treat this process with the gravity and impartiality that our oaths demand and will not comment on the proceedings or facts until the trial concludes,” she said.
Sinema, 43, has been in the Senate for just a year but has already cut an unusual profile. Her start in Arizona Democratic politics came on the party’s left wing, but she’ has tried to carve a more moderate profile in the Senate. It was the first winning Democratic Senate campaign in Arizona in three decades.
More must-read stories from Fortune:
—What is tech doing to protect the whistleblower’s identity? Not much
—5 surprising consequences from a decade of Citizens United
—Understanding the 2020 election as brand marketing
—As the USPS faces privatization, here’s what it can learn from Canada
—Millions have been purged from voter rolls—and may not even realize it
Get up to speed on your morning commute with Fortune’s CEO Daily newsletter.


fortune--2020-01-30--As the coronavirus spreads, these stocks are the most exposed

The new coronavirus outbreak in Wuhan, China has already taken a heavy toll.
Since the World Health Organization became aware of the outbreak on Dec. 31, 2019, there have been 4,593 confirmed cases—4,537 in China, including 106 deaths. Two of the 56 other cases are in the U.S., according to the Centers for Disease Control.
Two human ones, that is. Because of massive disruption of business and society in China, the virus has leaped into the markets. An immediate panic over last weekend had hit stocks: between last Friday and the following Monday, the Dow was down 1.6%, losing 453.9. The S&P 500 was off by the same percentage. The Nasdaq dropped by 1.9% and the Russell 2000 had just over a 1% loss.
The indexes saw significant recoveries by Tuesday and, from a broad view, things are fine. “A couple of percentage points is a sell-off,” said Craig Turner, a senior commodities broker with Daniels Trading. “It’s not some kind of black Friday crash.”
Dig down a bit, though, and at the company level, there is plenty of worry. In some sectors, such as travel, hospitality, and luxury goods, many businesses heavily depend on revenues from China and are struggling to contain the contagion, both physically and fiscally.
And then there’s a question of whether such an event could trigger a longer-lasting reaction from markets that have been sitting high and courting a blow-off top and bear market.
Corporations in the trenches
In the week from Tuesday, Jan. 21 to Monday, Jan. 27, 2020, the major drop in the S&P 500 was split unevenly by sector.
Shares getting hurt most were in energy and then materials, financials, consumer discretionary, and health care. That’s not surprising, given that China is an important market in many industries and there is growing concern over disruptions.
The State Department issued a travel advisory on Monday, suggesting that people “reconsider travel to China” due to the outbreak and the CDC has issued a warning against “all nonessential travel to China.” Some large companies are paying heed. Facebook, Goldman Sachs, and Europe’s HSBC have all imposed personnel travel bans to mainland China and, for some, to Hong Kong, Reuters reported.
Corporations with a direct presence in China are increasingly putting their activities into quarantine. That has meant canceling reservations, closing facilities, and issuing refunds.
“The biggest hit sectors are luxury goods retailers—for example, Burberry, Gucci, and Cartier—followed by hotel chains, where late bookings and cancellations have been much higher than expected at most large scale global operating brands; and bars, cafes, and restaurants,” wrote Mark Pacitti, managing director of Woozle Research, in a note to Fortune.
Burberry Group shares were down 3.1% compared to last Friday’s close. Stock of Kering, which owns Gucci, dropped 1.2%. Cartier’s owner, Compagnie Financiere Richemont, was off by 1.9%.
A United statement sent to Fortune said the company was canceling 24 flights between the U.S. and Hong Kong and China from Feb. 1 to Feb. 2 because of a “significant decline in demand.” About 11% of its passenger revenue is from Pacific region flights. Shares of the company are down 7% since the end of last week.
Similarly, American Airlines sent a statement that a drop in demand has caused it to suspend flights between Los Angeles and both Shanghai and Beijing from Feb. 9 through Mar. 27. Shares lost 2%.
