Category Archives: Cloud Computing

Did Mnuchin Signal A Policy Shift Today?

Did US Treasury Secretary Mnuchin signal a change in the US dollar policy? Probably not. As Mnuchin and President Trump have done before, a distinction was drawn between short- and longer-term perspectives. In the short-term, Mnuchin says weaker dollar is good for US trade and “other opportunities”. In the longer term, Mnuchin explicitly acknowledged, “The strength of the dollar is a reflection of the strength of the US economy.”

The market chose to focus on the first part of the comment because it was already selling dollars and this offered justification at an important inflection point. The dollar has strung together a 4-5 week slide despite macroeconomic conditions, including strong growth, tax cuts, the relative and absolute increase in interest rates, and the anticipation of additional Fed tightening, usually associated with a stronger dollar.

Mnuchin unknowingly pushed on an open door. “Unknowingly” because it did not break new ground, and Commerce Secretary Ross tried clarifying the statement relatively quickly. Mnuchin may have been the most surprised by the impact of his comments. One gets a sense that he is still learning the nuances of his position and, perhaps, the disdain with which the administration holds mainstream media, obscured by how the media and markets hang on every word of the Treasury Secretary, especially regarding the dollar.

In some ways, Mnuchin’s precise meaning is unimportant. The point is that they were said within an important context. The Trump administration just levied protective tariffs on solar panels and washing machines. It is expected to decide soon on steel and aluminum. President Trump has threatened action on China’s intellectual property rights violations as well.

The US is blocking the appointment of judges for WTO panels, which will jeopardize the conflict resolution mechanism (the teeth) of trade practices. Although President Trump has suggested that the NAFTA talks are progressing, many still fear that the talks will collapse due to US demands or withdrawal, as the president has threatened.

Through the mid-1990s, the US and other countries habitually wanted to directly influence the foreign exchange market. Countries sought competitive advantage. However, beginning with Rubin’s “strong dollar policy,” best practices evolved toward letting markets determine exchange rates. This is now the official position of the G7 and G20. In effect, the foreign exchange market was de-weaponized.

That is the real meaning of the much-maligned strong dollar policy. The US would not use the dollar’s exchange rate to secure some trade or policy concession or purposely seek to depreciate the dollar to reduce its debt burden. With the disruption potential of the US administration, investors and allies are rightfully and genuinely concern that this is another part of the modern liberal global order that may be abandoned. It may be abandoned, but it is not being abandoned today.

As we noted, the dollar has been falling persistently since the middle of December. It looked as if there may have been a window of opportunity for it to stabilize this week. The technical conditions were stretched, market positioning extreme, and the Bank of Japan and European Central Bank would likely push against speculation of a near-term change in their respective policies.

Perhaps, concerned about triggering the ire of the mercurial US administration, European and Japanese officials have been particularly circumspect in their remarks about their currencies strength. The new head of the Eurogroup (eurozone finance ministers) Centeno did not express concern about the euro’s strong appreciation. The ECB’s Constancio’s remarks were a bit more pointed but simply noted that premature tightening would jeopardize the inflation target. Japan’s Finance Minister Aso saw no problem with the dollar approaching JPY110 but sought a gradual adjustment.

There is another reason that Mnuchin most likely did not announce a weak dollar policy today. A week from now, the US Treasury will announce its quarterly refunding plans. Mnuchin has previously acknowledged that there will be a substantial increase in Treasury issuance this year. Last year’s net sales were around $550 bln. This year, net issuance is likely to be double that if not a bit more. A third or so will be T-bills when the debt ceiling is eventually lifted.

The increased supply meets unknown demand in the sense that the Federal Reserve will be buying progressively less as it does not reinvest the full amount of maturing paper. In the first half, the Fed will not replace $150 bln, and in the second half, it will not replace $270 bln.

China and Japan, the two largest holders of US Treasuries, were net sellers in November, the latest TIC data showed. As the dollar falls, other central banks in Asia appear to be inclined to buy Treasuries. Europe seems cool to Treasuries. Germany still offers negative yields out six years and France out four years, but investors seem to be more attracted to the periphery of Europe than the US bond market.

The point is that it beggar’s belief that Mnuchin was talking the dollar down, introducing new currency risk, ahead of the quarterly refunding and a significant increase in the supply of Treasuries in the months ahead. Understanding what Mnuchin really said will not stop the dollar from falling. Many momentum players have their sights set on $1.25-1.26 for the euro, $1.45 for sterling, and JPY108.

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. I have no business relationship with any company whose stock is mentioned in this article.

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Intel Says the Patch Designed to Fix Flawed Chips Is Faulty

Intel Corp (intc) said on Monday that patches it released to address two high-profile security vulnerabilities in its chips are faulty, advising customers, computer makers and cloud providers to stop installing them.

Intel Executive Vice President Navin Shenoy disclosed the problem in a statement on the chipmaker’s website, saying that patches released after months of development caused computers to reboot more often than normal and other “unpredictable” behavior.

“I apologize for any disruption this change in guidance may cause,” Shenoy said. “I assure you we are working around the clock to ensure we are addressing these issues.”

The issue of the faulty patches is separate from complaints by customers for weeks that the patches slow computer performance. Intel has said a typical home and business PC user should not see significant slowdowns.

Intel‘s failure to provide a usable patch could cause businesses to postpone purchasing new computers, said IDC analyst Mario Morales.

Intel is “still trying to get a handle on what’s really happening. They haven’t resolved the matter,” he said.

