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Have the tech giants finally had their bubble burst? I’d hate to speculate | John Naughton

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A speculative bubble, wrote Nobel laureate Robert Shiller in Irrational Exuberance, his landmark book on human foolishness, is “a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases and bringing in a larger and larger class of investors, who, despite doubts about the real value of an investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement”.

Observers of the tech industry are wearily familiar with this kind of irrationality. Throughout 2020 and 2021, as Covid-19 wreaked economic havoc on countries throughout the western world, the tech industry remained strangely untouched by what was happening on the ground. While the rest of us cowered in lockdown, the pandemic made tech bosses and owners insanely richer. Their companies grew faster and became even more profitable while other industries languished. Apple had so much extra cash that it spent $90bn (£74bn) – nearly the gross domestic product of Kenya – buying its own shares. Amazon laid out $50bn in 2021 on warehouses, hiring tens of thousands of employees, ordering fleets of electric vehicles and building cloud computing centres. And so on.

So while the pandemic had put many conventional companies on life support, it looked as though it had consolidated the dominance of Alphabet (neé Google), Amazon, Facebook, Microsoft and Apple, making them the new masters of our networked universe.

And then something happened. On 19 November 2021 the Nasdaq stock market index (which is heavily influenced by tech companies) stood at an all-time high of 16,057, then suddenly went into rapid decline. As I write, it stands at 12,369. And so the question became: was this just what economists euphemistically call a “market correction” or an indicator that this particular speculative bubble had really burst?

The answer, if the quarterly figures released last week by the tech giants are anything to go by, is that it looks as though the bubble has at least been punctured. The numbers, according to an analysis by Luke Gbedemah and Sebastian Hervas-Jones of Tortoise Media, suggest that a split is emerging between the companies that can “sustain an economic downturn and those that might be facing existential decline”. The figures indicate that, for the first time in the history of the industry, the combined real revenue growth rate of the companies was negative rather than positive and real revenues overall were less than the year before.

Alphabet’s revenues, for example, were up by 13% but its profits fell by 14%. Apple’s revenues increased by a whisker but profits were down by more than 10%. Amazon’s revenues were up by 7% but profits fell by a whopping 60.6%. Meta – that is, Facebook – had a terrible quarter, with revenues slightly down but profits dropping by 36%. Just about the only bright spot was Microsoft: its revenues were up by nearly a fifth, but even then profits just inched up by 2%.

In interpreting these numbers, the usual caveats apply: these are just one quarter’s results (though Meta has now had two dreadful ones); global supply chain problems and pulling out of Russia may have had a disproportionate impact on Apple; and Amazon’s results may reflect the impact of its huge investment in Rivian, the electric vehicle manufacturer, from which it has ordered 100,000 vehicles.

But overall, one has the feeling that these giant money-printing machines are moving into territory that is unfamiliar to them – territory where, instead of having endless resources for expansion and experimentation, margins will be squeezed, costs and perks cut, workers fired and efficiencies found. Suddenly, Alphabet’s chief executive is calling for staff “to be more entrepreneurial, working with greater urgency, sharper focus and more hunger than we’ve shown on sunnier days”. Similar sanctimonious exhortations are doubtless being issued by his counterparts at the other giants.

Two further thoughts stand out. The first is that the period of what one might call “tech exceptionalism” – the era when these companies and their cheerleaders were lauded for being different from normal, boring corporations – may be drawing to a close. From now on, they’re just corporations – like BT or Unilever.

The second is the extent to which we have all underestimated Microsoft simply because it fumbled the smartphone opportunity. Instead, it focused on providing the basic computational infrastructure of the organisational world. The NHS, for example, has something like 750,000 PCs, all of them running Microsoft operating systems and software. Ditto for the UK government, large corporations, university administrations and small and medium-size enterprises in the western world. And it now has a successful cloud computing business. It’s not glamorous or exciting but it’s a rock-solid, enduring business. If you bought shares in it 30 years ago, you’d have the basis for a pretty good pension now. And it’ll still be around when Facebook is just a bad memory.

What I’ve been reading

On sail
The Maintenance Race on the Works in Progress website is a riveting account by Stewart Brand of the first round-the-world solo yacht race.

Algorithm and blues
Kyle Chayka’s interesting New Yorker essay The Age of Algorithmic Anxiety explores the subtle pressures of surveillance capitalism.

Photo finish
Instagram Is Dead is an angry blogpost by talented photographer Om Malik about how Meta has destroyed a platform he valued.

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Elon Musk sells Tesla shares worth $6.9bn as Twitter trial looms | Elon Musk

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Elon Musk has sold $6.9bn (£5.7bn) worth of shares in Tesla after admitting that he could need the funds if he loses a legal battle with Twitter and is forced to buy the social media platform.

The Tesla CEO walked away from a $44bn deal to buy Twitter in July but the company has launched a lawsuit demanding that he complete the deal. A trial will take place in Delaware in October.

“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk said in a tweet late on Tuesday.

In other comments on Twitter on Tuesday, Musk said “yes” when asked if he was finished selling Tesla stock. He also said he would buy Tesla stock again if the Twitter deal does not close.

Musk has committed more than $30bn of his own money to the financing of the deal, with more than $7bn of that total provided by a coterie of associates including tech tycoon Larry Ellison, the Qatar state investment fund and the world’s biggest cryptocurrency exchange, Binance.

