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Instagram co-founders resign in latest Facebook executive exit

Rockville, MD (Reuters) – Instagram on Monday said co-founders Kevin Systrom and Mike Krieger have resigned as chief executive officer and chief technical officer of the photo-sharing app owned by Facebook Inc, giving scant explanation for the move.

FILE PHOTO: Instagram founders Mike Krieger (L) and Kevin Systrom attend the 16th annual Webby Awards in New York May, 21 2012. REUTERS/Stephen Chernin/File photo

The departures at Facebook’s fastest-growing revenue generator come just months after the exit of Jan Koum, co-founder of Facebook-owned messaging app WhatsApp, leaving the social network without the developers behind two of its biggest services.

They also come at a time when Facebook’s core platform is under fire for how it safeguards customer data, as it defends against political efforts to spread false information, and as younger users increasingly prefer alternative ways to stay in touch with family and friends. Concerns over Facebook’s business sparked the biggest one-day wipeout in U.S. stock market history in July.

Systrom wrote in a blog post on Monday that he and Krieger planned to take time off and explore “our curiosity and creativity again”.

Their announcement came after increasingly frequent clashes with Facebook Chief Executive Mark Zuckerberg over the direction of Instagram, Bloomberg reported.

In a statement, Zuckerberg described the two as “extraordinary product leaders”.

“I’ve learned a lot working with them for the past six years and have really enjoyed it. I wish them all the best and I’m looking forward to seeing what they build next,” Zuckerberg said.

INDEPENDENCE

Koum’s departure in May followed the exit of his WhatsApp co-founder Brian Acton.

That led to a reshuffling of Facebook’s executive ranks, increasing Zuckerberg’s ability to influence day-to-day operations. Zuckerberg ally Chris Cox, who leads product development for Facebook’s main app, gained oversight of WhatsApp and Instagram, which had been given independence when Facebook bought them.

Adam Mosseri, who had overseen Facebook’s news feed and spent a decade working closely with Zuckerberg, became Instagram’s head of product.

Instagram and Facebook have operated independently and the two services barely mention each other. But as regulators have pushed Facebook to improve information safeguards for individual privacy, to combat addiction to social media, and to stop misinformation or fake news, Zuckerberg and other leaders have been under more pressure to monitor units beyond the core social network.

ACQUISITION DONE RIGHT

Systrom and Krieger notified the photo-sharing app’s leadership team and Facebook on Monday about their decision to leave, Instagram said. Their departure would be soon, it said. The New York Times first reported the move.

Systrom and Krieger met through Stanford University and worked separately in Silicon Valley before forming Instagram in 2010.

Facebook bought Instagram in 2012 for $1 billion. The photo-sharing app has over 1 billion active monthly users and has grown by adding features such as messaging and short videos. In 2016, it added the ability to post slideshows that disappear in 24 hours, mimicking the “stories” feature of Snap Inc’s Snapchat.

The photo app’s global revenue this year is likely to exceed $8 billion, showed data from advertising consultancy EMarketer.

Increased advertising on Instagram has seen the average price-per-ad across Facebook’s apps decline this year after a year of upswing. A new privacy law in Europe also has affected prices.

Instagram had been hailed in Silicon Valley as a flashy acquisition done right, with the team kept relatively small and Systrom having the freedom to add features such as peer-to-peer messaging, video uploads and advertising.

“I see Mark [Zuckerberg] practice a tremendous amount of restraint in giving us the freedom to run, but the reason why I think he gives us the freedom to run is because when we run, it typically works,” Systrom told Recode last June.

The app’s latest product, IGTV, has been slow to gain traction. Offered through Instagram and as a standalone app, IGTV serves up longer-length video content, mostly from popular Instagram users.

Video content has been a major emphasis for Facebook as it seeks to satisfy advertisers’ desire to stream more commercials online.

Reporting by Paresh Dave and Subrat Patnaik; Additional reporting by Bhargav Acharya; Writing by Peter Henderson; Editing by Gopakumar Warrier and Christopher Cushing

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The night a Chinese billionaire was accused of rape in Minnesota

MINNEAPOLIS/NEW YORK (Reuters) – With the Chinese billionaire Richard Liu at her Minneapolis area apartment, a 21-year-old University of Minnesota student sent a WeChat message to a friend in the middle of the night. She wrote that Liu had forced her to have sex with him.

JD.com founder Richard Liu, also known as Qiang Dong Liu, is pictured in this undated handout photo released by Hennepin County Sheriff’s Office, obtained by Reuters September 23, 2018. Hennepin County Sheriff’s Office/Handout via REUTERS

“I was not willing,” she wrote in Chinese on the messaging application around 2 a.m. on August 31. “Tomorrow I will think of a way to escape,” she wrote, as she begged the friend not to call police.

“He will suppress it,” she wrote, referring to Liu. “You underestimate his power.”

This WeChat exchange and another one reviewed by Reuters have not been previously reported. One of the woman’s lawyers, Wil Florin, verified that the text messages came from her.

Liu, the founder of Chinese ecommerce giant JD.com Inc, was arrested later that day on suspicion of rape, according to a police report. He was released without being charged and has denied any wrongdoing through a lawyer. He has since returned to China and has pledged to cooperate with Minneapolis police.

Jill Brisbois, a lawyer for Liu, said he maintains his innocence and has cooperated fully with the investigation.

“These allegations are inconsistent with evidence that we hope will be disclosed to the public once the case is closed,” Brisbois wrote in an email response to detailed questions from Reuters.