Intel asked technology providers to start testing a new version of the patches, which it began distributing on Saturday.

For more on the chip security flaw, watch Fortune’s video:

The warning came nearly three weeks after Intel confirmed on Jan. 3 that its chips were impacted by vulnerabilities known as Spectre and Meltdown, which make data on affected computers vulnerable to espionage.

Meltdown was specific to chips from Intel, as well as one from SoftBank Group’s ARM Holdings. Spectre affected nearly every modern computing device, including ones with chips fromIntel, ARM and Advanced Micro Devices.

Problems with the patches have been growing since Intel on Jan. 11 said they were causing higher reboot rates in its older chips and then last week that the problem was affecting newer processors.

The Wall Street Journal first reported Intel asking customers to halt using the patches.

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Rocket Lab Test Flight Launches Three CubeSats to Orbit

The launch company Rocket Lab has amusing names for its missions. The first, in May, was called “It’s a Test” (it was). When the staff debated what to call the second launch of their diminutive Electron rocket, so sized (and priced) specifically to carry small satellites to space, they said, “Well, we’re still testing, aren’t we?”

They were. And so “Still Testing” became the name of Rocket Lab’s second launch, which took place on January 20, at around 8:45 pm Eastern Standard Time. In December, the company canceled multiple attempts before rescheduling the launch window for 2018. The livestreamed rocket lifted off from the Mahia Peninsula in New Zealand, headed for someplace with an even better view.

Despite the uncertainty surrounding the launch (or any test launch, for that matter), the rocket was carrying real payloads for real customers: three small satellites, one for a company that images Earth and two for one that monitors weather and ship traffic. But why on Earth would a satellite company choose a rocket-in-progress when there are so many reliable launchers out there? After all, even established rockets blow up sometimes.

Rocket Lab

The short answer is that smallsats—which the Electron was built to transport, exclusively—are by nature expendable. Smallsat makers like Planet and Spire, the two clients on this mission, have ever-growing, genetically similar populations of orbiters. So losing one or two in a less-than-successful test flight? Probably worth the risk. Smallsat companies are willing to put their hardware on this particular liftoff line because the Electron is poised to be the first commercially bookable rocket built specifically for small payloads, which typically have to piggyback on big, expensive rockets with big, expensive payloads that don’t launch often enough and aren’t always headed to their orbit of choice. In the next decade, 3,483 small satellites (between 1 and 100 kilograms) will go to space, generating just over $2 billion of launch revenue, according to the Small Satellite Markets, 4th edition report, which research and consulting firm Northern Sky Research released last month. In this future world where thousands more smallsats provide environmental, economic, and even political intelligence, as well as Earth-covering internet, the test-steps necessary to get on up to space quickly, cheaply, and precisely seem worth the risk not just to Planet and Spire but, perhaps, to you and me.

But boy, was there risk. While Rocket Lab’s first Electron didn’t explode and did reach space—and so gets at least an A- for its first attempt—“It’s a Test” didn’t quite get to orbit. After an investigation, Rocket Lab determined that, four minutes post-blastoff, ground equipment (provided by a third party) temporarily stopped talking to the rocket. When communication breaks down, Official Procedures demand that safety officials stop the flight. And so they did..

But the rocket itself, according to the same investigation, was sound—so the company moved on to a test delivery. “It’s really the next logical step,” says Peter Beck, Rocket Lab’s founder.

Beck seems uncannily logical about the risks his young company is taking. When asked about his feelings about launching actual stuff on “Still Testing,” he replied that doing so certainly involved extra actual tasks. “I’m not sure if you can become extra nervous or extra excited,” he said. That sentiment fits with the launches’ pragmatic names. And those fit with New Zealanders’ general pragmatic streak, says Beck (he cites some of the country’s names for flowing water: “River One,” “River Two,” “River Three”).

For their part, Planet and Spire are here for that no-nonsense-ness. Planet already has around 200 satellites in orbit, so adding one to its flock of so-called “Doves” would be good but not critical. Besides, says Mike Safyan, Planet’s director of launch, “we picked one we wouldn’t miss too much”: a sat named Pioneer. It’s a double meaning, says Safyan. First, it’s an homage to NASA’s old missions, on whose shoulders they stand.

Second meaning: They are pioneers. “There is this New Space wave that Planet is very much at the forefront of and Rocket Lab is very much at the forefront of,” says Safyan.

This is what the forefront looks like, by the way: You can book space on an Electron rocket online—just click the size of your smallsat!—the same basic way you’d book a bunk on Airbnb.

Spire, too, is into it. Jenny Barna met Peter Beck before she had her current job, as the director of launch at Spire, whose satellites aim to keep track of aeronautical and nautical-nautical traffic, as well as weather. Back in her days at SSL, which makes spacecraft and communications systems, a coworker invited her to a presentation Beck was giving on-site. She listened to Beck describe Rocket Lab’s technology, and his vision for a vehicle that provided frequent, affordable launches just for little guys—in an industry that caters to huge sats, and makes smallsats second-class passengers—and she was intrigued. “I remember sitting there thinking how lucky I am to be working at this industry at this time,” she says. And after she moved to Spire, she led the company to sign on as one of Rocket Lab’s first customers. It’s currently contracted for up to 12 launches.

