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January 18, 2019
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On stock prices and Nvidia

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Yesterday’s analysis of Nvidia’s challneges triggered a surge of mail from readers. The company has lost about half of its value over the past two months, and has mostly blamed a “crypto hangover” for the problem. But as I pointed yesterday, it’s really the three Cs: “Crypto, customers, and China.” There are nuances here worth exploring though.

TechCrunch is experimenting with new content forms. This is a rough draft of something new – provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here.

Rapacious capitalists and short-termism

One major vein of reader feedback was around the remarkable short-termism of my analysis, which (mostly) looked at Nvidia over the past 60 days. As a reader named Stephen wrote to me:

By focusing on the peak price from this summer and its fall you ignore the fact that the stock price today is nearly the same as it was in June of 2017. Nvidia was on a huge run because of Bitcoin and the associated run on GPUs by miners. With the crypto currency market in decline so is the demand for advanced GPUs.

There is nothing Nvidia can do about that. They profited greatly from that blip and now they are returning to normal.

That’s entirely fair. After diving in the 2008 financial crisis along with the rest of the market, Nvidia’s market cap steadily gained value for nearly seven years, growing from around $3.6 billion in 2008 to around $15 billion at the end of 2015, far outpacing the S&P 500 or other standard benchmarks.

As the crypto craze took off in 2016 though, that fairly linear growth became exponential. The company hit a peak this past August, reaching $175 billion in value, only to slam back down to Earth with today’s $91.2 billion. So in about three full years — even with the last two month’s 50% drop — the company has managed to grow its market value roughly six times. That’s very strong growth for an established company, even in the technology sector.

The key question though is whether today’s market value is backed by the company’s positioning in the marketplace.

As much as Nvidia has blamed the collapse of crypto prices for its challenging position, that is hardly the whole story. New competition from startups and its own customers are challenging the company on its plan to dominate a series of new workload applications like machine learning and autonomous vehicles.

If Nvidia succeeds, its market cap makes a whole lot of sense. But if it fails to keep a market dominant position in these new applications, then it will have to revert back to its core gamer audience, and today’s market cap makes no sense given the limited size and growth of that market.

China / Nvidia

China remains a major site for manufacturing and assembly. STR/AFP/Getty Images

Another strain of readers asked for more analysis around China tariffs and their potential effect on Nvidia (you short sellers are a fascinating lot).

Let’s be clear on my position: I expect the trade conflict to get worse, not better. There is not a single issue for Trump that has better optics, political positioning, and broad support than improving the status quo around China trade. There is broad bipartisan agreement that the status quo is untenable, and while folks might disagree about specific approaches or tactics, no one thinks that China has played fair in trade for years. Trump can look like a fighter for the American worker while bringing (some) Democrats and most of his entire party on board. It’s a potent issue.

That places Nvidia in a real bind, because China is a critical end market for its products, and its manufacturing is heavily intertwined with Chinese supply chains. As just an example of this, just a few months ago, Nvidia chose TSMC over Samsung in a bidding competition to produce its large GPUs.

As Arman and I have talked with some supply chain folks about tariffs, the general consensus is that low tariffs won’t have much impact, but higher tariffs will force huge changes in the way supply chains are built to counteract those costs. That seems to be the conclusion of Debby Wu at Bloomberg as well within the iPhone supply chain world.

That said, as much as I think there should be caution on this front, Nvidia is in a relatively enviable position. Its contract manufacturers will have to deal with the tariffs directly, but Nvidia can move its manufacturing to wherever it needs to go — Korea, Vietnam, back to the U.S. or wherever. There is of course some time lag, but I would be much more worried about TSMC’s position long-term than Nvidia’s.

Quick Bites

Short summaries and analysis of important news stories, outside our main analysis

SBI Says It Made An Error Allocating Shares in SoftBank IPO – one of the underwriters for SoftBank’s IPO accidentally sent lower share numbers to some buyers, leading to speculation that the company was dealing with a mass selloff. Things seem to be righted, and blockchain enthusiasts will once again get to scream “BLOCKCHAIN” at another financial markets screwup.

