How Some New College Graduates Are Pulling Over $1 Million a Year (Courtesy of Elon Musk)

Artificial intelligence experts can command huge salaries and bonuses–even at a nonprofit.

OpenAI, a nonprofit research lab started by Tesla founder and CEO Elon Musk released the salary details of it’s employees–and they are striking. The organization’s top researcher was paid more than $1.9 million in 2016, and another leading researcher who was only recruited in March was paid $800,000 that year, according to a recent article in the New York Times.

Salaries for top A.I. researchers have skyrocketed because there is high demand for the skills–thousands of companies want to work with the technology–and few people have them. So even researchers at a nonprofit can make big money.

It likely has more to do with competition than interest in the field itself, however. The Times points out that both of the researchers employed by OpenAI used to work at Google. At DeepMind, a Google-owned A.I. lab in London, $138 million was spent on the salaries of 400 employees, translating to $345,000 per employee including researchers and other staff, the Times reports. 

OpenAI was started by Musk who recruited several engineers from Google and Facebook, two companies pushing the industry into artificial intelligence. People who work at major companies told the Times that while top names can expect compensation packages in the millions, even A.I. specialists with no industry experience can expect to make between $300,000 and $500,000 in salary and stock as demand for the skills continues to outstrip supply. 

Amazon Has Over 100 Million Prime Members

Amazon Prime has over 100 million subscribers worldwide, Amazon CEO Jeff Bezos said on Wednesday, marking the first time that the company has disclosed such detailed information about its increasingly important subscription service.

The online retail giant debuted Prime 13 years ago as a way for people to get free two-day shipping and access to the company’s video streaming library.

In the past, Amazon has only disclosed vague information about the number of Prime subscribers, such as it having “tens of millions of members.” The updated number highlights the growth of the company’s subscription service, which Amazon has pushed heavily over the years as a way to retain customers that in turn fuel its core retail business with each purchase. Still, Amazon stopped short of full disclosure of its Prime subscriber service, like how much revenue it generates.

In addition to membership numbers, Bezos said in a letter to shareholders that the company had shipped over 5 billion items in 2017 as part of its Prime service and that “more new members joined Prime than in any previous year.” However, he didn’t say how many people signed up in past years.

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Bezos also bragged about Amazon’s recent marketing campaigns, including its Prime Day event in July. He said that the company’s Prime Day for 2017 was its “biggest global shopping event ever” until it was soon eclipsed by Cyber Monday, the day of online shopping deals following the Thanksgiving holiday weekend.

“Prime Day 2017 was our biggest global shopping event ever (until surpassed by Cyber Monday), with more new Prime members joining Prime than any other day in our history,” he said.

As for sales of some of Amazon’s other heavily promoted products and services, Bezos remained typically vague.

Amazon sold “tens of millions” of its Internet-connected Echo speaker; its online streaming music service “Amazon Music” now “has tens of millions of paid customers;” and its “Amazon Fashion” online retail portal now “has become the destination for tens of millions of customers.”

From Bezos’ shareholder letter:

Congratulations and thank you to the now over 560,000 Amazonians who come to work every day with unrelenting customer obsession, ingenuity, and commitment to operational excellence. And on behalf of Amazonians everywhere, I want to extend a huge thank you to customers. It’s incredibly energizing for us to see your responses to these surveys.

One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’. I see that cycle of improvement happening at a faster rate than ever before. It may be because customers have such easy access to more information than ever before – in only a few seconds and with a couple taps on their phones, customers can read reviews, compare prices from multiple retailers, see whether something’s in stock, find out how fast it will ship or be available for pick-up, and more. These examples are from retail, but I sense that the same customer empowerment phenomenon is happening broadly across everything we do at Amazon and most other industries as well. You cannot rest on your laurels in this world. Customers won’t have it.

Exclusive: Facebook to put 1.5 billion users out of reach of new EU privacy law

SAN FRANCISCO (Reuters) – If a new European law restricting what companies can do with people’s online data went into effect tomorrow, almost 1.9 billion Facebook Inc users around the world would be protected by it. The online social network is making changes that ensure the number will be much smaller.

Facebook members outside the United States and Canada, whether they know it or not, are currently governed by terms of service agreed with the company’s international headquarters in Ireland.

Next month, Facebook is planning to make that the case for only European users, meaning 1.5 billion members in Africa, Asia, Australia and Latin America will not fall under the European Union’s General Data Protection Regulation (GDPR), which takes effect on May 25.

The previously unreported move, which Facebook confirmed to Reuters on Tuesday, shows the world’s largest online social network is keen to reduce its exposure to GDPR, which allows European regulators to fine companies for collecting or using personal data without users’ consent.

That removes a huge potential liability for Facebook, as the new EU law allows for fines of up to 4 percent of global annual revenue for infractions, which in Facebook’s case could mean billions of dollars.

The change comes as Facebook is under scrutiny from regulators and lawmakers around the world since disclosing last month that the personal information of millions of users wrongly ended up in the hands of political consultancy Cambridge Analytica, setting off wider concerns about how it handles user data.

The change affects more than 70 percent of Facebook’s 2 billion-plus members. As of December, Facebook had 239 million users in the United States and Canada, 370 million in Europe and 1.52 billion users elsewhere.

Facebook, like many other U.S. technology companies, established an Irish subsidiary in 2008 and took advantage of the country’s low corporate tax rates, routing through it revenue from some advertisers outside North America. The unit is subject to regulations applied by the 28-nation European Union.

Facebook said the latest change does not have tax implications.

‘IN SPIRIT’

In a statement given to Reuters, Facebook played down the importance of the terms of service change, saying it plans to make the privacy controls and settings that Europe will get under GDPR available to the rest of the world.

“We apply the same privacy protections everywhere, regardless of whether your agreement is with Facebook Inc or Facebook Ireland,” the company said.

Earlier this month, Facebook Chief Executive Mark Zuckerberg told Reuters in an interview that his company would apply the EU law globally “in spirit,” but stopped short of committing to it as the standard for the social network across the world.

In practice, the change means the 1.5 billion affected users will not be able to file complaints with Ireland’s Data Protection Commissioner or in Irish courts. Instead they will be governed by more lenient U.S. privacy laws, said Michael Veale, a technology policy researcher at University College London.

Facebook will have more leeway in how it handles data about those users, Veale said. Certain types of data such as browsing history, for instance, are considered personal data under EU law but are not as protected in the United States, he said.

The company said its rationale for the change was related to the European Union’s mandated privacy notices, “because EU law requires specific language.” For example, the company said, the new EU law requires specific legal terminology about the legal basis for processing data which does not exist in U.S. law.

NO WARNING

Ireland was unaware of the change. One Irish official, speaking on condition of anonymity, said he did not know of any plans by Facebook to transfer responsibilities wholesale to the United States or to decrease Facebook’s presence in Ireland, where the social network is seeking to recruit more than 100 new staff.

Facebook released a revised terms of service in draft form two weeks ago, and they are scheduled to take effect next month.

Other multinational companies are also planning changes. LinkedIn, a unit of Microsoft Corp, tells users in its existing terms of service that if they are outside the United States, they have a contract with LinkedIn Ireland. New terms that take effect May 8 move non-Europeans to contracts with U.S.-based LinkedIn Corp.

LinkedIn said in a statement on Wednesday that all users are entitled to the same privacy protections. “We’ve simply streamlined the contract location to ensure all members understand the LinkedIn entity responsible for their personal data,” the company said.

FILE PHOTO: Silhouettes of mobile users are seen next to a screen projection of Facebook logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/Illustration/File photo

Reporting by David Ingram in San Francisco; Additional reporting by Joseph Menn in San Francisco, Padraic Halpin and Conor Humphries in Dublin and Douglas Busvine in Frankfurt; Editing by Greg Mitchell and Bill Rigby

The White House Warns on Russian Router Hacking, But Muddles the Message

For its first year in office, the Trump administration seemed soft on Russia’s hyper-aggressive hackers, reluctant even to point out they’d brazenly meddled in the US election. Then, just two months ago, the White House suddenly came out swinging, calling out Russia for its massively disruptive NotPetya malware and intrusions into the US power grid, and imposing new sanctions in response. Now, in its latest warning to Russia over its hacking bonanza, the White House may have confused the message again, this time in the other direction: By scolding Russia not for its uniquely destructive hacking activities, but by all appearances for the kind of cyberespionage many governments do—including the US.

An alert issued jointly by the Department of Homeland Security, the White House, the FBI and the UK’s National Cyber Security Center on Monday warned that hackers tied to the Russian government have attempted to compromise millions of routers and firewalls across the internet, from enterprise-focused network equipment to the humble routers in homes and small businesses across the world. The report warns that the attacks “enable espionage and intellectual property [theft] that supports the Russian Federation’s national security and economic goals,” and offers technical advice about how to detect and stop those attacks.

“When we see malicious cyberactivity, whether Kremlin or other nation state actors, we are going to push back,” said White House cybersecurity coordinator Rob Joyce in a call with reporters. (The call came just hours before reports surfaced that Joyce is resigning his White House position.) “We condemn this latest activity in the strongest possible terms,” added senior DHS official Jeanette Manfra.

But those weighty statements, for some in the intelligence and security community, actually muddy the message to Russia. After all, US government hackers—and particularly those in NSA—perform broad intrusions across the world for espionage, too. Often they even hack routers like the ones mentioned in Monday’s alert, based on classified leaks and cybersecurity researchers’ findings. And calling out Russia for the same sort of spying the US routinely does as well only blurs the red lines that Western governments have demanded Russia and other nations respect—prohibitions like disruptive attacks on civilian infrastructure or meddling in elections.

“It’s weird. Why are they making such a fuss about something that even the US must be engaged in?” asks Thomas Rid, a professor of strategic studies at Johns Hopkins’ School of Advanced International Study. “This is the dirty secret of infosec, that everyone’s doing it.”

Just last month, for instance, researchers at Russian security firm Kaspersky revealed a hacking campaign known as Slingshot that spied on more than a hundred targets around the world, in many cases by infecting MicroTik routers. That operation was later revealed to be a US Special Operations Command effort to monitor members of ISIS using internet cafes across Africa and Middle East. “So, that Slingshot APT was Russian?” quipped Kaspersky researcher Aleks Gostev in a tweet responding to Monday’s DHS alert. Previous classified leaks have shown that the NSA and CIA hack routers too, both big and small.

Former NSA hacker Jake Williams points in particular to the DHS alert’s warning that Russian hackers hijack home routers when their owners don’t change the default password—a form of hacking he considers almost laughably mundane, performed by even unskilled cybercriminals. “Everybody hacks routers,” Williams says. “Saying that home routers with default passwords are getting owned is like saying that thieves are picking up unattended money in a public area.”

Rather than a serious warning of a new line-crossing cyberattack by the Russian government, Williams says he sees the latest alert as part of a larger geopolitical message. After all, the Trump administration’s relations with the Kremlin have been cooling, due in part to opposing interests in the ongoing war in Syria. “I don’t see why we’re making such a big deal of this, other than politics,” Williams says.

Meanwhile, Russia has repeatedly crossed red lines with its cyberattacks over the last few years, from its blackout-inducing cyberwar in Ukraine to its leaks of stolen Clinton campaign documents in the 2016 presidential election to the NotPetya outbreak that paralyzed civilian infrastructure and companies around the world, now believed to be the most costly cyberattack in history. Lumping in routine router-hacking with those misdeeds seems to confuse the stakes.

In fairness, Monday’s DHS alert does hint that Russia’s router hacking could be part of a similarly disruptive hacking campaign rather than espionage alone; it warns that the router attacks “potentially lay a foundation for future offensive operations.” That could mean anything from data-destroying malware to disruption of physical infrastructure like oil and gas facilities or power grids.

As for the message it sends, Robert Lee, a former NSA analyst focused on threats to critical infrastructure says the joint statement on the attacks suggests that there may be another, more dangerous element to the router-hacking campaign that’s not spelled out in the alert. “The US government is signaling to the Russian government it knows what it’s doing and that it’s something they’re not happy about,” Lee says. “They’re calling out that routers are being hacked with follow-on activity that’s concerning.”

Lee points out that the attacks the alert calls out have been documented for months, including in an attack against the Pyeongchang Olympic Games.

Exactly why the US and UK government chose to put out a joint statement about them now—along with some heated rhetoric—isn’t so clear. “Have they seen something that looks more like planning for disruption and sabotage?” asks Johns Hopkins’ Rid. “Is it enough that Russia has a track record of breaking things?” Until Western countries spell out the definition of that bad behavior consistently, the rules they want to set for civilized behavior online will remain frustratingly inscrutable.