Loretta Chao, a spokeswoman for JD.com, said that when more information becomes available, “it will become apparent that the information in this note doesn’t tell the full story.” She was responding to detailed questions from Reuters laying out the allegations in the woman’s WeChat messages and other findings.

Florin Roebig and Hang & Associates, the law firms representing the woman, said in an email that their client had “fully cooperated” with police and was also prepared to assist prosecutors. Florin, asked if his client planned to file a civil suit against Liu, said, “Our legal intentions with regard to Mr. Liu and others will be revealed at the appropriate time.”

Representatives for both Liu and the student declined requests from Reuters to interview their clients.

The police department has turned over the findings of its initial investigation into the matter to local prosecutors for a decision on whether to bring charges against Liu. There is no deadline for making that decision, according to the Hennepin County Attorney’s Office.

The Minneapolis police and the county attorney declined to comment on detailed questions from Reuters.

Reuters has not been able to determine the identity of the woman, which has not been made public. But her WeChat messages to two friends, and interviews with half a dozen people with knowledge of the events that unfolded over a two-day period provide new information about the interactions between Liu and the woman, a student from China attending the University.

The case has drawn intense scrutiny globally and in China, where the tycoon, also known as Liu Qiangdong, is celebrated for his rags-to-riches story. Liu, 45, is married to Zhang Zetian, described by Chinese media as 24-years old, who has become a celebrity in China and works to promote JD.com.

As the second-largest ecommerce website in the country after Alibaba Group Holding Ltd, the company has attracted investors such as Walmart Inc, Alphabet Inc’s Google and China’s Tencent Holdings.

Liu holds nearly 80 percent of the voting rights in JD.com. Shares in the company have fallen about 15 percent since Liu’s arrest and are down about 36 percent for the year.

“IT WAS A TRAP”

Liu was in Minneapolis briefly to attend a business doctoral program run jointly by the University of Minnesota’s Carlson School of Management and China’s elite Tsinghua University, according to the University of Minnesota. The doctoral program is “directed at high-level executives” from China.

Liu threw a dinner party on August 30 for about two dozen people, including around 20 men, at Origami Uptown, a Japanese restaurant in Minneapolis where wine, sake and beer flowed freely, according to restaurant staff and closed circuit video footage reviewed by Reuters.

Liu, who Forbes estimates is worth about $6.7 billion, ordered sashimi by pointing his finger at the first item on the menu and sweeping it all the way down to indicate he wanted everything, one restaurant employee said. The group brought in at least one case of wine from an outside liquor store to drink along with the dinner, according to the restaurant staff.

JD.com founder Richard Liu, also known as Qiang Dong Liu, is pictured in this undated handout photo released by Hennepin County Sheriff’s Office, obtained by Reuters September 23, 2018. Hennepin County Sheriff’s Office/Handout via REUTERS

Security video footage from the restaurant shows the group toasted each other throughout the night.

Later the woman told a second friend in one of the messages that she felt pressured to drink that evening.

“It was a trap,” she wrote, later adding “I was really drunk.”

The party ended around 9:30 p.m. The tab: $2,200, the receipt shows. One inebriated guest was helped out of the restaurant by three of his associates, according to the restaurant security video footage.

Liu and the woman then headed to a house in Minneapolis, according to one person familiar with the matter. Another source said that the house had been rented by one of Liu’s classmates in the academic program to give the class a place to network, smoke, drink whiskey and have Chinese food every night.

But they did not go in. Liu and the student were seen outside the house before Liu pulled her into his hired car, a person with knowledge of the incident said.

In the WeChat message to one of her friends sent hours later, the student said Liu “started to touch me in the car.”

“Then I begged him not to… but he did not listen,” she wrote.

They ended up back at her apartment, according to sources with knowledge of the matter.

Reuters could not determine what happened over the next two hours. According to the police report, the alleged rape occurred at around 1 a.m.

The woman subsequently reached a fellow University of Minnesota student who notified the police, according to two sources and her WeChat messages.

Minneapolis police came to her apartment early that morning while Liu was there, but made no arrests, another source familiar with the situation said. Reuters could not determine exactly what occurred during the police visit, but the source said the woman declined to press charges in Liu’s presence.

In a WeChat message with one of her friends, she asked her friend why the billionaire would be interested in “an ordinary girl” like her.

“If it was just me, I could commit suicide immediately,” she wrote. “But I’m afraid that my parents will suffer.”

By Friday morning, she also wrote to one of her two friends that she had told several people about what had happened, including the police, a few friends and at least one teacher. She wrote that she would keep her bed sheets. “Evidence cannot be thrown away,” she wrote.

On Friday afternoon, the student went to a hospital to have a sexual assault forensic test, the source said.

Police officers arrived at a University of Minnesota office shortly after an emergency call around 9 p.m that night. The student was present at the office, alongside school representatives, and accused Liu of rape, the source said.

Representatives for the University of Minnesota declined to comment on detailed questions from Reuters.

Liu came to the university office around 11 p.m. while police were there, according to the person familiar with the matter. As an officer handcuffed him, Liu showed no emotion. “I need an interpreter,” he said, according to the source.

Liu was released about 17 hours later. Minneapolis police have said previously that they can only hold a person without charges for 36 hours.  

Within days, Liu was back in China, which has no extradition treaty with the United States.

“Liu has returned to work in Beijing and he continues to lead the company. There is no interruption to JD.com’s day-to-day business operations,” Loretta Chao, the JD.com spokeswoman, told Reuters.

