Friday 20/07/18

1. In TECH NEWS TODAY, we see Trump weighing in on Google’s fine and what its options are as Microsoft thanks the cloud for its brighter outlook.
2. In UK HIGH STREET NEWS, Sports Direct takes a hit from Debenhams, Gaucho closes Cau and Poundworld has one month to go.
3. In INDIVIDUAL COMPANY NEWS, Disney faces a clear road for Fox, Philip Morris has a smoking problem and Softbank teams up with Didi for ride-hailing in Japan.
4. In OTHER NEWS, I bring you news of a ninja shortage. For more details, read on…

So Trump sticks his oar in with Google and Microsoft benefits from the cloud…

Trump attacks EU’s decision to fine Google £3.8bn – and hints at reprisal (The Guardian, Dominic Rushe) highlights some vintage Trump as he tweeted his reaction to the European Commission’s fining of Google thus: “I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the US, but not for long!”. He is said to have referred to Margrethe Vestager, the EU’s competition commissioner, in a conversation with Jean-Claude Juncker last month, saying that “Your tax lady, she really hates the US”. WTF. I’m not sure how he’s going to follow through on his threat, but I’m sure he’ll find a way (or at least he’ll talk a good game). * SO WHAT? * Google said that it will contest the punishment, but Google faces uphill battle in appealing EU Android fine (Wall Street Journal, Daniel Michaels) suggests that although it is theoretically possible for Google’s parent Alphabet to appeal the EU’s decision –the European Commission (which is the EU’s executive arm that brought the case) has built up a formidable reputation in winning appeals since it got its act together in 2004 after a decade of embarrassing losses. Funnily enough, its record is particularly strong in the type of case that Google is fighting – abuse of dominance. Google has been accused of shutting down any competition by forcing handset makers to bundle its apps with Android, which it offers for free. According to Assimakis Komninos, a competition lawyer at White & Case in Brussels, the EC has won 11 out of the 15 abuse of dominance cases outright and faced partial annulment in four in the period between 2000 and 2016. Google’s lawyers sound like they will have their work cut out.

Having said that, Why the Android antitrust case may not trouble Google (Wall Street Journal, Sam Schechner) contends that, whatever happens, it might not matter anyway because if Google loses its appeals, antitrust cases drag on for so long that by the time the decision comes, the alleged monopolist has already become even more powerful or the entire market has evolved in a different direction. The fabulously – and may I say appropriately-named – Nicholas Economides, economics professor at New York University Stern School of Business, observed that “The main flaw of this decision is that it’s so many years late. It has allowed Google to use an illegal practice to become dominant”.

Microsoft thanks cloud for brighter outlook (The Times, James Dean) cites the continued strong demand for cloud computing and business software as powering Microsoft’s fourth quarter profit to levels exceeding analyst expectations. Sales at Azure, Microsoft’s cloud business rose a whopping 89% in the latest quarter versus the same quarter last year and sales of Office 365 rose by 38%. Revenues at Linkedin, which it bought for $26.2billion in 2016, rose by a very respectable 37%.  * SO WHAT? * Microsoft has always been seen as a one-trick pony powered purely by sales of its Windows operating system. However, it seems to be evolving quite nicely (although operating systems clearly remain key) and it actually looks like it will get a tailwind as PC sales have started to pick up after a long period of stagnation – PC sales grew at their fastest rate for six years in the second quarter of this year – driven by demand from business customers. When they upgrade their hardware, the tendency is also to upgrade their software as well, which is where Microsoft will obviously benefit.

Sports Direct takes a hit from Debenhams, Gaucho closes Cau and Poundworld has one month to go

Sports Direct takes £85m hit as value of Debenhams stake falls (The Guardian, Julia Kollewe) shows that Sports Direct’s investment in Debenhams gave its own profits a massive kick in the knackers as they fell by 72.5%, reflecting the drop in value of its close-to 30% stake in the troubled department store. There were a couple of one-offs in there as well, but the Debenhams thing was the biggie. * SO WHAT? * It just goes to show what happens when you buy a pile of cr@p like Debenhams. I think that Ashley, love-him-or-loathe-him, HAS to take more of an active role in turning Debenhams around otherwise he is going to continue to bleed profits – which is very unlike him. There have been a few suggestions so far – like charging for click-and-collect with added incentives – but it sounds like they are just tinkering around the edges. I think a root-and-branch approach is sorely needed in Debenhams’ case. Interestingly, Ashley is aspiring to move Sports Direct upmarket to become “the Selfridges of sport” – well he’s got the sports merch sorted and he’s (sort of) got a department store – what’s he waiting for?? He also owns a chain of gyms. SURELY, he could put it all together no? He could repurpose city centre prime real estate to house his sportswear in “classier” surroundings AND have a gym onsite with perhaps a bit of residential/offices to keep the steady cashflow rolling in. Easy for me to say, though – but don’t you think that sounds like a plan??

