The Geek’s Reading List – Week of October 28th 2016
Welcome to the Geek’s Reading List. These articles and the commentary are not intended to be taken as investment advice, nor should they today. That being said, investors need to understand crucial trends and developments in the industries in which they invest. Therefore, I believe these comments may actually help investors with a longer time horizon. Not to mention they might come in handy for consumers, CEOs, IT managers … or just about anybody, come to think of it. Technology isn’t just a niche area of interest to geeks these days: it impacts almost every part of our economy. I guess, in a way, we are all geeks now.
Please feel free to pass this newsletter on. Of course, if you find any articles you think should be included please send them on to me. Or feel free to email me to discuss any of these topics in more depth: the sentence or two I write before each topic is usually only a fraction of my highly opinionated views on the subject!
This edition of the Geeks List, and all back issues, can be found at www.thegeeksreadinglist.com.
1) Cyber attack: Hackers use everday devices to cause major internet outages
I have warned repeatedly that Internet of Things devices are not typically secure and Friday’s massive cyber-attack sort of makes that point. Unfortunately, there is no reason to suspect the industry will reform itself since IoT vendors are generally low-end firms with little experience in, or interest in, security. What is interesting to me is that the attack may have been inspired by or instigated by the folks at Wikileaks. Why anybody would think that vandalizing the Internet is likely to lead to a positive outcome for them is a mystery. Look at the bright side: they elected to vandalize DNS servers rather than steal banking information.
“A major cyber offensive that brought down internet behemoths Twitter and Paypal is thought to have been launched by hackers using common devices such as webcams, baby monitors and digital recorders. In a huge breach of global internet stability, hackers brought down well-known sites including Netflix, Twitter, Paypal and Spotify. The widespread disruption was the result of a coordinated assault on some of the underlying infrastructure that powers the Internet. Dyn, one of several companies responsible for hosting the crucial web directory known as the Domain Name System (DNS), suffered a sustained so-called “distributed denial of service” (DDoS) attack, leading many people intermittently to lose access to specific sites or to the Internet entirely.”
2) Tesla, once beloved by critics, ranks near bottom of new Consumer Reports survey
Consumer Report’s bizarre decision to grant the Tesla Model S, a new model from an vendor with limited experience building cars, its highest rating ever was greeted with tremendous excitement by Tesla fans and at the same time my opinion of CR’s judgement dropped to zero. They subsequently withdrew that rating and this report shows they are more or less on an even keel – though the extremely important issue of battery life and high replacement cost doesn’t seem to bother them yet. Give them a few years. Unsurprisingly Tesla fans are now attacking CE as “biased”.
“Tesla, the upstart all-electric automaker that once landed Consumer Reports’ best-ever performance rating, has now achieved a far less impressive feat, with a ranking from the reviewer that labels it one the least reliable car companies in America. The Consumer Reports’ ranking, released Monday, places Tesla at no. 25 of 29 for reliability, with reviewers saying the automaker’s new Model X SUV “has been plagued with malfunctions,” including with the “falcon-wing doors” that have become its signature.”
3) Silicon Valley Decides It’s Just Too Hard to Build a Car
I continue to maintain that the tricky part of building a self-driving car is actually building the car. You can retrofit technology to a car design but actually making a car is a heck of a lot harder than people realize, especially in the Silicon Valley Bubble. Most recently it appears even Google may want out of the business http://www.forbes.com/sites/jeanbaptiste/2016/10/27/google-to-spin-off-self-driving-car-business/#4992f6255700. Thanks to my colleague Paul Kantorovich for this item.
“He’s not kidding. Tech giants Apple Inc. and Alphabet Inc.’s Google, once intent on disrupting, if not destroying, Detroit, have concluded for now that they don’t want to build cars. Sure, they still bank on supplying the autonomous software that will drive robot rides, but the concession that they’re not up to the complex task of mass production tilts the balance of power to traditional automakers. Vehicle manufacturing is a massive undertaking. There is the metal bending and assembly, a highly evolved process in itself. Car companies also integrate millions of lines of code that control everything from the radio to the radar sensors that will soon allow hands-free driving. Detroit also has deep experience managing the long chain of suppliers that provide roughly 30,000 parts.”
