Category Archives: Cloud Computing

​The most popular Linux desktop programs are…

Video: Barcelona: Bye Microsoft, hola Linux

LinuxQuestions, one of the largest internet Linux groups with 550,000 members, has just posted the results from its latest survey of desktop Linux users. With approximately 10,000 voters in the survey, the desktop Linux distribution pick was: Ubuntu.

While Ubuntu has long a been popular Linux distro, it hasn’t been flying as high as it once was. Now it seems to be gathering more fans again. For years, people never warmed up to Ubuntu’s default Unity desktop. Then, in April 2017, Ubuntu returned to GNOME for its default desktop. It appears this move has brought back some old friends and added some new ones.

An experienced Linux user who voted for it said, “I had to pick Ubuntu over my oldest favorite, Fedora. [That’s] Simply based on how quick and easy I can get Ubuntu set up after a clean install, so easy with the way they have it set up these days.”

Right behind Ubuntu was Linux Mint. Mint is a favorite for users who want an easy-to-use Linux desktop — or for users who want to switch over from Windows., followed closely by antiX. With either of these, you can run a high-quality Linux on PCs powered by processors as old as 1999’s Pentium III.

In the always hotly-contested Linux desktop environment survey, the winner was the KDE Plasma Desktop. It was followed by the popular lightweight Xfce, Cinnamon, and GNOME.

If you want to buy a computer with pre-installed Linux, the Linux Questions crew’s favorite vendor by far was System76. Numerous other computer companies offer Linux on their PCs. These include both big names like Dell and dedicated small Linux shops such as ZaReason, Penguin Computing, and Emperor Linux.

Many first choices weren’t too surprising. For example, Linux users have long stayed loyal to the Firefox web browser, and they’re still big fans. Firefox beat out Google Chrome by a five-to-one margin. And, as always, the VLC media player is far more popular than any other Linux media player.

For email clients, Mozilla Thunderbird remains on top. That’s a bit surprising given how Thunderbird’s development has been stuck in neutral for some time now.

When it comes to text editors, I was pleased to see vim — my personal favorite — win out over its perpetual rival, Emacs. In fact, nano and Kate both came ahead of Emacs.

There was, however, one big surprise. For the best video messaging application the winner was… Microsoft Skype. Now, Skype’s been available on Linux for almost a decade, and recently, Canonical made it easier than ever to install Skype on Linux. But, still, Skype on Linux?

Jeremy Garcia, founder of LinuxQuestions, thought the result might have come about because: “Video Messaging Application was a new category this year and participation was extremely low. Additionally, Secure Messaging Application was broken out into a separate category that had higher participation and resulted in a tie between Signal and Telegram.”

Of course, it’s also possible that even passionate Linux people can like a Microsoft product. After all, Microsoft now supports multiple Linux distributions on its Azure cloud.

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McDonald's Just Did Something So Stunningly Strange That It'll Make You Wonder What's Coming Next

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

If there’s one thing McDonald’s wants you to think right now, it’s that it isn’t, you know, McDonald’s.

Not the old McDonald’s, that is.

Not the old, slightly worn, very predictable McDonald’s where the ice-cream machines rarely seemed to work.

The burger chain is trying all sorts of peculiar things to change its image.

It’s using, gasp, fresh beef. Or even no beef at all in its McVegan Burger.

But its latest foray into the unknown has a rather charming air about it.

McDonald’s, you see, is venturing into the area of, well, pretentiousness. 

You might think it unlikely or even a touch potty when I tell you that this is an ad campaign promoting the Big Mac x Bacon Limited Edition Collaboration in Canada.

But take a look and see if you find it refreshingly winning.

Here’s the Big Mac holding up a mirror to society, which, some might say, it’s been doing for a long time. 

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And here it is celebrating its sheer greatness.

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And then there’s the sense of exalted meaning that courses through every bite of a pickle-filled Big Mac. 

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What about the sense of existential harmony that pervades your Big Mac-eating experience?

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Perhaps these ads feel faintly silly.

For me, however, they show a certain courage and a willingness to shake previous negativity and rise to something slightly better. Or, at least, different.

There’s actually nothing special about this alleged collaboration at all. Anyone can ask for bacon to be added to their Big Mac.

But the attempts at wit offer a little confidence.

What’s most important for McDonald’s now — if it wants customers to reassess what they feel about a brand that’s being constantly challenged by fresher, younger competitors — is to revamp its products to create a true sense of surprise.

The problem, of course, is that McDonald’s is a huge company. 

Making the winds of change blow across the whole McDonald’s world will take a lot of doing. 

And a serious injection of, um, greatness. 

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Exclusive: China's Ant plans equity fundraising at potential $100 billion valuation – sources

HONG KONG (Reuters) – China’s Ant Financial Services Group is planning to raise up to $5 billion in fresh equity that could value the online payments giant at more than $100 billion, people familiar with the move told Reuters.

A fundraising would bring Ant, in which e-commerce firm Alibaba Group Holding Ltd is taking a one-third stake, a step closer to a hotly anticipated initial public offering by establishing a more current valuation.

Ant’s last fundraising in 2016 valued the owner of Alipay, China’s top online payment platform, at about $60 billion. The new round should start with a valuation of between $80 billion to $100 billion, the people said.

Ant is currently in talks to appoint advisers for the fundraising which is expected to be launched in the next couple of months, they added.

Ant declined to comment on its fundraising plans. All the people spoke to Reuters on the condition they not be identified due to the sensitivity of the issue.

While no timetable for an IPO has been set, nor any location yet chosen, Ant’s plans are being viewed as a pre-IPO fundraising, the people said. A pre-IPO round is an increasingly common move by sought-after Chinese companies to establish valuations and widen their investor base ahead of going public.

It was not immediately clear how the company plans to use the fresh cash.