Router Issues

Why Netflix Stock Jumped as Much as 8% to an (Almost) All-Time High

Growth at big companies chasing mature markets is supposed to slow down. Think about wireless phones or cable TV. But that rule doesn’t seem to apply to Netflix, at least not yet.

Even after more than 20 years in business, the world’s biggest streaming video service experienced some of its fastest growth ever in the first quarter, helping to give its stock a big lift.

Netflix shares, which hit an all-time high of $333.98 last month before selling off in the recent stock market decline, jumped as much as 8% in after hours trading on Monday. That put the stock price just pennies below the all-time high. But as CEO Reed Hastings and other executives answered an analysts’ questions on one of Netflix’s famously dull quarterly calls for investors, the after hours gain shrunk to a 5% gain to $324.32.

Netflix’s overall revenue increased 40% to $3.7 billion in the quarter, but excluding the aging DVD rental business, streaming video service revenue rose 43% to $3.6 billion, the company’s fastest quarterly growth rate ever, Netflix said. That was due to the combination of adding 7.4 million new subscribers, the most ever for Netflix in a first quarter, plus the price hikes the company pushed through last year, leading to a 14% increase in the average monthly subscription price.

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Investors and analysts were most impressed by the subscriber gains, which came in well ahead of the company’s own forecasts. Netflix added 1.96 million new members in the United States, after forecasting a gain of 1.45 million, and another 5.46 million in other countries, after forecasting 4.9 million. Netflix’s forecasts for the second quarter for subscriber and revenue growth were also better than analysts expected.

“We think investors will likely push NFLX stock higher after this earnings report,” UBS analyst Eric Sheridan wrote after the results came out. “We see investors focused on the widening moat that NFLX is creating with its business (faster subscriber growth on the back of original content push).”

Netflix’s head of programming, Ted Sarandos, did use the call Monday evening to shoot down one frequent rumor about the company, while declining to address another.

“Our move into news has been misreported over and over again and we’re not looking to expand into news beyond the work that we’re doing in short form and long form feature documentaries,” he said, when asked about rumors of a bigger push into news.

Recent talk shows from the likes of David Letterman should be considered entertainment, not news, he stressed. “David Letterman is a great talk show host—not a newscaster,” Sarandos said.

And about those rumors that former president Barack Obama or his wife Michelle is in talks to host such a show?

“I can’t comment on the Obamas or any other deals that would be in various states of negotiation right now,” he replied.

CEO Hastings was also asked whether the data privacy problems hounding Facebook (fb) and other tech companies could hurt Netflix (nflx), particularly if new laws limited data collection. Last week, some members of Congress raised the possibility during hearings in which Facebook CEO Mark Zuckerberg testified about his company’s data collection and data sharing practices.

“Well, I’m very glad that we built the business not to be ad-supported,” he said. “I think we’re substantially inoculated from the other issues that are happening in the industry…Just objectively, we’re much more of a media company in that way than pure tech. Of course we want to be great at both but, again, we’re really pretty different from the pure tech companies.”

Singapore seeks feedback on proposal to allow Airbnb-style rentals

SINGAPORE (Reuters) – Singapore began seeking public feedback on proposals to allow short-term rentals of private homes such as those on Airbnb.

FILE PHOTO: A woman talks on the phone at the Airbnb office headquarters in the SOMA district of San Francisco, California, U.S., August 2, 2016. REUTERS/Gabrielle Lurie/File Photo

The government is seeking feedback on issues such as what homes should qualify and the responsibilities of short-term accommodation platforms, the Urban Redevelopment Authority said on Monday.

The proposed rules require that a significant majority of owners in a condominium agree to the presence of short-term rentals in their development. The agency also proposed an annual rental cap of 90 days that a property can be used for short-term rentals.

Earlier this month, a Singapore court fined two Airbnb hosts a total of S$60,000 ($45,800) each for unauthorized short-term letting.

Reporting by Aradhana Aravindan; Editing by Stephen Coates

Within Facebook, a Sense of Relief Over the Zuckerberg Hearings

About two hours, or 20 percent, into Mark Zuckerberg’s marathon testimony before Congress this week, the Facebook CEO had a slightly awkward exchange with senator John Cornyn (R-Texas). Cornyn wanted to know what happens to people’s data when they delete their accounts. Zuckerberg responded that Facebook deletes their data. But Cornyn continued, “How about third parties that you have contracted with to use some of that underlying information, perhaps to target advertising for themselves?”

To Zuckerberg, this must have been exasperating. As he has said over and over, Facebook doesn’t sell data to advertisers. Doing so could allow outsiders to build competitive ad-targeting products that would undermine Facebook’s business. And so Zuckerberg patiently explained, yet again, how Facebook works. “We do not sell data to advertisers. We don’t sell data to anyone.”

Before the hearings, Zuckerberg’s colleagues in Menlo Park had been nervous. The company had been battered, insulted, and mocked for weeks. The stock price had collapsed. And now Zuckerberg, who isn’t known for his charisma or quick-witted stage presence, would be grilled by professional grillers. The whole thing felt to Facebook roughly like watching the father of the bride at a tense wedding, refilled glass of chardonnay in hand, slide up to the microphone to give a toast. It could go OK. It should go OK. But it might also go horribly wrong.

Once the hearings started, though, according to numerous Facebook employees asked about their reactions, everyone at headquarters started to calm down. For one, it became immediately clear that many of the senators didn’t actually know what Facebook does. “I was personally surprised by how ill-prepared the members were,” one Facebook executive told me. “Once it was clear how bad it was and how mismatched they were, everybody had this awakening: We have made some mistakes, but these guys know even less.” Numerous people at the company passed around a meme in which Chuck Grassley (R-Iowa) putatively asked Zuckerberg, “Mr. Zuckerberg, a magazine I recently opened came with a floppy disk offering me 30 free hours of something called America On-Line. Is that the same as Facebook?”

After Zuckerberg finished his session with Cornyn, John Thune (R-South Dakota) interjected that it was time to take a break. Thune may have had the most power over Facebook in the room—he oversees the Senate Commerce Committee, which in turn helps oversee the Federal Trade Commission—and he may also have the best jawbone. But Zuckerberg responded that, actually, no, he was fine to keep going. “You can do a few more,” Zuckerberg said. He wasn’t worn down.

In Menlo Park, there were cheers from some employees. According to one who was watching a TV nearby, “It was like magic.” At another spot in Facebook’s offices where senior executives had gathered, people started laughing and smiling. The toast was going just fine. Nothing was going to go horribly wrong. Meanwhile, employees had their eyes on the stock ticker, which, for the first time in a while, had started to turn upward.

Shortly thereafter, Dean Heller (R-Nevada) asked a question without an easy answer. “Do you believe you’re more responsible with millions of Americans’ personal data than the federal government would be?”

Zuckerberg had a choice: He could weasel his way out and say the answer is hard. He could throw out something patriotic and muddled. But he decided to do something simple. He just said, “Yes.” Then he paused and moved on to talking about something else.

It was another moment of magic, a Facebook employee said. “The mood totally changed internally.”

Some Bad Reviews

Zuckerberg didn’t impress everyone this week. The New York Post dubbed him “The Social Nitwit.” At the TED conference, Facebook was hammered repeatedly, and one speaker, Jaron Lanier, declared, “I don’t think our species can survive unless we fix this.” People made fun of him for sitting on what was dubbed a booster seat. Those perhaps seeing Zuckerberg for the first time were surprised that he can appear like a humanoid. Trevor Noah said Zuckerberg must “have sent a robot version of himself.” Jimmy Kimmel declared that he “almost even managed to replicate a human smile.”

It’s unlikely, though, that Zuckerberg cared much about the cheap shots and the jokes. He surely noticed that the value of the company rose by about $17 billion during the hearings, making him more than $2.5 billion richer. And in some ways, the most important part of the hearings was to calm his restive employees. In recent weeks, working at Facebook has come to seem a bit like working at Goldman Sachs in 2008. The most important challenge for Facebook is employee retention: Despite the billions the company makes and the kombucha shots it serves on the corporate roof, competition for engineers in Silicon Valley is severe. In recent weeks, Facebook has seemed weak and easy to raid. One employee even boasted publicly of quitting.

And if your metric is employee morale, Zuckerberg’s testimony was a success. Early in the Senate hearings, Orrin Hatch (R-Utah) pushed Zuckerberg on why the company doesn’t have a subscription model. Zuckerberg responded carefully and cautiously. Hatch then asked, “Well, if so, how do you sustain a business model in which users don’t pay for your service?”

Zuckerberg responded, again, with a smile: “Senator, we run ads.”

Since then, in Menlo Park, numerous Facebook employees have repeated the mantra in meetings, joking, “Senator, we run ads.”

How the Ad Business Works

That isn’t to say the hearings went over perfectly, even at home. One mystifying thing to employees was that Zuckerberg frequently seemed to come up short when asked for details about the advertising business. When pressed by Roy Blunt (R-Missouri)—who, Zuckerberg restrained himself from pointing out, was a client of Cambridge Analytica—Facebook’s CEO couldn’t specify whether Facebook tracks users across their computing devices or tracks offline activity. He seemed similarly mystified about some of the details about the data Facebook collects about people. In total, Zuckerberg promised to follow up on 43 issues; many of the most straight-ahead ones were details on how the ad business works. It’s possible, of course, that Zuckerberg dodged the questions because he didn’t want to talk about Facebook’s tracking on national TV. It seemed more likely to some people on the inside, however, that he genuinely didn’t know.

Why was this? Inside Facebook it was simply seen of a sign of something that many of his colleagues know: Zuckerberg is much more interested in product and engineering than he is in the business. His former speechwriter Kate Losse told me that she thinks he did well. But she too was struck by his inability to answer questions about the details of the way Facebook makes most of its money. “I genuinely believe that he doesn’t care about ads.”

Zuckerberg’s marathon testimony also didn’t close out questions about some of his company’s biggest threats. Zuckerberg did not give thorough answers (and the congressmembers did not ask thorough questions) about the extent of Russian operations on the platform. It is still entirely possible that we will, in due course, see the threads of the Cambridge Analytica and Russia stories converge. If that happens, the company will have to deal with something much darker than even the mess of the past few weeks. It will mean, in short, that the data—and even the private messages—of trusting Facebook users ended up in the hands of a foreign adversary trying to manipulate a presidential election.

And there is still the looming issue of the 2011 FTC consent decree, and whether Facebook violated its terms by not acting reasonably to protect people’s privacy after it learned about Cambridge Analytica’s data gathering. An investigation is ongoing, which Zuckerberg did little to put to rest. It could cost the company billions.

Still, back at home, the troops were happy. On Thursday, the day after the hearings ended, Sheryl Sandberg was supposed to address the staff in a company-wide Q&A. Instead, Zuckerberg returned to Menlo Park and answered questions in person. “It was a Mark lovefest,” one employee said.

Facing Up

Weibo to ban gay, violent content from platform

SHANGHAI (Reuters) – China’s Sina Weibo will remove gay and violent content, including pictures, cartoons and text posts, during a three-month clean-up campaign, the microblogging platform said.

FILE PHOTO – A man holds an iPhone as he visits Sina’s Weibo microblogging site in Shanghai May 29, 2012. REUTERS/Carlos Barria

Friday’s announcement comes amid a clampdown targeting content across social media platforms as China’s leaders look to tighten their grip on a huge and diverse cultural scene popular with the young.

Weibo announced the move on its official administrator’s account, saying the action aimed to comply with China’s new cyber security law that calls for strict data surveillance.

The post drew more than 24,000 comments, was forwarded more than 110,000 times, and prompted users to protest against the decision, using the hashtag “I am gay”.

“I am gay and I’m proud, even if I get taken down there are tens of millions like me!,” said one poster, who used the handle “rou wan xiong xiong xiong xiong” and posted a photo of himself.

Some posts were quickly blocked by the platform, with the message displayed that they contained “illegal content”.

This week, news and online content portal Toutiao, which is luring investors, was forced to pull a joke sharing app after a watchdog denounced its “vulgar and improper content”.

Award-winning gay romance “Call Me By Your Name” was also dropped from a Chinese film festival last month. Homosexuality is not illegal in China, but activists say the conservative attitudes of some parts of society have prompted occasional government clampdowns.

Weibo has so far cleared 56,243 pieces of content, shut 108 user accounts and removed 62 topics considered to have violated its standards, it added.