And there are now reports that the White House may direct all airlines to halt flights between the U.S. and China, according to CNBC.
Starbuck’s latest earnings announcement noted the company had closed more than half its stores in China “and [would] continue to monitor and modify the operating hours of all of our stores in the market” because of the outbreak. The company has 4,292 locations in the country and saw 3% comparable sales growth, second only to the 6% growth notched by its U.S. stores in the quarter ending Dec. 29, 2019. Shares are down as of Tuesday’s close by 6.3%.
McDonald’s also temporarily closed all its locations—several hundred—in the province, according to a statement by CEO Chris Kempczinski in the company’s earnings call this morning. He said that the country represents 9% of global restaurant count but only between 4% and 5% of sales and 3% of operational income. The closings still leave about 3,000 locations open in China. The company is a rare exception to the downward trend. While shares were off on Monday morning, by Tuesday they were up over last week’s close by 1.8%.
Two of The Walt Disney Company’s theme parks—in Hong Kong and Shanghai—are closed “out of consideration for the health and safety of our Guests and Cast Members,” according to statements on the individual parks’ websites. The closures are “temporary” with a reopening date not yet announced. Global revenues of the theme parks in the fiscal year that ended on Sept. 28, 2019 were $26.2 billion, or 37.6% of Disney’s $69.6 billion total revenue. The only division with higher operating income was that of the media networks. Taking all the divisions together, Asia Pacific operations provided almost 7.9% of the company’s total revenue. Shares had a 2.3% loss between the end of last week and Tuesday’s close.
Consumer product brands popular in China may also take a hit, although it isn’t possible to see the results yet. The Lunar New Year, currently happening, is a festive period of travel, celebrations, and giving gifts. Restrictions on travel and activity will reduce consumer spending. Name brands like Nike (shares down 1.9% from last week) and Estee Lauder (off 3.3%) have felt the effects.
Even Apple, with shares up over last week by 2.5% because of a strong earnings report, is wary. CEO Tim Cook mentioned in the earnings call yesterday that it closed one of its retail stores and a number of retailers it works with had closed storefronts. He said that “retail traffic has also been impacted outside of this area across the country in the last few days” and the company is “taking additional precautions and frequently deep cleaning our stores as well as conducting temperature checks for employees.” Apple also has some alternate suppliers in the Wuhan area.
How does coronavirus compare to SARS?
Some may remember the SARS epidemic of 2003 and its impact on the economy and markets. If coronavirus follows that trajectory, it would actually be a good thing, say market-watchers.
SARS—an acronym for severe acute respiratory syndrome—is actually a form of coronavirus, and it turned into quite a headache for businesses. Many companies had to reconsider employee travel and sales calls into Asia. Some studies have estimated that the total GDP loss attributable to SARS was $54 billion in 2003. In the context of a world-wide GDP of $38.9 trillion that year according to the World Bank, the drop was about 0.1%. Significant, certainly, but far from crushing.
The market impact was oddly out of sync with the development of the medical issue. Below is a graph of both the S&P 500 (large-cap stocks) and Russell 2000 (small-cap stocks) during the progression of the epidemic through containment.
The first reported case of what would be known as SARS came at the beginning of a market run-up in November 2002. The World Health Organization (WHO) global alert about SARS only happened when the market had already bottomed out.
The real problem facing markets and the economy was that the world had already been in the middle of a global recession. The following table with data from the United Nations shows how production and trade were slowing.
“We were at the tail end of a very long bear market in November 2002,” said William Zox, chief investment officer for fixed income at Diamond Hill Capital Management. Valuations were low after the recession and volatility was high.
The chance of big swings and of the market eventually starting to return was elevated. The latter began to occur when the WHO issued its alert, which is ironic because the organization had just issued its first global warning.
The current case
There are important differences between 2020 and 2003. For one, China has been more transparent in this epidemic.