The exact timing and size of the fundraising still depends on investor feedback but any deal will add to an already hectic pace of domestic and offshore fundraising by Chinese tech firms that are looking to expand both at home and abroad.

Chinese e-commerce firm is raising funds for its logistics unit with a target of attracting at least $2 billion, while live-video streaming start-up Kuaishou is nearing the close of a $1 billion funding round, sources have said.

Ant’s own existing investments include stakes in Paytm, the Indian mobile payment and e-commerce website, and Thai financial technology firm Ascend Money.

Last month, however, Ant suffered a setback when a U.S. government panel rejected its $1.2 billion offer for money transfer company MoneyGram International over security concerns.

At home, in addition to its core online payments business, which Ant says has 520 million yearly users, the company also offers wealth management, credit scoring, micro lending and insurance services.

Last week, Alibaba announced it would take a 33 percent stake in Ant – replacing the current system where Alibaba receives 37.5 percent of Ant’s pre-tax profit – in what was viewed as an important step ahead of any IPO.

Alibaba set up Alipay in 2004, modeling the business on PayPal, to help Chinese buyers shop online, and later controversially spun it off ahead of its own listing in 2014. Jack Ma, Alibaba’s founder, controls Ant, according to Alibaba filings with the U.S Securities and Exchange Commission.

Ant is considered by some analysts as one of the most valuable Alibaba assets due to its unique position in Chinese e-commerce.

Current shareholders in Ant include large state-owned institutions such as China Life Insurance, China Post Group – parent of Postal Savings Bank of China – and a unit of China Development Bank.

Reporting by Sumeet Chatterjee and Julie Zhu; Additional reporting by Kane Wu; Editing by Muralikumar Anantharaman and Edwina Gibbs

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Apple brings Alibaba-linked payment system into China stores amid market push

BEIJING/SHANGHAI (Reuters) – Apple Inc will accept Chinese mobile payment app Alipay in its local stores, boosting its ties with giant e-commerce firm Alibaba Group Holding Ltd amid a push by the iPhone maker to revive growth in the world’s No.2 economy.

The tie-up will make Alipay, run by Alibaba affiliate Ant Financial, the first third-party mobile payment system to be accepted at any physical Apple store worldwide, Ant Financial said in a statement on Wednesday. Apple’s own payment system has had a lukewarm reception in China.

The Cupertino-based firm will accept Alipay payment across its 41 brick-and-mortar retail stores in China, said Ant Financial, which was valued at $60 billion in 2016.

Apple, whose China website, iTunes store and App Store have been accepting Alipay for more than a year, did not immediately respond to requests for comment.

The deal comes as Apple is doubling down on the market and looking to strengthen ties with local Chinese partners and government bodies. The firm’s CEO Tim Cook has made regular recent visits to the country.

Apple is also shifting user data to China-based servers later this month to meet local rules and last year removed dozens of local and foreign VPN apps from its Chinese app store.

Alipay is China’s top mobile payment platform, but faces stiff competition from rival internet giant Tencent Holdings Ltd’s payment system that is embedded within its hugely-popular chat app WeChat.

China’s official Xinhua news agency said late on Tuesday that Apple would build its second data center in China in Inner Mongolia Autonomous Region after it set up a data center in the southern province of Guizhou last year.

Reporting by Pei Li in BEIJNG and Adam Jourdan in SHANGHAI; Editing by Himani Sarkar

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The Big Question in *Waymo v. Uber*: What on Earth Is a Trade Secret, Anyway?

On the stand in San Francisco today, former Uber CEO Travis Kalanick appeared calm, cool, and well-hydrated, sipping from a series of tiny water bottles while serenely fielding questions from the legal team at Waymo, the Alphabet self-driving car effort that is suing Uber for trade secret theft. It was his first public speaking appearance since his resignation from the ridehailing company this summer, so his mere presence felt like big news.

But as the second day of the Waymo-Uber trial drew to a close, a quieter moment, one that dealt with the tricky nature of trade secrets, might become more consequential. If the lawyers do their job right, the jury will decide this case based not on salacious emails or meeting notes (though Waymo has presented plenty of internal Uber communications that are, well, juvenile at best). It will decide based on whether the laser technology Uber used in its self-driving cars qualify as Waymo trade secrets.

The moment: A long-time engineer for Waymo’s self-driving projects named Dimitri Dolgov testified that his company has long had a patent bonus program. If someone successfully files for a patent with the United States Patent and Trademark Office, they get a monetary prize. For a company in the business of breaking new technological ground, this makes sense: Invent a thing, win an award!

During his cross examination, Uber’s counsel Arturo Gonzalez asked Dolgov whether Waymo had a similar program for trade secrets. After all, Waymo is suing Uber for misappropriating eight of its trade secrets, after an engineer named Anthony Levandowski left Waymo to form his own autonomous truck company in January 2016. Uber acquired Levandowski’s startup just eight months later, which is how Waymo says their intellectual property ended up in Uber self-driving car lasers.

“There are eight trade secrets in this case, just eight,” Gonzalez said. “Tell the jury, who are the people who got bonuses for these eight things that are supposedly great ideas?”

There isn’t a program like that, Dolgov responded, because a bunch of people helped develop the trade secrets. Trade secret rewards, Dolgov said, “are not as clearly mapped.” He testified that he had only seen all eight trade secrets outlined after Waymo filed its lawsuit last year.

That sounds weird, but it lines up with how trade secrets work in the real world. “Often, companies won’t know what trade secrets are until they’re stolen,” says John Marsh, a lawyer with the law firm Bailey Cavalieri. You can accidentally infringe on a patent; you can also look them up, to make sure you’re not infringing on them. But two separate companies can develop the same concept, independently, and have it qualify as a trade secret—for each of them.