Reporting by Brenda Goh; Editing by Clarence Fernandez

​Linux is under your hood

Way back in 2004, Jonathan Schwartz, then Sun’s chief operating officer, suggested that cars could become software platforms the same way feature phones were. He was right. But, it’s Linux, not Java, which is making the most of “smart cars”.

That’s because Linux and open-source software are flexible enough to bring a complete software stack to any hardware, be it supercomputer, smartphone, or a car. There are other contenders, such as Blackberry’s QNX and Microsoft IoT Connected Vehicles, but both have lost ground to Linux. Audi is moving to Linux-based Android and Microsoft lost is biggest car customer, Ford, years ago.

Today, as Dustin Kirkland, then Canonical product VP and now Google Cloud product manager, told me recently, “Ubuntu is in the Tesla and we support support auto manufacturers, but Tesla has gone on its own way. Tesla was so far ahead of the curve it doesn’t surprise me that they did their own thing. But, Canonical expects most car manufacturers will work with Linux distributors to build operating systems that scale out for cars for the masses.”

Much of that work is done via the Automotive Grade Linux (AGL). This Linux Foundation-based organization is a who’s who of Linux-friendly car manufacturers. Its membership includes Ford, Honda, Mazda, Nissan, Mercedes, Suzuki, and the world’s largest automobile company: Toyota.

“Automakers are becoming software companies, and just like in the tech industry, they are realizing that open source is the way forward,” said Dan Cauchy, AGL’s executive director, in a statement. Car companies know that while horsepower still sells, customers also want smart infotainment systems, automated safe drive features, and, eventually, self-driving cars.

I have two young grandsons. I seriously wonder if they’ll learn to drive. Just like many people who no longer know how to drive a stick-shift, I can see people in the next 20 years never bothering with driving classes.

The AGL is helping this next generation of smart cars arrive with its infotainment source code and software development kit (SDK) AGL Unified Code Base (UCB) 4.0.

UCB, in turn, is based on Yocto 2.2, a set of tools for creating images for embedded Linux systems. AGL is expanding beyond infotainment to develop software profiles using the UCB for telematics, instrument cluster, and heads-up-display (HUD).

To support these new projects, AGL has formed a new Virtualization Expert Group (EG-VIRT) to identify a hypervisor and develop an AGL virtualization architecture that will speed up Linux car time-to-market, reduce costs, and increase security.

The ASL is also now working on car Speech Recognition and Vehicle-to-Cloud connectivity. Led by Amazon Alexa, Nuance and Voicebox, the Speech Expert Group will provide guidance for voice technologies including natural language, grammar development tools, on-board vs cloud based speech, and signal processing for noise reduction and echo cancellation.

Tesla, however, continues to go its own way. That said, under the hood, Tesla is moving forward. With the 8.1 update (17.24.30), Tesla upgraded its Linux kernel from the archaic 2.6.36 to 4.4.35.

The AGL isn’t the only group working to integrate Linux and cars. The SmartDeviceLink (SDL) Consortium, which includes Ford, Toyota, Mazda, and Suzuki, is working on Linux-based open-source software for getting smartphones and cars to work together smoothly.

At the same time, Google has its own Linux for cars: Android Auto. Google is supporting this with the Open Automotive Alliance. Google is hoping to recapture the Open Handset Alliance magic, which led Android to smartphone dominance, in smart cars. This new alliance supporters include Acura, Audi, Cadillac, Ford, GMC, Honda, Hyundai, and many other car manufacturers.

And it’s not just cars running on Linux. Lyft, the ride-sharing service, has been “running Ubuntu since day one across the board from server to desktop to cloud,” said Kirkland. The company is also using Ubuntu in its autonomous vehicle team.

Kirkland added, “Top car equipment manufacturers, like Bosch and Continental Auto Parts, increasingly use Ubuntu IoT in their components.” In addition, the GPS device company “TomTom uses Ubuntu on its back end.”

Looking ahead, Kirkland can see a world where bitheads instead of gearheads will be modifying their car’s software. But, “How much can you legally modify it? Gearheads have been molding for cars for years, but it still has to be street legal. I don’t think we have the infrastructure for a shade-tree software engineer to pass inspection.” Not yet anyway.

So, whether you’re driving a car, riding in one, or working on its software, Linux is in your automotive future.

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WeWork to snap up China-based rival Naked Hub: sources

HONG KONG/SHANGHAI (Reuters) – U.S. co-working firm WeWork Cos is planning to buy China-based rival Naked Hub, three sources familiar with the deal told Reuters, a move which would boost the New York firm’s footprint in the world’s second largest economy.

FILE PHOTO: A guest attends the opening ceremony of WeWork Hong Kong flagship location in Hong Kong, China February 23, 2017. REUTERS/Bobby Yip/File Photo

The deal, referred to as a merger internally, was announced to Naked Hub staff on Thursday morning and is likely to be made public later in the day, the people said.

Bloomberg earlier reported, citing sources, that WeWork would pay about $400 million for the Shanghai-based firm.

Naked Hub and WeWork didn’t respond to requests for comment. The people asked not to be named as the details of the deal had not been revealed.

Naked Hub, headquartered in Shanghai, has around 50 opened and planned locations across mainland China, Hong Kong and Vietnam. Its chief executive told Reuters in January the firm was looking to expand around Asia and have 200 locations by 2020.

WeWork, backed by Japan’s SoftBank Group Corp, is one of the world’s hottest start-ups. It received $4.4 billion in investments from the Japanese firm and its technology fund last year and has been valued at around $17 billion.

The U.S. firm leases office space and rents it out to individuals and small companies. It said in February it expected to double its membership to 400,000 people this year and would open 200 new office spaces around the world.

Reporting by Julie Zhu and Kane Wu in HONG KONG; Brenda Goh in SHANGHAI; Writing by Adam Jourdan; Editing by Muralikumar Anantharaman

Mexico data protection body to investigate possible links to Cambridge Analytica

MEXICO CITY (Reuters) – Mexico’s data protection body said on Monday it had opened an investigation into whether companies possibly linked to political consultancy Cambridge Analytica broke the country’s data protection laws.

The nameplate of political consultancy, Cambridge Analytica, is seen in central London, Britain March 21, 2018. REUTERS/Henry Nicholls

INAI, the transparency and data protection regulator, said it was looking at Mexican companies that worked with cellphone app Pig.gi, which gives users free top-ups in exchange for receiving ads and completing surveys.

The app cut ties with Cambridge Analytica in Mexico after the British company was accused by a whistleblower of improperly accessing data to target U.S. and British voters in recent elections.

Pig.gi, which has 1 million downloads in Mexico and Colombia combined, said it had shared results of two election polls of Mexican users with the consultancy and other partners.

Cambridge Analytica has denied Facebook data was used to help to build profiles on American voters and build support for Donald Trump in the 2016 U.S. presidential election.

Reporting by Christine Murray and Lizbeth Diaz; Editing by Michael Perry

Buy This Oversold Blue-Chip Bank With A 5.4% Dividend

On April 4th, Bloomberg reported that HSBC (HSBC) is considering an exit or sale from smaller consumer operations such as Bermuda, Malta, and Uruguay. In addition, the bank plans to expand its asset management division and is currently looking at a potential merger with a rival.

In our view, the news confirms that the group’s management will remain committed to transforming HSBC into a more focused and more efficient banking institution. More importantly, even though HSBC’s operations in Bermuda, Malta, and Uruguay are small compared to the group’s total assets, we believe a potential sale of these units would have a positive impact on the bank’s capital position, supporting stock buybacks and special dividends.

The recent rise in LIBOR should support HSBC’s NIM

LIBOR has grown by more than 130bps since the beginning of the year. Such a notable increase is currently among the most widely discussed topics. Several analysts suggest that this is an early indicator of a bear market or even a severe financial crisis. In our view, the increase has been driven by idiosyncratic reasons, in particular, higher supply of short-term Treasuries and lower demand from corporates due to the US tax reform.

Source: Bloomberg

With that being said, despite the reasons of the rise in LIBOR, HSBC should benefit from higher short-term rates. As shown below, the bank discloses its NII (net interest income) sensitivity to a shift in yield curves. However, this analysis is based on a parallel shift, while yield curves in most global economies continue to flatten.

Source: Company data

What is important here is that HSBC has a variable-rate loan book. More importantly, a significant part of its credit portfolio is priced off short-term rates. This suggests to us that the rise in LIBOR should be a positive for the bank’s asset yields and its NIM.

Source: Company data

One may argue that higher short-term rates will also affect HSBC’s funding costs, especially given that wholesale sources and corporate deposits are generally tied to the short-end of the yield curve. The caveat here is that HSBC has a unique funding position. As shown below, the bank has one of the lowest LtD (loans-to-deposits) ratios among European banks. In other words, HSBC does not need expensive deposits in order to fund its loan growth. HSBC had been struggling from abundant liquidity for many years as a low interest rate environment has virtually crippled its NIM. Given that rates have started rising, the bank’s excessive liquidity is gradually turning into a positive that will protect HSBC’s NIM in a rising interest rate environment.

European banks: Loans-to-deposits ratio

Source: Bloomberg, Renaissance Research

Saudi Aramco’s IPO

Saudi Aramco (Private:ARMCO) has appointed HSBC as an adviser on its much-awaited IPO. JPMorgan (JPM) and Morgan Stanley (MS) will also act as consultants. As such, HSBC is the only non-US bank that will have a crucial role in Aramco’s IPO.

Anecdotal evidence suggests that while many US and UK investors are skeptical on Saudi Aramco’s IPO, as state-owned oil companies have been underperforming their private peers for quite a while now, Chinese investors would be interested in Aramco’s shares. Hong Kong Exchanges and Clearing (OTCPK:HKXCF) (OTCPK:HKXCY) plans to introduce the so-called Primary Connect program, which would allow mainland Chinese investors to participate in initial public offerings on the HKEX.

We believe Aramco’s IPO would strengthen HSBC’s position in the region. In our view, it would also underpin the fact that HSBC is a global banking group with unique access to Chinese investors.

Buybacks and dividends

HSBC pays a $0.51 dividend per ordinary share or $2.55 per ADR. That corresponds to a 5.4% dividend yield, based on the current ADR price. We believe that a 5.4% dividend from a global blue-chip bank with a strong presence on Asian markets looks very attractive.

Additionally, it is also worth noting that the bank has temporarily suspended its buyback program due to technical reasons related to the issuance of additional Tier 1 capital. We expect HSBC to announce a new buyback in the second half of 2018.

Final thoughts

The shares have fallen by almost 15% since January, and we believe this sell-off represents a great opportunity to buy a global bank with an attractive dividend yield. HSBC has excess capital, thanks to its US unit, and, as a result, we expect the bank to announce a new buyback program in the second half of the year.

If you would like to receive our articles as soon as they are published, consider following us by clicking the “Follow” button beside our name at the top of the page. Thank you for reading.

Disclosure: I am/we are long HSBC, JPM.

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.

Japan's cryptocurrency exchanges face shortage of engineers

TOKYO (Reuters) – When cryptocurrency exchange Coincheck Inc explained how hackers made off with $530 million in digital money, it said part of the problem was beyond its control: Japan’s lack of software engineers.

Ryo Fukuda, a software engineer at Next Currency Inc, a company seeking to launch a cryptocurrency exchange, poses for a photo after an interview with Reuters at the company’s headquarters in Tokyo, Japan, March 30, 2018. REUTERS/Toru Hanai

Coincheck said that no matter how hard it tried, it simply couldn’t hire workers with the skills to seal gaps in security.

“We were aware we didn’t have enough people working on internal checks, management and system risk,” chief executive Koichiro Wada told reporters last month. “We strived to expand using headhunters and agencies, but ended up in this situation.”

Coincheck isn’t alone. Companies across Japan’s booming cryptocurrency industry are scrambling to hire engineers, including cybersecurity experts and specialists in blockchain, the computer code that underpins bitcoin.

Financial regulators are pressing exchanges to tighten security after the Coincheck heist even as a host of companies try to enter the booming market.

The resulting shortage risks blunting Japanese exchanges’ competitive edge as the country’s cryptocurrency industry matures, experts say. And it could leave the industry exposed to more thefts.

“It could put the brakes on everything,” said Alexander Jenner, a headhunter at Computer Futures in Tokyo. “The sector’s growing so quickly, and the better exchanges are surviving. But many of them will fail.”

HIRING TO SURVIVE

There are 32 exchanges operating in Japan. About 100 other companies have approached the watchdog that oversees the sector about applying for a license, a senior Financial Services Agency official told Reuters.

Demand is particularly high for engineers with skills that could help growth, from designing user-friendly interfaces to writing code that helps withdrawals of digital coins, as well as the security expertise needed to better protect consumers.