“For a long time, the [SARS] virus didn’t exist in Chinese reporting,” said Gerwin Bell, lead economist for Asia at PGIM Fixed Income’s global macroeconomic research team. “It’s very different this time. The Chinese have been up front and brought in the WHO. So, there’s greater transparency.”
That provides more certainty to markets and helps moderate reactions. “You [can] have these geopolitical events that are a big deal when they happen and three days later no one cares about them anymore,” Bell said. “After the panic subsides and is under control, what typically happens is these things get made up, factories work extra shifts, there is a bounce-back.”
Then again, as with SARS, the biggest potential impact of the coronavirus outbreak is that it could act as a trigger for market forces that have built up. If a major shift comes, Zox warns, “it will be more difficult to generate returns with volatility at higher levels,” he said. “Valuations could be under pressure.”
In other words, this virus is nowhere close to being contained yet.
More must-read stories from Fortune:
—All of your questions on filing taxes in 2020, answered
—The health of the economy in nine charts
—Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—5 pressing questions to hone your investment strategy this quarter
—10 stocks that are poised for a stellar 2020
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-30--Eli Lilly smashed Wall Street projections thanks to its diabetes drugs

How the Wuhan coronavirus spreads and what ’ s being done about it

This is the web version of Brainstorm Health Daily, Fortune’s daily newsletter on the top health care news. To get it delivered daily to your in-box, sign up here.
Happy Thursday, readers.
Shares of Indianapolis-based drug giant Eli Lilly rose 2% in Thursday trading following a bullish earnings report that bested Wall Street expectations. (And a 2% increase is no mean feat for a company with a market valuation of $135 billion.)
Lilly was lifted by strong sales numbers from its flagship diabetes drugs. It’s a big win for the company as it attempts to fight back fierce competition in the sector from generics with new diabetes drug launches and higher sales volume.
The earnings report for the fourth quarter of 2019 included news of $6.1 billion in revenues, an 8% year-over-year increase and $200 million over consensus Wall Street expectations. The truly bullish signal in the earnings report is the company’s expanding reach across the U.S. patient pool—the number of people using Lilly medicines spiked by nearly 10%, making up for an overall drop in list prices for the firm’s drugs.
Trulicity and Jardiance, two of Lilly’s key drugs for type 2 diabetes, were some of the company’s biggest sellers in the fourth quarter.
But there may be another factor fueling the investor bullishness: Lilly executives’ decision to nix a trio of experimental cancer assets that they didn’t think were worth a financial risk. It’s likely a lasting lesson from the financially painful experience the firm suffered from its big bet on an experimental Alzheimer’s drug, which it abandoned between 2016 and 2018. That project cost Lilly more than $150 million.
In addition to this apparent “fail faster” philosophy, which gives biopharma companies an out before they’ve invested too much in a risky product, overall sales volume growth seems to be fueling investor confidence. Lilly’s shares are up more than 8.5% year-to-date compared with a relatively flat NYSE composite. Over the past 12 months, Lilly stock is up more than 23% compared with about 14% for the NYSE composite.