This is confusing. As one appellate judge wrote in 1978, “The term ‘trade secret’ is one of the most elusive and difficult concepts in the law to define.” Fortunately for both teams of lawyers in this self-driving smackdown, Judge William Alsup, who is overseeing the case, has already neatly outlined how he will ask to jury to think about trade secrets. (In a standard move, he’s released a preliminary jury instructions, to guide the lawyers when forming their cases.)

Alsup says a trade secret is anything—a formula, a design, a procedure, a code—that is securely contained and retained inside a company. Maybe it’s easier to define it by what it is not: “ skills, talents, or abilities developed by employees in their employment.”

For Waymo to win its case, Alsup explains, it must first prove the particular elements of lidar technology in question are secrets the company has gone out of its way to protect. Waymo has to show that Uber “improperly acquired”—stole—the trade secrets, and then used or disclosed them. And it has to prove that Uber enriched itself off the trade secrets. A tricky thing, when self-driving cars have yet to make money at all.

Which is to say, it’s no small feat for Waymo to establish that it had trade secrets in the first place. Despite lots of creepy looking evidence about Uber-related shenanigans—like forensic evidence shown in court today, linking Levandowski to downloads of Waymo files just a month before he left the company—jurors will be asked to keep their eyes on the prize: hard evidence that Uber stole trade secrets.

On the stand today, Uber lawyers tried to use Waymo’s own witnesses to prove the self-driving car company was careless with its information—which would indicate that the information was not, in fact, a trade secret. They asked a Google forensic analyst why Levandowski’s alleged download of those files didn’t set off “alarm bells.” The analyst said that monitoring the server in question wasn’t a specific person’s job. Uber also continued to weave the narrative it began to spin day one of the trial: that Waymo was out to get Levandowski and Uber out of fear of competition.

Waymo’s strategy, to show it was up against some bad guys at Uber, does ultimately help make its trade secrets case. “One of the key underpinnings of trade secret law is business ethics,” says Marsh, the lawyer. “There’s largely some requirement of misconduct or misbehavior by a party.”

To that end, lawyers from Waymo today used internal Uber communications to suggest Uber was panicked about its lack of progress in self-driving car sensors—and OK with cheating to get there. “Rush to laser – team really strained on trying to figure out best sensor set while also keeping up progress on so many fronts,” former Uber self-driving head John Bares wrote in notes dating to September 2015, while Levandowski was still at Waymo. “Laser is the sauce,” Travis Kalanick wrote on a whiteboard during a January 2016 meeting, a few weeks before Levandowski’s departure.

And during a skirmish before the judge with Uber lawyers, the Waymo legal team previewed plans to show the famous “greed is good” speech from Wall Street to the jury—because Levandowski sent Kalanick a YouTube clip of the scene in a text message. (Alsup will decide on whether to allow the clip later, though he did note the scene was “one the best moments in all of Hollywood.”)

Still, a calm Kalanick resisted Waymo’s insinuations he had implicitly encouraged Levandowski to cheat. The former Waymo engineer and his team did have to hit ambitious and specifically lidar-related milestones to get a full $590 million check for the acquisition of their self-driving truck startup. But he said they could also get the money if the overall initiative was successful—if they eventually cracked self-driving cars.

Kalanick will again take the stand tomorrow morning at 7:30 San Francisco time, and you can expect Waymo lawyers to attempt to show, once more, that the former CEO created an atmosphere that egged on extralegal shortcuts and winning at all costs. But while it’s tempting to boil this case down to Gordon Gekko, remember that this trial is really about trade secrets. Yeah, the boring stuff.

Trial of the Self-Driving Century

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Singtel to spend up to $413 million to nudge up stake in India's Bharti Telecom

SINGAPORE (Reuters) – Singapore Telecommunications (Singtel) said it would spend up to $413 million on shares in India’s Bharti Telecom, lifting its stake slightly in the holding company for Bharti Airtel to just under half.

“While there are currently headwinds in India, we take a long-term view of our investment in Airtel which continues to be a strong market leader in a region with rapidly increasing smartphone penetration and mobile data adoption,” Arthur Lang, CEO International at Singtel, said in a statement.

India’s telecommunications sector has been hit hard by a price war since the entry of carrier Reliance Jio, the telecoms arm of Reliance Industries Ltd, more than a year ago.

The purchase worth as much as 26.5 billion rupees could increase Singtel’s stake in Bharti Telecom by up to 1.7 percentage points to 48.9 percent and its holding in Bharti Airtel, the country’s biggest mobile carrier, by up to 0.9 percentage points to 39.5 percent. The deal will be done via a preferential share allotment.

Singtel has assembled a portfolio of stakes in regional mobile firms outside its small home market, and overseas businesses now account for about 75 percent of its core earnings.

Reporting by Aradhana AravindanEditing by Edwina Gibbs

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General Electric: Ignore The Noise And Buy

Summary Investment Thesis

To call the sentiment around General Electric (NYSE:GE) stock negative would be a gross understatement. A brief recap of the past several months explains the sour attitude toward the shares:

  • A reinsurance business that has not written a new policy in more than a decade and that most investors barely knew existed is now required to contribute $15B over the next seven years to bolster reserves for its long-term care liabilities.

  • The insurance debacle by itself forced the company to slash its dividend, which was cut 50%.

  • The former long-time CEO and CFO were pushed out and basically disowned by their successors for their management practices.

  • The company’s second largest segment, GE Power, has seen its profits crater, stoking fears that solar photovoltaic power is going to make the gas turbine market far smaller.

That’s a lot for investors to stomach, particularly those that relied upon a steady dividend. But we contend that the response of GE’s new management and the sell-side analyst community have made matters worse. GE’s new CEO has disavowed himself of his predecessor in a way that we’ve rarely seen at companies of this size. Yes, mistakes were made, but John Flannery is fooling himself if he thinks his added rigor will cure all ills with running a conglomerate that touches so many parts of the global industrial economy. It appears that he was given this new role because of improved results at GE Healthcare, a unit that he led for less than 3 years.