That’s a lot! But Spire has to launch a lot. The company wants access to space every month, so they can produce their satellites in small batches, send them up, iterate, and launch the next generation. So far, counting today, Spire has launched 541 satellites. They’ve done it on the rockets of Russia (Soyuz and Dnepr), Japan (H-IIB), and India (PSLV), and the rockets of the US’s Orbital (Antares) and ULA (Atlas V). And now, they’ll ride with Rocket Lab, picking on a rocket of their own satellites’ size.

But that doesn’t mean they’ll ever only use Rocket Lab. Or Orbital. Or ULA. They plan to keep their eggs distributed—partly because even when it’s not just a test, rockets still blow up, the eggs breaking along with them. “It’s just part of the industry,” says Barna.

When Barna spoke of “Still Testing” a few days before the initial launch window, she was straight-up about the possibility that this particular rocket wouldn’t carry the eggs safely to space. “We know that a million things have to go perfectly for this to be successful,” she said. “We hope they make history.”

They did, and deployed the three-satellite payload into orbit. And pending analysis of this seemingly successful test, Rocket Lab will skip its planned third test and jump straight into official operations, in early 2018. “We’ve got a lot of customers that need to get on orbit,” says Beck.

Suggestion for the third flight’s name: “This Is Not a Test.”

1UPDATE 12:08 AM EST 1/21/2018: This story has been updated to include new satellites Rocket Lab launched recently.

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Infrastructure Play Yields 12.2%, 25% Upside, Insiders Buying This MLP

This research report was jointly produced with High Dividend Opportunities co-author Philip Mause.

SunCoke Energy Partners, L.P. (SXCP) closed recently at $19.45 per unit. It currently pays a distribution of $2.376 per unit per annum for an annual yield of 12.2%. At its current price, SXCP is a big bargain in a market in which attractive risk/reward trade offs are becoming more and more difficult to find.

The Businesses – SXCP’s primary business is the production of coke for steelmaking facilities. Coke is produced by “baking” metallurgical coal at high temperatures. SXCP has four large facilities – each of which serves a large steelmaker under a long term take or pay contract. These contracts also provide for the pass through of SXCP’s costs. SXCP’s facilities are the most modern and environmentally advanced in the industry. Most of the industry is still using older facilities which are likely to be scrapped over the next several decades. SXCP’s 4 contracts expire in 2020, 2022, 2025 and 2032. It is important to note that the coke business is not dependent upon the various factors which affect the demand for thermal coal (used primarily to generate electricity). Thus, the long term decline in the use of thermal coal in the United States due to competition from natural gas and renewables has no effect on SXCP’s coke business.

SXCP also has a growing coal logistics business. This business involves the shipping of coal primarily but not exclusively for export markets. Some of SXCP’s facilities can be (and likely will be) used for other dry or wet bulk shipping functions in the future. Since the election of President Trump, coal production has increased somewhat in the United States according to Energy Information Administration (“EIA”) data. However, domestic consumption of coal has not increased. The variable that has increased enormously in 2017 is coal exports. These exports have nearly doubled in one year and the increase for 2017 in comparison with 2016 will probably amount to some 50-60 million tons of coal. President Trump’s commitment to revive the coal industry depends very very heavily on the continued increase in coal exports and SXCP is well positioned to benefit from that development.

Financial Performance – SXCP has consistently performed well financially. Its long term take or pay contracts provide it with revenue stability. That said, it achieved banner results in Q3 2017. 2017 nine month numbers are up sharply from 2016. Revenue is up by 9% and adjusted EBITDA is up by 13% for the first nine months of 2017 compared with the comparable period in 2016. Trailing twelve month (“TTM”) adjusted EBITDA is now $227.2 million and TTM distributable cash flow (DCF) is $126.6 million. SXCP issued guidance for full year 2017 with its third quarter financial report and now guides to adjusted EBITDA of between $210 and $220 million. Guidance DCF for full year 2017 is now between $119 and $130 million. Using TTM DCF, the per unit DCF is $2.74 (SXCP has a very stable unit count of 46.2 million) which – at the current unit price – produces a dirt cheap price/DCF ratio of 7 times for a company with very stable revenue under long term contracts.

Leverage – SXCP has gross debt at $818.9 million and net debt (debt minus cash) of $792.0 million. Using the mid-point of 2017 adjusted EBITDA guidance ($215 million) this produces a debt/adjusted EBITDA ratio of 3.7. Arguably, this should be somewhat offset by an excess of inventory and accounts receivable ($131.3 million) over accounts payable ($69.5 million) but, even without such an adjustment, leverage is not unreasonable for a company with a stable stream of revenue. SXCP has announced a goal of reducing leverage to a ratio of 3.5 but the need to do this is not pressing.

Distributions – SXCP pays distributions of 59.4 cents per quarter or $2.376 per year for a yield of 12.2%. It has paid at this level since June 2016. Given the current DCF level, there shouldn’t be any pressure to cut the distribution but, given the desire to reduce leverage, there probably won’t be any sizable increase in the near term either. Incentive distribution rights for SXCP’s parent, SunCoke Energy (SXC) kick in at 47.4375 cents per quarter (15%) increasing to 25% at 51.5625 cents per quarter and 50% at 61.875 cents per quarter which tends to make a large scale distribution increase from the current level rather expensive.

Unit Ownership – SXCP’s parent, SXC has been acquiring units at a rapid pace. In the one year between 9/30/2016 and 9/30/2017, SXC’s ownership of SXCP units increased from 25.4 million to 27.4 million while the number of publicly owned units declined from 20.8 million to 18.8 million. SXC attempted a merger in the past and may be setting the stage for a consolidation by buying up more and more SXCP units. SXC recently attempted a consolidation which was rejected by SXCP as being insufficiently remunerative to SXCP unit holders. By buying more and more SXCP stock, SXC will be able to offer more attractive terms for the smaller and smaller number of publicly held units. Below is a list of share purchases by parent SXC over the past month. If we go back 1 year, the list is enormous!