The North Face – Cory Arcangel does a great job of decomposing the modern EDM “product” and placing it into today’s context — with some nice connections to our discussion above about Nvidia. “EDM is the perfect reflection of 2018. It is intense, adrenaline-fueled, all-night music made by hyper efficient, work-a-holic, laptop bureaucrats.” Talking about Steve Angello and his rapid series of engagements on the EDM circuit: “Instead, he—his literal, physical self—was being shipped around, with minutes to spare, as part of an intricate just-in-time supply chain. Like Apple’s, this supply chain is also exceedingly light—Angello is the only asset required.” Hat tip to Robert Cottrell at The Browser for this one.

Semiconductor equipment sales forecast: $62B in 2018 a new record – More uplift for 2018, if some challenges in 2019 forecasted. “In 2018, South Korea will remain the largest equipment market for the second year in a row. China will rise in the rankings to claim the second spot for the first time, dislodging Taiwan, which will fall to the third position.” It will be interesting to see how tariffs affect these numbers next year.

What’s next

More semiconductors probably. And Arman and I are side glancing at Yelp these days. Any thoughts? Email me at danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York

News Source = techcrunch.com

Samsung refreshes its S Pen-packing convertible PC

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Welcome, friends, to the consumer electronics dead zone. It’s that increasingly brief window between the last of the pre-holiday releases and the CES deluge. It’s rarely home to genuinely exciting announcements, but when you’re a company like Samsung, you’ve got to find somewhere on the roadmap to portion out all of those gadgets.

Say hello to the new Notebook 9 Pen. It’s a convertible Windows laptop aimed at creatives. It’s a very Samsungy answer to the Surface line, right down to the inclusion of the S Pen. The PC sports a swiveling 13 or 15 inch screen encased in an all-metal frame.

It’s an update to he admittedly somewhat confusingly named line, still sporting an 8th-gen Intel Core i7 and a hearty 15 hours of battery life by Samsung’s estimation. On-board audio has been improved, courtesy of the company’s AKG arm. The S Pen also gets some upgrades here, with improved latency and three swappable tips.

Today’s news is the latest in what’s been an uncharacteristically noisy holiday season for Samsung, including the recent partial announcement of two 5G phones due out next year. A spate of new rumors also have the company announcing the Galaxy S10 around MWC in Feb/March. And then, of course, there’s that folding phone. Should be a packed 2019 for the company, all around.

The new Notebook 9 Pen, meanwhile, is due out in the States early next year.

News Source = techcrunch.com

Move over notch, the hole-punch smartphone camera is coming

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First it was the notch, now the hole-punch has emerged as the latest tech for concealing selfie cameras whilst keeping our smartphones as free of bezel as possible to maximize the screen space.

This week, Samsung and Huawei both unveiled new phones that dispense with the iconic ‘notch’ — pioneered by Apple but popularized by everyone — in favor of positioning the front-facing camera in a small “Infinity-O” hole located on the top left side of the screen.

Dubbed hole-punch, the approach is part of Samsung’s new Galaxy A8s and Huawei’s View 20, which were unveiled hours apart on Tuesday. Huawei was first by just hours, although Samsung has been pretty public with its intention to explore a number notch alternatives including the hole-punch, which makes sense given that it has persistently mocked Apple for the feature.

The Samsung Galaxy S8a will debut in China with a hole-punch spot for the camera [Image via Samsung]

Don’t expect to see any hole-punches just yet though.

The Samsung A8s is just for China right now while the View 20 isn’t being fully unveiled until December 26 in China and, for global audiences, January 22 in Paris. We also don’t have a price for either, but they do represent a new trend that could become widely-adopted across phones from other OEMs in 2019.

That’s certainly Samsung’s plan. The Korea firm is rolling the hole-punch out on the A8s, but it has plans to expand its adoption into other devices and series. The A8s itself is pretty mid-range, but that makes it an ideal candidate to test the potential appeal of a more subtle selfie camera since Samsung’s market share has fallen in China where local rivals have pushed it hard. It starts there, but it could yet be adopted in higher-end devices with global availability.