That period of time is simply too short to execute a strategic vision that matters to the bottom line, in our view, and those improved results might have been delivered by dozens of other executives inheriting an end market with tailwinds. Ditto for the new head of GE Power. The Power unit was caught extrapolating strong service trends into 2017, and paid the price, a mistake we’d guess most management teams would make. How often have you seen a management team post strong growth and then plan to scale back before the market turned against them. That’s contrary to the “bigger, better, faster” ethos of business. Business is optimistic by nature unless tempered by an uncooperative market response.

We understand that GE’s new management team is trying to restore investor confidence by proclaiming that the “fix it” team is here and prior management screwed up royally. But these are longtime GE executives, and the investor community has just been burned by longtime GE executives. Investors aren’t going to buy the idea that one group of GE execs is better than another (nor should they). A better approach would have been to admit the missteps, offer incremental process improvements, and remind the world that GE is run by managers, not fortune tellers (in a diplomatic way of course!).

Because new management has so distanced themselves from their predecessors, they have invited speculation from outside observers about “just how bad were the old guys?” In particular, sell-side analysts (and now the SEC) are questioning the propriety of the company’s accounting practices. Our best read as outside observers is that the GE Capital folks were banking on higher long-term interest rates to eventually dampen the potential long-term care liability. But claim trends finally triggered a revaluation of those liabilities and the jig was up. What was the incentive to revalue those insurance liabilities earlier? There was none, that’s why it didn’t happen until last year.

As for the contract asset accounting for commercial service agreements and long-term equipment projects, we note that the new CFO has defended the company’s practices and pointed out that this line item has grown with the number of units supported by such arrangements — i.e., growth in actual business being conducted. In our minds, it does raise questions about the credit quality of certain customers in what GE terms “difficult geographies” (how’s that for a euphemism?), but it does not cause us concern that GE’s accounting is inherently problematic.

In evaluating GE, we are stepping back from all of the finger pointing and hand wringing and focusing on the fundamentals of the business units that make up the company. And in our view, an objective analysis reveals a stock that is worth $21 per share. The biggest risk to GE’s value is potentially poor decisions to buy and sell businesses at the wrong times and for the wrong prices. GE’s strength is everyday management, not portfolio allocation. Our valuation assumes that the company decides to spin-off its interest in Baker Hughes given its size. This is really the only decision that makes any sense other than retaining their interest. Baker Hughes is too large to merge with another major oil services company, and selling the company off piecemeal makes even less sense from a value perspective. We have assumed that the Transportation and Lighting businesses will be sold, but have not factored any other portfolio changes into our analysis.

GE stock is a buy for investors with patience and the ability to ignore sell-side pundits and the media. What follows is a brief outlook for each business and a summary of our valuation exercise.

Business outlook


The future for GE’s jet engine business continues to look bright. Boeing expects annual airplane delivery growth to average 3-3.5% over the coming two decades, driven principally by strong growth in China, India, southeast Asia, and areas of the middle east that serve as a linkage between East and West. Boeing is a biased observer, but recent history bolsters the credibility of their outlook and it likely would take a major economic depression in China and other major regions to knock the long-term outlook off track.

In addition, GE’s market position is dominant when you factor in the company’s CFM International joint venture. Engines sold and serviced by the 50% owned venture with Safran Aircraft Engines combined with GE’s own engines means that GE powers roughly two out of every three flights in the sky each day. Recent deliveries and design wins suggest this share will remain stable.

Source: GE public filings.

However, our modeling suggests that GE Aviation’s operating profit is now about 15% above our mid-economic cycle estimate after 5 straight years of very strong growth. We project mid-economic cycle operating profit of $5.8B, vs. the $6.6B of segment profit delivered in 2017. One watch area in the near-term will be the profit margin trend as CFM ramps its production of the LEAP engine. Unexpected manufacturing issues could put a dent in profits, at least temporarily.


GE’s Power business has come under great scrutiny after results deteriorated dramatically in 2017. On the surface, it’s puzzling that a business dominated by gas-fired turbines should struggle given persistent growth in global electricity demand coupled with a push for cleaner fuel sources. The U.S. Energy Information Administration’s base case for growth of natural-gas generated electricity is about 2% per annum. Only renewable power sources are expected to grow faster. However, worldwide gas turbine orders this year are expected to be roughly half of the level demanded just two years ago. There is a growing narrative that renewables will be able to replace much of the peaking electricity demand currently filled by natural gas-fired plants, particularly as battery storage costs decline.

Source: U.S. Energy Information Administration, International Energy Outlook 2017.

Perhaps some of that fear is justified, but the reality of intermittent electricity generation from wind and solar means that more reliable sources of power must provide the base load of the electrical grid in most places. And the bulk of the deterioration of GE’s Power results in 2017 was not the result of weaker demand for heavy duty gas turbines. The biggest problem was that service revenue fell off a cliff, and that has nothing to do with the long-term economics of power generation sources.

It appears to us that that the collapse of the price of natural gas in late 2014 through 2015 contributed to strong growth of upgrades to older installed heavy duty gas turbines and higher utilization of merchant gas power plants. Higher natural gas-fired plant utilization contributed to greater outages and need for service from GE. As natural gas prices recovered during the latter half of ’16, the payback on upgrading older gas turbines became less compelling, and marginal gas generation assets were utilized less. Unfortunately, GE extrapolated strong service trends into 2017, resulting in a lot of excess inventory of plant upgrade kits and too much manpower.