Source

We can note that the most recent purchases by SXC were at $17.90/share for each SXCP share. SXC still has unused authorizations to purchase up to $64 million worth of SXCP units (more than 3 million units) and will likely use these authorizations on an opportunistic basis.

Risk Factors – The first major risk is a possible disruptive consolidation attempt. The risk is that when the deal is announced the two stocks could decline in tandem. Part of the reason for this is that it could be too complex for retail investors to determine exactly what the combined entity would be worth in the aggregate as well as on a per-share basis. Furthermore, many income investors could drop the shares of SXCP due to a possibly lower dividend yield for the combined entity.

The other major risk factor is a large scale collapse of the domestic steel industry leading to either defaults on current contracts or much less attractive terms when contracts come up for renewal. Because SXCP’s facilities are the best in the industry they would likely be the last ones to be shut down in a pull back. It would also be a blow to the Trump Administration for the US steel industry to incur a major downturn and public policy will probably be mobilized to prevent this result. Even after Trump leaves office, politicians are now aware of political risks in steel country states (Pennsylvania, Ohio, etc.) and will try to avoid negative outcomes for the industry.

SXCP will be a big beneficiary from new “infrastructure spending”

The domestic steel industry would be a big beneficiary of the activation of the long-awaiting federal “infrastructure” program. Infrastructure investment would involve large scale use of steel in airports, harbors, bridges, and highways. There would almost certainly be provisions designed to assure that domestic steel would be used or at a minimum would receive a preference for use in the infrastructure program.

Bottom Line – Trading at 7 times trailing twelve month DCF, SXCP is a bargain. Its parent has been buying up the stock voraciously. Its sources of revenue are stable and there is reason to believe that there is some growth potential. SXCP is probably disfavored because it is viewed as a “coal stock” by investors who don’t know the difference between coke and thermal coal. The consolidation issue is a real one but it is likely that investors now will wind up in good shape even after a consolidation although it is possible that they may have to endure a temporary dip. SXCP is probably one of the safer double digit yield stocks now available and is a very very strong buy at this price level. A fair price for SXCP should be 9 times TTM DCF or $24.66 (or 26% higher from here); this would produce a still attractive yield of nearly 10%.

Disclosure: I am/we are long SXCP.

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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​Google moves to Debian for in-house Linux desktop

Video: Supercomputing has an undisputed champion — Linux

Google has officially confirmed the company is shifting its in-house Linux desktop from the Ubuntu-based Goobuntu to a new Linux distro, the DebianTesting-based gLinux.

Margarita Manterola, a Google Engineer, quietly announced Google would move from Ubuntu to Debian-testing for its desktop Linux at DebConf17 in a lightning talk. Manterola explained that Google was moving to gLinux, a rolling release based on Debian Testing.

This move isn’t as surprising as it first looks. Ubuntu is based on Debian. In addition, Google has long been a strong Debian supporter. In 2017, Debian credited Google for making [sic] “possible our annual conference, and directly supports the progress of Debian and Free Software.”

Debian Testing is the beta for the next stable version of Debian. With gLinux, that means it’s based on the Debian 10 “Buster” test operating system.

Google takes each Debian Testing package, rebuilds it, tests it, files and fixes bugs, and once those are resolved, integrates it into the gLinux release candidate. GLinux went into beta on Aug. 16, 2017.

Don’t bother looking for this new Linux distro. You won’t be able to find it. GLinux, like Goobuntu before it, is strictly for internal Google use.

Linux is not Google’s only desktop operating system. Google also uses macOS, Windows, and the Linux-based Chrome OS across its fleet of nearly a quarter-million workstations and laptops. Google isn’t using its mysterious Fuchsia operating system in production.

To manage its desktop operating systems, Google uses the Puppet DevOps tool. Specifically, Google works with the Standalone (Masterless) Puppet mode.

Google’s IT staff uses Pupper’s Standalone approach for two reasons. Standalone doesn’t require a large infrastructure of Puppet configuration servers. Instead, the desktops pull the cryptographically verified configuration files from a web host, then verifies the data locally, and applies the configurations. In addition, by not using a server-client model, this enables the company to commit to its BeyondCorp access model, which does away with using internal networks for corporate access.

BeyondCorp is Google’s enterprise security model, which uses the concept of zero trust networks. It works by shifting access controls from the network perimeter to individual devices and users. This enables employees to work securely from any location without a traditional virtual private network (VPN).

For Goobuntu, and now gLinux, Google uses PXE to netboot the standard Linux desktop installer image. These new Linux images are automatically built in the form of compressed tar-format archives. These images are then placed on an HTTPS server alongside Debian pre-seed files that automate the host setup portion of the installation. This installation process is integrated with Puppet and host update infrastructure to ensure every desktop is configured as intended at install. This allows Google to reinstall gLinux from the network in about 30 minutes.

Google wouldn’t say what desktop environment gLinux will be using. It’s believed, however, that it will use GNOME, backed by the Wayland display server.

Google wouldn’t officially comment on when the changeover from Goobuntu to gLinux would be completed. Sources say it should be well under its way by this summer.

