Microsoft Keeps BUILDing, IBM Reportedly Preps Layoffs, And Intel Launches New Server Chips

by: Eric Jhonsa


This edition of Seeking Alpha's Eye on Tech newsletter looks at recent coverage of news involving IBM, Micron and Amazon, as well as several Microsoft announcements.

Also covered: Intel server CPU launches, iPhone SE and Oculus Rift teardowns, Facebook's Instant Articles, Fitbit sales data and a new report about Google's Nest Labs.

Recent commentary about Microsoft, Intel, Snapchat, Broadcom and the Foxconn/Sharp deal is highlighted.

Welcome to the April 1 edition of Seeking Alpha's Eye on Tech newsletter.

Eye on Tech Coverage

IBM Reportedly Plans More Layoffs As Its Cloud M&A Spree Continues

  • While IBM announces a new cloud acquisition, multiple reports indicate fresh layoffs are being prepped.

  • Layoffs and M&A have been core parts of IBM's efforts to offset ongoing sales declines in many enterprise hardware, software and services businesses.

  • For now, the strategy isn't doing enough to keep sales and EPS growth positive.

Micron's Earnings: DRAM/NAND Price Declines And Mobile Pressures Take A Toll

  • Micron's FQ2 sales missed estimates, EPS beat and guidance was light.

  • DRAM and NAND price pressures continued in FQ2. Soft PC and mobile demand also weighed on DRAM sales.

  • Silver linings: Micron's margins and losses aren't as bad as they were in past downcycles, and its 20nm DRAM and 3D NAND ramps should lower costs.

Amazon Reportedly Eyes A Stake In A Mapping Leader, With AWS In Mind

  • Amazon is reportedly in talks to buy a stake in mapping provider HERE, which was recently acquired by German automakers.

  • The report indicates HERE would adopt AWS as part of a deal, and also notes potential synergies with Amazon's local delivery efforts.

  • Among other things, the report appears to highlight AWS's strategic importance to AMZN.

Noteworthy Tech News

Following a big Wednesday, several more notable announcements have been made at Microsoft's (NASDAQ:MSFT) annual BUILD developer conference:

Businesses and developers can now integrate Skype within their apps - This should've happened a while ago, but better late than never. The news came shortly after Microsoft created some buzz by unveiling Cortana and bot integration for Skype, and disclosed Skype now has over 300 million monthly active users.

Developers will be able to create custom apps for Office ribbons - Another attempt to add to Office's ecosystem, and in doing so help keep Google Apps at bay.

Microsoft previews Azure Functions - A somewhat wonky cloud service, Functions breaks down apps into microservices that communicate via APIs and can automatically implement code in response to events, and which can be provisioned without any underlying server infrastructure. Microsoft argues it's useful for IoT services responding to triggers involving real-world data, and also sees Web, mobile and analytics use cases. Functions competes with Amazon's (NASDAQ:AMZN) Lambda service.

New Azure usage stats - Microsoft reports it's adding over 120 thousand Azure cloud subscriptions per month, up from 100 thousand/month as of last year's BUILD conference. It adds Azure now hosts over 1.4 million SQL databases and processes over 2T messages/week through its IoT service, and gets over 40% of its revenue from startups and independent software vendors (ISVs). Unlike Amazon with AWS, Microsoft still isn't breaking out Azure's revenue.

Microsoft makes recent acquisition Xamarin's app development tools free via Visual Studio - In addition, Xamarin's code will be open-sourced. Like Wednesday's Windows 10/Linux integration announcement, this continues Microsoft's efforts to win over developers who haven't been crazy about Microsoft. A free Community edition of Visual Studio was unveiled in 2014.

Microsoft stated Xamarin had 15 thousand+ customers and the support of 1.3 million+ developers when announcing its acquisition of the company last month. The deal price was reportedly $400 million-$500 million.

Microsoft is building an ad blocker within its Edge browser - Follows the sale of the company's display ad ops to AOL/Verizon. With Microsoft still owning Bing (and text-based search ads relatively low on the nuisance scale), one has to think search ads won't be blocked by default. Nonetheless, Google/DoubleClick (NASDAQ:GOOG) (NASDAQ:GOOGL) can't be pleased.

Coverage of Wednesday's Microsoft BUILD announcements

Elsewhere in tech:

Intel launches new Xeon server CPUs - Intel's (NASDAQ:INTC) Xeon E5 v4 CPUs rely on an advanced 14nm manufacturing process and succeed the Xeon E5 v3 line (launched in Sep. 2014 and uses an older 22nm manufacturing process). They support up to 22 cores and 44 threads (up from 18 and 36 for the v3) and feature prices ranging from $213-$4,115.

Cloud data center owners should be major buyers of the of the v4 line. AnandTech's detailed review indicates solid performance gains relative to the v3 for certain virtualization, big data/analytics, database and ERP applications, and more modest ones for high-performance computing (HPC) applications.

Google's Nest Labs reportedly had 2015 revenue of $340 million - This report from The Verge appears to confirm Nest (which includes Dropcam) made up the lion's share of Alphabet's 2015 "Other Bets" revenue of $448 million. The report, which follows ones highlighting talent loss and frustration at Dropcam over the leadership style of Nest chief Tony Fadell, also states Nest is falling short of Google's expectations, that it was initially given a $500 million/year operating budget, and that Nest and Google agreed on a retention clause for key Nest execs and engineers that could expire as soon as this year.