Below is a chart of the Power segment’s service orders on a trailing four quarter basis. The constantly changing nature of GE’s business segmentation muddies the picture a bit, but we think this is a fair representation of the largest businesses in the segment. Service orders last fell off in 2013, coincident with a recovery of natural gas prices from lows set in early 2012. Our hunch is that the changing fortunes of GE’s Power services business is mostly a function of natural gas price fluctuations, and that a cyclical recovery lies ahead.

Index of Power Services Orders since 4Q12 (trailing four quarters)

Source: GE company public filings and ArcPoint Advisor estimates.

Likewise, equipment orders for gas turbines have been lumpy historically. It is premature to interpret the drop off in new orders over the past two years as a signal that global electricity generation is going completely in the direction of renewables. We would note that additions of coal generation capacity easily outstripped natural gas generation capacity in 2016, but nobody would argue that coal is the future (though its cost advantage will keep capacity additions strong in developing markets for years to come).

Our modeling suggests that GE Power’s mid-economic cycle operating profit is $5.5B, nearly twice the $2.8B of adjusted segment profit posted in 2017.


Second only to Siemens, GE is a global leader in diagnostic imaging equipment. GE Healthcare will continue to benefit from aging populations in the U.S. and Europe and modernization of health systems in emerging markets (both aging and modernization factors apply in the case of China). Countering these trends will be an increasing cost burden born by the consumer in the U.S., as well as the rapid consolidation of U.S. medical providers in an effort to gain efficiencies in the delivery of care. GE Healthcare has enjoyed two strong years of growth across geographies and registered segment profit of $3.4B in 2017. Our modeling suggests mid-economic cycle operating profit is $3.0B, about 13% below last year’s strong results.

Oil and Gas

The most recent cyclical bottom for Baker Hughes (62.5% owned by GE) likely has passed. North American drilling activity has recovered along with commodity prices and international land drilling and offshore drilling activity have stabilized. Upstream service revenues should continue to recover in 2018, though longer cycle businesses like subsea trees (used in offshore oil & gas production) could take years to normalize. Our modeling suggests that GE Oil & Gas’ mid-economic cycle operating profit is $2.0B (excluding the share of earnings attributable to minority shareholders), well above the $900M segment profit recorded in 2017.

Renewable Energy

The outlook for GE Renewable Energy, dominated by the wind turbine business, is mixed. Wind turbine demand likely will be steady to slightly higher over the coming years, as suggested by the International Energy Agency’s forecast (see their Renewables 2017 report). But growth in renewables increasingly favors solar photovoltaic as costs have come down. And unlike the dominant market share GE enjoys in jet engines and heavy duty gas turbines, the wind turbine market is much more fragmented. GE management has cited increasing price competition as an issue in recent quarters. Our modeling suggests GE Renewable Energy’s mid-economic cycle operating profit is $700M, consist with the $727M posted in 2017.


The ever shrinking GE Capital business has become less valuable in the wake of a massive adjustment to future claims expectations for long-term care insurance. Management expects ongoing earnings of ~$500M annually beginning in 2020. However, that would represent a mere 0.37% return on assets and 3.7% return on equity. More typical returns for this type of business would be on the order of 1% on assets and 10% on equity, implying earnings potential of ~$1.35B annually. Our modeling splits the difference between management’s guidance and this more typical profit level, yielding a mid-economic cycle net profit of $925M.

GE Capital Balance Sheet 2019E

Source: Company filings and ArcPoint Advisor estimates.

Putting it all together

We project mid-economic cycle segment operating profit of $17B for the five industrial business units expected to be retained (or spun). On an after-tax basis, we project industrial net earnings of ~$8.5B, or roughly $1 per share. Applying a 21.7x P/E multiple (our estimated current market P/E multiple on mid-cycle earnings for large-cap U.S. stocks) implies a value of $186B, or $21 per share, for the retained industrial businesses.

Value of GE Industrial Businesses ex. Pension Deficit ($M)

Source: ArcPoint Advisor estimates.

We peg the value of GE Capital at $14B, or ~$1.60 per share. This valuation assumes $925M of mid-cycle earnings, capitalized by an estimated 15.2x P/E multiple (our estimated current market P/E multiple on mid-cycle earnings for large-cap U.S. financial companies).

Value of GE Capital ex. Pension Deficit ($M)

Source: Company filings and ArcPoint Advisor estimates.

Our total estimated share value for GE is $21. To arrive at this figure, we first sum our equity values for the retained industrial businesses and GE Capital. We then add an estimate for the net after-tax proceeds of a sale of the Transportation and Lighting businesses of $9B. We assume these two units are sold rather than spun-off and that the taxable basis is effectively zero. Finally, we deduct our estimate of how much capital would be required to fully fund GE’s pension based on figures provided in the most recent 10-K. The pension hole is so large that it effectively cancels out the combined value of GE Capital and expected asset sale proceeds!

Value of GE Shares ($ in M, except per share data)

Source: Company filings and ArcPoint Advisor estimates.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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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The #1 Lesson Cryptocurrency Investors Can Learn from the Dot-com Bubble

Life as we once knew it drastically changed in the mid-90s. The Internet’s popularity was on the rise, and many savvy businesses and companies saw the potential of a hyper-connected, digital world. This lead to the dot-com bubble–a sharp rise, and fall, in stock prices that was fueled by investments in Internet-based companies.

With experts predicting we are now in a cryptocurrency bubble, it seems as if history is at risk of repeating itself.  

While we’ve moved far past the early stages of Internet start-ups and e-commerce companies, digital is continuing to change our everyday lives–from how we work, live, and play to the future of money itself. Interest in cryptocurrency, similar to the frenzy we saw in the early days of the dot-com bubble, is reaching a crescendo–yet many experts are already predicting its demise.

Warren Buffet has gone on the record saying that crypto will come to a bad ending. Jamie Dimon, J.P. Morgan’s CEO, called Bitcoin a fraud before later admitting that he regretted making that statement.