Additional reporting by Blake Morrison and Christine Chan in New York, Adam Jourdan and Engen Tham in Shanghai, and Cate Cadell in Beijing; Editing by Paritosh Bansal and Edward Tobin

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Home modems, routers hit by U.S. China tariffs as 'smart' tech goods escape

WASHINGTON (Reuters) – U.S. tariffs that hit some $200 billion worth of Chinese products on Monday spare many high-profile consumer technology items such as “smart” watches and speakers, but the less flashy home modems, routers and internet gateways that make them work weren’t so lucky.

FILE PHOTO: U.S. President Donald Trump delivers his speech next to U.S. and Chinese flags as he and Chinese President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

Consumer tech industry officials and the U.S. Customs and Border Protection agency say they expect billions of dollars worth of these products, including those designed for home use, will be subject to the 10 percent tariffs activated on Monday.

The move will effectively create a two-tiered tariff structure for consumer internet, with many products, such as Fitbit (FIT.N) fitness trackers, Apple Inc’s (AAPL.O) watch and Amazon.com Inc’s (AMZN.O) Echo smart speaker being favored over routers and internet gateways from Arris International (ARRS.O), Netgear (NTGR.O), D-Link (2332.TW) and others.

“We’re operating under the assumption that the tens of millions of devices that deliver high-speed internet into consumers’ homes will be impacted by these tariffs,” said Jim Brennan, Arris’ senior vice president of supply chain, quality and operations.

“It feels anti-consumer because our devices are what enables the core of consumer tech,” Brennan told Reuters.

The modems, routers, switching and networking gear that keep the internet functioning were not included in a newly created U.S. tariff code that was exempted from the latest China tariffs, a spokesperson for the U.S. Customs and Border Protection agency said.

The agency has made no distinction between consumer-use modems and routers and the commercial network equipment used by data centers and broadband internet providers.

Most new internet-connected devices had been lumped into a broad category in the U.S. Harmonized Tariff Schedule, 85176200, “Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus.”

The catch-all category saw $23 billion in U.S. imports from China and $47.6 billion from the world last year. It was the largest component of U.S. President Donald Trump’s latest tariffs targeting Chinese goods.

The U.S. Trade Representative’s office had said it was breaking out items such as smart watches, fitness trackers, Bluetooth audio streaming devices and smart speakers into a new subcategory that would be exempted, but it gave few details.

According to a notice posted by the U.S. International Trade Commission, computer modems would stay in a separate sub-category, while “switching and routing apparatus” would be put into a new sub-category. Neither of these sub-categories were granted exemptions from the tariffs.

“Although we have not had occasion to issue rulings on the scope of a provision for ‘switching and routing apparatus,’ we agree that as a general matter, modems, routers, and networking equipment will be subject to the remedy,” a Customs and Border Protection spokesperson said late on Friday, referring to the 10 percent tariff.

It was not clear how much of the $23 billion in Chinese imports within the catch-all category could escape tariffs, but a Reuters review of industry data suggests the share could be small.

U.S. Census Bureau data has not yet captured the volume of annual imports from China — or any country — of the goods that will be exempt.

But the Consumer Technology Association estimates that the U.S. market for fitness trackers, smart watches, smart speakers and wireless earbuds and headphones was $8.2 billion in 2017, with forecast sales of $11.6 billion for 2019.

Even if China produced a majority of those goods, exemptions would only apply to a fraction of the $23 billion category.

CTA has forecast direct sales of modems and routers to consumers at $2.3 billion for 2019, up from $2 billion in 2017, excluding the products supplied directly by cable and broadband internet providers and equipment used in data centers and other infrastructure outside the home.

But the group argues that consumers will bear the costs of the tariffs, even if their service provider buys the modems.

“Overall, access to the internet will get more expensive, mobile plans will get more expensive, and connected devices that go to your smart phones will get more expensive because everything speaks to each other,” said Izzy Santa, director of strategic communications for CTA.

Additional reporting by Jason Lange in Washington and Stephen Nellis in San Francisco; Editing by Michael Perry

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Two Australian banks among six targeted by fake apps: security firm

SYDNEY (Reuters) – Customers of six banks including two of Australia’s largest lenders have had their personal details stolen by fake banking apps on the Google Play store, an internet security firm said.

Slovakian-based security software firm ESET said the official-looking apps had been downloaded over a thousand times since they were uploaded to the Google Play store in June.

In addition to Australia’s Commonwealth Bank and Australia and New Zealand Banking Group, banks in Britain, New Zealand, Switzerland and Poland were targeted, the firm said in a blog post.

The scheme was likely to have been the work of a single attacker, it added. The banks’ own apps and systems were not compromised.

“These groups are involved in phishing, obtaining your log-in credentials for your bank, or your credit-card information and in some cases both,” ESET researcher Nick Fitzgerald told Reuters from Christchurch in New Zealand on Thursday.

A Google spokeswoman declined to respond to questions about the scam, saying the company did not comment on individual apps.

Once downloaded, the fake apps asked customers for personal and banking details, including credit-card information and banking log-in details, ESET said.

After sending the data to the attacker’s server, the app would show messages saying “Congratulations” or “thank you” and end.

An ANZ spokeswoman said a customer alerted the bank to the fake app in June.

“We worked closely with the Google Play team to have the app removed in a few hours,” she said.

Commonwealth Bank declined to comment.

A spokeswoman for Auckland Savings Bank, which is owned by Commonwealth Bank, said customers alerted it of the scam in mid-May and immediately asked for the fake app to be taken down.

“No customers lost money as a result of this issue,” she said.

ESET did not say precisely how many people had been affected by the scam.

