The Bear Case For Micron. This Time Is Not Different

Micron (NASDAQ:MU) has been a great long with the stock up 59% over the past year and up 180% over the past 3 years. The company has benefitted from a cyclical recovery in memory pricing and demand. In addition, secular tailwinds are helping like the proliferation of mobile devices, growth in data centers, and consolidation in the semiconductor industry. Bulls of the stock point to the current strong DRAM pricing environment.

Source: Koyfin

The bears rightly focus on the future and especially on the dynamics in the supply chain. Sure, pricing is healthy now, but historically a strong pricing environment like today brought on new capacity. Several major brokers have come out with notes cautioning about the pricing environment over the near next 6-12 months. For example, GS recently put out a note highlighting potential weakness in the NAND market (about 1/3 of revenues):

We believe NAND flash remains oversupplied, and we believe that the outlook for NAND pricing is incrementally weaker for 3Q18 (some industry contacts we spoke to suggested that NAND pricing could be down in the mid to high teens range qoq, compared to the prior view that we had heard in June on our trip to Asia of down 10-15% qoq).

In the same note, it highlights the potential for the pricing environment to soften for DRAM servers (DRAM is 2/3 of revenue and servers are 40% of DRAM):

However, we heard at the event that US hyperscale customers will likely moderate server DRAM procurement in 1H19. This is because they now have more inventory on hand, and as current projects/contracts wrap up, there is more of a focus on price instead of just getting supply at any cost. We view this datapoint as a potential negative inflection, as server DRAM has been the clear bright spot for the market.

The GS note is not overly bearish on MU because the weak data points are just starting to creep into the market. However, the cracks in the bullish pricing story are starting to appear, and it’s evident the strong pricing environment is causing the market to adjust.

Historically this has always been the case. High EBITDA margins happen in an environment with strong demand and low inventory in the supply chain. Historically the stock peaked around the time EBITDA margins are near a peak. This is because the semiconductor business is cyclical and EBITDA margins don’t remain high for a prolonged period of time as supply and demand adjusts.

Source: Koyfin

The bulls further hang their hat on the potential of other growth markets such as automotive and internet of things. The reality is that these markets will make up a small portion (<10%) of overall revenue over the next year. Perhaps 3-5 years out these markets will be bigger.

Bulls argue that valuation is attractive, which is true at face value on an absolute basis. On a forward EV/EBITDA basis, the stock trades at 2.6x. Historically the stock trades between 2x and 8x forward EV/EBITDA. However, this low valuation suggests the market is anticipating that the current level of EBITDA is unsustainable and will decline. In cyclical sectors such as semiconductors, refiners or commodity producers, the time to be long is when earnings are low or negative. The time to sell is when earnings are high and face-value valuations are low.

Source: Koyfin

Hedge funds have been net sellers of MU collectively. According to the aggregated 13-F filings, hedge funds have reduced their position in MU from 8% to 7% over the past 2 quarters. Koyfin will calculate the recently released 13-F filings over the next week to see if hedge funds have continued to reduce positions.

Source: Koyfin

Short interest as a % of shares outstanding is low relative to history. Looking back over the past 30 years, short interest was near the low when the stock peaked.

Source: Koyfin

The MU bulls suggest this time is different. Perhaps it is. However it’s more likely that the cyclical forces in the memory industry will cause pricing to get weaker over the next year and MU fundamentals will follow.

Technically the stock broke its uptrend on August 6. The stock will likely test a big support level at $36. For investors with an investment horizon of several years, the next 6 months will likely present an attractive opportunity to buy the stock at a lower level than today.

Source: Koyfin

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.

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Pro-‘Dota 2’ Players Fend off Elon Musk’s AI Bots—for Now

One way to measure progress in artificial intelligence is to chart victories by algorithms over champions of increasingly challenging games—checkers, chess, and, in 2016, Go. On Wednesday, five bots sought to extend AI’s mastery to e-sports, in the fantasy battle game Dota 2. They failed, as a team of pro gamers from Brazil called paiN defended humanity’s honor—for now.

A crowd of thousands in Vancouver’s hockey arena watched the bots battle paiN over 52 tense minutes packed with spells and firebolts. The humans won decisively. The human-machine contest was a side event to The International, a Dota 2 tournament that boasts the biggest purse in e-sports, at $25 million.

The five bots that lost Wednesday were created by OpenAI, a research institute cofounded by Tesla CEO Elon Musk to work towards human-level artificial intelligence, and make the technology safe.

The match suggests that the best pro gamers maintain an edge over the best algorithms. A warm-up match earlier this month in which the bots defeated a team of Dota experts who provide commentary on pro games had raised expectations that AI was about to claim another scalp. OpenAI is targeting Dota 2 because, appearances aside, it is mathematically more complex than chess or Go. In the game, five-person teams pick characters such as spiders, sorcerers, and centaurs, and then fight to destroy each other’s bases.