The gloom continues on the UK high street in Gaucho cuts 540 jobs with closure of Cau (Daily Telegraph, Ayesha Javed) as administrators at Deloitte have decided to close ALL of the UK Cau sites and “focus on maximising the value achievable in the Gaucho business, which is profitable and underpinned by a strong brand”. Matt Smith, joint administrator, said that “Unfortunately, the Cau brand has struggled in the oversupplied casual dining sector, with rapid over-expansion, poor site selection, onerous lease arrangements and a fundamentally poor guest proposition all being factors in its underperformance”.

And it’s not just restaurants that are having a rough time either – Last Poundworld stores will shut next month (The Times, Louisa Clarence-Smith) signals the death-knell of another high street operator as administrators announced the closure of the company’s remaining 190 stores that will incur another 2,339 job losses. Poundworld’s HQ and warehouse in Normanton in West Yorkshire will close today, which will involve 299 job losses. * SO WHAT? * An estimated 50,000 jobs have been lost in the UK retail sector so far this year – and there will be more. I believe that we are in a transitional phase where the high street is trying to find a new identity as consumer tastes and habits continue to evolve. I think that differentiation, finding true identity in themselves and the target customer, a laser-focus on costs and close monitoring of customer behaviour will all be keys to retailer survival. Anyone who just carries on as normal will be toast.

In individual company news, Disney faces a clear road for Fox, Philip Morris has a smoking problem and Softbank teams up with Didi for ride-hailing in Japan…

It seems like we’re getting closer to a conclusion in Disney ready to seize Fox after Comcast walks away (Financial Times, Arash Massoudi, Matthew Garrahan and Eric Platt) as Comcast has decided to pull out of the bidding war and concentrate instead on buying Sky. * SO WHAT? *  Comcast’s attempts to disrupt the Disney/Fox deal ended up adding $20bn to the price tag that Disney will have to pay. It just goes to show how scared these media companies are about digital disrupters Netflix and Amazon that they would be willing to pay such prices.

Philip Morris battles to maintain growth of IQOS ecigarette (Financial Times, Pan Kwan Yuk and Peter Wells) highlights a slowdown in the uptake of its smokeless devices as Philip Morris International – the world’s biggest listed tobacco company – lowered full-year earnings guidance with hopes for smokeless future taking a bit of a dent in the process. The company is taking measures to address the slowdown – spending more on marketing a cheaper version of IQOS (pronounced eye-koss) in its key Japan market, for instance – but the benefits are unlikely to appear overnight.

IQOS did well initially with younger smokers, but older smokers have been difficult to convert – whilst all the while, the competition was increasing in this space. * SO WHAT? * It’s a noble ambition to aim for a smokeless future, but if the profits aren’t rolling in, idealism will have to take a back seat to practicality. I think this is a pause for breath, on balance, but if this continues, more drastic measures will have to be taken e.g. squeeze the margins on the devices to increase sales volumes etc.

Given the prevalence of ride-hailing pretty much everywhere, SoftBank and China’s Didi to launch Japan taxi-hailing platform (Financial Times, Kana Inagaki) highlights the stubborn stance of the Japanese thus far on it as the country has stood alone in protecting its taxis from the likes of Uber et al. SoftBank’s founder Masayoshi Son remarked that “Today ride-hailing is prohibited by law in Japan. I can’t believe there is still such a stupid country. To protect the past, they are denying the future. It’s a crisis situation” whilst announcing at the same time that it has teamed up with Chinese Uber-killer Didi Chuxing to launch a taxi-hailing platform in Japan ahead of the expected surge in Chinese tourists in the run-up to the 2020 Tokyo Olympics. Didi will use SoftBank’s network and its Didi Mobility JV in Osaka to kick things off, followed by a rollout in Tokyo and other cities. * SO WHAT? * Japanese law currently demands that taxis have to be driven by licenced individuals, thus neutralising Uber’s (and other’s) usual business model. Companies get around this by having a JV with a local taxi partner, but it clearly adds another layer of expense to the whole thing – hence the bad feeling. Still, I suspect that pressure to relent will continue in the run-up to the Olympics and the floodgates will open.

… And finally, in other news…

Not satisfied in your job? Do you want to do something a bit different and have a job title in your passport that will get a bit of a reaction? How about becoming a ninja? For more details, have a look at Japan faces ninja shortage (Metro, Harley Tamplin https://tinyurl.com/yb5kkl8u). Good luck with the application!

As always, thank you for reading Watson’s Daily!