Reporting by Paulina Duran; Additional reporting by Charlotte Greenfield; Editing by Stephen Coates

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Cboe exchange turns to machines to police its 'fear gauge'

NEW YORK (Reuters) – Hard pressed to quash allegations that its popular “fear gauge” is being manipulated, Cboe Global Markets (CBOE.Z) is turning to artificial intelligence to help put those concerns to rest.

People walk by the Chicago Board Options Exchange (CBOE) Global Markets headquarters building in Chicago, Illinois, U.S., September 19, 2018. REUTERS/Michael Hirtzer

The exchange, which owns the lucrative volatility index the VIX .VIX, has taken several steps to confront manipulation claims that have helped drive the Cboe’s stock down about 15 percent this year, putting it on pace for its worst year ever.

In its latest effort to police trading tied to the index, the Cboe is working with FINRA, its regulatory services provider, to develop machine learning techniques to tell whether market conditions surrounding the VIX settlement are potentially anomalous, the exchange told Reuters.

“Incorporating the use of machine learning and AI (Artificial Intelligence) is a logical part of the ongoing enhancement of our overall regulatory program,” Greg Hoogasian, Cboe chief regulatory officer, said in an emailed statement.

Cboe declined to elaborate on when it began using machine learning techniques to monitor VIX settlements.

Any steps, however, may take a while to change investors’ minds on the stock.

“Any time you see controversy over manipulating markets and it involves a company, there are people who will walk away from the stock,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“It ends up tarnishing the company and subjecting them to legal risk that is very hard to quantify,” he said.

Tuz said Chase Investment Counsel, which owned nearly 19,000 Cboe shares in mid-2017, began selling its stake early this year, shedding the last of it on May 21.

Cboe’s stock performance this year has lagged that of other major exchange operators. Shares of Nasdaq Inc (NDAQ.O) are up about 17 percent, Intercontinental Exchange Inc’s (ICE.N) is up about 10 percent and CME Group Inc (CME.O) shares have risen 18 percent.

Concerns the index was being manipulated surfaced last year after John Griffin and Amin Shams of the McCombs School of Business at the University of Texas, Austin wrote an academic paper that noted significant spikes in trading volume in S&P 500 index options right at the time of settlement.

The paper also compared the value of the VIX at settlement with its value as calculated from S&P 500 options right after the settlement, and showed the two tend to diverge.

Instances of big deviations are taken as evidence by some that unscrupulous traders have been deliberately moving the settlement price.

Chicago Board Options Exchange (CBOE) Global Markets sign hangs at its headquarters building in Chicago, Illinois, U.S., September 19, 2018. REUTERS/Michael Hirtzer

A stock market fall on Feb. 5 that caused the VIX to surge the most in its 25-year history brought further scrutiny to the index, and led to dozens of lawsuits and ongoing probes into the matter by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.

The regulators have yet to comment on the matter and Cboe has denied the manipulation accusations, citing liquidity problems and legitimate hedging activity as reasons for unusual moves on settlement days.

“Only a forensic analysis of those episodes can confirm or refute such a claim,” said Kambiz Kazemi, partner at Canadian investment management firm La Financière Constance.

Meanwhile, the steps Cboe has taken to address the claims of manipulation are going in the right direction, said Kazemi.

The exchange operator recently overhauled the technology behind the auctions, improved the speed with which it sends alerts about auction imbalances, and sought to increase the number of market makers that provide buy and sell quotes for the auction.

POLICING THE FEAR GAUGE

Orderly VIX settlement auctions over the last few months have helped take some of the pressure off the Chicago-based exchange operator.

“I think we all will be observing the effects of the Cboe measures in the next few months,” Kazemi said.

VIX and associated products accounted for roughly a quarter of Cboe’s 2017 earnings, analysts estimate, and the controversy around the product has spooked some stockholders.

While financial firms have been using artificial intelligence software for everything from compliance to stock-picking, a growing number of firms have started to use it for market oversight.

Given the huge amount of data involved in market surveillance, machine learning algorithms can be far more efficient than humans in rooting out potential market manipulation, said Richard Johnson, a market structure and technology consultant at Greenwich Associates.

“It’s going to be a must have,” he said.

FINRA, which already monitors Cboe’s market on the company’s behalf, confirmed it was working on machine learning to enhance surveillance of the VIX settlement auctions, but would not offer specifics.

More generally, the Wall Street watchdog is working to use artificial intelligence to catch nefarious activities more quickly, including schemes that may have previously been unknown to regulators, said Tom Gira, who oversees FINRA’s market regulation department.

He said FINRA has begun using machine learning to scan for illegal activities across stock and options exchanges and is in the process of adding a feedback loop to the software that would regularly incorporate analysts’ data and allow the machines to detect ever-changing manipulation patterns.

Reporting by John McCrank and Saqib Iqbal Ahmed in NEW YORK; Additional reporting by Michelle Price in WASHINGTON; Editing by Megan Davies and Tomasz Janowski

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AstraZeneca plots China robot offensive to counter price cuts

WUXI, China/LONDON (Reuters) – With smart cancer diagnostics, one-stop-shop diabetes kits and AI systems to improve ambulance pick-ups for patients with chest pain, AstraZeneca (AZN.L) aims to move from simply supplying drugs to become a broad healthcare provider in China.

A sign is seen at an AstraZeneca site in Macclesfield, central England May 19, 2014. REUTERS/Phil Noble

Tech tie-ups with the likes of Alibaba (BABA.N) and Tencent (0700.HK) will not directly lift the British group’s drug sales, since they are not specific for any one company’s products and in many cases will be low-cost or free.

But it will expand the overall market and represents a soft power play that dovetails neatly with Beijing’s support for Internet-based healthcare systems to alleviate a lack of doctors, overcrowding and poor grassroots healthcare.