Read on for the day’s news.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Can bots mess with public health studies? We've highlighted the negative effects that social media (especially trolls, bots, and spam pages) can have on public health when it comes to critical issues like vaccination. A new report in Nature brings up a different kind of threat: The possibility that bots may interfere with academic studies that rely on social media to glean information about human health and behavior. For instance, researchers may attempt to collect information about mental health in the wake of a natural disaster but increasingly sophisticated bots could skew the results, muddying the waters on who is an actual person and, well, who isn't. (Nature)
INDICATIONS
The anatomy of the coronavirus outbreak. On Thursday, the CDC confirmed the first known person-to-person transmission of the coronavirus in the U.S. On the same day, the World Health Organization (WHO) officially declared a global health emergency over the outbreak (although, as the agency stressed, that's not a reason to panic for the vast majority of people). I spoke with renowned virologist and public health expert Dr. Peter Hotez on the nature of the coronavirus, transmission rates, and the progress we've seen so far on vaccine development. (Fortune)
THE BIG PICTURE
U.S. life expectancy rises for the first time in four years. Yes, there's some good news: for the first time in four years, American life expectancy actually rose a bit (if modestly). The average increase in life expectancy is only a month (78 years and 8 months, according to CDC, though females have a higher life expectancy than men do). The report find thats falling death rates from drug overdoses and certain types of cancer were linked to the incremental rise, although suicides continued to increase. (Fortune)
EPA says that common weed killer glyphosate doesn't cause cancer. The Environmental Protection Agency (EPA) reiterated on Thursday that the common weed killer glyphosate isn't a carcinogen. The chemical has been at the center of lawsuits against Bayer AG for its popular Roundup product and will provide a hefty legal boost to the company as it fields thousands of lawsuits on the matter. (Reuters)
REQUIRED READING
Global companies enter lockdown mode as coronavirus rocks China, by Naomi Elegant, David Meyer, & Polina Marinova
The coronavirus problem could be solved with design thinking, by Clay Chandler
Facebook's ad machine is being weakened by privacy changes, by Danielle Abril
Philip Morris CEO aims for a 'smoke free future,' by Susie Gharib
Sign up for other Fortune newsletters.


fortune--2020-01-30--How the Wuhan coronavirus spreads and what’s being done about it

Eli Lilly smashed Wall Street projections thanks to its diabetes drugs

On Thursday, the World Health Organization (WHO) declared the coronavirus outbreak a global health emergency. There have been at least 171 deaths related to the virus. Also on Thursday, the Centers for Disease Control (CDC) reported the first human-to-human transmission of coronavirus in the U.S.
The WHO’s declaration is not a call to panic, the agency’s own experts emphasized, but a signal to countries in the region to be on alert for a possible swell in cases. “There is no reason for measures that unnecessarily interfere with [international travel and trade]. We call on all countries to implement decisions that are evidence-based & consistent. WHO stands ready to provide advice to any country that is considering which measures to take,” said WHO director-general Tedros Ghebreyesus on Thursday. He added that the declaration “is not a vote of no confidence in China,” and praised the country’s efforts to contain the outbreak.
The primary source of concern is for nations that have weaker health systems and may not be equipped to deal with the outbreak. (In countries like the United States, which have robust health systems, people should use the same precautions they use to keep the common cold at bay.)
Information about the Wuhan coronavirus, known within the medical community as 2019-nCoV, is in constant flux. That’s not surprising given the nature—and innate unpredictability—of how a pathogen spreads.
Global health officials have a difficult task in these situations, balancing the importance of common sense protections while guarding against public panic that can actually make matters worse. To that end, it’s important to understand the science of virus transmission and what it takes to develop a vaccine that can stop a coronavirus before it spreads.
How contagious is the Wuhan coronavirus?
One of the most important numbers in the science of infection is “R0” (pronounced “R-naught”). This figure is an estimate of how many people in an otherwise uninfected population, on average, may get the virus from a single infected person.
An R0 of 1 means that an infected person would spread the virus to an average of one other person, and that a widespread outbreak is unlikely or containable.
But an R0 that approaches 2 indicates that, on average, one infected person would spread the virus to two people, and that the virus will continue to spread.
The strain of coronavirus that started in China currently has an R0 value of about 2.2, according to a new study in the New England Journal of Medicine. On average, an infected person has spread the infection to 2.2 other people, according to the study authors.
For comparison, the basic reproductive rate of SARS (a respiratory condition with similarities to the Wuhan coronavirus strain) was estimated to be around 3—although that outbreak was largely contained with aggressive isolation and infection control measures.
But there’s considerable nuance to these figures, Dr. Peter Hotez, dean for the National School of Tropical Medicine at Houston’s Baylor College of Medicine, told Fortune.
“The new numbers for the R0 seems to be around 2—roughly the same figure as the flu or higher, or about the same as SARS,” he said. “But we’re seeing different estimates, including in some instances an R0 as high as 5.”