The way the bots lost highlights a limitation of machine learning, the technique driving the current AI boom that relies on machines learning tricky tasks through experience and data. Mathematically rendering data into software that makes decisions works well for some tasks, such as speech recognition, but doesn’t easily create impressive powers of strategy or planning.

OpenAI’s software racked up more kills than paiN, spooking the tournament’s commentators with perfectly timed and coordinated attacks that could seem impossible for its human opponents to withstand. But the bots lagged strategically, squandering opportunities to gather and direct the resources needed for overall victory.

“The bots are still very good at moment-to-moment, but they seem bad at macro-level decisions,” tweeted Mike Cook, who researches games and AI at the University of Falmouth in the UK, and the Max Planck Institute for Software Systems in Germany.

That combination of precise tactics but wobbly strategy may reflect the way OpenAI’s bots learned to play Dota. They taught themselves the game from scratch using a technique called reinforcement learning, which is also at the heart of some of Google parent Alphabet’s AI ambitions.

In reinforcement learning, software figures out a task through trial and error. It takes on a challenge over and over, trying different actions, and sticks with those that work. OpenAI’s bots prepared for Wednesday’s match by playing millions of speeded up games of Dota against clones of themselves.

That’s very different from how humans approach problems. A novice can—fortunately—become a Dota pro in far fewer than a million games by understanding the game’s goals, and learning how to create productive strategies. Bots based on reinforcement learning—at least today—don’t engage with the game at a higher level. They are driven by predicting the best action in any given moment. “It’s reactive, they look at a state of the world and come up with something to do now,” says Ben Recht, a professor at University of California Berkeley.

Susan Zhang, a software engineer who worked on OpenAI’s Dota project, says that shortcoming showed during Wednesday’s loss. During training, the bots look at most 14 minutes ahead when judging the effects of actions they take. “They simply don’t have any mechanism to ‘plan’ for more than 14 minutes at a time,” she says. “This definitely contributes to the lack of long term strategy that we see.”

For the same reason, the bots don’t react well to situations they didn’t encounter during training. “If it sees something that it hasn’t seen before, it’s hard for it to adjust immediately,” says Zhang.

That doesn’t mean reinforcement learning can’t be powerful. By giving paiN a competitive game, OpenAI’s bots have already attained a level beyond earlier videogame bots.

Video by OpenAI

The nonprofit credits that to how it leveraged advances in graphics processors to put more computational power behind the technique. That makes trickier problems tractable, by giving learning algorithms the millions of tries they need to figure out tactics that work. Earlier this month, OpenAI used the same general approach behind its Dota bots to give a five-fingered robotic hand impressive dexterity. Musk left the board of OpenAI earlier this year, saying he wanted to avoid conflicts of interest with Tesla.

PaiN’s bot-squashing session Wednesday could be just a historical blip in the relentless advance of AI as soon as Thursday. Greg Brockman, an OpenAI cofounder who is also the organization’s chief technology officer, says the bots will play two more games this week, although he did not provide details. “What we proved today is we’re right there at the edge of human ability,” he says.

Speaking before Wednesday’s result, Recht of Berkeley told WIRED he expected OpenAI’s bots to beat a pro team—if not in its first matchup then soon after. But he pushed back against the notion this could signal machines will soon be better than humans at a wide range of typical jobs.

“The game environment is very constrained and simple because we want it to be fun to play,” he says. “That’s good for algorithms that need millions of repeatable simulations, but it takes away the challenges and unpredictability of the real world.”


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Europe's new data law upends global online advertising

LONDON (Reuters) – Europe’s new data privacy law has put a small army of tech firms that track people online in jeopardy and is strengthening the hand of giants such as Google and Facebook in the $200 billion global digital advertising industry.

FILE PHOTO: A Facebook like button is pictured at the Facebook’s France headquarters in Paris, France, November 27, 2017. REUTERS/Benoit Tessier/File Photo

The General Data Protection Regulation (GDPR here) brought in by the European Union in May is designed to protect personal information in the age of the internet and requires websites to seek consent to use personal data, among other measures.

The ability to track internet users has attracted hundreds of companies that harvest and crunch user data from websites – with or without the consent of the site owner – to form very specific individual consumer profiles.

GDPR poses a challenge to those groups because they all need consent to use the data. While sites often request consent on behalf of the ad tech firms they use directly, uncertainty over whether every link in the supply chain is GDPR-compliant is pushing some to leave Europe altogether.

Concerns about GDPR should, however, benefit Alphabet’s (GOOGL.O) Google and Facebook (FB.O) as their loyal customers are more likely to give consent to carry on using sites, allowing the U.S. giants to keep amassing and analyzing vast amounts of GDPR-compliant data that advertisers will pay to use.