A man stands near an advertisement of a cryptocurrency exchange in Tokyo, Japan March 30, 2018. REUTERS/Toru Hanai

“The FSA is breathing down necks on security, compliance and risk,” said Mike Kayamori, chief executive of cryptocurrency exchange Quoine. “And if you don’t hire, you won’t be able to survive.”

Japan doesn’t compile data on blockchain or software engineers. In 2016, though, there was a shortfall of more than 15,000 workers in big data and artificial intelligence, which rely on software engineers, according to the Ministry of Economy, Trade and Industry. That number will rise to 50,000 by 2020, the ministry projects.

Headhunters specializing in cryptocurrency and blockchain say the supply of labor can’t keep up with demand. Hiring in the sector accounted for nearly six in ten placements at information technology recruiter Descartes Search in the year to March, company director Pascal Hideki Hamonic said, up from 15 percent a year earlier.

And exchanges are prepared to pay. Many are ramping up salaries and offering guaranteed bonuses to poach engineers from other businesses, two recruiters said. Base pay is up 20 to 30 percent from last year, they said, pushing salaries for engineers with five years’ experience to 11 million yen ($102,720).

“Exchanges are looking for people who can do the creative, thinking work – to create the architecture, not just do basic tasks,” said Mark Pink, founder of topmoneyjobs.com.

MARKET VALUE

One such engineer is Ryo Fukuda. A 21-year-old who taught himself how to code via YouTube, Fukuda in July joined Next Currency, a unit of online content and financial firm DMM.com that is seeking a cryptocurrency exchange license.

“I’d been doing nothing but crypto and my own projects, so I had the experience other engineers and companies couldn’t get,” he told Reuters. “Now the market has really taken off and there’s a shortage of engineers. That was when my value to the market soared.”

Slideshow (2 Images)

Fukuda said he got “many, many offers” before opting for Next Currency, where he develops web applications.

To be sure, Japan isn’t alone in lacking workers like Fukuda. Demand is high across the world, industry insiders say, as exchanges slug it out with financial firms to recruit skilled engineers.

In Hong Kong, for example, a spate of banks and insurance companies are looking at how to put blockchain to use in their own businesses, said Lawrence Ma, president of the Hong Kong Blockchain Society.

But structural factors elsewhere have helped exchanges secure the talent they need.

In Britain, cryptocurrency-related companies said a strong research sector produces enough specialists in fields central to blockchain like cryptography, while an ample supply of international workers also helps.

“The UK has quite a good environment for research, so we were able to pull people from universities,” said Nick Gregory, chief executive of London-based blockchain firm Commerceblock.

Other major cryptocurrency centers like San Francisco and New York have been able to hire from major concentrations of engineers well-versed in blockchain, said Jonathan Underwood of Tokyo cryptocurrency exchange Bitbank Inc.

Complicating matters in Japan is a culturally rigid labor market, where mid-career moves are rare, recruiters and exchanges said.

“The majority of Japanese that do understand blockchain and cryptocurrency already work for companies as lifetime employment, and have never considered the thought of changing jobs,” said Underwood, who is also head dean of Blockchain Daigakko, a firm that trains engineers.

Until that changes, the skills crunch will most likely deepen, recruiters say.

“It’s going to get worse before it gets better,” said Jenner of Computer Futures. “It’s a land grab – whoever comes out ascendant in the next year will win the market.”

Reporting by Thomas Wilson; Additional reporting by Taiga Uranaka in Tokyo and Fanny Potkin in London; Editing by Gerry Doyle

Spotify Subscriptions Helped The Streaming Company Win Listeners

In 2011, when Spotify launched its streaming music service in the U.S., the future of digital media lay squarely in the realm of advertising. Sure, everyone knew ad-based models—sometimes called “the Internet’s original sin”—had flaws. But companies like Google, Yahoo, and Facebook were able to grow very large, very quickly by attracting big audiences to their free services and selling ads. Spotify aimed to emulate that success, but with a different model that also included an odd consumer option: a subscription.

At the time, Pandora, the market leader in music streaming, had already positioned itself as the future of radio, going after the industry’s $17 billion advertising market. Spotify executives took aim for that same pool of money, calling advertising “a huge part of the company strategy.” Both companies offered a paid subscription option. Spotify’s main difference was the ability to play any music on-demand, where Pandora only offered radio-style playlists with limited options to skip songs.

No one could have foreseen the digital media world’s recent shift toward paid subscriptions, driven, in part, by the success of Netflix and newspapers like the New York Times. Consumers have grown increasingly comfortable with the idea of paying to access digital media that they once got for free. Venture capitalists are now more excited to invest in tools and platforms that enable subscriptions.

Likewise, no one foresaw the rise in anti-advertising sentiment. Ad blocker use continues to grow and advertising boycotts are now a frequently-deployed culture war tool. Ad fraud remains a problem. Even Facebook and Google, the successful digital advertising duopoly, now look like sinister privacy invaders due to their data-collecting sales operations. Rival tech executives, like Apple CEO Tim Cook, are weaponizing this anti advertising sentiment to slam competitors with advertising-based business models.

Lucky for Spotify, the company’s paid tier of subscriptions put it in a strong position to ride that shift. Of Spotify’s 157 million users, 71 million pay a monthly fee to subscribe. Only around 10 percent of the company’s revenue comes from ads. On Tuesday the company went public. Investors valued the company at more than $26 billion at market close.

The focus on subscriptions, combined with its hard-won relationships with the record labels, has saved Spotify from the fate of its many failed streaming music peers. That includes MOG, Turntable.fm, Muxtape, Imeem, Playground.fm, Myxer, Mixwit, Seeqpod, Grooveshark, and Skeemr. Pandora, which bought Rdio in 2015 in a distressed sale, endured takeover speculation for the last year, culminating with a bail-out investment from SiriusXM.

Spotify has long argued its service fights the music industry’s piracy problem by offering a convenient alternative. By doing so, it proved it was possible to convince a generation of users who grew up with Napster and Kazaa to pay for music for the first time. That shift is notable: Spotify subscribers who pay $10 a month, or $120 a year, to access the service are spending more on music than the average U.S. consumer did at the peak of the CD boom. (Detractors would argue that that money now gets spread across a lot more songs, therefore shorting artists.)

Spotify CEO Daniel Ek’s promise has been that Spotify can help return the music industry to growth. He’s delivered on that. Last year the industry experienced its first double-digit revenue growth since 1998.

But new challenges loom for the company. Spotify is not profitable. Plenty of artists and record labels that the company relies on continue to criticize its business model. And the company’s success has attracted competition. Apple, Google and Amazon all have competing subscription services which threaten Spotify’s leadership position. In that sense, Spotify will do well to remember the fate of Pandora—success is precarious.

Spotify’s Sleeper Power Grab

  • Spotify eschewed the bankers and went public without a bells-and-whistles IPO.
  • With its recommendation algorithms, Spotify doesn’t just influence what you listen to; it can make a hit.
    -There’s a better way to listen. Here’s how to join the ranks of Spotify’s power users.

Smart cities need the cloud—and vice versa

“Smart city” priorities and use cases are all over the place. Nonethless, IDC expects spending to accelerate over the 2016-2021 forecast period, reaching $45.3 billion in 2021.

So, what is a smart city and what does it have to do with cloud computing?  Everything.

Smart cities are cities that have embraced both the internet of things and the cloud technology to do what cities should do better. This includes intelligent traffic and transit management, surveillance such as body cams and GPS locators for police, intelligent water and power usage, and anything else that is automated and uses cloud-based procedural computing, cognitive computing, data retention, and analysis.

The real advantage of using mostly public clouds to create and run smart cities is not the capabilities of the various clouds to host basic compute and storage in support of city automation. It’s the ability to reuse common smart city services across cities, services that will be sold and managed by the public cloud providers.

The fundamental larger role of public cloud providers is to create sets of cloud services that will deliver best practices via services to all cities that want to become smart cities. The public cloud providers will essentially be the vehicle for sharing this technology. And they need cities to help define those services.

The larger piece of the puzzle is cost reduction. There is no real reason to become a smart city unless it’s going to reduce city operations costs, as well as deliver citizen services better than you did before. In other words, it’s not enough to become “smart”; you need to spend tax dollars in more effective ways.

Some cities are now successfully evolving into smart cities, paving the way for other city governments to follow. Of course, this is going to be an evolutionary process, with aspects of automation showing up at different times. After all not much happens fast with city governments.

Related videos: Smart cities

Docker founder Solomon Hykes leaves day-to-day running of container company

Video: How Docker brought containers mainstream

Insiders knew this had been coming for months, but today, Solomon Hykes, Docker‘s founder, announced he was leaving day-to-day work at the leading container company.

He wrote, “I’m announcing my departure from Docker, the company I helped create ten years ago and have been building ever since. A founder’s departure is usually seen as a dramatic event. Sadly, I must report that reality is far less exciting in this case. I’ve had many roles at Docker over the years, and today I have a new, final one – as an active board member, a major shareholder and, I expect, a high maintenance Docker user. But I will no longer be part of day-to-day operations.”

This move comes almost a year after his co-founder, Ben Golub, stepped down as CEO. As for Hykes, he started moving away from Docker’s executive team in November 2017. He went from being CTO to vice chairman of the board of directors and chief architect.

Besides being a leader, Hykes has been the controversial face of Docker. In 2016, for example, he started a tempest in the container world by tweeting: “OCI (Open Container Initiative) image format is a fake standard.” This open-source standard for container specification was supported by other container companies, such as CoreOS, and his own company.

Now that Hykes is leaving, he says, “Docker has quietly transformed into an enterprise business with explosive revenue growth and a developer community in the millions, under the leadership of our CEO, the legendary Steve Singh. Our strategy is simple: every large enterprise in the world is preparing to migrate their applications and infrastructure to the cloud, en masse. They need a solution to do so reliably and securely, without expensive code or process changes, and without locking themselves to a single operating system or cloud. Today the only solution meeting these requirements is Docker Enterprise Edition.”

Sources indicate, however, that while Docker, the technology, is continuing to grow great guns, Docker’s business growth has been more challenging.

As Hykes says, “This puts Docker at the center of a massive growth opportunity. To take advantage of this opportunity, we need a CTO by Steve’s side with decades of experience shipping and supporting software for the largest corporations in the world. So I now have a new role: to help find that ideal CTO, provide the occasional bit of advice, and get out of the team’s way as they continue to build a juggernaut of a business.”

Hykes concludes, “It’s never easy for a founder to part ways with their life’s work. But I realize how incredibly lucky I am to have this problem. Most ideas never materialize. Most software goes unused. Most businesses fail in their first year. Yet here we are, one of the largest open-source communities ever assembled, collectively building software that will run on millions of computers around the world. To know that your work was meaningful, and that a vibrant community of people will continue building upon it… can any founder ask for anything more?”

No. No they can’t.

Related Stories

Chipmaker Nvidia's CEO says Uber does not use its self-driving processing solution

(Reuters) – Uber Technologies Inc [UBER.UL] does not use the self-driving platform architecture of Nvidia Corp, the chipmaker’s Chief Executive Jensen Huang said on Wednesday.

Nvidia CEO Jensen Huang, speaks at the 2018 Nvidia GPU conference in San Jose, California, U.S. March 27, 2018. REUTERS/Alexandria Sage

The ride-hailing service uses Nvidia’s graphics processing units known as GPUs, Huang told an audience on the final day of Nvidia’s GPU conference in San Jose, California.

“Uber does not use Nvidia DRIVE technology. Uber develops its own sensing and drive technology,” Huang said in response to a question asked at the conference.

The Nvidia DRIVE platform is used by over 370 companies developing self-driving technology, including automakers and robotaxi companies and makers of self-driving hardware, such as sensors.

Huang’s comments provide more detail as to the relationship between Nvidia and Uber, one of its many partners.

Nvidia’s shares have fallen by about 9.5 percent since the company said on Tuesday it was temporarily halting its self-driving tests on public roads out of respect for the victim in the March 18 accident involving an Uber self-driving vehicle. An investigation is ongoing.

The chipmaker is continuing tests on closed enclosures, the chief executive said.

Uber suspended self-driving tests in North America after an autonomous vehicle struck and killed a woman crossing a street in Arizona earlier in the month.

Reporting by Kanishka Singh in Bengaluru and Alexandria Sage in San Francisco

Computer Tries to Understand the Movie ‘Titanic’ in Tough Test of Artificial Intelligence

One of China’s top tech companies is trying to push the frontiers of artificial intelligence by teaching computers to understand scenes from the 1990’s romance-disaster epic Titanic.