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Microsoft tops Thomson Reuters top 100 global tech leaders list

(Reuters – Thomson Reuters Corp (TRI.TO) on Wednesday published its debut “Top 100 Global Technology Leaders” list with Microsoft Corp (MSFT.O) in the no. 1 spot, followed by chipmaker Intel Corp (INTC.O) and network gear maker Cisco Systems Inc (CSCO.O).

The list, which aims to identify the industry’s top financially successful and organizationally sound organizations, features U.S. tech giants such as Apple Inc (AAPL.O) , Alphabet Inc (GOOGL.O) , International Business Machines Corp (IBM.N) and Texas Instruments Inc (TXN.O), among its top 10.

Microchip maker Taiwan Semiconductor Manufacturing (2330.TW), German business software giant SAP (SAPG.DE) and Dublin-based consultant Accenture (ACN.N) round out the top 10.

The remaining 90 companies are not ranked, but the list also includes the world’s largest online retailer Amazon.com Inc (AMZN.O) and social media giant Facebook Inc (FB.O). ( bit.ly/2B8eowE )

The results are based on a 28-factor algorithm that measures performance across eight benchmarks: financial, management and investor confidence, risk and resilience, legal compliance, innovation, people and social responsibility, environmental impact, and reputation.

The assessment tracks patent activity for technological innovation and sentiment in news and selected social media as the reflection of a company’s public reputation.

The set of tech companies is restricted to those that have at least $1 billion in annual revenue.

According to the list, 45 percent of these 100 tech companies are headquartered in the United States. Japan and Taiwan are tied for second place with 13 companies each, followed by India with five tech leaders on the list.

By continent, North America leads with 47, followed by Asia with 38, Europe with 14 and Australia with one.

The strength of Asia highlights the growth of companies such as Tencent Holdings Ltd (0700.HK), which became the first Asian firm to enter the club of companies worth more than $500 billion, and surpassed Facebook in market value in November.

Reuters is the news and media division of Thomson Reuters, which produced the list.

Reporting by Sonam Rai in Bengaluru, editing by Peter Henderson

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SoftBank considers IPO for Japan wireless unit, said to seek $18 billion

TOKYO (Reuters) – SoftBank Group Corp (9984.T) said on Monday it was considering listing its Japanese wireless business, seeking to raise a reported $18 billion in a move that would accelerate the conglomerate’s transformation into one of the world’s biggest tech investors.

A spin-off – potentially the biggest IPO by a Japanese company in nearly two decades – would also give the unit more autonomy as well as help investors with valuing the business and its parent.

SoftBank Group, which saw its shares climb 4 percent on the news, has a vast range of holdings including stakes in British chip designer ARM Holdings ARM.L, struggling U.S. wireless service provider Sprint Corp (S.N) as well as Alibaba Group Holding Ltd (BABA.N).

It has with other investors also set up a $93 billion Vision Fund, that is investing in range of firms to capitalize on a tech future expected to be driven by artificial intelligence, robotics and interconnected devices.

SoftBank Group plans to sell some 30 percent of SoftBank Corp, raising around 2 trillion yen ($18 billion) that would go towards investments in growth, such as buying into foreign information-technology companies, the Nikkei newspaper said without citing sources.

It plans to seek approval from the Tokyo Stock Exchange as early as spring and aims to debut in Tokyo as well as overseas, possibly London, around autumn, the business daily said.

SoftBank Group said in a statement that a listing of the business was one option for its capital strategy but that no such decision had been made.

A 2 trillion yen ($18 billion) IPO would be one of the biggest listings by a Japanese company, rivaling the 2.2 trillion yen 1986 offering of Nippon Telegraph and Telephone Corp (9432.T) as well as a 2.1 trillion yen listing by NTT DoCoMo Inc (9437.T) a decade later.

“It makes sense to spin off the mobile-phone business using a public offering that would leave SoftBank in control and provide SoftBank with more cash to pursue its strategy of investing in companies with potentially high growth prospects,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“It is a way of obtaining capital without adding debt or diluting SoftBank’s equity interests in the growth companies.”

The domestic telecoms unit, Japan’s No. 3 wireless carrier, posted a 4.5 percent rise in operating profit to 720 billion yen in the year ended March on sales of 3.2 trillion yen.

SoftBank Group’s complicated structure and constant stream of new investments have left many investors struggling to value the company with analysts often noting that its market value does not accurately reflect the value of its massive holdings.

SoftBank’s market value currently stands at around $92 billion. By contrast, its near 30 percent stake in Alibaba is worth around $140 billion.

Large companies seeking to list in Tokyo are required to float at least 35 percent of their shares although these rules can be eased when the company is also listing overseas.

Reporting by Yoshiyasu Shida and Sam Nussey; Additional reporting by Chris Gallagher and Minami Funakoshi; Writing by William Mallard; Editing by Edwina Gibbs

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How To Overcome The Most Common App Pitfalls

Have you considered starting a mobile app? Or does your company already have one in progress? There are thousands of successful mobile apps on the market, but tens of thousands of failed starts to balance them out. Building a mobile app isn’t a get-rich-quick-scheme; instead, it’s a trial by fire that only a small percentage of candidates survive.

Survival and Failure

Of all paid apps, about 90 percent are downloaded less than 500 times per day, earning less than $1,250 per day. Considering the high upkeep costs of applications, that can hardly be considered a success.