Big publishers such as national newspapers are also likely to keep their readers and believe they can benefit by eventually charging advertisers more for online slots in the knowledge they are compliant with the new EU rules.

“It’s challenging for the digital ecosystem,” said Mark Read, joint boss at the world’s biggest ad agency, WPP (WPP.L).

“But if consumers feel confident that their data is being protected and they understand how it is being used and it’s done with permission, ultimately that should be a good thing for clients and for us,” he told Reuters.

TANGLED WEB

From a standing start nearly 30 years ago, the internet has become the largest advertising medium in the world because it allows firms to target consumers with ads based on anything from their browsing history, comments, spending power to location.

Within the tangled ecosystem are multiple firms that help brands and ad agencies connect to sites that fund content with targeted ads. For every dollar spent by an advertiser, about half may go to ad tech groups, according to industry estimates.

When an internet user pulls up a page multiple bid requests are sent into the advertising ecosystem touting facts about the person such as demographics and interests, as well as the nature of the site they are viewing.

That personal data can then pass through a dozen or more ad tech firms before a company or ad agency bids at an auction for space on the website and an advert is loaded. It is that spread of personal data that risks breaking the new EU privacy law.

For example, a firm that provides ads for a website viewed on a mobile phone may use other partners not included in the compliance chain to provide information about a user’s location.

Slideshow (2 Images)

That doubt about compliance is threatening the myriad ad tech middlemen and is also prompting advertisers and publishers to rethink how they share their user data.

“In a world where we are putting the consumer first, there are only going to be so many opportunities for the very colorful ecosystem of companies to obtain consent,” said Andrew Casale, head of ad group Index Exchange www.indexexchange.com.

UNCERTAIN TIMES

In the midst of the disruption, some ad tech groups are pulling out of Europe. Harry Kargman, founder of mobile ad firm Kargo www.kargo.com, told Reuters the company had withdrawn for now because it did not know how GDPR would be applied.

“There is too much uncertainty,” he said. “And I don’t think (that will change) until they apply it in specific cases.”

Verve www.verve.com, a company that helps advertisers target consumers on mobiles based on location, and Drawbridge www.drawbridge.com, a cross-device user data firm, have both stopped operating ad businesses in Europe.

Factual www.factual.com, another company that provides consumer data based on their location, also temporarily scaled back its operations in Europe after realizing the mobile apps it relies on “could not safely claim they were compliant”.

Others groups higher up the food chain have also been hit.

France’s Publicis (PUBP.PA), one of the world’s top five advertising companies, said it had felt the effect.

“Advertisers were cautious about spending money in supply chains that they weren’t absolutely sure they could target safely or legally,” said Steve King, CEO of Publicis Media.

Kargo’s Kargman expects Facebook and Google to benefit from the uncertainty. The two companies are likely to receive a high ratio of user consent given their loyal customer base while both own high-quality data because users post likes, dislikes and location, or search for areas of interest on Google or YouTube.

The companies also have deep pockets so can ensure they are compliant, throwing engineers and lawyers at the problem and reassuring brands at a time of uncertainty.

But they too have had to make changes.

Facebook lost about 1 million European monthly active users after GDPR and it said a desire by some users to avoid targeted ads is likely to lead to a modest revenue hit.

In response to GDPR, it has asked advertisers to certify they have the proper consent to use any data from third-party brokers, potentially shedding itself of some liability.

Google is also requiring publishers to secure consent when using its ad products on their properties. Marketers and partners also need to now use more of Google’s own services.

It has stopped providing easy access to lists that helped companies evaluate the success of their ads by showing which users clicked on them. Advertisers must now use Google’s Ads Data Hub application to measure the effectiveness of campaigns.

Google declined to comment for this article. It has previously said GDPR is a big change and is working with partners on compliance.

GOOD NEWS FOR PUBLISHERS?

Of the more than 20 executives spoken to by Reuters, from ad bosses to publishers, tech groups, brands, lawyers and consultants, all expect the supply chain to thin out – leaving publishers to potentially receive a greater slice of ad revenue.

“Given the number of actors it could take some time though,” said Phil Smith, head of UK advertiser trade body ISBA www.isba.org.uk.

Leading British sports website GiveMeSport www.givemesport.com is one publisher hoping the biggest overhaul of data privacy laws in more than 20 years will challenge the system.

“There are too many middlemen and they’ve been eating the cake,” General Manager Ryan Skeggs said. “We’re hoping GDPR will help weed them out. The sites that do well, theoretically speaking, should then make more money.”

Three of the leading UK newspaper groups – Rupert Murdoch’s News UK www.news.co.uk, The Guardian www.theguardian.com and The Telegraph www.telegraph.co.uk – have joined forces in the Ozone Project to sell their online inventory, or ad space, together, offering advertisers access to 39 million users.