Google releases a Cardboard virtual reality SDK for iPhones - An Android SDK for Cardboard, which enables cheap VR headsets that rely on smartphones for a display and processing power, has been around since late 2014. Adding iPhone support should bolster Cardboard's developer base. However, for now, Google's VR efforts feel like a sideshow, at least when compared with those of Facebook/Oculus and Sony. This could change if/when Google launches a quality standalone VR headset - one is reportedly being prepped.

Chipworks' iPhone SE teardown - Though the 4" SE has been portrayed as packing the iPhone 6S/6S+'s internals in a smaller body, Chipworks' teardown found a mixture of chips previously used in the 5S, 6, and 6S. The use of older parts could help Apple (NASDAQ:AAPL) offset the margin impact of the SE's relatively aggressive $399 base price.

Facebook launches new ad options for Instant Articles - Autoplay video ads are now supported (audio is muted by default), as is an extra ad unit at the bottom of each article. As previously announced, publishers keep all the ad revenue from Instant Articles, which appear in full within Facebook's (NASDAQ:FB) app, if they handle ad sales, and give Facebook a 30% cut if they outsource to the company.

The move comes two weeks before Instant Articles is opened up to all publishers. Web publishers, fearing a loss of control over the user experience and a chance to bring users to their sites, have been deeply ambivalent about Instant Articles. But the superior reading experience it delivers for those on Facebook's apps, together with Facebook's generous revenue terms, is producing converts.

iFixit's Oculus Rift teardown - The teardown found the VR headset relies on two OLED displays (one for each eye) sporting 1080x600 resolutions (2160x1200 combined) and delivering a steep 90 frame-per-second ("FPS") refresh rate. One has to assume Facebook/Oculus will include higher-resolution panels as more powerful AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) GPUs arrive for the PCs that help power the Rift.

Also uncovered: A Cypress Semiconductor (NASDAQ:CY) USB 3.0 hub controller and an STMicroelectronics (NYSE:STM) microcontroller. Relative to high-volume smartphones, Rift volumes will likely be modest for now.

LED equipment maker Aixtron is reportedly exploring a sale - Rival Veeco (NASDAQ:VECO) is named as a potential buyer. The report follows years of weak demand for LED chip manufacturing equipment (the result of major industry oversupply). Regulators are bound to closely scrutinize any deal between Aixtron (AIXG) and Veeco. Cree (NASDAQ:CREE) and Asian LED manufacturers could object.

Fitbit ships over 1 million Blaze smartwatches and Alta fitness bands apiece - For reference, Fitbit (NYSE:FIT) sold 8.2 million devices overall in seasonally strong Q4, and 21.4 million over the whole of 2015. The Blaze received a chilly reception when it was unveiled in January at CES. The Alta represents an attempt to win over "fashion-conscious" fitness band buyers.

With Fitbit having closed on Wednesday down over 70% from a 2015 high of $51.90, shares jumped on the announcement. IDC estimates the company still had 29.5% of the wearables market in Q4 (#1 overall, and followed by Apple, Xiaomi, Samsung, and Garmin).

Noteworthy Tech Commentary

CNET's Roger Cheng: Microsoft still has no idea what to do with phones - I don't fully agree with the headline, but Cheng's article is correct in observing Windows Phone (~2% smartphone market share) has been an afterthought during Microsoft's BUILD announcements. Microsoft's mobile focus is now on multi-platform apps and app development tools (as recent acquisitions SwiftKey and Xamarin demonstrate), and on enabling cloud services accessed by mobile apps (via Azure and solutions like the just-announced Bot Framework).

Ben Thompson: Snapchat's Ladder - An interesting look at Snapchat's (CHAT) gradual evolution from a teen-focused ephemeral picture-sharing service to a much richer communication and media platform with several monetization options. And the platform seems to be Facebook-proof for now.

BMO cuts Intel estimates on continued desktop weakness - The firm reports both notebook and desktop-related shipments from suppliers (contract manufacturers and motherboard makers, respectively) are tracking below 3-year average seasonality, with desktops also at the low end of BMO's prior forecast range. BMO also expects Q2 shipment growth rates to be below three-year averages. Bernstein highlighted weak January ODM figures while downgrading Intel on March 21.

IDC and Gartner's Q1 figures - they should arrive within a couple of weeks - will provide a better look at how the PC market has performed in 2016. The firms respectively estimated 10.6% and 8.3% Y/Y shipment drops for Q4.

SA contributor Stephen Simpson: Excellence Rewarded With Avago - A good overview of the post-merger Broadcom's (NASDAQ:AVGO) product line, and the synergies that exist between the pre-merger Broadcom and Avago's offerings in mobile and networking/data centers. I think his 5% long-term revenue growth target could be somewhat conservative, given Broadcom's strong mobile RF chip position and exposure to cloud data center buildouts.

SA contributor Mark Hibben - Did Apple Help Foxconn Buy Sharp? - As the article notes, it's quite plausible Apple played a role in the acquisition behind the scenes, given its ties to both companies and continued reliance on Sharp's high-end LCDs.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.