In the words of Shmuel Aber, “with over a million apps on the market, consumers have lots of choices, and they won’t download or pay for your app unless you’re truly exceptional. There are a lot of moving parts to the average consumer’s decision, so you need an in-depth understanding of the market if you want to survive.”

So what are the main reasons most mobile apps fail?

Main Reasons

These are some of the most influential factors driving mobile app death:

1. Improper audience targeting. According to Andrew Daniels, “Apps will often fail because they’re not meeting the needs of the target audience or because they’ve not researched simple things like the most used devices of the target audience. If your customers are predominantly Android users and your app is only on iOS or vice versa, you have an immediate problem. We also sometimes have businesses come to us with an idea for an application concept, but no real data suggesting whether the market needs or wants it or whether anything like it is already available.” You need to define your target audience, and be sure they’re going to use and enjoy your app. Research is your greatest asset here.

2. Poor user interfaces. According to Britt Armour, “There are a lot of components involved in building an app that offers a great user experience, but at the basest level, your app needs to be intuitive. If a user struggles to perform basic functions on your app and can’t figure out core functionalities easily, the result is very poor usability.” Your app design should make the app so approachable, even a novice could figure it out.

3. High levels of competition. The app market is saturated, so even if you have an original idea, you’ll likely face significant competition from at least two or three other companies. If you’re caught unprepared by a dominant competitor, you might not be able to survive. You can gain an advantage by reducing your prices, offering better functionality, or avoiding competition entirely by focusing on a different niche.

4. A lack of a marketing strategy. In the words of Juned Ahmed, “These days, by building a great app you have just done half the work. Until you market the app and make it discoverable to the audience, the whole effort will not get its due. Many mobile apps do not make enough to sustain as a business principally because of a poor or half-hearted marketing strategy. Just writing a great App Store description is not enough.” Make sure you work with a professional and diversify your tactics.

5. No brand consistency. Without a consistent brand, you’ll struggle to increase your customer retention. You’ll need to start with solid brand guidelines outlining the character, image, and voice of your company, and make sure those standards are enforced on all platforms.

6. Lackluster support and follow-up. If a user has an issue with the app, who are they going to turn to? If you don’t offer solid customer service, or follow up with your customers to make sure they’re having a good experience, your app could fail. Fortunately, this is one problem that doesn’t take much investment to solve; just listen to your customers and give them what they’re asking for.

7. A poor monetization strategy. There are many ways to monetize an app, whether it’s through a paid download, paid extra content, or displayed ads. If you choose the wrong strategy, or implement it inefficiently, you might cut your revenue stream in half. Look to your competitors, and don’t be too greedy with your profits initially, or you could scare away potential customers.

8. No plan to scale. In the words of Artem Petrov, “Mobile app development failures aren’t something the top players on the market have no idea about. The successful developers gather data, make well-informed decisions and adapt their apps, while others just wait for downloads… and fail.” If you want to be successful long-term, you need some plan to improve your app over time, and grow your user base. If you stand still for too long, a competitor will easily be able to improve upon what you’ve built, and poach your users away from you. Keep your app updated, and aim to keep expanding.

It’s certainly possible to make a mobile app successful, even in a market as diverse and competitive as this one. But if you’re going to survive, you first need to learn from the failures of the untold thousands of apps that came before you. Do your research, plan everything you can, and tread carefully, especially in your first few months of operation.

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Exiting Your Startup: The Grand Finale

Your company has finally achieved success.

You’re finally looking to cash out on the effort you invested.

Deservingly so, but you’re not done yet. The most critical stage is near-;the exit.

Founders can’t simply hand over the reins in exchange for a handsome payday. It’s more complicated, as exiting is a strategic decision-;one that founders must be aware of early on.

We have invested in over one hundred successful startups, and founded our own açai-infused vodka company, VEEV. We learned lessons the hard way, and we want to make it easier for you.

Here’s a fact that most founders overlook. You need a reason for potential buyers to actually want to buy your company.

What about taking your company public via an initial public offering (IPO)? The reality is that IPOs comprise a small percentage of total exits, so we’ll focus on more common acquisitions.

Consider how your company will be positioned for an attractive acquisition. There are many areas of your business to focus on to ensure a successful exit. Mastering any three of the following areas will greatly work in your favor:

  1. Your distribution model

  2. Your access to a particular demographic

  3. Your brand’s strength

What about revenue?

Revenue is important, but potential acquirers rarely buy a company for the added revenue. Odds are that the incremental revenue barely moves the needle for your acquirer.

While revenue-;especially revenue growth rate-;is important, the three aforementioned areas carry more weight. Let’s discuss them in further detail.

Create a nimble distribution model that an acquirer couldn’t replicate.

PetSmart’s acquisition of Chewy for $3.5B in the spring of 2017 is a great example of a purchase based on a distribution model. PetSmart, the brick and mortar retailer of pet supplies, needed Chewy, an e-commerce provider of pet supplies, for its direct-to-consumer channel.

In the end, PetSmart gains critical online access while Chewy receives the expertise and resources necessary to refine and expand its business.

A win for both parties.

Additionally, corporations realize the need to gain access to new demographics-; especially Millennials.

Consider RXBAR, the maker of simple ingredient, protein bars. Founded in 2014, the company has experienced meteoric growth, due in no small part to its support from Millennials who are attracted to RXBAR for its simplicity in both labeling and ingredients. Food manufacturer Kellogg’s-;eager to enter the space-;announced in October 2017 its intention of acquiring RXBAR.