Project leader Damon Reeve said publishers had lost control of their data to tech vendors. By compiling only quality inventory, he hopes marketers and publishers will start sharing user data directly – making them less reliant on third parties.

That should provide a boost to the newspaper industry which is still grappling with the shift online, where ad rates are far lower than those charged for a space in a physical edition.

“By 2020, Ozone could add circa 30 million pounds ($38 million) per annum – not a trivial contribution to a national newspaper newsroom,” said analysts at consultancy Enders Analysis www.endersanalysis.com.

Adam Smith, a director at WPP’s media buying arm GroupM www.groupm.com, agreed the focus on user compliance was likely to cut the amount of available inventory. “That feeds into price inflation for the sought after inventory,” he said.

How long the initial impact of GDPR will last, though, is not yet clear as many consumers – tired of the constant permission pop ups – are just giving consent to access sites. Prosecutors are also yet to bring any cases for data breaches.

But GDPR has ramped up the speed of change in what has been such a fragmented industry. “This kind of consolidation is natural in most maturing industries,” Enders analyst Matti Littunen said. “GDPR has just accelerated it.”

Additional reporting by Paresh Dave in San Francisco; editing by David Clarke

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Facebook and Twitter Eye Iran in Latest Fake Account Crackdown

Following more than a year of unrelenting focus on Russian cyber attacks on Silicon Valley giants, Facebook and Twitter announced Tuesday night that they’ve now also thwarted a network of suspicious accounts that appear to originate in Iran.

First, Facebook announced it had taken down 652 pages, groups, and accounts for “coordinated inauthentic behavior.” Less than an hour after Facebook went public with the news, Twitter announced in a brief series of tweets that, working with “industry partners,” it had shut down 284 accounts, many of which it said were from Iran.

The news is a reminder of the broad scope of potential adversaries targeting American tech companies. But it simultaneously signals a strengthening alliance between those companies, which have begun proactively sharing the details of their investigations with other tech giants.

On a call with reporters Tuesday night, Facebook executives including CEO Mark Zuckerberg described a multi-pronged investigation that unearthed several networks of bad actors. Some were associated with Russia, but others were affiliated with Iranian state media. “These were networks of accounts that were misleading people about who they were and what they were doing,” Zuckerberg explained. “People need to be able to trust the connections they make on Facebook.”

The company credits the cybersecurity firm FireEye with detecting one group called Liberty Front Press, which was connected with several accounts and pages. They often posed as news organizations and civil society groups, but using publicly available website registration information and IP addresses, Facebook researchers found that the group was actually affiliated with Iranian state media. All in, more than 200,000 users followed at least one of these accounts or pages across Facebook and Instagram. Facebook didn’t respond to WIRED’s request for comment about whether any of these users had been notified.

In its own blog post Tuesday, FireEye cautioned that identifying the origins of these groups can be difficult, due to the nature of their activities, but said they had “moderate confidence” in their assessment about Iranian involvement. The post included a labyrinthine illustration that maps out the web of different pages and their web of promotion. According to FireEye, the network promoted issues that aligned with Iranian interests. Among the striking details they discovered were “inauthentic social media personas, masquerading as American liberals supportive of U.S. Senator Bernie Sanders, heavily promoting Quds Day, a holiday established by Iran in 1979 to express support for Palestinians and opposition to Israel.”

In addition to the Liberty Front Press network, Facebook found another set of accounts and pages posing as news organizations that the company says had “links” to the Liberty Front Press group. But this network launched more traditional attacks, attempting to hack into other Facebook users’ accounts and spread malware. Facebook says it’s working with law enforcement on further investigating its findings.

The cyberthreat posed by Iran has been the subject of concern in intelligence circles for years. But when the US reached a deal with the country in 2015, which lifted key sanctions, Iran’s cyber attacks seemed to have subsided. Meanwhile, the threat Russia posed only grew in the public consciousness after the 2016 election, when Russian actors hacked into the Democratic National Committee and Hillary Clinton’s campaign chair’s emails, while also carrying out an influence campaign across nearly every social media platform. And yet, lawmakers have recently cautioned against taking an overly myopic view of the scope of cyber threats facing the tech sector.

During a hearing on Capitol Hill on Tuesday, just hours before Facebook’s announcement, Democratic senator Richard Blumenthal warned, forebodingly, “Until there’s real action, Vladimir Putin will operate with impunity, and he will continue to use a playbook which becomes the same playbook used by other countries, notably Iran. I believe there will be news about Iranian aggression in the cyber domain.”

Following Facebook’s disclosure, Democratic senator Mark Warner said in a statement, “I’ve been saying for months that there’s no way the problem of social media manipulation is limited to a single troll farm in St. Petersburg, and that fact is now beyond a doubt.”