The transmission rate can vary widely based on location. For instance, a hospital dedicated to treating the coronavirus may have a significantly higher R0 number given its density of patients than in the general public.
But a higher infection rate does not mean a virus is deadlier than one with a lower R0 number. Infection rate and deadliness are two separate issues. “Ebola has about a 50% mortality rate but it’s not typically transmissible unless you’re a caregiver or in close contact with an infected individual,” Hotez points out.
As of now, it appears that the Wuhan coronavirus is deadliest for those with compromised immune systems. At the same time, Hotez notes, only the sickest of patients are being diagnosed—so the transmissibility numbers and a gauge of the virus’ overall deadliness remain in flux. Communications across the global health community and governments will be critical to determining the broader nature of the threat.
When will there be a coronavirus vaccine?
There are a number of firms currently working on coronavirus vaccines. But these could take years to get to market given the realities of safety testing and a fundamental lack of investment in vaccine production.
“We’re too much in a reactive mode,” said Hotez. “All of a sudden you need to make a vaccine, but it’s a process… If we had real U.S.-China cooperation on this process, we could potentially start testing in humans within weeks to months.”
Companies like Moderna, Johnson & Johnson, Inovia Pharmaceuticals, and Hotez’s own coalition (alongside the help of the National Institutes of Health) are working on various versions of a coronavirus vaccine. Hotez notes that Baylor and its partners have manufactured a SARS vaccine that could potentially cross-protect against the current coronavirus.
More must-read stories from Fortune:
—10 stocks that are poised for a stellar 2020
—Will retiring baby boomers crash the stock market?
—Millions have been purged from voter rolls—and may not even realize it
—Inside New York City’s Chinese restaurant crisis
—All of your questions on filing taxes in 2020, answered
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-30--Amazon shares surged 10% on news of a very profitable holiday season

Amazon reported earnings and revenue from the key holiday quarter that beat Wall Street estimates, showing the largest U.S. e-commerce company can invest heavily in next-day delivery without devastating its bottom line. Shares surged 10% on the news.
Fourth-quarter sales were $87.4 billion and profit was $6.47 a share, the Seattle-based company said Thursday in a statement. Analysts were looking for sales of $86.2 billion and earnings of $4.11 a share, according to data compiled by Bloomberg.
Amazon is spending to fend off rivals in several key parts of its business. In e-commerce, the company is rolling out next-day delivery, up from its previous two-day offering, to fight intensified competition from Walmart and other retailers. The Amazon Web Services cloud business is building new data centers and hiring engineers in response to steady gains by Microsoft and a renewed customer push from Alphabet’s Google. Meanwhile, Amazon continues to plow money into overseas markets such as India and Brazil.
Some analysts had been particularly concerned about slowing growth and rising costs at AWS, the source of about two-thirds of Amazon’s operating income in recent years. Thursday’s results dispelled those worries for now.
Shares jumped to a high of $2,066.76 in extended trading after closing at $1,870.68 in New York on Thursday. Amazon stock has climbed about 12% in the past year, lagging behind tech industry peers.
More must-read stories from Fortune:
—Retailers reuse and recycle the way to increased growth
—Global companies enter lockdown mode as coronavirus rocks China—An imperfect expansion into “sustainable” seafood
—What Walmart and Target need to do to stay on top
—WATCH: Inside the algorithm powering Stitch Fix
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-01-30--How British automakers are bracing for Brexit

After nearly four years of fraught negotiations, Britain is poised to leave the European Union on January 31, and few are more relieved that the period of uncertainty is over than British carmakers.
The U.K.’s top luxury car brands have invested hundreds of millions of dollars to bolster operations at home, but leaving the European Union without a deal could have them scrambling to relocate factories and supply channels.
Britain’s automotive industry, which relies upon frictionless trade within Europe, is bracing for a downturn. Production is expected to fall 24%, to 1.36 million units, from its peak of 1.8 million units in 2016 when Britain voted to leave the EU, according to IHS Markit.