The technology, from China company SenseTime, is supposed to distinguish Titanic’s romantic scenes from disaster scenes. Although most humans would have no problem distinguishing Jack and Rose’s blooming love from the Titantic’s sinking, the feat is highly complex for computers.

In a demonstration at MIT Technology Review‘s EmTech Digital conference in San Francisco on Monday, the technology performed well and was able to classify the scenes correctly. It highlights the advancement of artificial intelligence, but also how far it still has to go before becoming able to understand more complex movie scenes outside of public demonstrations.

Dahua Lin, the director of a joint research lab between SenseTime and the Chinese University of Hong Kong where he’s also an assistant professor, played a video of the scene from Titanic in which Jack (Leonardo DiCaprio) gently holds Rose (Kate Winslet) as she leans over the bow of the doomed passenger ship like she’s flying. Beneath the video was a small chart indicating whether the company’s computers thought the scene was romantic or action-packed.

After crunching data, presumably taken from thousands of videos and image stills in video clips, the computer determined that the scene was more “romantic” than a “disaster.” Then later, when Lin briefly showed the clip of the Titanic sinking, the computers quickly identified the scene as more of a “disaster” than “romantic.”

Advances in AI technologies like deep learning have led to researchers “training” computers to understand objects in photos and videos. SenseTime’s computers, at least as demonstrated, appear to be able to understand the context behind video clips besides merely identifying the objects. U.S. tech companies like Netflix, are also reportedly exploring the use of AI in similar ways to parse videos and then show viewers promotional clips filled with scenes more likely to appeal to them.

Lin didn’t explain how SenseTime taught its computers to distinguish the context of movie scenes, but instead explained more broadly the company’s work developing AI technologies that can do things like recognize human facial expressions.

SenseTime sells its AI technology to Chinese “video services,” he said, likely referring to YouTube copycats. These corporate customers, he said, want to know which movie scenes individual users prefer in order to encourage them to watch more, although he didn’t explain how those corporate customers accomplish that.

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Asked to describe possible misunderstandings Americans may have about China’s use of AI technologies, Lin cited the country’s use of facial recognition for government surveillance. Human rights activists worry that more sophisticated surveillance cameras could recognize individual faces and create privacy problems, among other issues. But Lin minimized the potential pitfalls, saying that facial recognition is just a “small part” of China’s interest in using AI and that AI could also be used to improve industries like healthcare.

American Airlines' CEO Says the Least Important Customers Get the Worst Planes

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

Who are your most important customers?

Are they those who spend a lot of money with you today?

Or might they be those who, in the future, could be spending the most money and today are comparing your brand with that of others?

This topic clings to my eyebrows on reading the thoughts of American Airlines CEO Doug Parker.

Revealed by the apparently indefatigable Gary Leff of View From The Wing, Parker’s words were uttered to one of his Flight Attendants last Thursday during the airline’s regular “Crew News” Question and Answer session.

The Flight Attendant is based in Lima, Peru.

She struggles with the fact that the airline uses quite old Boeing 767 planes on routes to and from Peru’s capital.

She finds it hard to make passengers happy because the planes have mechanical issues more than usual and they’re not necessarily as well equipped as more modern planes.

She wants new planes.

Parker replied that the airline deploys the older planes “where they’re the least painful to our most important customers.” 

He then added: “Don’t go tell your customers that.” 

Ah. Hmm.

Perhaps one should admire Parker’s candor.

He could have attempted to create some complex logistical argument for why Lima seems underserved and undeserving.

He could have made fanciful promises.

Instead, he seemed to explain that the airline sends its worst planes where it makes least money.

Many might find this entirely logical.

Amateur strategists might howl, however, that when it comes to an emerging market like Lima, it could be wiser to lay on at least the occasional nicer plane in order to impress business travelers who might be new to the airline.

Indeed, in the same Q&A, the airline’s vice president of Planning, Vasu Raja, admitted that the Lima route was subject to a lot of competition.

So laying on slightly more lovely planes might gain some brand loyalty. It might spread word that the airline was quite something. It might create greater demand.

The problem is that the concept of brand doesn’t appear to impress itself upon American’s CEO.

For example, he managed, in another Q&A, to tell a frustrated Flight Attendant that taking seatback screens away from passengers was an example of Going For Great.

One can’t help getting the impression that he — and therefore the airline — is so fascinated by making money in every nickel-and-diming way possible that the more intangible values, such as people actually having a good opinion of your airline, matter zero whits. 

Yet I’m not even sure his logic is all that strong.

When you look at many of American’s newest planes — the Boeing 737 MAX, for example — they’re stuffed full of seats. 

One of the airline’s own pilots described the toilets on these brand-new planes as “the most miserable experience in the world.”

Parker himself admitted that he’d never flown on them and then couldn’t understand why this was a big deal.

It may well be that American wouldn’t use these particular planes on a longer route such as Lima, but it does suggest that the airline’s idea of comfort is being downgraded. (And it’s not the only airline thinking this way.)

American could decide to refurbish its 767s to make them more alluring. It doesn’t appear inclined to.

Personally, I’d rather fly almost any wide-bodied plane than almost any narrow-bodied act of callous claustrophobia.

Yet airlines are constantly buying narrow-bodied planes that can fly greater distances.

At heart, though, how should a business decide which customers are important and which aren’t?

I asked American to hone its definition for me and will update, should I receive a reply. 

The issue of who’s important and who isn’t will, however, become an ever-increasing concern for passengers.

After all, airlines are currently looking at technology that sets your fare according not to where you’re flying — or even which class you’re flying in — but according to who you are.

Of course, we’d all like to permanently important. 

Increasingly, it’ll be an algorithm that decides whether we are.

Value Stocks In Short Supply – The Only 2 I Would Take

I recently wrote an article on 11 value stocks left in an aging bull market. Here are the results of my follow-up on those stocks that sifted out during the value screening. Two of them made it into the buy category, seven are put into the hold bucket, and the rest in sell.

The reason I decided to run this screen was due to indications the market was overheated, from a historical perspective, as I documented in my article Finding Value In An Overinflated Market.

My thought was I was unlikely to find a lot of good values in this market, and my results have thus far supported that hypothesis soundly. From the 11 screened earlier, here are my opinions on buy, wait, and sell.

Most of the wait category have companies that are in turnarounds after experiencing difficulties or are implementing new business models after some restructuring. Those could still be values but need to give time to see if business objectives are being met before taking a position in the stock.

BUY

Kelly Services (KELYA) provides workforce solutions to various industries worldwide.

Fourth Quarter YoY results showed an increase in revenue of 9%, gross profits up 15.4%, earning from operations up 43%, but reduced earnings per share of $0.06 down to $0.45 due to charges related to changes in tax law. Sans those changes, EPS were up 57% YoY, so the business is doing well. The following chart shows the revenue mix and growth.

Source: Kelly Services

The same source shows that year-end debt was up at $10 million due to the Teachers On Call acquisition. Teachers on Call provides substitute teacher staffing services and is complementary to the professional staffing services the company already provides.

Capital Cube shows that earnings growth, share and price appreciation exceed peer median, while dividend quality is on par.

Source: Capital Cube

Capital Cube peer comparison shows that Kelly Services is trading more cheaply to book, earnings, and sales than its peers.

Source: Capital Cube

Kelly’s dividend payout is below that of the peer category.

Source: Capital Cube

The current ratio is 1.5 but the profit margins are relatively low at 1.33%.

The stock price turned up in September 2011 and may be due for a cool-off period. However, the business model is still attractive as more part-time and temporary workers enter the economy.

The following chart from the BLS shows that part-time employment continues to increase in the US, and has increased substantially since the 2008 financial crisis. Part-time, project-based, and short-term staffing are a significant portion of the business for Kelly Services.

Source: Trading Economics

I believe that in the event of an economic downturn, demand for Kelly services will also likely increase as companies cut costs by ousting full time, long-term employees and turn to cheaper staffing services to fill the void. I believe the company will remain a solid buy for 2018.

Tech Data (TECD) is a wholesaler and distributor of computer products and software.

Recent annual results have Tech Data increasing revenue 49% YoY to $11 billion due primarily to the acquisition of Technology Solutions. Apple products dominate sales with 19% and no other vendor partner over 10%. So if Apple sales dip substantially, then it may affect profits for Tech Data. This relationship will be key to watch.

European sales increased 37%. The acquisition of Technology Solution added Asia as a regional segment and sales totaled $338 million. I see this last point as particularly bullish for Tech Data due to emerging market exposure and diversification away from US and European markets who may come under economic volatility pressures in 2018. EPS were up 43% to $3.50.

The company is invested heavily in the cloud market, which is their fastest growing, and no offers cloud services in 67 countries. The company is expanding into technology services with the Global Lifecycle Management Services Portfolio, which I see as very bullish as profit margins are likely to be higher in services than in some of the other segments which are more commoditized in nature.

Tech Data is trading below peers from a Price / Earnings standpoint.

Source: Yahoo Finance

The company has a very strong balance sheet, with current ratio 1.26 but a relatively low profit margin of 0.32%, which is a key statistic to watch going forward. Still, the cash hoard of almost $1 billion leaves the company plenty of flexibility to maneuver economic downturns. Price to book is 1.07 and Enterprise Value / EBITDA is a modest 6.01. The company is undervalued by traditional measures.

Further, I believe that the technology space will grow as emerging economies continue to transition from industrial to information based. And with Tech Data’s new exposure to Asia, a key growth market, prospects for increased sales are stronger in 2018 and beyond.

However, shares have plunged since March 8th on revised downward quarterly guidance due to increasing competition since last year. I think the fall was a bit dramatic, as tends to be the case on quarterly target adjustments, which provides investors a nice entry position for a longer term hold position.

Risks include the handcuff to Apple, the increased industry competition, and the relatively low short-term margins. However, I think the market in the longer term offers room for expansion should the company survive current competitive forces. Likely they will have to cut costs and streamline internal operations to stay competitive, but there is no reason to think this cannot happen. Maybe they should hire Kelly Services to reduce some of their staffing expenses!

Looking forward, Q1 results are typically the softest, according to management, with receivables back-loaded into later quarters. Therefore, I would recommend either taking a position now or waiting until the new quarterly numbers are out to take one.

This is a somewhat tepid buy recommendation, but I think the sell-off was overdone and hence my recommendation.

WAIT

Spok Holdings (SPOK) is a wireless communications provider that specializes in messaging and messaging software. The company has declining earnings within the legacy paging service portfolio, which places it in like company with many aging wireline service telecom companies who have similar declining legacy copper-based portfolios.

The paging service is declining, but due to attractiveness to emergency responders as the paging service is on a separate network from wireless smartphones, the declines in this market have been slowing. The software business revenues are increasing faster than the decline in paging services, so it appears Spok has executed on half their plan in paging services while continuing to expand the other half on communications software Spok Care Connect, for which growth has been particularly strong in the healthcare sector.

This company is going through a transition from traditional telecom to a software provider and I believe the potential growth in software market outweighs the slower ‘melt-rate’ of the paging business. In the medium term, the company should continue to grow overall revenues as a result.

The company has a lot of cash and a healthy balance sheet, having paid off long-term debt and also engaging in share buy-backs of late. The dividend is not high quality but there does not appear to be any near-term threat to it. The key question is how will Spok spend its cash on its next acquisition? Management says prior targets wanted multiples in premium which they are not willing to pay, which is no surprise in this overheated market.

There is both risk and value in this company. If the economy goes into recession, the company has the cash to make a well-timed cheaper acquisition, which is what I would do if I were them. If management stays patient, it can navigate the declining pager business, build up the software business revenues, and wait for cheaper, synergistic acquisition targets during the next recession. If they don’t stay patient and pay too much for their next deal, then investors would be smart to bail out of this stock.

Celestica (CLS) provides hardware design, manufacturing, platform, and supply chain solutions. The company exited the solar panel business in 2016 and is restructuring through 2018 which has put pressure on margins and reduced net income. The big question is if the company finishes the restructuring and then focuses on building higher revenues. The company has announced share buybacks and this will support the share price around the $9.50 to $10 mark, which has served as a strong support level for the stock.

Source: Yahoo Finance

Risk with the company includes reliance on top 10 customers which generated 68% of revenue in 2017 in addition to the double-digit percentage losses in the communications silo. As my readers know from my past articles, telecommunications is experiencing margin compression and the after-effects of billions in mis-allocations of previous capital. Moving forward Celestica will need to diversify its customer base and expand regionally beyond the 70% share of customers in Asia to combat losses from the communications sector declines.