RXBAR plans to remain an independent company within Kellogg’s all the while expanding its product, and Kellogg’s can effectively leverage the access to RXBAR’s target demographics.

Again, a win for both parties.

Finally, it’s impossible to overstate the importance of your brand image. Corporations are seeking ways to capitalize on emotion-based purchasing.

We’ve previously mentioned the increasing role that emotion is having on consumer purchasing behavior and significance of brand image here. However, it is worth reiterating the point again.

Why?

Because corporations-;not just consumers-;are looking for products with a strong brand that evokes a particular emotion. Oftentimes, this is not their area of expertise. Corporate competitive advantages traditionally lie in the form of a cost advantage.

Now, they’re looking to acquire companies with an emotional advantage.

PepsiCo’s acquisition of the sparkling probiotic drink maker KeVita is a prime example. A slogan of KeVita’s, “Revitalize from the Inside,” represents the pathos that PepsiCo was looking to capture. In a time where consumers are turning away from traditional soft drinks, PepsiCo found a perfect opportunity in the health-conscious KeVita.

The acquisition places Kevita on a larger stage, giving it increased access to new distribution channels and resources. PepsiCo now has the means to leverage KeVita’s image to ideally position itself in a time of changing consumer behavior.

Yet again, a win for both parties.

Determine early on what makes your company a threat to potential acquirers. If they need you more than you need them, you’re in a good position.

You know what to focus on.

Now you need to balance the operations of your company with the intricacies of an exit.

Now let’s address the less concrete aspects of selling your business and how to best-position yourself. Two pieces of advice come to mind:

  1. Base your exit on operational milestones, not a timeline

  2. Keep potential acquirers in the loop

A fundamental misunderstanding that many founders have is basing exits off a timeline, and not an operational milestone.

This principle can be applied in a greater context, especially when it comes to fundraising. All too often, founders seek a certain amount of capital to grant them X months or years of runway. Rather, they should seek this capital to reach a particular milestone, such as achieving a particular customer acquisition cost or breaching a given revenue threshold.

The same issue occurs with exits.

Founders are too focused on exiting in Y years, and not based off a given milestone. A major reason we sold VEEV was because we realistically could not keep growing the business. We had reached an intermediate size, and realized that we didn’t have the distribution capacity or necessary connections to expand VEEV internationally and further grow.

This telltale milestone was far more helpful than any time-based method in determining the right time to sell. Additionally, milestone-based exits are also more flexible than their time-based counterparts. They account for unpredictable macroeconomic factors that can either expedite or slow your timeline.

With that said, build relationships with potential acquirers well-before you reach your desired exit milestones. You should keep them in the loop from an early date.

It’s known that you should contact investors well before your intent to raise the next round of fundraising. The same logic applies to exits.

There a few reasons for this.

The first is simply the importance of getting your foot in the door and establishing relationships with corporate partners early on. The second-;and equally as important-;reason is that they can help you reach or tailor your operational milestones.

Essentially, your potential acquirers can outline the kind of milestone that would spark their interest in a deal.

However, be straightforward if challenges arise that may hinder the completion of a milestone. Acquirers should be willing to work with you. They will not be willing if you paint a rosy picture, only to have them later discover issues in the due diligence process.

That should go without saying, but we have seen it adversely affect many deals.

A final note is to realize that this process takes time. We may have mentioned the importance of stressing milestones over time, but it’s important to realize that a corporation moves slower than a startup. You should be in discussion with companies at least a year before any intention to sell, and know that exit deals usually take at least six months.

In the end, it’s no secret. Exiting is difficult.

Applying this advice will differentiate yourself from the competition and increase the odds of gaining the attention of an acquirer.

The earlier you start the process, the better your odds of success.

From experience, we realize that the timing is never perfect and an ideal match is rare. With that said, it’s important to always keep the exit in the back of your mind, and explore the many ways that you can capture the value of the business you created.

Now, get to work!

And if you need help to guide you along the way, find resources from people who have been there and done that. 

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How the Government Hides Secret Surveillance Programs

In 2013, 18-year-old Tadrae McKenzie robbed a marijuana dealer for $130 worth of pot at a local Taco Bell in Tallahassee, Florida. He and two friends had used BB guns to carry out the crime, which under Florida law constituted robbery with a deadly weapon. McKenzie braced himself to serve the minimum four years in prison.

But in the end, a state judge offered McKenzie a startlingly lenient plea deal: He was ordered to serve only six months’ probation, after pleading guilty to a second-degree misdemeanor. The remarkable deal was related to evidence McKenzie’s defense team uncovered before the trial: Law enforcement had used a secret surveillance tool often called Stingray to investigate his case.

Stingrays are devices that behave like fake cellphone towers, tricking phones into believing they’re pinging genuine towers nearby. By using the device, cops can determine a suspect’s precise location, outgoing and incoming calls, and even listen-in on a call or see the content of a text message.

McKenzie’s lawyers suspected cops had used a Stingray because they knew exactly where his house was, and knew he left his home at 6 a.m. the day he was arrested. The cops had obtained a court order from a judge to authorize Verizon to hand over data about the location of Mckenzie’s phone. But cell tower data isn’t precise enough to place a device at a specific house.

The cops also said they used a database that lets law enforcement agencies locate individuals by linking them with their phone numbers. But the phone McKenzie was using was a burner, and not associated with his name. Law enforcement couldn’t adequately explain their extraordinary knowledge of his whereabouts.