Facebook’s discovery underscores the level of vigilance required to detect threats from multiple state actors at once, even as the company tries to find and memorize the fingerprints others have left behind. In addition to the two networks associated with Liberty Front Press, the company also detected a suspicious network that shared content about Middle East politics in Arabic and Farsi, and also shared content about the United States and United Kingdom in English. These 168 pages and 140 accounts racked up 823,000 followers across Facebook and Instagram. This group also ran $6,000 worth of ads, the oldest of which ran in 2012. Despite signals indicating these accounts and pages were connected, they “were not presenting a coordinated front in how they identified themselves,” Nathaniel Gleicher, Facebook’s head of cybersecurity policy, said on the press call.

Facebook noted that it also shut down additional accounts and pages associated with Russian military intelligence, but the company was light on details about what this group shared or how many Facebook users followed them. The company was also reluctant to blame Russia for another suspicious network it shut down at the end of July, saying that all of these investigations are still ongoing.

In his remarks to reporters, Zuckerberg continually stressed the need for tech companies and government agencies to work together to investigate and prevent these threats. His sentiment echoed Microsoft CEO Brad Smith, who earlier Tuesday also called on the government to act when he announced that Microsoft had thwarted a series of Russian cyber attacks on political groups in the United States.

“No one company can win this fight on its own,” Zuckerberg said.


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Deal-hungry investment bankers walk Tesla tightrope

(Reuters) – Tesla Inc (TSLA.O) Chief Executive Elon Musk’s contemplated $72 billion take-private deal is presenting investments bankers with a dilemma: heed concerns about how feasible it is or risk missing out on what could be this year’s biggest and most high-profile acquisition.

FILE PHOTO: A Tesla sales and service center is shown in Costa Mesa, California, U.S. June 28, 2018. REUTERS/Mike Blake/File Photo

Musk did not just catch investors and analysts off guard earlier this month by announcing on Twitter he was considering taking the U.S. electric car maker private. He also sent shockwaves throughout the investment banking world, which reacted to the news with both excitement and bewilderment.

This is because no company of Tesla’s size has ever been taken private by financial investors as Musk has suggested, as opposed to being acquired by a bigger company. Moreover, the standard method of doing so, saddling the company with debt in a so-called leveraged buyout, is not an option for Tesla given that is already servicing a debt mountain of some $11 billion and is not making any money. It reported an operating loss in 2017 of $1.6 billion.

Debate over the deal’s feasibility has polarized bankers. During one conference call at an investment bank last week, discussion on whether the deal represented a major opportunity or a fools’ errand degenerated into a shouting match, according to one of the bankers who provided the details on condition that neither he nor the bank, which decided not to pursue a role, are disclosed.

“Given the size of a deal, the company’s debt capacity and cash flow, bankers seem similarly chary about this deal happening anytime soon,” said Stefan Selig, a former top Bank of America Corp (BAC.N) banker who is the founder of financial and strategic advisory firm BridgePark Advisors LLC, which is not involved in the deal.

Bankers aspiring to advise on the deal are courting Musk and Tesla’s special board committee that will independently consider the merits of Musk’s expected offer.

Working for Musk could also come with reputational risk, given that the U.S. Securities and Exchange Commission is investigating the factual accuracy of his assertion on Twitter that funding for the deal was secured, sources have said.

However, many bankers said this would not be a deterrent given the magnitude of the potential deal.

“That’s likely not enough to color a banker’s view on whether or not there is an opportunity,” said Ted Smith, a co-founder and partner of Union Square Advisors, a technology boutique investment bank. Union Square is not trying to win a role in the Tesla deal.

Musk, who owns about a fifth of Tesla, said in a blog post (link – bit.ly/2B9n7Ea) last week the effective size of the deal would be much smaller than the $72 billion equity valuation of his offer, because, according to his estimate, two-thirds of the company’s shareholders would choose the option he will offer them of “rolling” their stakes and continue to be investors in a private company, rather than cash out.

Musk also said that Saudi Arabia’s PIF, which became a Tesla shareholder earlier this year with a stake of just under 5 percent, could help him fund the cash portion of the deal, through sources close to the secretive sovereign wealth fund have played down that prospect.

TROPHY DEAL

There is no precedent for major institutional shareholders and thousands of mom-and-pop investors rolling their stakes in a transaction of this size, and legal experts have warned that carrying this out would require navigating a regulatory minefield.

If the deal was structured like a leveraged buyout, advisers to Tesla could earn $90 million to $120 million in fees, while advisers to Musk’s investor group would earn $30 million to $50 million, and debt financing fees could reach $500 million, according to estimates from financial advisory firm Freeman & Co.

However, if the Tesla deal is done with equity partners and little debt, as Musk envisions, the fees would be substantially lower, according to Freeman, making it more of a trophy rather than a lucrative assignment for bankers.