Hope comes from the military and aerospace sector as geopolitical risk increases and countries like China, Russia, and the US continue to steadily increase their defense spending budgets YoY. Out of 11 analysts, 9 have it as a hold, 2 as buy and 1 as strong buy which shows there is belief to the upside if the company can execute on the new business plan starting in 2018.

Price to book is 1.15 and Enterprise Value / EBITDA is 5.04. The current ratio is 1.94 and book value is $9.58, suggesting a bottom price for the stock this year before the eventual turnaround occurs. That would be my recommended entry point unless management reports better results next quarter, at which point we have likely hit the cycle bottom already.

Signet Jewelers (SIG) engages in retail sale of diamond jewelry, watches, and other products in North America, UK and Ireland, and the Channel Islands. The company’s Zale’s division runs the mall and outlet retail jewelry business.

The profit margin is 8.31% and operating margin is 9.25%. Return on assets is 5.82% and return on equity is 16.71%, which are healthy. The current ratio is 3.32, and Enterprise Value / EBITDA is 3.67 which are both excellent numbers.

Revenues, however, are falling steadily. Investors have posed three major criticisms, which are an alleged diamond swapping scandal with customers, sexual harassment story obtained from court documents, and using cheap financing to goose sales that would affect receivable quality, which has been confirmed by their recent non-prime receivable sale at below stated value.

The company is having to close stores and may be another victim of Internet business stealing brick and mortar store revenues. The company is buying back shares with cash which while it will support the share price and provide gains for shareholders, don’t undress the underlying business weakness issues.

The company has plenty of cash but it needs to diversify sales channels and focus on profitable stores while closing down those that don’t bring strong profits. Management has laid out a plan to do this and execution will determine whether, at this price, Signet is a true value or a value trap.

Sanmina (SANM) manufactures components and parts for several industries as well as providing repair and logistics services. Q1 2018 performance was disappointing due to customer order push-out at the end of the quarter, particularly in the communications sector as a result of transition from 4G to 5G wireless services. Automotive sector performance was down as well, though the company expects infotainment demand in automotive to continue to grow.

The company mentioned that Q2 is seasonally soft, so expect weaker financial performance during this quarter with performance improving in H2 of 2018. The company says the sales pipeline for industrial, medical, and defense sectors is improving. The IHS Markit Score is overall positive for Sanmina, with little bearish sentiment and output in the industrials sector improving.

Financially, the company is very solid. Current assets are enough to pay off all long-term debts, which is a true measure of stability in potentially turbulent economic periods. The company has positive cash flow and is using it to buy back stock, which is common in periods where companies expect market downturns. The buybacks strengthen share price and also pay back larger investors for their contributions before any market shocks occur.

Revenue is 3x market cap, price to sales is 0.28, price to book is 1.28, Enterprise Value / Revenue is 0.31, and Enterprise Value / EBITDA is 6.49. This is pretty much the definition of a value stock and the company is trading below what it should be. Forward P/E is a modest 10.11.

The sector is somewhat boring but stable. If the economy crashes, manufacturing could get hit hard. However, this company is already cheap. Risk is that sales fall in an economic downturn and the company burns cash; however, they should be able to weather the storm. I would wait for the weaker Q2 numbers to be published, let the stock price fall a bit, and take an entry point there waiting on a stronger expected second half if you are interested.

Super Micro Computer (SMCI) develops and provides high performance server solutions.

They are currently dealing with a lawsuit regarding failure to properly record revenues, did not maintain proper internal controls over financial reporting, revenues and income were improperly inflated, and issued materially false statements.

My recommendation as a former auditor: don’t touch this one until the lawsuit is resolved. If the company is found to have materially misstated financials, then they are in trouble as this is a serious charge. There is no reason to buy this stock now until the matter is resolved.

Once resolved and the potential impacts are known, the stock might be cheap. It is currently trading at very modest multiples to book and sales, so I recommend waiting.

First Solar (FSLR) provides solar energy solutions with most sales in the US, Europe, and Asia. The company does most of its business in the US, and in the event of economic downturn, could really hit this company hard. First Solar should consider increasing sales in emerging economies to offset expected market declines in some aging Western bull markets before the expected business cycle turn occurs.

Losses in 2017 were largely due to tax law changes that will be balanced over the full eight years allowed. Sans those charges, the company earned $2.59 per share in 2017. Price to Book is 1.49, Enterprise Value to /EBITDA is 15.76 and the stock is trading over book value per share of $48.81. The price is too frothy at this level. The company has a good balance sheet and a 5.89 current ratio, so I don’t believe there is near-term pressure on the financials.

The weakness of the company is the lack of efficiency gains in its solar products, not seeing strong growth in 2017 which is putting it behind the competition. The company may be in transition to the new Series 6 product and 2018 may be the year the company builds base moving forward.

Long term, the company has brighter prospects as countries are signalling demand for cleaner energy alternatives, and away from nuclear and coal. While I believe renewable energy projects cannot replace the base load capabilities of nuclear, it is clear that solar energy is here to stay especially as cost per watt continues to fall making it at least a viable, if imperfect, power alternative.

First Solar appears to be concentrating on large industrial scale projects which will be accretive to revenues over time, but the company needs to advance R&D and improve their attractiveness compared to their competitors. I expect 2018 to be fairly week for the company but near the end of the year may be a different story.

The stock has moved very strongly in the last month and I believe it is too high to enter, therefore I would wait to see what 2018 brings before investing.

Klondex Mines (KLDX) properties were recently acquired by Hecla, with some implication that certain deposits may be spun off. This is a complicated deal and investors should wait to see the resolution. Plus, the shares have already popped on the news, so the proposed value at time of my analysis has already been realized by current stockholders.

Source: Yahoo Finance

SELL

Seneca Corp. (SENEA) provides packaged fruits and vegetables globally. Studies have shown that use of these foods in American households is declining due to substitution of sides from fruits and vegetables at the dinner table, strong reduction in fruit juices at breakfast time, as well as movement into fresh vegetables and fruits and away from packaged.

The company has a very low-profit margin (0.31%) but has reported recent sales increases of 7.1% for nine months ended Dec 31, 2017. The current ratio is over 4 and they are trading under book value, but the declines in product favorability with Americans along with weak profits may haunt them, despite their current favorable balance sheet. I don’t see the long-term upside for the company unless they make a strategic acquisition to boost profit margins. The acquisitions to date capture market share but don’t have much potential to boost margins and keep the balance sheet strong. This company is not a buy at this time.

Foot Locker (FL) sells athletic shoes and apparel in many markets. This one is suffering from falling sales like many other small apparel companies.

Comparable sales and gross margins are down. There appear to be challenges with brand mix, and the company has not developed a strong retailer strategy to offset brick and mortar sales losses. However, one bit of good news is that sales per square foot are up a bit since the store closures. That indicates that the overall retail pie is shrinking slowly (slow ice melt) for which the company has some room to develop new sales channels.

Also, the company is facing a lawsuit from disappointed investors claiming the company made false statements, which builds more uncertainty into their future prospects and likely puts more downward pressure on the price.

However, this will likely take time and I expect the revenues to continue to drop in 2018. If the economy takes a hit as I expect it too, this company is really going to struggle as it relies a lot on premium brand sales. This is not a buy at this time.

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.

Micron: Is The Catbird Seat Heating Up?

Micron (MU) reported Q2 revenue of $7.35 billion and eps of $2.82. The company beat on revenue by $70 million and beat on eps by $0.08. MU fell nearly 8% after earnings. I had the following takeaways on the quarter.

Top Line Growth Remains Gaudy

Last quarter Micron grew total revenue by 71% Y/Y. It followed up that performance this quarter with revenue growth of 58% Y/Y and 8% sequentially. The tremendous leverage driven by higher sales are helping the bottom line. Gross margin improved to 58% from 37% in the year earlier period. This double-impact caused gross profit on a dollar basis to more than double.

Revenue from the Compute & Networking Business Unit (“CPBNU”) was up over 90%, due to increases in average selling prices (“asp”) for products sold into the client market, growth in the cloud driven by out-sized increases in DRAM content per server, and increased sales into the enterprise market. The Storage Business Unit’s (“SBNU”) sales of Trade NAND products was up 45% Y/Y but fell off 9% sequentially; asp for NAND component sales fell, partially offset by increases in SSD sales. Meanwhile, the Mobile Business Unit (“MBU”) revenue was up 20% Y/Y driven by Micron’s low-power DRAM product and sales of mobile DRAM into smartphones.

On a product basis DRAM revenue was up 14% Q/Q and 76% Y/Y. ASP and gigabits sold increased Y/Y in the low 40% range, and low 20% range, respectively; they also grew sequentially. Trade NAND revenue was up 28% Y/Y, but fell 3% sequentially. ASP decreased Y/Y in the high single digits while gigabits sold increased in the low 40% range. ASP also fell sequentially in the mid-teens range. According to management, the ASP decline was caused by a mix shift in the company’s SBU NAND components. This could be a trend to watch going forward.

Micron Is Sitting In The Catbird Seat

The importance of the cloud and gaming segments is creating explosive demand for memory and storage capacity. The secular shift from the previous PC-based market to the current dealer market is amplifying that demand. Micron is poised to exploit this secular shift. According management, memory is also making possible applications like artificial intelligence and virtual reality:

This market now supports a healthy demand environment with several secular demand drivers that I have discussed earlier. More specifically, memory is making possible applications such as AI and VR, and enabling new cloud-based business models which deliver a fundamental value far in excess of a price per bit.

Management estimates DRAM bit growth in the 20% range in calendar year 2018. NAND bit growth could exceed 40%, driven by the transition to 64-layer 3D NAND. The NAND bit growth is predicated on an increase in supply to meet customer demand.

The Catbird Seat Could Get Hot

DRAM makes up over 70% of Micron’s revenue. Its increased asp and bit growth across products has led to the company’s outsize top line growth. Can the DRAM market hold up? Which industry players will increase capacity that could potentially drive down asp? Micron may have partially answered that question on the earnings call.

Micron wants to diversity its portfolio of LPDRAM, MCP and managed storage solutions to meet customer demands. The company also wants to expand its 64-layer 3D TLC NAND capabilities and its portfolio of low-power solutions with 1X LPDRAM and 1X nanometer DRAM designs. Micron needs additional capacity to meet the demands needed by growth in the cloud, artificial intelligence, and increased memory needs in the mobile space. It announced plans to build a $7.5 billion clean room space:

Accordingly, we are executing plans to add clean room space in our NAND and DRAM SAS network. With the support of the Singapore Economic Development Board, we have finalized plans to build additional shelf space in Singapore, adjacent to our existing NAND Center of Excellence. The primary purpose for this new clean room space will be to transition our existing wafer capacity to future 3D NAND nodes …

The first phase of this clean room is expected to be completed by the summer of 2019, with initial wafer output from the facility expected in the fourth quarter of calendar 2019. We are also building out incremental clean room space in our fab in Hiroshima, Japan, which will be available for production at the beginning of calendar year 2019. This clean room space will be used to continue our 1Y nanometer DRAM transition. For fiscal year 2018, we expect our capital expenditures to be in the upper end of our previously guided range of $7.5 billion, plus or minus 5%. Long term, we target capital expenditures as a percentage of revenue to be in the low 30% range.

Micron has cash on hand of nearly $8 billion. Free cash flow for the first half of the year was $4 billion, which equates to a run-rate of $8 billion. The company has ample cash and cash flow to fund its capital expenditure requirements. Its $4.2 billion capital expenditures through the first half of 2018 was exactly 30% of its total revenues. Maintaining this spend should not be a problem going forward.

In the short term, capacity expansion could help meet customer demand requirements without being disruptive to DRAM and NAND prices. What happens if demand peaks or if Samsung (OTC:SSNLF) or Hynix (OTC:HXSCF) follows suit? NAND prices are already facing headwinds. If DRAM prices stagnate it could hurt the MU growth story.

Conclusion

This was another strong quarter for Micron. Declining NAND prices and the uncertain impact on DRAM from capacity expansion make MU a sell.

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

NBA leaps on esports bandwagon with new league

LONDON (Reuters) – The inexorable advance of esports will break new ground next month when the NBA becomes the first American professional sports organization to operate an esports league.

FILE PHOTO: Oct 16, 2016; Los Angeles, CA, USA; IDK LOC (L) plays during the Tekken 7 top 8 pool play at Esports Arena. Mandatory Credit: Orlando Ramirez-USA TODAY Sports/File Photo

Seventeen of the 30 NBA franchises have confirmed they will own NBA 2K League teams and the Draft Pick takes place in New York on April 4.