4) Why Tim Cook is Steve Ballmer and Why He Still Has His Job at Apple
This is a surprisingly good article which discusses the problem of the “visionary CEO” and what happens when he leaves. As the article explains, visionaries pick good operators as senior executives and one of those becomes a successor. Unfortunately good operators make lousy visionaries so they plant the seeds for their own destruction.
“When visionary founders depart (death, firing, etc.), the operating executives who reported to them believe it’s their turn to run the company (often with the blessing of the ex CEO). At Microsoft, Bill Gates anointed Steve Ballmer, and at Apple Steve Jobs made it clear that Tim Cook was to be his successor. Once in charge, one of the first things these operations/execution CEOs do is to get rid of the chaos and turbulence in the organization. Execution CEOs value stability, process and repeatable execution. On one hand that’s great for predictability, but it often starts a creative death spiral – creative people start to leave, and other executors (without the innovation talent of the old leader) are put into more senior roles – hiring more process people, which in turn forces out the remaining creative talent. This culture shift ripples down from the top and what once felt like a company on a mission to change the world now feels like another job.”
5) SSDs Kill The 15K HDD, Seagate Rolls Out Last Generation
I continue to be very negative on the Hard Disk Drive (HDD) industry even as share prices of Seagate and Western Digital continue to go up. Inflection points are generally ignored by analysts and investors until it is too late: after all, almost all analysis is derived from management and management is great at deluding themselves. There will be shuffling of deck chairs along the way but this is only going to end one way. How many people would invest in a digital storage tape vendor today?
“Seagate representatives indicated that the company is not working on future generations of 15K HDDs due to the proliferation of SSDs in the data center. The company will offer the Enterprise Performance 15K HDD v6 (otherwise known as the 15K.6) for an extended period of time to ensure that forward compatibility and replacements are on hand, as it does all of its data center HDDs, but it will offer SSDs as the go-to solution for high-performance workloads. The move isn’t entirely surprising; it’s fair to say that the 2.5″ HDD segment has been on a managed decline (albeit a steep one) recently. The “mission-critical” 2.5″ segment declined from roughly five million units in 4Q2014 to 3.2 million in 1Q2016”
6) The Google Assistant Needs You
One of the new features in Google’s Pixel phone which is getting a lot of positive attention is the Google Assistant. I haven’t tried it but apparently it is a considerable leap ahead of Google voice. This article implies that the design of Google Assistant is such that it will improve steadily as more data is gathered from use thanks to deep learning technology. Some articles have suggested this may place Apple at a competitive disadvantage as it’s AI/Deep Learning technology is behind that of Google and even Microsoft.
“As Pereira explains it, The Transition is a Brink’s Job-level bounty of data that his team and other scientists at Google will receive when millions of people start conversing with his company’s flagship bot, the Google Assistant. The Assistant is a single software system that will be implemented across multiple Google platforms, including the Pixel phone and the Google Home device. It strives to control the functions on the phone like Siri does, perform services as seamlessly as Amazon’s Alexa, and conduct Geisha-level chatter that puts to shame the business bot in Facebook’s Messenger.”
7) All the disappointments from Apple’s MacBook Pro event
I am sort of used to fawning coverage of any Apple product release “event”. Apple has bloggers and the tech media very carefully controlled by limiting access to its events and test units only to those who “think right”. The reaction to this week’s MacBook Pro event has been remarkably negative. Not just the reviews but comment threads regarding the new products have been extremely critical of the reduction in features and increased prices (one developer noted one model MacBook Pro actually cost more than a similar featured product from a few years ago). I don’t see the point of paying 2 or 3x more for a computer because is in an Apple but that is not the point: Apple has been an astoundingly competent marketing company even if its innovation has lagged. If they lose that, they have lost everything. See also http://www.techradar.com/news/ports-in-a-storm-why-is-apple-making-it-so-hard-to-choose-a-new-macbook-pro
“One of the main draws to Apple products is the unified ecosystem, but it looks like the company is getting sloppy in maintaining that. The USB-C-equipped MacBook Pros can’t connect to your new iPhone 7 unless you buy a $20 adaptor or a new cable. Similarly, you can’t connect your Lightning earbuds to your new laptop. There isn’t really a good reason for this. Apple seems hell-bent on sticking with Lightning connectors for some devices, even though it’s pushing forward with USB-C ports. The only saving grace in this regard, as our own Napier Lopez noted, is that the MacBook Pro comes with a good ol’ 3.5mm headphone jack. Thanks, Apple.”