Last week, bankers at Goldman Sachs Group Inc (GS.N) decided to take the plunge by offering to advise Musk. Goldman bankers have had close ties with him for more than a decade, leading Tesla’s initial public offering in 2010. Goldman Sachs declined to comment.

Morgan Stanley equity research analysts said on Tuesday they had ceased coverage of Tesla, and sources confirmed that the bank was also close to being hired by Musk.

Tesla has declined to comment on the matter.

This is despite Morgan Stanley currently advising aspiring Tesla rival Lucid Motors Inc on attracting a potential investment from PIF, sources told Reuters. Morgan Stanley has been a top financier of Tesla over the years, making it a prime candidate to arrange any debt financing needed, the sources said.

Morgan Stanley declined to comment.

Still up for grabs is the financial advisory mandate to be awarded by Tesla’s special committee. Evercore Partners Inc (EVR.N), which advised Tesla two years ago in its $2.6 billion acquisition of renewable energy company SolarCity and is also advising PIF on its potential investment in Lucid Motors, is one of the banks vying to advise Tesla’s special committee, according to the sources. Evercore declined to comment.

Other investment banks vying for the Tesla special committee financial advisory role include Centerview Partners, Lazard Ltd (LAZ.N), Moelis & Co (MC.N), and Perella Weinberg Partners LP, according to the sources. The banks did not respond to requests for comment.

Reporting by Liana B. Baker and Carl O’Donnell in New York; Additional reporting by Harry Brumpton in New York; Editing by Greg Roumeliotis and Lisa Shumaker

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U.S. tariffs cast a cloud over Huawei's solar electronics launch

(Reuters) – Huawei Technology Co’s coming U.S. launch of a solar-panel control device is expected to collide with new Trump administration tariffs on Chinese electronics, undermining a product that analysts had seen as challenging rivals on pricing.

FILE PHOTO: People walk past a Huawei sign at CES (Consumer Electronics Show) Asia 2018 in Shanghai, China June 14, 2018. REUTERS/Aly Song/File Photo

The Chinese company, best known for its smart phones and telecommunications equipment, has developed a new generation of low-cost solar inverters, which convert, manage and monitor energy produced by solar panels for home use.

Huawei has said it was aiming to roll out the product, called FusionHome, in the United States before the end of the summer, a year after its original target. Analysts and distributors had expected it to knock $100-$200 off current market prices of similar devices costing between $1,000 and $1,500 per household.

But a coming 25 percent tariff on Chinese electronics that would overturn much of Huawei’s expected price advantage may have stalled talks with U.S. installers and distributors, said analysts and research firms.

Huawei will either have to reduce its margins or raise prices, they said, potentially benefiting rival producers including SolarEdge and Enphase Energy, which are ramping up manufacturing outside China.

Huawei declined to comment on tariffs and did not respond to detailed questions from Reuters on the current status of FusionHome.

Company spokesman Joe Kelly said in July that the company was planning to introduce the new product to its partners in the United States this summer and that the timing of the roll-out would depend on those distributors.

The 25 percent tariff, if implemented, will take effect Aug. 23, and analysts covering the sector say it will affect the new Huawei product.

“It certainly would eat into profits and is just a question on how aggressive Huawei wants to be,” said Cowen & Co analyst Jeffrey Osborne.

Huawei’s foray into the high-margin residential market comes after panel installations fell in 2017 for the first time in seven years. GTM Research recently cut its forecast for 2018 residential solar market installations by 8 percent to 2.2 gigawatts.

Of four major solar panel makers Reuters talked to, only Utah-based Vivint Solar confirmed it was considering adding Huawei’s inverter to its lineup.

SunPower Corp and Tesla’s SolarCity did not respond to Reuters’ requests for comment. A SunRun spokeswoman said the company welcomed new innovations that made solar energy cheaper and more accessible.

“A 25 percent tariff could eat up the margins of cost-competitive Chinese manufacturers and potentially change the player landscape of the U.S. solar inverter market,” said another analyst, Iben Frimann-Dahl from Rystad Energy.

Reporting by John Benny in Bengaluru; Editing by Cynthia Osterman

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In an Open Letter, Arianna Huffington Gave Elon Musk Really Good Advice You Should Follow Too

Huffington begins her message to Musk by reminding him what a devoted father he is:

I’ve always loved how, whenever I see you, the first thing you do is whip out your phone to proudly show me videos of your adorable children and their latest exploits. Clearly you have much going on in your life, but it says a lot about you that this is what you lead with.

You would think this opening statement might have hit home, since one of the many problems a tearful Musk acknowledged to the Times reporters is that his near-24/7 work schedule at Tesla for the past year was not good for his kids.