To be eligible for consideration for the new league, which will provide $1 million in prize money, players must be over 18 and have purchased a copy of the game for their Xbox or Playstation.

They also need to have graduated from high school and have won 50 games in the Pro-Am mode before January this year. Of the tens of thousands who participated, the top 102 ranked players will take part to the opening round of games in May.

The financial package of the NBA 2K League indicates how seriously it is being taken – first-round picks will pocket $35,000 for a six-month contract while other players will be paid $32,000 basic.

Like their real-world counterparts, the players will be allowed to sign endorsement deals and will receive paid housing and relocation expenses. Every gamer will also get medical insurance and a retirement plan along with travel and food costs.

NBA Commissioner Adam Silver has kept one eye on online gaming with good reason – there are an estimated 130 million competitive gamers who also watch gaming online, and esports is a huge growth market currently worth one billion dollars a year globally.

Lucrative tournaments are springing up across the world and professional teams compete for huge prize money in front of millions of mainly young viewers online.

“We believe we have a unique opportunity to develop something truly special for our fans and the young and growing esports community,” Silver said.

Nicola Piggott, co-founder of esports communications consultancy The Story Mob, told Reuters the NBA/NBA 2K partnership is a logical step for sports teams.

“Esports has so much to offer regular sport, with its intense tribalism, hyper-connected fanbase and the overlap between the two, so this makes a lot of sense,” she said.

“It also gives the NBA the potential to extend their brand to a completely new global audience. It really is a win-win for all parties.”

ESPORTS BANDWAGON

The NBA initiative has been the catalyst for other sports to join the esports bandwagon.

World soccer’s governing body FIFA has linked up with long-time licensing partner EA Sports to launch FIFA Ultimate Team, which morphed into the FIFA 18 Global Series and will culminate with the FIFA eWorld Cup 2018 Grand Final in August.

Other American sporting organizations have since announced the formation of online tournaments they are not only endorsing but are working on with software companies.

Major League Soccer (MLS) launched the eMLS Cup in January and the National Hockey League has revealed plans for its NHL Gaming World Championship, a global ice hockey competition that will stage matches in the U.S., Canada and Europe before the final on June 19 in Las Vegas.

Major League Baseball Advanced Media (MLBAM), the internet and interactive division of baseball, has been described by Forbes Magazine as “the biggest media company you’ve never heard of”, generating over $1 billion revenue in 2017.

It is developing its own videogame series, R.B.I 18, and is deciding when to make its move, hoping to cash in as fans flock in thousands to watch the first generation of eSportsstars battle it out on huge hi-definition screens.

The world’s first purpose-built esports stadium has opened in southwestern China and others are planned for the U.S. this year.

The most watched esports event last year drew in 80 million unique viewers and records are set to be smashed in 2018 with NBC Sports, ESPN, Viasat, Sportnet, Facebook, Twitch and YouTube all set to screen tournaments.

Editing by Ed Osmond

General Electric's Gem Should Be Sold

One of the largest and most significant assets on the books of General Electric (NYSE:GE) is the company’s Healthcare segment. The operation was founded in 1994, but its roots trace back to the late 1800s under the name Victor Electric Company. Over the years, the segment has grown to be a real powerhouse for the conglomerate, generating several billions of dollars in sales and profits annually. Undoubtedly, this adds value to General Electric and is a bright spot for the company in this time of investor pessimism.

A major player in the healthcare space

By almost every measure, GE Healthcare is a force to be reckoned with. In a prior article, I highlighted the company’s ultrasound operations, but I have yet to piece together the segment as a whole. According to management, and shown in the image below, the segment’s largest source of revenue comes from diagnostic imaging and related services, with sales at about $8 billion per year. However, the segment’s $5 billion in sales from life sciences, followed closely by mobile diagnostics and monitoring at $4 billion, is large as well.

*Taken from General Electric

In all, this major footprint has allowed the company to amass a sizable chunk of its markets. Over 1 million imaging and mobile diagnostics devices that are under the GE Healthcare banner are estimated to be installed globally today. They perform in excess of 16 thousand scans every minute and in aggregate they have over 230 million exams of varying natures under their belts. As you can see in the image below, management has utilized its position to create partnerships with players like Amazon’s (NASDAQ:AMZN) AWS, as well as other prominent names like Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC).

*Taken from General Electric

What’s more, management isn’t done trying to grow GE Healthcare. Last year, the firm launched 26 products and through GE Additive and Stryker Corp (NYSE:SYK) it has more than 50 active projects in its pipeline. Another area (though management hasn’t provided any meaningful detail of it) that has been entered into is providing cloud-related services. This could be a material player for the segment in the future, but until we see evidence that management can compete in what has become a very crowded (but high-growth) space, I can’t warrant putting too much stock into that bet.

Performance has been robust but growth is slow

GE Healthcare has a history of being a great source of profit for its parent company. As you can see in the chart below, sales have slowly risen over at least the past five years, rising from $18.20 billion in 2013 to $19.17 billion in 2017. As you can see in the same graph, despite seeing a tick down from 2013 to 2014, sales of the segment have been pretty flat as a percentage of General Electric’s total industrial revenue.

*Created by Author

In recent years, international exposure has become more relevant for GE Healthcare. Today, the segment employs around 52 thousand employees spread across more than 140 countries and management has listed China as an attractive growth prospect moving forward. In fact, non-US sales for the segment totaled 55.5% of aggregate segment sales for it in 2017. This represents an increase from the 53.6% of sales that came from outside of the US just one year earlier.

As revenue has risen for the segment, so too has backlog. In 2013, this figure totaled $16.1 billion, but it has since risen to $18.1 billion. Without any doubt, this metric has benefited from a growth in orders over time. In 2017, total orders for the segment amounted to $20.4 billion. This represents an increase over the $19.2 billion seen in 2013 and 2016. According to Reuters, the imaging industry is likely to see significant growth over the next few years. In 2016, total industry sales were $29.8 billion, but that number is expected to balloon to $45.1 billion in 2022. That implies an annual sales growth for this space of around 10.9% per annum. Assuming this or anything close to this comes to fruition, backlog will grow over time for the segment.

*Created by Author

From a profitability perspective, the figures over time have been even better. After seeing segment profits decline from $3.05 billion in 2013 to $2.88 billion in 2015, we saw a nice rebound over the past two years that brought profits up to $3.45 billion for 2017. That’s the highest figure I saw on record for GE Healthcare and it accounted for 23.4% of General Electric’s Industrial segment profits, which was also a record high that I could see.

*Created by Author

Based on the numbers provided, this growth in profits, driven not only by higher sales but by cost reductions (according to management) has led to GE Healthcare’s profit margin expanding as well. Over the past five years, GE Healthcare’s segment profit margin grew from 16.7% to 18% (dipping as low at one point as 16.3%). A similar trend can be seen in the graph below, which shows that the return on assets for the segment has grown over time, rising from 10.9% to 12% today.

*Created by Author

Strong growth prospects, combined with attractive and improving margins has led to the formation of a thought in my mind. At this point in time, General Electric is stuck between a rock and a hard place. On one hand, the firm has been slammed by insurance reserves, SEC investigations, and other issues in recent months. This has resulted in shares of the business declining by around 54% from their 52-week high, effectively erasing $143 billion worth of market value from the firm.

As concerns grow that cash flow may not be enough to meet spending needs (especially now that GE Capital has cut off its distribution to its parent) and the company’s dividend to shareholders, now might be the time to consider selling off GE Healthcare. It’s difficult to tell what kind of value exists here for shareholders, but one good estimate might be derived from looking at Danaher (NYSE:DHR).

According to the management team at Danaher, 63% of the company’s revenue is split between life sciences and diagnostics operations. These are essentially the same kinds of operations that GE Healthcare engages in. Another 15% of Danaher’s revenue is attributable to the dental space, which isn’t too dissimilar to make the case that Danaher is largely a proxy for GE Healthcare.

*Taken from Danaher

Like GE Healthcare, total segment profits (I’m excluding “other” that shows up as a $170 million loss), carry with them nice margins. Using 2017’s figures, the profit margin for Danaher was 17.4%. With revenue of $18.33 billion, the company is just a bit smaller than GE Healthcare as well. When you consider that Danaher’s market cap is $69.97 billion as of the time of this writing, you come to the conclusion that the firm is trading for 3.82 times revenue and 21.9 times segment profits. Applying the same figures to GE Healthcare would imply a value on the business of between $73.02 billion and $75.51 billion. Such a sale, at the high end, would be enough to reduce General Electric’s debt from $136.21 billion to $60.70 billion if management so desired.

Takeaway

GE Healthcare is a great business. Despite seeing sales grow slowly, margins associated with the segment are attractive and the industry’s upside is material. Additional value would probably be realized from having the company be separated from the conglomerate since a new management team could place a more concerted effort toward growing the enterprise. The value of Danaher suggests that management could also solve a lot of its issues regarding liabilities if it were to decide part ways with the segment, perhaps even freeing up capital to reinvest toward higher-growth prospects like Aviation, Renewables, and Oil & Gas.

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.

Exclusive: 'Where can I buy?' – Google makes push to turn product searches into cash

NEW YORK (Reuters) – Alphabet Inc’s Google routinely fields product queries from millions of shoppers. Now it wants to take a cut of their purchases, too.

FILE PHOTO: The Google logo is seen at the Young Entrepreneurs fair in Paris, France, February 7, 2018. REUTERS/Charles Platiau /File Photo

The U.S. technology company is teaming up with retailers including Target Corp, Walmart Inc, Home Depot Inc, Costco Wholesale Corp and Ulta Beauty Inc.

Under a new program, retailers can list their products on Google Search, as well as on the Google Express shopping service, and Google Assistant on mobile phones and voice devices.

In exchange for Google listings and linking to retailer loyalty programs, the retailers pay Google a piece of each purchase, which is different from payments that retailers make to place ads on Google platforms.

Google’s pitch to retailers is a better chance to influence shoppers’ purchasing decisions, a move that is likely to help them compete with rival Amazon.com Inc. Google hopes the program helps retailers capture more purchases on desktop, cell phones and smart home devices with voice search – the next frontier for e-commerce.

The previously unreported initiative sprang from Google’s observation that tens of millions of consumers were sending image searches of products, asking “Where can I buy this?” “Where can I find it?” “How can I buy it?” “How do I transact?” Daniel Alegre, Google’s president for retail and shopping, told Reuters exclusively.

Over the past two years, mobile searches asking where to buy products soared by 85 percent, Alegre said.

But the current default choice for many consumers is a Google search that ends with an Amazon purchase, analysts said. The new Google program, Shopping Actions, will be available in the United States to retailers of all sizes and could help retail chains keep those customers.

“We have taken a fundamentally different approach from the likes of Amazon because we see ourselves as an enabler of retail,” Alegre said. “We see ourselves as part of a solution for retailers to be able to drive better transactions … and get closer to the consumer.” For consumers faced with a surfeit of choices, the idea is to make online buying easier by giving them a single shopping cart and instant checkout – a core feature of Amazon’s retail dominance.

Retail chains can also offer products through the Google Home voice shopping device, holding on to those who may be headed to Amazon for better deals and giving them personalized recommendations based on previous purchase history.

For example, a shopper looking for sneakers on Google on his phone can see a retailer’s listing and add that to his Google Express cart. Later, the customer can stand in the kitchen, and use the Google Home voice device to add paper towels to the same cart and buy everything at once.

Retail partners saw the average size of a customer’s shopping basket increase by 30 percent, Alegre said, pointing to early results from the Shopping Actions program.

Ulta Beauty’s average order value has jumped 35 percent since partnering with Google, Chief Executive Officer Mary Dillon said. Ulta sells makeup and skin care products from brands such as MAC, Estee Lauder and Clinique.

Over the past six months, Target said the number of items in shoppers’ Google Express baskets have increased by nearly 20 percent, on average, as a result of its tie-up with the internet company.

ENEMY OF MY ENEMY IS MY FRIEND

The retailers are also eager to get in on the rapidly growing voice shopping market dominated by Amazon’s popular Echo home device, analysts and consultants said.

Both Walmart and Target last year struck deals to appear in search results via Google Home.

Smart voice devices like Amazon Echo and Google Home will be installed in 55 percent of U.S. households by 2022, according to Juniper Research. Amazon’s Alexa platform could generate $10 billion in revenues by 2020, a separate report from RBC Capital Markets estimated.