Musk, the world’s richest person, sold $8.5bn worth of Tesla shares in April and had said at the time there were no further sales planned. But since then, legal experts had suggested that if Musk is forced to complete the acquisition or settle the dispute with a stiff penalty, he was likely to sell more Tesla shares.

Last week Musk launched a countersuit against Twitter, accusing the platform of deliberately miscounting the number of spam accounts on the platform. Twitter has consistently stated that the number of spam accounts on its service is less than 5% of its user base, which currently stands at just under 238 million. Legal experts have said that Musk will find it hard to convince a judge that Twitter’s spam issue represents a “company material adverse effect” that substantially alters the company’s value – and therefore voids the deal.

Musk sold about 7.92m Tesla shares between 5 August and 9 August, according to multiple filings. He now owns 155m Tesla shares or just under 15% of the electric carmaker.

The latest sales bring total Tesla stock sales by Musk to about $32bn in less than one year. However, Musk remains comfortably ahead of Jeff Bezos as the world’s richest man with an estimated $250bn fortune, according to the Bloomberg billionaires index.

Tesla shares have risen nearly 15% since the automaker reported better-than-expected earnings on 20 July, also helped by the Biden administration’s climate bill that, if passed, would lift the cap on tax credits for electric vehicles.

Musk also teased on Tuesday that he could start his own social media platform. When asked by a Twitter user if he had thought about creating his own platform if the deal didn’t close, he replied: “X.com”.

With Reuters



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Iran reveals use of cryptocurrency to pay for imports • The Register

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Iran has announced it used cryptocurrency to pay for imports, raising the prospect that the nation is using digital assets to evade sanctions.

Trade minister Alireza Peyman Pak revealed the transaction with the tweet below, which translates as “This week, the first official import order was successfully placed with cryptocurrency worth ten million dollars. By the end of September, the use of cryptocurrencies and smart contracts will be widespread in foreign trade with target countries.”

It is unclear what Peman Pak referred to with his mention of widespread use of crypto for foreign trade, and the identity of the foreign countries he mentioned is also obscure.

But the intent of the announcement appears clear: Iran will use cryptocurrency to settle cross-border trades.

That’s very significant because Iran is subject to extensive sanctions aimed at preventing its ability to acquire nuclear weapons and reduce its ability to sponsor terrorism. Sanctions prevent the sale of many commodities and technologies to Iran, and financial institutions aren’t allowed to deal with their Iranian counterparts, who are mostly shunned around the world.

As explained in this advisory [PDF] issued by the US Treasury, Iran has developed numerous practices to evade sanctions, including payment offsetting schemes that let it sell oil in contravention of sanctions. Proceeds of such sales are alleged to have been funnelled to terrorist groups.

While cryptocurrency’s anonymity has been largely disproved, trades in digital assets aren’t regulated so sanctions enforcement will be more complex if Iran and its trading partners use crypto instead of fiat currencies.

Which perhaps adds more weight to the argument that cryptocurrency has few proven uses beyond speculative trading, making the ransomware industry possible, and helping authoritarian states like Iran and North Korea to acquire materiel for weapons.

Peyman Pak’s mention of “widespread” cross-border crypto deals, facilitated by automated smart contracts, therefore represents a challenge to those who monitor and enforce sanctions – and something new to worry about for the rest of us. ®



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Edwards Lifesciences is hiring at its ‘key’ Shannon and Limerick facilities

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The medtech company is hiring for a variety of roles at both its Limerick and Shannon sites, the latter of which is being transformed into a specialised manufacturing facility.

Medical devices giant Edwards Lifesciences began renovations to convert its existing Shannon facility into a specialised manufacturing centre at the end of July.

The expansion will allow the company to produce components that are an integral part of its transcatheter heart valves. The conversion is part of Edwards Lifesciences’ expansion plan that will see it hire for hundreds of new roles in the coming years.

“The expanded capability at our Shannon facility demonstrates that our operations in Ireland are a key enabler for Edwards to continue helping patients across the globe,” said Andrew Walls, general manager for the company’s manufacturing facilities in Ireland.

According to Walls, hiring is currently underway at the company’s Shannon and Limerick facilities for a variety of functions such as assembly and inspection roles, manufacturing and quality engineering, supply chain, warehouse operations and project management.

Why Ireland?

Headquartered in Irvine, California, Edwards Lifesciences established its operations in Shannon in 2018 and announced 600 new jobs for the mid-west region. This number was then doubled a year later when it revealed increased investment in Limerick.

When the Limerick plant was officially opened in October 2021, the medtech company added another 250 roles onto the previously announced 600, promising 850 new jobs by 2025.

“As the company grows and serves even more patients around the world, Edwards conducted a thorough review of its global valve manufacturing network to ensure we have the right facilities and talent to address our future needs,” Walls told SiliconRepublic.com

“We consider multiple factors when determining where we decide to manufacture – for example, a location that will allow us to produce close to where products are utilised, a location that offers advantages for our supply chain, excellent local talent pool for an engaged workforce, an interest in education and good academic infrastructure, and other characteristics that will be good for business and, ultimately, good for patients.

“Both our Shannon and Limerick sites are key enablers for Edwards Lifesciences to continue helping patients across the globe.”

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