Huffington continued with an argument calculated to break through Musk’s denial–science. Musk is nothing if not a scientist, so Huffington asked him to look at the science of human overwork and sleep deprivation:

The science is clear. And what it tells us is that there’s simply no way you can make good decisions and achieve your world-changing ambitions while running on empty.

To cite just one study, after 17-19 hours without sleep, we begin to experience levels of cognitive impairment equivalent to a blood alcohol level of .05 percent, just under the threshold for being legally drunk. No business leader would hire people who came to work drunk, so don’t model that behavior for your employees.

She ends with a plea to Musk. For his own sake, for Tesla’s sake, and for the sake of the planet he is trying to save from climate change, she begs him to please, please get some rest and time off so that he can be what his companies need him to be–a leader functioning at his very best.

Musk, to say the very least, doesn’t get it.

He seems to be stuck on two of the most common justifications people make for working too hard and refusing to get the sleep, relaxation, and companionship they need:

1. No one can do it but me.

2. I am so strong and so smart that I don’t need rest like other people do. I can power through this challenge and save the day.

Let’s take these two fallacies one at a time. The first one presupposes that there is no other executive at Tesla as dedicated as Musk, or as smart, or capable of managing the company’s most important task at the moment which is keeping Tesla Model 3 production at its target capacity so that the new model can be profitable and slow the depletion of Tesla’s cash reserves.

I have no idea if there’s anyone else at Tesla who could manage this task in Musk’s place but I know this: If there isn’t, then finding someone who can and putting that person in the right role is Musk’s and the Tesla board’s most pressing job.

Because–what if? What if Musk came down with an illness again, as he did when he caught malaria? What if he were in an automobile accident? He does, after all, tweet while driving. What if one his children fell ill or were injured, meaning that he simply couldn’t stay at the factory. Is Musk willing to risk his company’s future on a bet that nothing like this will happen? And even if he is, is his board willing to? There are no two ways about it: If truly no one but Musk can manage production at the Tesla factory, they need to put someone else in place who also can. Yesterday. 

It shouldn’t be impossible. Musk’s other major company, SpaceX, has a capable COO, Gwynne Shotwell, who has been running that company day-to-day while Musk spends his days and nights as Tesla. And–as opposed to building electric cars–SpaceX’s work actually is​ rocket science. 

Is Musk really helping Tesla by working 24/7?

The second fallacy has already disproved itself. Huffington points us toward the science that says we lose productivity, not to mention good judgment, when we’re deprived of appropriate rest. But we don’t even need to review the science, we can just consider Musk himself.

Musk has always spoken–and tweeted–somewhat impulsively, without much review by anyone. But he has never made a habit of getting himself or his company into trouble with his public statements. Until the past four months. In May, Musk’s comments about “boneheaded” questions on an earnings conference call led to a fall in Tesla’s stock price–a win for the short sellers he hates.

He himself acknowledged that this was a mistake when Musk apologized to the analysts on the next quarter’s call–and he himself blamed the long hours he’s been putting in. “There are reasons for it and I’d gotten no sleep and been working sort of 110-hour, 120-hour weeks,” he said. So he had every reason to know that by working through exhaustion he was harming Tesla more than helping it.

In July, the still exhausted Musk stepped in it again. When a British expert involved in the Thai cave rescue belittled the rescue submarine Musk created for the effort (which turned out to be unneeded and might not have worked) Musk took out his anger on Twitter, calling his opponent “pedo guy” with no evidence whatsoever. The comment may not have immediately affected Tesla, but it certainly damaged Musk’s personal brand–and Musk’s status as a widely beloved and trusted figure is one of Tesla’s biggest assets.

Then, of course, came last week, and Musk’s tweet that he would take Tesla private with “funding secured.” Tesla’s stock price went flying upward. Then it turned out funding had been discussed but was in no way secured. That earned Tesla a subpoena from the SEC. Next came his confessional Times interview. It was an extraordinary thing–try to imagine Steve Jobs or Jeff Bezos saying any of those things on the record. I suspect it was intended partly as a cry for help, partly to make people like him again. But once again, Tesla’s stock price dropped in response. Over the weekend, the short sellers–Musk’s arch-enemies–had recovered $1.3 billion of their possible losses as a result. 

Don’t let this happen to you.

Musk is accustomed to listening to no advice, charting his own course, and being stubborn, even pig-headed, if not boneheaded. So I don’t know whether he will see the illogic of his own actions and change them before he and his company suffer the consequences.

I do know that the rest of us can look at these events and learn from them for our own work lives. No matter how smart you are, or how tough, or how dedicated to your job, you cannot escape the laws of human biology and neuroscience any more than you can the laws of physics. You may be able to pull an occasional all-nighter or working weekend to meet a tight deadline, but no one can go months or years working late into the night, working weekends, working birthdays, and never taking a vacation without serious consequences. Learn from Musk’s mistakes or it could kill your reputation, your biggest project, or even your company. It could even wind up killing you.