As the View 20, Huawei has also been pretty global with its ambitions, except in the U.S. where it hasn’t managed to strike a carrier deal despite reports that it has been close before. The current crisis with its CFO — the daughter of the company’s founder who was arrested during a trip to Canada — is another stark reminder that Huawei’s business is unlikely to ever get a break in the U.S. market: so except the View 20 to be a model for Europe and Asia.

Huawei previewed its View 20 with a punch-hole selfie camera lens this week [Image via Huawei]

Samsung hasn’t said a tonne about the hole-punch design, but our sister publication Engadget — which attended the View 20’s early launch event in Hong Kong — said it was mounted below the display “like a diamond” to maintain the structure.

“This hole is not a traditional hole,” Huawei told Engadget.

Huawei will no doubt also talk up the fact that its hole is 4.5mm versus an apparent 6mm from Samsung.

Small details aside, one important upcoming trend from these new devices is the birth of the ‘mega’ megapixel smartphone camera.

The View 20 packs a whopping 48-megapixel lens for a rear camera which something that we’re going to see a lot more of in 2019. Xiaomi, for one, is preparing a January launch for a device that’ll have the 48-megapixels, according to a message on Sina Weibo from company co-founder Bin Lin. There’s no word on what camera enclosure that device will have, though.

Xiaomi teased an upcoming smartphone that’ll sport a 48-megapixel camera [Image via Bin Lin/Weibo]

News Source = techcrunch.com

Payment service Toss becomes Korea’s newest unicorn after raising $80M

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South Korea has got its third unicorn startup after Viva Republica, the company beyond popular payment app Toss, announced it has raised an $80 million round at a valuation of $1.2 billion.

This new round is led by U.S. firms Kleiner Perkins and Ribbit Capital, both of which cut their first checks for Korea with this deal. Others participating include existing investors Altos Ventures, Bessemer Venture Partners, Goodwater Capital, KTB Network, Novel, PayPal and Qualcomm Ventures. The deal comes just six months after Viva Republica raised $40 million to accelerate growth, and it takes the company to nearly $200 million raised from investors to date.

Toss was started in 2013 by former dentist SG Lee who grew frustrated by the cumbersome way online payments worked in Korea. Despite the fact that the country has one of the highest smartphone penetrations rates in the world and is a top user of credit cards, the process required more than a dozen steps and came with limits.

“Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just one password and three steps to transfer up to KRW 500,000 ($430),” Lee said in a past statement.

Working with traditional finance

Today, Viva Republica claims to have 10 million registered users for Toss — that’s 20 percent of Korea’s 50 million population — while it says that it is “on track” to reach a $18 billion run-rate for transactions in 2018.

The app began as Venmo -style payments, but in recent years it has added more advanced features focused around financial products. Toss users can now access and manage credit, loans, insurance, investment and more from 25 financial service providers, including banks.

Fintech startups are ‘rip it out and start again’ in the West –such as Europe’s challenger banks — but, in Asia, the approach is more collaborative and assistive. A numbe of startups have found a sweet spot in between banks and consumers, helping to match the two selectively and intelligently. In Toss’s case, essentially it acts as a funnel to help traditional banks find and vet customers for services. Thus, Toss is graduating from a peer-to-peer payment service into a banking gateway.

“Korea is a top 10 global economy, but no there’s no Mint or Credit Karma to help people save and spend money smartly,” Lee told TechCrunch in an interview. “We saw the same deep problems we need to solve [as the U.S.] so we’re just digging in.”

“We want to help financial institutions to build on top of Toss… we’re kind of building an Amazon for the financial services industry,” he added. “We try to aggregate all those activities, covering saving accounts, loan products, insurance etc.”

Former dentist SG Lee started Toss in 2013.

Lee said the plan for the new money is to go deeper in Korea by advancing the tech beyond Toss, adding more users and — on the supply side — partnering with more companies to offer financial products.

There’s plenty of competition. Startups like PeopleFund focus squarely on financial products, while Kakao, Korea’s largest messaging platform, has a dedicated fintech division — KakaoPay — which rivals Toss on both payment and financial services. It also counts the mighty Alibaba in its corner courtesy of a $200 million investment from its Ant Financial affiliate.