Thankfully for British household brands like Jaguar and Aston Martin, which are in the middle of launching large-scale projects, a dreaded “no deal Brexit” has been averted with prime minister Boris Johnson securing an overwhelming majority in December’s general election. But new trade agreements with the European Union and the U.K.’s other major trading partners are yet to be negotiated.
Jaguar Land Rover earmarked more than $650 million to invest in a new design studio before Britain voted to leave the EU in June 2016. The automaker held a grand opening for the 129,000-square-foot studio in Gaydon, U.K. in September. Twice as large as its previous space, the cutting-edge compound is powered entirely by renewable energy sources including roof-mounted photovoltaic panels.
Jaguar’s new Gaydon design studio. Courtesy of Jaguar Land Rover.
Additionally, Jaguar is gearing up to electrify its lineup and convert its factory in Castle Bromwich, U.K. to build battery-powered vehicles. The automaker plans to launch an electrified version of its flagship XJ sedan and soon begin offering all of its new vehicles in hybrid or electric versions.
The investment is too focused on England, giving Jaguar a “long-term competitive disadvantage,” said Ferdinand Dudenhoffer, director of the Center for Automotive Research at the University of Duisburg-Essen in Germany. “The investments for Gaydon were decided a few years ago. The point of no return in the decision was exceeded.”
Brexit threatens higher costs for both manufacturers and consumers as the EU imposes new tariffs on cars, trucks, and SUVs built in the UK. Without a trade deal, Britain would be subject to World Trade Organization tariff rules, including a 10% duty on finished cars imported into the EU and a low-single digit tariff on components exported to the UK.
On average, a single vehicle requires about 30,000 parts to assemble. Some of these components may travel across the border multiple times during the assembly process, a journey that could rack up tariffs and create delays at ports and checkpoints.
“The uncertainty makes it difficult to justify capital expenditure in plants for future projects with a clear indication of the future,” Fletcher said.
Meanwhile, Aston Martin is gearing up for its most critical product launch of the last century—its first-ever SUV, the $189,900 DBX—with a new factory in Wales. The company is four years into its “Second Century” plan that will see the launch of seven models in as many years. Those include two hypercars and an all-electric Lagonda SUV.
Aston Martin’s DBX SUV. Courtesy of Aston Martin.
“The quality and capability of these models would normally position these automakers for growth, but Brexit concerns are hindering nearly every British-based global company,” said Karl Brauer, executive publisher of Kelley Blue Book. “These concerns, and the limits they are imposing on economic growth and success, will continue until Brexit is fully resolved.”
Bentley Motors, which celebrates its centenary this year, is better insulated from Brexit pressures as part of the behemoth Volkswagen Group.
The luxury marque is launching its most advanced model yet: the 2020 Flying Spur saloon, which is designed, engineered and handcrafted at the company’s headquarters in Crewe, England.
Bentley Flying Spur. Courtesy of Bentley Motors.
The $214,600, 626-horsepower sedan helps Bentley go head to head with the Rolls-Royce Ghost and Mercedes-Maybach S-Class. The new Flying Spur features a 6.0-liter twin-turbocharged W12 engine and minute attention to detail, from the 22,000 knurled aluminum bezels adorning its dashboard knobs to a rear-row touch screen that allows passengers to control massage, climate, and mood lighting functions.
For Bentley, the luxury saloon market is “probably the most intensely competitive because every car in the segment is so technically excellent,” said Peter Guest, project manager for the Flying Spur. “It’s really important we get this right.”
And for the sake of its automakers, Westminster better get Brexit right.
More must-read stories from Fortune:
—The next frontier of road rage is the parking garage
—3 key takeaways from Tesla’s blockbuster fourth-quarter earnings
—Who is Luca de Meo, Renault’s new CEO?
—Can Tesla keep growing without critical tax incentives?
—How Renault is navigating disruption in the auto industry
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.