Meanwhile, other big-name investors and companies are going out of their way to invest in crypto–from Richard Branson to Microsoft .

But are the naysayers right? Are we headed toward a catastrophic implosion of dot-com level proportions?

Yes, the crypto market is volatile. There are too many unknowns to be certain, but if we look at the histories of companies like Amazon, eBay, Priceline, and Shutterfly, then maybe we can gain some clarity.

These e-commerce companies were born during the dot-com era, and they weathered the storm and emerged as some of the most successful and stable companies in history. The dot-com crash didn’t destroy the concept of e-commerce or the fact that consumers want to buy airline tickets, antiques, or pet food online–there was simply a gold rush in the early development stages. Once the dust settled, however, the strong survived.  

Don’t call it a comeback

In the end, the dot-com bubble was a movement. Smart investors saw the future of digital-based commerce and, as they invested, the movement snowballed into madness. Many of the companies that popped up during that time were run by people who were in over their heads, or they didn’t have the technology to keep up with the demand. When the crash happened, it thinned the herd.

Mona El Isa, the chief executive and co-founder of Melonport, summed this notion up at a recent TechCrunch conference when she said, “The dot-com bubble was messy, but if we look at some of the largest companies that exist today they are a result of the dot-com bubble and they are part of our everyday lives.”

Which leads us back to what we’re seeing with cryptocurrency today. Even if this bubble bursts, the concept of digital currency will not go away. It may wipe out 90% of today’s existing startup currencies, but the strong will survive. Companies, like Kodak, who try to create a currency without providing real customer value may see efforts go to waste. And this will pave the way for the Amazon of cryptocurrency to make its mark on the world.

To further the power of this movement, it’s important to remember that cryptocurrency isn’t a company. It doesn’t have shareholders. It isn’t VC-backed. Which means this movement extends beyond any other economic bubble we’ve seen–it’s happening in an arena that’s removed from the stock markets. So, when, and if, the bubble bursts, it won’t go quietly into that good night. The parameters may change drastically from what we are seeing today, but digital currency–in one form or another–is the future.

How to invest in a movement

So, if cryptocurrency is the future–how do you invest? From a business standpoint, it’s important to look at crypto through a risk-management lens. Business leaders and board members should be learning everything they can about this new trend so they can determine how, where, and why it might affect or fit into the business. Is there a way to offer customers value through cryptocurrency? Is the time right to execute? Is there a long-term strategy in place that will take advantage of the crypto movement when the stormy waters calm down?

These are the types of questions you need to consider. Do what’s best for your business and what’s best for your customer. As with any digital movement, you need to be aware of the trends and aware of how it could change your business. This is the only way to defend your company from possible disruption.

Final word

For anyone who is considering investing in cryptocurrency, it’s important to remember that this is a long-term movement. Our world is becoming increasingly smaller and more reliant on digital means–currency transformation is inevitable.

It’s the smart investors who understand that this isn’t a fragile economic trend. Digital currency will continue to adapt and change over the next few years–and the companies and entrepreneurs who pay close attention now will have the best chance at deftly navigating the troubled waters.

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Ford Dividend Stock Analysis

Ever wonder what type of dividend players there are in the automotive field? What about a company that is based in your backyard, right in the wonderful automotive state we call Michigan. During the financial crisis, auto makers based in the US were a taboo, asking for bailouts, struggling mightily with lopsided balance sheets, thinking everything was always going to keep going in the right direction. In the last 5+ years, auto makers have been making a ROARING come back, and one of those makers is the legacy company started by good old Henry. That company is Ford (NYSE:F). How did Ford do in 2017, and what does it have on the horizon, now that 2018 has started?

Ford reported earnings earlier last week and guess what? The company reported some of the best earnings it has ever reported. Top line revenue at $156B was over 3% better than 2016, with revenue increasing in both major categories – automotive and financial services. Net income, with the help of the Tax Act, was $7.6B, or 65% better than prior year. The CFO, in the same linked article above, reported over $3B to be distributed to shareholders this year. From the cash flow statement, the company sent dividends out at $2.5B and purchased back stock to the tune of $131M, therefore, one shareholder could only expect more in both categories in 2018!

How about the balance sheet at year end? The current ratio (current assets over current liabilities) calculated to be 1.23 (better than 2016’s 1.20), which I like, as 1 is usually a baseline for me. The quick ratio (current assets less inventory over current liabilities) is 1.12 (better than 2016’s 1.10), even better for me, and above the 1.0 safety zone here. In conclusion, the balance sheet has gotten better since last year from this brief review, with more cash and less long-term liabilities. Further, what could improve the income statement and balance is its new development and forward outlook on mobile technology and adding that as a primary service for customers and to create their own “eco” system. In order to accomplish this, the company acquired a start-up technology company – Autonomic – which specializes in architecture and leverage for the automotive industry. The primary focus will be to support its mobility cloud platform, Chariot (Ride-based program), and a medical/non-emergency platform. It didn’t stop there, either, as Ford also announced the acquisition of TransLoc, allowing it to leverage its operational expertise and network of city relationships.

Now, being the Dividend Diplomats, we must run it through our Dividend Diplomat Stock Screener! Here, I’ll break down its price to earnings (P/E) ratio, dividend yield, dividend growth rate, and payout ratio. These metrics when combined together – along with the assessment of the additional investments it’s made and its financial performance – help form a conclusion on whether or not to invest in this company in conjunction. Let’s go through each factor below.

1) Dividend Yield: The current dividend at $0.15 per quarter or $0.60 per share equates to a 5.15% incredible dividend yield and well over the S&P 500 on average. However, if you add the (typically) special dividend during the year, the yield gets better. This year the company announced an extra $0.13 per share on top of the $0.60. Therefore, at $0.73 for the year, this equates to 6.27% yield! Staggering. This is all based on the recent price of $11.65. I love what I’m seeing, so far, from Ford.