Alibaba and Tencent tend to move in pairs as opposites, with one naturally gravitating to the rivals of the other’s investees as recently happened in the Philippines. It’s tricky in Korea, though. Tencent is caught in limbo since it is a long-standing Kakao backer. But might the Ant Financial deal spur Tencent into working with Toss?

Lee said his company has a “good relationship” with Tencent, including the occasional home/away visits, but there’s nothing more to it right now. That’s intriguing.

Overseas expansion plans

Also of interest is future plans for the business now that it is taking on significantly more capital from investors who, even with the most patient money out there, eventually need a return on their investment.

Lee is adamant that he won’t sell, despite Viva Republica increasingly looking like an ideal entry point for a payment or finance company that has missed the Korean market and wants in now.

He said that there are plans to do an IPO “at some point,” but a more immediate focus is the opportunity to expand overseas.

When Toss raised a PayPal-led $48 million Series C 18 months ago, Lee told TechCrunch that he was beginning to cast his eyes on opportunities in Southeast Asia, the region of over 650 million consumers, and that’s likely to see definitive action next year. The Viva Republica CEO said that Vietnam could be a first overseas launchpad for Toss.

“We’re thinking seriously about going beyond Korea because sooner or later we will hire saturation point,” Lee said. “We think Vietnam is quite promising. We’ve talked to potential partners and are currently articulating ideas and strategy materialized next year.

“We already have a very successful playbook, we know how to scale among users,” Lee added.

While the plan is still being put together, Lee suggested that Viva Republica would take its time expanding across Southeast Asia, where six distinct countries account for the majority of the region’s population. So, rather than rapidly expanding Toss across those markets, he indicated that a more deliberate, country-by-country launch could be the strategy with Vietnam kicking things off in 2019.

The Toss team at HQ in Seoul, Korea

Korea rising

Toss’s entry into the unicorn club — a vaunted collection of private tech companies valued at $1 billion or more — comes weeks after Coupang, Korea’s top e-commerce company, raised $2 billion at a valuation of $9 billion.

While that Coupang round came from the SoftBank Vision Fund — a source of capital that is threatening to become tainted given its links to the murder of journalist Jamal Khashoggi — it does represent the first time that a Korea-based company has joined the $100 billion mega-fund’s portfolio.

Some milestones can be dismissed as frivolous, but these two coming so close together are a signal of increased awareness of the potential of Korea as a startup destination by investors outside of the country.

While Lee admitted that the unicorn valuation “doesn’t change a lot” in daily terms for his business, he did admit that he has seen the landscape shift for Korea’s startup ecosystem — which has only two other privately-held unicorns: Coupang and Yello Mobile.

“More and more global VCs are aware that South Korea is a really good opportunity to do a startup. It is getting easier for our fellow entrepreneurs to pitch and get access to global funds,” he said, adding that Korea’s top 25 cities have a cumulative population (25 million) that matches America’s top 25.

Despite that potential, Korea has tended to focus on its ‘chaebol’ giants like Samsung — which accounts for a double-digital percentage of the national economy — LG, Hyundai and SK. That means a lot of potential startup talent, both founders and employees, is locked up in secure corporate jobs. Throw in the conservative tradition of family expectations, which can make it hard for children to justify leaving the safety of a big company, and it is perhaps no wonder that Korea has relatively fewer startups compared to other economies of comparable size.

But that is changing.

Coupang has been one of the highest profile examples to follow, alongside the (now public) Kakao business. But with Viva Republica, Toss and a charismatic dentist-turned-founder, another startup story is being written and that could just inspire a future generation of entrepreneurs to rise up and be counted in South Korea.

News Source = techcrunch.com

Bright spots in the VR market

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Virtual Reality is in a public relations slump. Two years ago the public’s expectations for virtual reality’s potential was at its peak. Many believed (and still continue to believe) that VR would transform the way we connect, interact, and communicate in our personal and professional lives.

Google Trends highlighting search trends related to Virtual Reality over time; the “note” refers to an improvement in Google’s data collection system that occurred in early 2016

It’s easy to understand why this excitement exists once you put on a head mounted display. While there are still a limited number of compelling experiences, after you test some of the early successes in the field, it’s hard not to extrapolate beyond the current state of affairs to a magnificent future where the utility of virtual reality technology is pervasive.