“Down the line we benefit, our products benefit, because we have better relationships with doctors and hospital managers and also because we diagnose more patients and they get better treated,” Chief Executive Pascal Soriot told Reuters.

Surrounded by the latest gizmos at the World Internet of Things Exposition in Wuxi, eastern China, Soriot says he wants to use the power of artificial intelligence, robots and apps to help transform diagnosis and disease management.

AstraZeneca has been on a tear in China, more than doubling its sales since 2012, helped by regulatory reforms to fast-track new drugs, and today generates 18 percent of revenue in the country — a far higher proportion than rivals.

Yet Soriot is anxious to do more to keep doctors and government officials on-side in the world’s second-biggest drugs market, as soaring demand strains the state insurance system and squeezes medicine prices.

The company’s underlying conviction is that it has the right medicines across chronic diseases like cancer, diabetes and respiratory disorders to win in China.

Soriot believes that can keep AstraZeneca growing in a pivotal market in the coming years, even though annual growth is likely to slow to nearer 15 percent from the breakneck 33 percent seen in the first half of 2018.

The company has moved quickly to exploit China’s new-found willingness to use innovative Western drugs.

Last year it won a record-fast approval for lung cancer pill Tagrisso, which is designed for patients with a genetic mutation that is particularly common in China.

It hopes to get a green light before the end of 2018 — well before U.S. approval — for a new anemia drug called roxadustat being developed with FibroGen (FGEN.O).

China-first approvals for drugs like roxadustat and Elunate, a colorectal cancer treatment from Eli Lilly (LLY.N) and Hutchison China MediTech (HCM.L), mark a reversal of the historical pattern of Chinese patients getting new drugs years after their launch in the West.

There is, however, a trade-off. Multinationals that relied in the past on selling older drugs at premium prices in China are seeing prices slashed. AstraZeneca took a 50 percent haircut last year on the price of Iressa, its predecessor to Tagrisso.

“The government wants to give access to better medicines to more people,” said Soriot, who admitted that pressure on prices had come sooner than he expected.

“To some extent the economy is growing so there is more money to do that, but there is not enough money … They have to make room in the budget for innovation.”

“UNMET NEEDS”

With 1.4 billion people, around 18 percent of the world’s population, China has more cases of cancer and diabetes than any other nation, fueled by fast food, smoking and pollution, global health data show.

“There are enormous unmet medical needs in China, particularly in oncology, and 30 percent of the world’s cancer patients are in China,” Christian Hogg, Chief Executive of Hutchison China MediTech, told Reuters.

“There is almost an inevitability that the Chinese pharmaceutical industry is going to grow to be the largest in the world in due course.”

The firm, also known as Chi-Med, is working with AstraZeneca on a novel oncology drug targeting kidney, lung and stomach tumors.

AstraZeneca is bolstering its sales force to meet this growing demand. It has around 7,500 sales staff in China and is looking to push into smaller cities — boosting volume and helping offset lower prices.

It aims to get more drugs onto a list of medicines covered by basic insurance schemes — the national drug reimbursement list — and onto fast-track approvals, Soriot said. The list was most recently updated last year after an eight-year hiatus.

A drug joint venture, Dizal Pharmaceutical, backed by the China State Development & Investment Corporation, will promote Chinese-discovered drugs — another priority for Beijing.

“It’s the first time a government fund works with a foreign company in researching new drugs for Chinese patients,” Leon Wang, AstraZeneca’s China head, said in an interview at the firm’s Shanghai headquarters. “So we like that.”

Wang added there were still many patients who went undiagnosed or untreated, and that the firm’s aggressive expansion, even to “village clinics”, was helping make the difference against rivals tapping growing demand.

“Chronic disease, oncology drugs, specialty care, rare disease, these will all explode I think,” he said.

(For a graphic on ‘Booming China sales’ click tmsnrt.rs/2pbCLGo)

Reporting by Adam Jourdan in WUXI and Ben Hirschler in LONDON; Editing by Catherine Evans

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IBM Debuts Tools to Help Prevent Bias In Artificial Intelligence

IBM wants to help companies mitigate the chances that their artificial intelligence technologies unintentionally discriminate against certain groups like women and minorities.

The technology giant’s tool, announced on Wednesday, can inspect AI-powered software for unintentional bias when it makes decisions, like when a loan might be denied to a particular person, explained Ruchir Puri, the chief technology officer and chief architect of IBM Watson.

The technology industry is increasingly combating the problem of bias in machine learning systems, used to power software that can automatically recognize images in pictures or translate languages. A number of companies have suffered a public relations black eye when their technologies failed to work as well for minority groups as for white users.

For instance, researchers discovered that Microsoft and IBM’s facial-recognition technology could more accurately identify the faces of lighter-skin males than darker-skin females. Both companies said they have since improved their technologies and have reduced error rates.

Researchers have pointed out that some of the problems may be related to the use of datasets that contain a lack of diverse images. Joy Buolamwini, the MIT researcher who probed Microsoft and IBM’s facial-recognition tech (along with China’s Megvii), recently told Fortune‘s Aaron Pressman that a lack of diversity within development teams could also contribute to bias because more diverse teams could be more aware of bias slipping into the algorithms.

In addition to IBM, a number of companies have introduced or plan to debut tools for vetting AI technologies. Google, for instance, revealed a similar tool last week while Microsoft said in May that it planned to release similar technology in the future.

Data crunching startup Diveplan said at Fortune’s recent Brainstorm Tech conference that it would release an AI-auditing tool later this year while consulting firm Accenture unveiled its own AI “fairness tool” over the summer.