2) Payout Ratio: Typically, we use a 60% payout ratio threshold for stocks to pass our screener. At $1.91 reported earnings per share, the $0.60 dividend being paid, the payout ratio equals 31%. Now, if we take in the special dividend into consideration, this equates to 38%. Still extremely low and is very intriguing. Why is this important? The chance of cut is not likely, and the chance of future dividend growth is more than likely. Fitting, as that’s the next point to look at.

3) Dividend Growth Rate & History: This is where it gets tough. Ford has not increased its baseline quarterly dividend since January of 2015, when it went to 10 cents to 15 cents per share per quarter. 2016 is the year the company introduced the special dividend once per year, so 2018 makes the third year in a row for that. As a dividend growth investor, this is a downside, and I can see the company trying to manage the capital better and then having the option in the form of a special dividend to give more back. This is interesting and something I need to keep in mind.

4) Price to earnings (P/E) ratio: For this metric, we look for the company’s P/E ratio to be lower than the broader market’s ratio to assess the current valuation of the company. Currently, the S&P 500’s P/E ratio is in the mid-20s area. At the price of $11.65, the price to earnings ratio is 6.10 when using $1.91 earnings per share. Per analysts’ expectations, though, for 2018, they are expecting only $1.61. Therefore, this is 7.23, which is still insanely low… hmm… what am I missing here? I like what I’m seeing.

Ford Dividend Stock Analysis Conclusion

Ah, Ford! I love that this is the first deep automaker dividend stock analysis in what feels like a long time. At well over $150B in annual revenue, it is definitely the massive player here in the States. The balance sheet is strong, it is solvent and liquid, with an improvement in balance sheet to boot. Earnings were strong on all fronts, with top line revenue increasing on a go-forward basis over the last few years. Additionally, I like what the company is doing from a technology and mobility aspect, and thinking ahead. I assume it is competing intensely with the other automakers and the game-changer Tesla (NASDAQ:TSLA).

Now, being a dividend growth investor, there are many things I like, and many things I don’t like. I love the dividend yield, the gifts of special dividends each year, the payout ratio and the price to earnings ratio. It’s hard being a dividend growth investor without that second key word – growth. Without increasing the dividend in the last two full years (2016, 2017), that’s a hard pill to swallow. I understand Ford pays the special dividends, but you want to see a consistent track record in increasing the standard dividend. However, I will say that I expect it to increase that dividend this year, even if it is $0.02 per share to $0.17 per share. This would, with the special dividend of $0.13, be 50% based on the forward EPS projections of $1.61. This still is a safe zone and is smack dead in the middle of 0-100% on the payout ratio standpoint.

What do you think? What are your thoughts on the analysis above and the automaker arena currently? Anything I am missing or not seeing from the financial statements? Currently, I am on hold and will monitor prices at this time. Thank you for stopping by. Good luck and happy investing!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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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Spillover Risk: Cryptocurrencies May Pose A Very Real Threat To Stocks And The Economy

Last month in “It’s A Mad, Mad, Mad World”, I took a stab at explaining how and why cryptocurrencies represent a systemic risk.

Over the last year, I’ve developed a pretty solid understanding of Bitcoin, blockchain, and the cryptosphere in general. But if you’re a regular Heisenberg reader, you know that my definition of “solid understanding” is a bit different from most people’s definition.

Being able to talk intelligently about something isn’t even close to what I would consider sufficient when it comes to putting digital pen to digital paper. That’s why everything I’ve written about cryptocurrencies and Bitcoin over at Heisenberg Report revolves around price action, psychology, the reasons why cryptocurrencies aren’t viable as “money” and the possible knock-on effects for other assets and/or the broader economy (i.e. systemic risk).

I feel comfortable discussing those aspects of the cryptocurrency phenomenon because those discussions lean heavily on things I am extremely qualified to talk about. That is, when it comes to price action, investor psychology, what it means for something to be a currency (or to be “money”, so to speak) and systemic risk, I have much more than a “solid understanding”. In those matters, I’m a walking encyclopedia. What I do not posses encyclopedic knowledge of are the technological underpinnings of digital currencies. Again, I have a solid understanding of the technological points, but you’re not going to see me penning manifestos about why blockchain is or isn’t going to change the world or why Ripple can or can’t upend SWIFT.

Just to be clear, I don’t think developing that depth of understanding when it comes to the technology is important right now for anyone other than the people who are behind this movement and maybe a handful of academics who can perhaps help discern how the technology can actually be applied in a way that has some utility outside of speculation and/or outside of providing what Nassim Taleb has called “an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly.”

The reason I don’t think it’s necessary for the rest of us to get too bogged down in it is precisely because by the time it matters, something bad will have happened that will ultimately force governments to regulate cryptocurrencies so heavily that they will cease to be objects of public fascination and thus vehicles for speculation.

There are a number of things that can go wrong here, some of which obviously have to do with the potential for cryptocurrencies to serve ostensibly nefarious purposes, but what I try to zoom in on are the possible knock-on effects for traditional markets and also for the economy more generally.

One particularly disconcerting development is that according to a LendEDU poll published the day after Bitcoin peaked in December, nearly 20% of people were using a credit card to get in on the craze:


Hilariously (or not, depending on your penchant for dark humor), that actually coincided with a spike in Google searches for “can you buy Bitcoin with a credit card?”:

(Google Trends)

Correlation doesn’t equal causation, but it seems like some coincidence that the publication of the poll cited above, the peak in that Google Trends chart, and Bitcoin’s high at roughly $20,000 all came within the same 48-hour window.

The risk there is clear. That effectively represents a high interest loan collateralized by an “asset” that’s depreciated by roughly 50% over the ensuing month. The chances that ends up showing up in, for instance, banks’ losses on credit cards are probably low, but you can’t rule it out.