The state judge in the case ordered police to show the Stingray and its data to McKenzie’s attorneys. They refused, because of a non-disclosure agreement with the FBI. The state then offered McKenzie, as well as the two other defendants, plea deals designed to make the case go away.

The cops in McKenzie’s case had ultimately failed to successfully carry out a troubling technique called “parallel construction.”

First described in government documents obtained by Reuters in 2013, parallel construction is when law enforcement originally obtains evidence through a secret surveillance program, then tries to seek it out again, via normal procedure. In essence, law enforcement creates a parallel, alternative story for how it found information. That way, it can hide surveillance techniques from public scrutiny and would-be criminals.

A new report released by Human Rights Watch Tuesday, based in part on 95 relevant cases, indicates that law enforcement is using parallel construction regularly, though it’s impossible to calculate exactly how often. It’s extremely difficult for defendants to discern when evidence has been obtained via the practice, according to the report.

“When attorneys try to find out if there’s some kind of undisclosed method that’s been used, the prosecution will basically stonewall and try not to provide a definitive yes or no answer,” says Sarah St. Vincent, the author of the report and a national security and surveillance researcher at Human Rights Watch.

In investigation reports, law enforcement will describe evidence obtained via secret surveillance programs in inscrutable terms. “We’ve seen plenty of examples where the police officers in those reports write ‘we located the suspect based on information from a confidential source;’ they use intentionally vague language,” says Nathan Freed Wessler, a staff attorney at the ACLU’s Speech, Privacy, and Technology project. “It sounds like a human informant or something else, not like a sophisticated surveillance device.”

Sometimes, when a savvy defense attorney pushes, an unbelievable plea deal is offered, or the the case is dropped entirely. If a powerful, secret surveillance program is at stake, a single case is often deemed unimportant to the government.

“Parallel construction means you never know that a case could actually be the result of some constitutionally problematic practice,” says St. Vincent. For example, the constitutionality of using a Stingray device without a warrant is still up for debate, according to the Human Rights Watch report. Some courts have ruled that the devices do violate the Fourth Amendment.

Hemisphere, a massive telephone-call gathering operation revealed by The New York Times in 2013, is one of the most well-documented surveillance programs that government officials attempt to hide when they use parallel construction. The largely secret program provides police with access to a vast database containing call records going back to 1987. Billions of calls are added daily.

In order to create the program, the government forged a lucrative partnership with AT&T, which owns three-quarters of the US’s landline switches and much of its wireless infrastructure. Even if you change your number, Hemisphere’s sophisticated algorithms can connect you to your new line by examining calling patterns. The program also allows law enforcement to have temporary access to the location where you placed or received a call.

The Justice Department billed Hemisphere as a counter-narcotics tool, but the program has been used for everything from Medicaid fraud to murder investigations, according to documentation obtained in 2016 by The Daily Beast.

“What Hemisphere’s capabilities allow it to do is to identify relationships and associations, and to build people’s social webs,” says Aaron Mackey, staff attorney at the Electronic Frontier Foundation (EFF). “It’s highly likely that innocent people who are doing completely innocent things are getting swept up into this database.”

The EFF filed Freedom of Information Act and Public Records Act requests in 2014 seeking info about Hemisphere, but the government only provided heavily redacted files. So the EFF filed a lawsuit in 2015. It’s currently waiting for a California judge to decide whether more information can be made public without impeding law enforcement’s work.

“[The government] is obscuring what we believe to be warrantless or otherwise unconstitutional surveillance techniques, and they’re also jeopardizing a defendant’s ability to obtain all the evidence that’s relevant,” says Mackey.

Parallel construction can also involve a simple event like a traffic stop. In these instances, local law enforcement follows a suspect and then pulls them over for a mundane reason, like failing to use a turn signal. While the stop is meant to look random, cops are often working on a tip they received from a federal agency like the DEA.

“Sometimes when tips come through, the federal authorities don’t even tell the local authorities what they’re looking for,” says St. Vincent. The tip could be as simple as to watch out for a car at a specific place and time.

These stops are referred to as “wall off” or “whisper” stops, according to the Human Rights Watch report. In these instances, local law enforcement has to find probable cause for pulling the suspect over to avoid disclosing the tip. The tip is then never mentioned in court, and instead the beginning of the investigation is said to be the “random” stop.

The Human Rights Watch report concludes that Congress should pass legislation forbidding the use of parallel construction because it impedes on the right to a fair trial. Some representatives, like Republican Senator Rand Paul, have also called for banning the practice.

Opponents of parallel construction believe it should be outlawed because it prevents judges from doing their jobs. “It really gives a lot of power to the executive branch,” says St. Vincent. “It cuts judges out of the role of deciding whether something was legally obtained.”

One of the most concerning aspects of the practice is it shields government surveillance technology from public scrutiny. Stingrays, the cellphone-tracking device used in the Florida robbery case, have existed for years, but they’ve only recently been disclosed to the public. Lawyers and legal scholars haven’t yet conclusively decided whether their use without a warrant violates the Fourth Amendment, in part because so little is known about them. That means many people may have been convicted using techniques that violated their rights.

In the future, if the government hides new surveillance technology like facial recognition, the public will be unable to discern if it’s biased or faulty. Unless judges and citizens understand how surveillance techniques are used, we also can’t evaluate their constitutionality.

The public needs to determine if hiding surveillance programs is something it’s comfortable with at all. On one hand, keeping certain techniques secret likely helps authorities apprehend criminals. But if we don’t know how at least the basic contours of how a program works, it’s hard to have any discussion at all.

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