Read More for an In-Depth Look: Unmasking A.I.’s Bias Problem

It’s unclear how each of these AI bias tools compare with one another because no outside organization has done a formal review.

Get Data Sheet, Fortune’s technology newsletter.

Puri said IBM’s tool built on the company’s cloud computing service is differentiated partly because it was created for business people and is easier to work with than similar tools from others that are intended only for developers.

Despite the flood of new AI-auditing tools, the problem of AI and bias will likely continue to persist because rooting out bias from AI is still in its infancy.

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Facebook's AI Can Analyze Memes, but Can It Understand Them?

Billions of text posts, photos, and videos are uploaded to social media every day, a firehose of information that’s impossible for human moderators to sift through comprehensively. And so companies like Facebook and YouTube have long relied on artificial intelligence to help surface things like spam and pornography.

Something like a white supremacist meme, though, can be more challenging for machines to flag, since the task requires processing several different visual elements at once. Automated systems need to detect and “read” the words that are overlaid on top of the photo, as well as analyze the image itself. Memes are also complicated cultural artifacts, which can be difficult to understand out of context. Despite the challenges they bring, some social platforms are already using AI to analyze memes, including Facebook, which this week shared details about how it uses a tool called Rosetta to analyze photos and videos that contain text.

Facebook says it already uses Rosetta to help automatically detect content that violates things like its hate speech policy. With help from the tool, Facebook also announced this week that it’s expanding its third-party fact checking effort to include photos and videos, not just text-based articles. Rosetta will aid in the process by automatically checking whether images and videos that contain text were previously flagged as false.

Rosetta works by combining optical character recognition (OCR) technology with other machine learning techniques to process text found in photos and videos. First, it uses OCR to identify where the text is located in a meme or video. You’ve probably used something like OCR before; it’s what allows you to quickly scan a paper form and turn it into an editable document. The automated program knows where blocks of text are located and can tell them apart from the place where you’re supposed to sign your name.

Once Rosetta knows where the words are, Facebook uses a neural network that can transcribe the text and understand its meaning. It then can feed that text through other systems, like one that checks whether the meme is about an already-debunked viral hoax.

The researchers behind Rosetta say the tool now now extracts text from every image uploaded publicly to Facebook in real time, and it can “read” text in multiple languages, including English, Spanish, German, and Arabic. (Facebook says Rosetta is not used to scan images that users share privately on their timelines or in direct messages.)

Rosetta can analyze images that include text in many forms, such as photos of protest signs, restaurant menus, storefronts, and more. Viswanath Sivakumar, a software engineer at Facebook who works on Rosetta, said in an email that the tool works well both for identifying text in a landscape, like on a street sign, and also for memes—but that the latter is more challenging. “In the context of proactively detecting hate speech and other policy-violating content, meme-style images are the more complex AI challenge,” he wrote.

Unlike humans, an AI also typically needs to see tens of thousands of examples before it can learn to complete a complicated task, says Sivakumar. But memes, even for Facebook, are not endlessly available, and gathering enough examples in different languages can also prove difficult. Finding high-quality training data is an ongoing challenge for artificial intelligence research more broadly. Data often needs to be painstakingly hand-labeled, and many databases are protected by copyright laws.

To train Rosetta, Facebook researchers used images posted publicly on the site that contained some form of text, along with their captions and the location from which they were posted. They also created a program to generate additional examples, inspired by a method devised by a team of Oxford University researchers in 2016. That means the entire process is automated to some extent: One program automatically spits out the memes, and then another tries to analyze them.

Different languages are challenging for Facebook’s AI team in other ways. For example, the researchers had to find a workaround to make Rosetta work with languages like Arabic, which are read from right to left, the opposite of other languages like English. Rosetta “reads” Arabic backwards, then after processing, Facebook reverses the characters. “This trick works surprisingly well, allowing us to have a unified model that works for both left to right and right to left languages,” the researchers wrote in their blog post.

While automated systems can be extremely useful for content moderation purposes, they’re not always foolproof. For example, WeChat—the most popular social network in China—uses two different algorithms to filter images, which a team of researchers at the Univeristy of Toronto’s Citizen Lab were able to successfully trick. The first, an OCR-based program, filters photos that contain text about prohibited topics, while the other censors images that appear similar to those on a blacklist likely created by the Chinese government.

The researchers were able to easily evade WeChat’s filters by changing an image’s properties, like the coloring or the way it was oriented. While Facebook’s Rosetta is more sophisticated, it likely isn’t perfect either; the system may be tripped up by hard-to-read text, or warped fonts. All image recognition algorithms are also still potentially susceptible to adversarial examples, slightly altered images that look the same to humans but cause an AI to go haywire.

Facebook and other platforms like Twitter, YouTube, and Reddit are under tremendous pressure in multiple countries to police certain kinds of content. On Wednesday, the European Union proposed new legislation that require social media companies to remove terrorist posts within one hour of notification, or else face fines. Rosetta, and other similarly automated tools, are what already help Facebook and other platforms abide by similar laws in places like Germany.

And they’re getting better at their jobs: Two years ago CEO Mark Zuckerberg said that Facebook’s AI systems only proactively caught around half of the content the company took down; people had to flag the rest first. Now, Facebook says that its AI tools detect nearly 100 percent of the spam it takes down, as well as 99.5 percent of terrorist content and 86 percent of graphic violence. Other platforms, like YouTube, have seen similar success using automated content detection systems.