8) No One Is Buying Smartwatches Anymore
No, this is not another Apple article. I included it as an example of why industry research is so utterly useless (Google “IDC predicts smartwatch sales” for a list of articles such as this http://www.informationweek.com/mobile/mobile-devices/smartwatch-shipments-primed-to-explode-idc-predicts/a/d-id/1323595 or this http://www.mobihealthnews.com/content/idc-apple-lead-smartwatch-shipments-next-four-years). The job of industry analysts is to paint a bright picture of the future because that is what sells expensive reports. It is truly a pity so many investors and businesses actually believe they know what they are talking about.
“Remember how smartwatches were supposed to be the next big thing? About that… The market intelligence firm IDC reported on Monday that smartwatch shipments are down 51.6 percent year-over-year for the third quarter of 2016. This is bad news for all smartwatch vendors (except maybe Garmin), but it’s especially bad for Apple, which saw shipments drop 71.6 percent, according to the IDC report”
9) Demand for Google Pixel Smartphones Soars, Shortages Result
I doubt I’ll buy one (too much money to spend on a smartphone) but Google’s flagship Pixel phone sure is getting very positive reviews. It may be this is just a “manufactured shortage” use to build hype or it could be that Samsung owners who traded in their defective phones decided to go with Google. It might even be that Google has a successful product on its hands.
“Since going on sale Oct. 20, Google’s Pixel and Pixel XL Android smartphones are so popular that several versions are completely out of stock and others are apparently taking longer to get to buyers than previously estimated by Google. All 5.5-inch Pixel XL handsets in Quite Black or Very Silver are out of stock in both 32GB and 128GB configurations, while the 5-inch Pixel models in certain configurations—32GB in Very Silver and 128GB models in Very Silver and Quite Black—are shipping in two to three weeks, according to the Google Store’s ordering page. Other standard Pixel models are completely out of stock, including the Pixel 32GB Quite Black version and the 32GB Really Blue Limited Edition version.”
10) Qualcomm’s NXP Deal Is $47 Billion Wager on Computers You Drive
Qualcomm’s long rumored purchase of NXP is just the most recent act in a multi-year consolidation of the semiconductor industry. NXP is not exactly a gem of a company, having spent like drunken sailors to create the illusion of growth the last few years. NXP bought Freescale in 2015, a company whose management we consider to be essentially pathogens. Meanwhile Qualcomm is faced with a declining smartphone market and the loss of its prior dominance there so some financial engineering is in order. Acquisition accounting should allow obfuscation of real operating performance for a couple years at least but it doesn’t change the fact the semiconductor industry is no longer growing. This may be one of the largest such transactions but it will not be the last: substantially all smaller semiconductor companies will be acquired in this feeding frenzy.
“Qualcomm Inc.’s purchase of NXP Semiconductors NV is a bet that the future of mobile computing has four wheels. The $47 billion acquisition unveiled Thursday — the biggest ever for Qualcomm, and in the chip industry’s history — marks the company’s most significant foray outside its historically narrow focus on cell-phone chips and patents, a strategy that has made it one of the most successful technology companies of the last 20 years. Now, as mobile-phone growth decelerates, Qualcomm’s management is buying a leading position in the nascent market for chips that will turn automobiles into smart devices that use sensors to help drivers drive, park, navigate and communicate.”