However, many problems still exist. The all-in cost for state of the art headsets is still out of reach for the mass market. Most ‘high-quality’ virtual reality experiences still require users to be tethered to their desktops. The setup experience for mass market users is lathered in friction. When it comes down to it, the holistic VR experience is a non-starter for most people. We are effectively in what Gartner refers to as the “trough of disillusionment.”

Gartner’s hype cycle for “Human-Machine Interface” in 2018 places many related VR related fields (e.g., Mixed Reality, AR, HMDs, etc.) in the “Trough of Disillusionment”

Yet, the virtual reality market has continued its slow march to mass adoption, and there are tangible indicators that suggest we could be nearing an inflection point.

A shift towards sustainable hardware growth

What you do and do not consider a virtual reality display can dramatically impact your view on the state of the VR hardware industry. Head-mounted displays (HMDs) can be categorized in three different ways:

  • Screenless viewers — affordable devices that turn smartphones into a VR experience (e.g., Google Glass, Samsung Gear VR, etc.)
  • Standalone HMDs — devices that are not connected to a computer and can independently run content (e.g., Oculus Go, Lenovo Mirage Solo, etc.)
  • Tethered HMDs — devices that are connected to a desktop computer in order to run content (e.g., HTC Vive, Oculus Pro, etc.)

2018 has seen disappointing progress in aggregate headset growth. The overall market is forecasted to ship 8.9M headsets in 2018, up from an approximate aggregate shipment of ~8.3M in 2017, according to IDC. On the surface, those numbers hardly describe a market at its inflection point.

However, most of the decline in growth rate can be attributed to two factors. First, screenless viewers have seen a significant decline in shipments as device manufacturers have stopped shipping them alongside smartphones. In the second quarter of 2018, 409K screenless viewers were shipped compared to approximately 1M in the second quarter of 2017. Second, tethered VR headsets have also declined as manufacturers have slowed down the pricing discounts that acted as a steroid to sales growth in 2017.

Looking at the market for standalone HMDs, however, reveals a more promising figure. Standalone VR headsets grew 417% due to the global availability of the Oculus Go and Xiaomi Mi VR. Over time, these headsets are going to be the driver of the VR market as they offer significant advantages compared to tethered headsets.

The shift from tethered to standalone VR headsets is significant. It represents a paradigm shift within the immersive ecosystem, where developers have a truly mobile platform that is powerful enough to enable compelling user experiences.

IDC forecasts for AR/VR headset market share by form factor, 2018–2022

A premium market segment

There are a few names that come to mind when thinking about products that are available for purchase in the VR market: Samsung, Facebook (Oculus), HTC, and Playstation. A plethora of new products from these marquee names —  and products from new companies entering the market —  are opening the category for a new customer segment.

For the past few years, the market effectively had two segments. The first was a “mass market” segment with notorious devices such as the Google Cardboard and the Samsung Gear, which typically sold for under $100 and offered severely constrained experiences to consumers. The second segment was a “pro market” with a few notable devices, such as the HTC Vive, that required absurdly powerful computing rigs to operate, but offered consumers more compelling, immersive experiences.

It’s possible that this new emerging segment will dramatically open up the total addressable VR market. This “premium” market segment offers product alternatives that are somewhat more expensive than the mass market, but are significantly differentiated in the potential experiences that can be offered (and with much less friction than the “pro market”).

The Oculus Go, the Xiaomi Mi VR, and the Lenovo Solo are the most notable products in this segment. They are the fastest growing devices in this segment, and represent a new wave of products that will continue to roll out. This segment could be the tipping point for when we move from the early adopters to the early majority in the VR product adoption curve.

A number of other products have also been released throughout 2018 that fall into this category, such as Lenovo’s Mirage Solo and Xiaomi’s Mi VR. Even more so, Oculus recently announced that  they’ll be shipping a new headset called Quest this spring, which will sell for $399 and will be the most powerful example of a premium device to date. The all-in price range of ~$200–400 places these devices in a segment consumers are already conditioned to pay (think iPad’s, gaming consoles, etc.), and they offer differentiated experiences primarily attributed to the fact that they are standalone devices.

News Source = techcrunch.com

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