But those promising numbers don’t mean AI systems like Rosetta are a perfect solution, especially when it comes to more nuanced forms of expression. Unlike a restaurant menu, it can be hard to parse the meaning of a meme without knowing the context of where it was posted. That’s why there are whole websites dedicated to explaining them. Memes often depict inside jokes, or are highly specific to a certain online subculture. And AI still isn’t capable of understanding a meme or video in the same way that a person would. For now, Facebook will still need to to rely on human moderators to make decisions about whether a meme should be taken down.


More Great WIRED Stories

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Strong Buy 6.16% Yield Won't Be On Sale Forever

This research report was produced by The REIT Forum with assistance from Big Dog Investments.

Tanger Factory Outlet Centers (SKT) is a solid REIT with a great dividend track record.

Source: SKT

Management has been prudent in protecting their balance sheet and keeping leverage low.

Source: SKT

They are very firmly within the investment grade credit rating and have significant excess cash flow even after paying the common dividend.

The bears on SKT must be ignoring a few simple fundamental factors.

SKT fundamentals

If SKT’s net operating income is simply flat over the next several years, SKT would still be a very reasonable investment. If net operating income was flat, we would expect very minimal pressure on total FFO as interest rates increase and a portion of the debt is refinanced.

The impact to total FFO should be quite small. Since SKT has so much excess cash flow after all of their operating expenses, common dividends, and capitalized expenditures for the properties, they are free to repurchase shares. By our estimate, they could reasonably shrink the number of shares outstanding by around 2% per year. That means even with flat FFO or an extremely minor decline in total FFO, the FFO per share would still be increasing. This also assumes SKT would continue to raise their dividend and maintain a similar payout ratio on FFO per share.

We see the above as the bear case scenario.

More likely scenario for SKT

It is more likely that we will see same-store NOI growth in 2019. Pressure on NOI in 2018 was tied to the Toys “R” Us bankruptcy. SKT knew the bankruptcy was coming but expected more of the impact to occur in 2019 rather than 2018. Because the Toys “R” Us bankruptcy hit earlier than expected, the weakness in earnings shows up for 2018 instead of 2019. With an expectation for moderate growth in same-store NOI on average over the next several years, we would expect total FFO to grow modestly. Given the expectation for a declining share count, we would expect FFO per share to grow a little faster.

If FFO per share and dividend per share grew at 1%, we would expect long-term returns to the buy-and-hold investor to run around 7% with 6% from yield and 1% from growth. In a more bullish scenario, we would be looking at FFO per share and dividend growth running in the 3% to 4% range which combines with the 6% yield for 9% to 10% in total returns. It is important to point out that this is forecasting the return from the dividend and the growth rate rather than speculating on the price movement over the next month.

Some short-term investors will be focused on the change in share price. We view the most likely direction as up over the next 12 months. However, predicting precisely where the share price will end is not a reliable indicator of long-term results.

Buyout potential

We’ve seen a few buyouts on REITs so far in 2018, including one in the mall space. While these are outlets, it is still classified as a mall REIT (sometimes a strip center).

There is an enormous amount of private capital looking for entry into real estate. This private capital is driving valuations on real estate. Ironically, the funds managing it are benefiting from the lack of transparency in their structure. Investors want real estate, but they are terrified by the day to day price movements in the stock. The price movement in the underlying asset, the real estate, is dramatically smaller. Consequently, investors are occasionally more comfortable with simply getting an appraised value a few times per year rather than seeing the daily fluctuations in market price. It seems absurd that investors would pay a premium for less liquidity and less transparency, but that is precisely what is happening in the real estate market today with an enormous amount of wealth.

A prudent manager in this structure might look to buy a REIT this way and then report the net value of the assets to investors. For instance, Blackstone (BX) recently acquired another REIT for their portfolio of real estate. Prologis (PLD) acquired another REIT. Buyers exist with the capital to swallow entire REITs. General Growth Properties (GGP) was recently swallowed by Brookfield Property Partners (BPY).

It would be sad to see SKT go right after hitting 25 years of dividend growth, but management indicates that they are willing to pick up for the phone for anyone who wants to make an offer. Generally, that would be on one property or a few properties, but a bid could be made for the entire company.

SKT’s confidence

Management of SKT had good things to say on the Q2 2018 earnings call (parts bolded for emphasis):

In terms of our balance sheet and capital position, we’re in great shape. We have a largely unencumbered portfolio, maintained solid interest coverage and have no significant debt maturities until 2021. We are committed to sustaining a stable and flexible financial position. We plan to continue to deliver a very strong level of cash flow and remain disciplined in our capital allocation decisions with a singular focus on creating value. The cash we generate covers our capital needs for investing in our assets, paying our dividends, repurchasing our common shares and deleveraging our balance sheet. Our dividend, which remains a priority, is secure and well covered. We have also continued to execute on our share repurchase program.

Going forward, we do not anticipate any new developments in 2018 and ’19. But we’ll continue to evaluate our priority uses of cash and long-term opportunities for growth. While we recognize the challenges we have discussed related to select overleveraged retailers, we believe industry sentiment surrounding fashion retailers is improving. According to recent reports, nearly 7,000 stores closed in all retail properties were announced in 2017. And slightly less than half of that number is slated to close this year. Importantly, offsetting those closures, approximately 2800 stores are scheduled to open this year. This all suggests a healthier retail outlet.

Our confidence in the long-term growth of the outlet distribution channel remains unwavered. In particular, relative to other retail channels, we don’t believe that outlets have been overbuilt. So the need to right-size and the competition among landlords is minimized. Furthermore, we are increasingly hearing the conviction among retailers that brick-and-mortar is a critical element of their omni-channel brand strategy. While the positive sales are encouraging and our conversations with tenants and prospects are constructive, we know there’s still much work to be done. We continue to employ a strategic approach that has proven effective and successful over the last 37 years, which includes keeping the tenant mix of our centers dynamic and giving Tanger shoppers the brands and designers they want. With this long-term view, we have proven we can successfully adapt to evolving consumer preferences and align those with tenant needs.