“Brands are looking at Google as the enemy of the enemy and that makes Google their friend,” said Guru Hariharan, CEO of retail technology firm Boomerang Commerce, referring to the competition between Amazon and chains like Walmart and Target.

Target shoppers “love the ease and convenience of making their Target run without lifting a finger by using a voice interface,” Chief Information and Digital Officer Mike McNamara said.

“This is just the beginning for Target and Google,” he added. Target shoppers will soon be able to link their online account and loyalty card with their Google accounts and get 5 percent off on purchases and free shipping, McNamara said.

Reporting by Nandita Bose in New York; Editing by Vanessa O’Connell and Jeffrey Benkoe

New FAA Rules Take Aim at Dangerous Helicopter Flights

The Federal Aviation Administration today ordered the halt of open-door helicopter flights that use passenger harnesses without quick-release capability, less than a week after such a flight ended with the drowning deaths of five people.

Last Sunday evening, a doors-off helicopter catering to photographers and tourists crashed into the East River of New York City, killing all five passengers who were harnessed to the quickly sinking aircraft. The pilot, who wore a conventional quick-release restraint, survived, but the passengers had no easy way to free themselves. The National Transportation Safety Board is investigating the crash, and it will likely issue a detailed analysis in about a year.

The directive marks an unusually quick reaction by the FAA to prevent similar tragedies, and it appears to be a direct reaction to methods used by the two companies involved in the fatal flight, New Jersey-based FlyNYON, which markets such trips to professional and amateur photographers, and charter service Liberty Helicopters, which owns the aircraft.

“A lot of operators may do the occasional doors-off tour or photo flight,” says commercial helicopter pilot and instructor Elan Head, special projects editor of industry magazine Vertical. “But many of these are done without supplemental restraints, as passengers just stay belted in their seats. The FAA’s announcement seems to target FlyNYON specifically, since the focus is on restraints that cannot be released quickly in an emergency, rather than open doors, per se.”

The FlyNYON helicopter shortly before the crash.

Eric Adams

The FAA’s new order also indirectly targets a growing social media trend: the taking and sharing of dramatic aerial photographs of cities and natural environments. FlyNYON was one of the first operators to capitalize on the genre. Its own Instagram account has 132,000 followers, and the company has many relationships with even more successful Instagrammers and professional photographers. For the less social-savvy passengers, its employees [make a big deal] (https://www.flynyon.com/) of the “shoe selfie,” where you take a photo of the city below with your feet dangling in the frame.

Indeed, much of the company’s recent growth—it has expanded operations to Las Vegas, San Francisco, Miami, and Los Angeles—came from these open-door, photography-focused flights that capitalize on such social media trends. It also makes a degree of business sense for the company, since it enables the operator to sell individual seats for photo flights rather than having to rent out the entire aircraft for individual assignments. “This type of model is becoming popular in the aviation industry as a way to maximize the use of charter aircraft,” Head says.

The NTSB investigation will also look at operational details beyond the harnessing of passengers, including the breadth and content of the preflight safety briefings and the fundamental assumption that inexperienced passengers can even be expected to evacuate a crashed helicopter in the water in the first place. The industry overall has long wrestled with the notion of consumer-oriented open-door flights—the practice is common for industrial and commercial purposes—and this accident and other recent tragedies, including a fiery, fatal crash in the Grand Canyon last month, has spurred them onto more focused examination of all their safety protocols. Just today, the Virginia-based Helicopter Association International announced it would organize a working group to establish guidelines to prevent similar accidents in the future. “Our goal is, and always will be, zero accidents in the helicopter industry,” group president Matt Zuccaro said in a statement.

There’s no reason to believe the East River crash will permanently halt aviation’s open-door policy, but until investigators have a handle on all the factors that contributed to the deaths of five enthusiastic passengers, helicopter occupants—at least those without more advanced harnesses—will have to keep their hands and feet safely inside the craft.


It’s a Chopper Baby

Facebook suspends SCL, Cambridge Analytica for violating policies

(Reuters) – Facebook Inc said on Friday it was suspending consulting firm Strategic Communication Laboratories (SCL) and its political data analytics firm Cambridge Analytica after it found they had violated its policies.

FILE PHOTO: A Facebook logo is seen at the Facebook Gather conference in Brussels, Belgium January 23, 2018. REUTERS/Yves Herman/File Photo

Facebook said in a statement that it learned in 2015 that a psychology professor at the University of Cambridge, Aleksandr Kogan, “lied to us and violated our Platform Policies by passing data from an app that was using Facebook Login to SCL/Cambridge Analytica, which does political, government and military work around the globe. He also passed that data to Christopher Wylie of Eunoia Technologies, Inc.” bit.ly/2FZU1Ir

The company said Kogan billed his app on Facebook as “a research app used by psychologists.” About 270,000 people downloaded the app, and in so doing, gave their consent for Kogan to access information such as the city they set on their profile or content they had liked, as well as more limited information about friends who had their privacy settings set to allow it.

Facebook said Kogan gained access to the information “in a legitimate way” but “he did not subsequently abide by our rules,” saying that by onpassing information to a third party, including SCL/Cambridge Analytica and Wylie of Eunoia “he violated our platform policies.”

Facebook said it removed Kogan’s app when it learned of the violation in 2015 and asked for certification from Kogan and all parties he had given data to that the information had been destroyed.

Although Cambridge Analytica, Kogan and Wylie certified that they had destroyed the data, Facebook said it found out several days ago that not all data was deleted. Facebook said it is investigating to determine the accuracy of the claims.

Reporting by Ismail Shakil in Bengaluru; Editing by Leslie Adler

Samsung Electronics says to break ground on new China memory chip line this month

SEOUL (Reuters) – Samsung Electronics Co Ltd plans to begin building a new memory chip production line in China in late March, a spokesman said on Thursday, as the tech giant ramps up efforts to boost NAND flash technology to meet future demand.

FILE PHOTO: The logo of Samsung Electronics is seen at its office building in Seoul, South Korea South Korea, October 11, 2017. REUTERS/Kim Hong-Ji/File Photo

The tech giant said in August last year that it expected to invest $7 billion over the next three years to expand its NAND memory chip production in China’s northwestern city of Xi’an, but had not specified a future schedule.

The rapidly growing data center market, which needs more memory capacity to handle increasing data traffic, is expected to underpin revenue growth and margins for Samsung’s NAND Flash business in 2018, research provider Trendforce said.

Samsung’s revenue from NAND in the fourth quarter of 2017 rose 9.8 percent from the previous quarter to $6.17 billion, Trendforce said, as demand from both smartphone and server markets lifted shipments and average price.

Samsung will formally begin the process near month-end at Xi’an, earmarked for NAND flash production, the spokesman said, but did not give any other details.

Samsung Electronics shares have risen about 13 percent from early March on an improved outlook for the memory chip market, putting to rest concerns that the recent boom might end, analysts said.

“Memory chips are solid. For DRAM chips, server demand is very strong,” said Kwon Sung-ryul, an analyst at DB Investment & Securities.

“NAND flash chip shipments and price movements are moving within expectations, but there’s a chance that supply will become tighter again in the second half of 2018 due to rising demand.”

The expansion is not expected to affect memory chip supply until 2019 at the earliest, analysts said.

Reporting by Joyce Lee; Editing by Shri Navaratnam

Samsung Electronics says to start building new China memory chip line this month

SEOUL (Reuters) – Samsung Electronics Co Ltd plans to begin building a new memory chip production line in China in late March, a spokesman said on Thursday, as the tech giant ramps up efforts to boost NAND flash technology to meet future demand.

FILE PHOTO: The logo of Samsung Electronics is seen at its office building in Seoul, South Korea South Korea, October 11, 2017. REUTERS/Kim Hong-Ji/File Photo

The tech giant said in August last year that it expected to invest $7 billion over the next three years to expand its NAND memory chip production in China’s northwestern city of Xi’an, but had not specified a future schedule.

The rapidly growing data center market, which needs more memory capacity to handle increasing data traffic, is expected to underpin revenue growth and margins for Samsung’s NAND Flash business in 2018, research provider Trendforce said.

Samsung’s revenue from NAND in the fourth quarter of 2017 rose 9.8 percent from the previous quarter to $6.17 billion, Trendforce said, as demand from both smartphone and server markets lifted shipments and average price.

Samsung will formally begin the process near month-end at Xi’an, earmarked for NAND flash production, the spokesman said, but did not give any other details.

Samsung Electronics shares have risen about 13 percent from early March on an improved outlook for the memory chip market, putting to rest concerns that the recent boom might end, analysts said.

“Memory chips are solid. For DRAM chips, server demand is very strong,” said Kwon Sung-ryul, an analyst at DB Investment & Securities.

“NAND flash chip shipments and price movements are moving within expectations, but there’s a chance that supply will become tighter again in the second half of 2018 due to rising demand.”

The expansion is not expected to affect memory chip supply until 2019 at the earliest, analysts said.

Reporting by Joyce Lee; Editing by Shri Navaratnam

Elon Musk Says SpaceX’s Mars Rocket Could Launch in Early 2019

SpaceX CEO Elon Musk said a rocket that’s intended to put humans on Mars could launch in early 2019.

“We are building the first ship, the first Mars or interplanetary ship, right now,” Musk told screenwriter Jonathan Nolan on stage at the South By Southwest conference in Austin Sunday. “I think we’ll be able to do short flights, short up and down flights, sometime in the first half of next year.”

That timeline is surprisingly aggressive, and Musk admits that “historically people have told me my timelines have been optimistic.” The Falcon Heavy’s first launch was pushed back several times, and the Mars rocket is several times larger and more complex. The most that the public has seen of the rocket at this point is a design concept and a massive carbon-fiber fuel tank.

The rocket is currently code named BFR, of which Musk said: “It’s a bit of a Rorschach test in acronym form. [But] it is very big.”

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However optimistic the timeline, the BFR’s first test flights would just be a preview of an actual crewed trip to Mars. SpaceX’s most recent plan has humans actually heading to Mars in 2022.

Musk predicts that the first flights of the ship will unleash a flood of energy from other shipbuilders. “Once we have it, we’ll have a sort of point of proof, something that other countries and companies will go and do.” Musk says that he expects those other entities to eventually build interplanetary transport vehicles of their own.

Musk also reiterated that he sees SpaceX’s role as simply creating the pathway to Mars, and that he hopes entrepreneurs will build much of the infrastructure of a future Mars colony, including everything from “iron foundries to pizza joints to nightclubs.” He also speculated that “most likely, the form of government on Mars would be somewhat of a direct democracy,” in which residents would vote directly on particular issues.

How YouTube Pushes Viewers Towards Extremism

Search for a political topic on YouTube, and you’re likely to be nudged to watch increasingly extreme, misleading, or outright false content on that topic. If your interest is in left-wing topics, the site’s algorithm will point you towards corresponding left-wing conspiracy theories. The reverse goes for searches on conservative-leaning topics.

That, at least, was the conclusion of communications researcher Zeynep Tufecki after an informal experiment described Saturday in the New York Times. Tufecki’s exercise was unscientific, and she writes that Google doesn’t like sharing hard data with researchers. But a Wall Street Journal investigation came to similar conclusions last month, with the help of a former YouTube engineer.

Similar to recent research showing that fake news spreads faster than facts on Twitter, these findings about YouTube’s algorithm can’t be blamed on any nefarious plot to destabilize the world. Instead, the problem seems inherent to the intersection of human nature and YouTube’s business model.

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Just like Facebook, Twitter, and good old television, YouTube makes money from ads — and therefore, from audiences’ attention. Over time, Tufecki writes, YouTube’s “algorithm seems to have concluded that people are drawn to content that is more extreme than what they started with — or to incendiary content in general.” But YouTube, which like Facebook and Twitter would rather be seen as neutral “platforms” rather than publishers, doesn’t take the same kind of responsibility for its content that a television broadcaster is required to.

If that’s true, even stricter enforcement action on individual videos — such as YouTube’s recent decision to reprimand conspiracy theorist Alex Jones — amounts to little more than a game of whack-a-mole.

As the Journal pointed out in its report last month, it clearly doesn’t have to be this way. YouTube parent company Google weighs the trustworthiness of content when returning web search results, giving priority to mainstream news sites. YouTube has chosen not to implement anything so straightforward. YouTube told the Journal that it had a harder task than Google because of the smaller selection of videos about breaking news events, as compared to written stories.

And of course, YouTube didn’t create political divisiveness. To claim so would be to ignore longer-term trends, including extreme gerrymandering and the rise of political dark money that make elected officials more likely to appeal to extremes.

But YouTube and other digital platforms may very well be making those problems worse, and fast.