On top of that, at least one bank recently “went there” by trying to estimate what the “wealth effect” (i.e. an increase in consumers’ propensity to spend based on unrealized gains in financial assets) might be from Bitcoin trading in Japan. The fact that anyone is even talking about that is unnerving. If, for instance, consumers did in fact end up spending more based on gains in their cryptocurrency accounts and that was reflected in high level economic data, the sugar high from that could evaporate in the event those unrealized crypto gains disappear. That could create noise in the data and make q/q and m/m compares more difficult, complicating policymaker reaction functions.

But beyond all of that, it’s becoming increasingly likely that traditional risk assets will begin to take their cues from the crypto market. Deutsche Bank was out with a great note this week describing how, far from the “safe haven” status crypto proponents often ascribe to Bitcoin, cryptocurrencies in fact represent exactly the opposite. That is, they represent the new frontier in risk-taking, replacing short vol. as the proxy for risk sentiment. Here’s the bank’s Masao Muraki:

The current ‘triple-low environment’ of low interest rates, low spreads, and low volatility has given birth to new asset classes like implied volatility (ETFs selling volatility), and cryptocurrencies. The prices of both asset classes have plummeted and rebounded simultaneously and in 2018, correlation between Bitcoin and VIX has increased dramatically.

The problem here is that just as the proliferation of strategies that explicitly or implicitly rely on the low-volatility environment continuing has the potential to create a “tail wagging the dog” dynamic whereby vol. spikes force selling in the underlying, if cryptocurrencies are increasingly viewed by larger investors as a proxy for risk sentiment, sharp moves have the potential to spill over. Here’s Deutsche again:

Cryptocurrencies are closely watched by retail investors, affecting their risk preferences for stocks and other risk assets. Although institutional investors recognize that stocks and other asset valuations may have entered bubble territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices. The result is that institutional investors, who are supposed to value assets using their sophisticated financial literacy, analysis, and information-gathering strengths, are actually seeking feedback about the market from cryptocurrency prices (which are mainly formed by retail investors). We believe the correlation between Bitcoin and VIX can increase as more institutional investors begin trading Bitcoin futures.

Underscoring that is a new piece out in the Wall Street Journal that documents the extent to which retail brokerages are seeing an avalanche of inflows from what they say are first-time investors (millennials are specifically named) attempting to capitalize off the gains in crypto-related stocks and, when they’re allowed to trade them, Bitcoin futures. Here’s the Journal:

Discount brokerages TD Ameritrade Holdings Corp., E*Trade Financial Corp. and Charles Schwab Corp. reported surges in client activity at the end of 2017 that have accelerated in January. The firms attributed much of the activity to retail, or individual, investors who are opening brokerage accounts for the first time, some of them lured by the boom in cryptocurrency and cannabis investments.


“Crypto and cannabis…volumes have been up big,” E*Trade Chief Executive Karl Roessner said Friday on the firm’s fourth-quarter earnings call with analysts and investors. Despite the bitcoin-futures offering not being “a material offering,” Mr. Roessner said about a 10th of daily average revenue trades—a key metric for brokerages—has so far this month been blockchain- or pot-related.

Keep in mind that the obvious risks in inherent in all of that come on top of the risk associated with clearing crypto derivatives with other assets. Those risks were laid out in an open letter to the CFTC penned by Thomas Peterffy, the billionaire founder and chairman of Interactive Brokers, back in November.

Earlier this month, the Cboe’s suggested that futures on other cryptocurrencies could eventually be in the cards. To wit, from comments Chris Concannon, Cboe’s president and chief operating officer, made at a press briefing in New York:

You look at the entire crypto space and you look at what other products have the liquidity and the notional size, a derivative makes sense.

I guess that depends on your definition of “makes sense”. For now, crypto ETFs are still getting quite a bit of pushback from the SEC, but it’s probably just a matter of time before we cross that bridge as well.

But irrespective of how this develops, crypto risk is already embedded in markets and to a lesser extent in the broader economy as detailed above. And I could give you a long list of other arguments to support the same contention.

To be clear, more and more people are starting to voice concerns about spillover effects. For instance, Wells Fargo’s Chris Harvey has been very vocal about the risk to stocks over the past couple of months. Here’s what he told CNBC in his latest appearance on the network:

We see a lot of froth in that market. If and when it comes out, it will spill over to equities. I don’t think people are really ready for that.

No, people are probably not “ready for that”. And part of the reason no one is ready is because it’s not clear that everyone understands the points Deutsche Bank made in the note cited and excerpted above.

What all of this suggests for investors is that you’re going to have to start watching cryptocurrencies the same way you might watch the VIX. If it’s true that larger investors are going to start using cryptocurrencies as a proxy for risk sentiment, well then you might want to start asking yourself what that might mean in terms of the potential for a large drawdown in the space to impact what you previously assumed were unrelated assets.

I’m not saying you should obsess over every tick in Ripple, but when you see things like that $400 million theft from Coincheck on Friday, you should consider that fair warning about how unstable that market really is.

One last thing: I’m not sure the flipside of everything said above is ever going to be true. That is, even if Bitcoin and other cryptocurrencies have another year like 2017, you’re never going to be able to reliably extrapolate anything from that about a positive wealth effect for the economy or for increased risk appetite in equities. Why? Simple: because cryptocurrencies are so volatile that any of the positive externalities from a sharp rally have to be discounted because they can all be negated virtually overnight. You cannot extrapolate anything on the positive side from appreciation in an asset that, like Bitcoin, is 15-25x as volatile as the S&P, 20x-40x as volatile as gold, and 5x-11x as volatile as oil (according to Barclays and as measured by the coefficient of variation):


Nothing further. For now.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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