Final thoughts

We believe SKT is still attractively valued and expect it to perform well on the basis of higher expected FFO per share next year and continued dividend growth. The payout ratio is excellent and there is plenty of FFO leftover after paying the dividends. The balance sheet and debt maturities are great. SKT has raised its dividend for 25 consecutive years and is currently trading at a large discount to the net value of their assets. We believe the net value is around $30.00 per share.

If you enjoyed reading this article and want to receive updates on our latest research, click “Follow” next to my name at the top of this article.

Disclosure: I am/we are long SKT, BPY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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AMD: Winter Is Coming

If you walk away with only one thought, it needs to be this – the total addressable market (aka TAM) for servers took a massive leap up. TAM went from $18.5 billion to $22.5 billion. That is a rising tide that will raise all server-related ships, be it AMD (AMD), Nvidia (NVDA), or Intel (INTC) providing the hardware.

EPYC is the Spark, Rome is the Fire, Winter is Coming for Intel

To travel down memory lane, AMD was a much different company before Ryzen was released. The company was struggling to stay alive and selling off various parts. Ryzen changed everything. Let that sink in. Ryzen put AMD back on the road map and gave the company a pulse again. AMD’s server chip EPYC is the spark for AMD. EPYC is starting to ramp.

According to AMD CTO Mark Papermaster, “We expect to be able to end the year at about 5 percent of the market and grow to double digit next year.”
The server followup chip Rome is going to be the fire. Winter is coming for Intel. AMD is going to take its chunk of the server market with time.

Winter Intel

Big Growth in Server TAM

Estimates place the server market at $22.5 billion. According to IDC, the market is broken down as follows:

“Volume server revenue increased by 42.7% to $18.4 billion, while midrange server revenue grew 63.0% to $2.5 billion. High-end systems grew 30.4% to $1.7 billion.” That is quite the TAM for AMD to attack. Assuming AMD takes 4.5% to 5.5% of that market by Q4 with ramping going to 10%-plus by the following Q3… you get the picture.

https://static.seekingalpha.com/uploads/2018/9/12/4206551-15367765571490183.jpg

Looking above, we see some very nice growth in server units sold. Prices are rocketing up. According to Nextplatform.com “our guess is that half of the increase in revenues in Q2 2018 was due to rising component costs.”

This bodes well for AMD since EPYC gives performance at reduced component costs for AMD partners, while providing AMD with very high gross margins. As EPYC ramps, we can expect to see a corresponding rise in margins.

Too Much Demand

Current rumors paint a picture of demand exceeding supply for Intel chips.
Per DRAMeXchange: “TrendForce has adjusted its 2018 global notebook shipments projection downwards due to the worsening shortage of Intel CPUs” and “TrendForce now estimates that this year’s total notebook shipments will drop by 0.2% YoY, and the CPU shortage may further impact the entire memory market as well.” That’s an interesting projection, but if I were a laptop maker such as Dell you can bet I would be considering an alternative CPU supplier such as AMD to replace those chips that Intel is unable to supply.
Supply Gap

Lastly DRAMeXchange leaves us with this paragraph concerning the supply gap:

“The precise reason behind the shortage of Intel CPUs is currently unclear because the problem simultaneously affects the newly arrived CPU product lines and product lines that have been in the market for some time. The affected products include the improved version of 14nm++ and product lines based on the 14nm+ Coffee Lake platform, which has been in mass production for half a year and is one of the solutions for mainstream models in the notebook market. The lack of supply for existing CPU product lines is having a significant impact on the notebook market as a whole. TrendForce estimates that the CPU supply gap in the notebook market has increased from around 5% in August to 5-10% in September. There is a possibility that the supply gap may extend to over 10% in 4Q18, and the shortage is expected to be resolved rather later in 1H19.”

HPE Recommends AMD

Semiaccurate recently published a story that HPE was telling customers to buy AMD EPYC chips since Intel Xeon was MIA due to demand. Why so much demand for Intel? Well, no one ever got fired for buying Intel. AMD is the underdog, but “every dog has its day” and that day gets closer when HPE is recommending clients buy AMDs’ EPYC. Short term, Intel will benefit from the demand but its part of the server pie will shrink given time.

Conclusion

To wrap, the TAM is growing fast and the rising tide bodes well for AMD. AMD has run very fast and we personally consider the stock dangerous, but it’s also dangerous to be on the sidelines missing a spectacular run.

Thus, we are using options to place less capital on the firing line. However, the capital we use has far more risk associated with it. If AMD were to pull back, the options would suffer. Given the time decay things could get rather nasty. The takeaway is that if you want to gamble, gamble smart.

Our Play

While cautious of any fast rise, we do need skin in the game. Currently, we are sitting on our January 2019 $30 calls, February $30 calls, April $30 / $31 calls. We have opened February $35 calls as a very speculative position (in case the run continues).

Do note: These are dangerous positions (due to the nature of options), but in our opinion we prefer this to buying large swaths of common stock. These options should be viewed as simply ideas to explore. Due to the fast nature of options, they should not be viewed as something to mimic (as the data will be stale for the reader). If you require more help, please consult your broker.

Lagniappe
In case you missed it – here’s the interview w/ Dr. Lisa Su.

Disclosure: I am/we are long AMD, NVDA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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