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Delta Just Made a Surprise Announcement That Shows How Different It Is From American Airlines

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

It was a piece of news that seemed to drift by like a contrail of marijuana at a Jack White concert.

Well, it came out on Friday, so you’d think even Delta Air Lines might think it wasn’t important.

The words, though, seemed meaningful:

More screens, more choices: Delta equips 600th aircraft with seatback entertainment.

Wait a minute.

I thought many airlines were stripping seatback screens out of their planes.

Parker believes that ultimately people will prefer to bring their own devices. The airline’s job will merely be to give them great Wi-Fi and content they can stream.

Delta’s announcement, though, shows the contrary approach. The airline’s Senior Vice President and Chief Marketing Officer Tim Mapes explained:

We continue to invest in seatback screens, because customers continue to tell us they’re important. With seatback screens, customers don’t have to choose between using their phones or watching a movie. Whether they want to work, relax, or a little bit of both — we want to give our customers the ability to choose and make the most of their time in flight.

Sadly, it’s a multitasking world, which means that too many people are used to — because they’re often forced into it — using two screens at the same time.

And it may be that ultimately Parker will be right. We’ll all be carrying around vast numbers of screens, all synced with the chips in our heads.

Perhaps only then will Delta begin to dismantle its screens.

However, Delta went on to explain that its entertainment system provides customers with a qualitative depth and breadth.

How often, indeed, do you get on a plane with good seatback entertainment and find movies that you’d love to see but had forgotten about? Or movies that you simply hadn’t heard of, but turn out to be wonderful?

The fact that an airline bothers to offer this suggests it’s got at least some understanding of customer service. 

Customer service doesn’t just mean smiling and being pleasant — though goodness, does that help. 

It means anticipating a customer’s needs and bringing them a little delight — hopefully unexpected delight.

American’s approach implies that a family of five will actually bring five devices with them in order to remain entertained. 

How likely is that?

Google recently published some research it performed in the travel sector. It found, indeed, that customers’ greatest wish when booking travel wasn’t a fine loyalty program. 

It was customer service. 

Some airline executives simply don’t see the immediate return from giving something to customers for free. 

Soon, though, you might find them bemoaning the state of their business. 

Why, just last week, an airline president said he was concerned that his company was falling behind in attracting premium customers.

And which airline did he reference as being ahead of American? Why, Delta.  

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Expiration of Major Cybersex Patent Could Set Off Explosive Innovation

Friday marked a major milestone for the more than $15 billion adult toy industry, with the expiration of a longstanding patent on sex toys controlled over the internet. The patent has been held in recent years by a company widely regarded as a ‘patent troll,’ focused not on developing usable technology, but instead on seeking monetary damages from anyone who infringed on their claim to the idea.

Sex industry insiders speaking with Ars Technica described the moment as a watershed, which could unleash a wave of innovation in so-called “sex tech.” The basic idea behind the expiring patent is almost as old as the internet – that two users might sexually stimulate each other using devices controlled over the internet.

Sales of sex toys have been recently measured at about $15 billion per year, but many have projected major growth for the industry thanks to eroding taboos and high-profile cultural landmarks such as the 50 Shades of Grey books and films. Removing obstacles to internet-linked sex-toys — a field often referred to as “teledildonics” — could further spur growth.

“The race will be on to create the most fantastic orgasmic experiences possible over an Internet connection,” Maxine Lynn, an intellectual property lawyer specializing in sex technology, told Ars.

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Other forms of remote sex, from porn to sexting, have certainly thrived in the digital era. But TZU Technologies, the owners of patent #6,368,268 (a “Method and device for interactive virtual control of sexual aids using digital computer networks”) have in recent years filed frequent infringement lawsuits against product developers. That included at least six filings in 2015, among them a suit against a Kickstarter project intended only to enable virtual handholding. Kickstarter was named as a codefendant in that suit, which the plaintiff partly withdrew when Kickstarter moved to fight it in court.

Whatever your feelings about this specific strain of salacious tech, then, the case highlights still-unresolved problems in the way technology patents are awarded, interpreted, and enforced. The 1998 cybersex patent, like those in other instances of patent trolling, is extremely broad, describing general functions (“select input device and stimulation device”) rather than specific mechanisms. There is also compelling evidence it wasn’t even novel at the time it was filed.

The Electronic Frontier Foundation describes the current patent system as so vulnerable to patent trolls that it’s fundamentally “broken.” Similar tactics have been used to file expensive, distracting claims over the basic functionality behind everything from scanning documents to sending email.

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Facebook Ads ‘Unlawfully Discriminate’ by Race, Gender, and Disability, HUD Complaint Charges

The Department of Housing and Urban Development filed a complaint Friday accusing Facebook of allowing advertisers to illegally discriminate against certain groups through its ad system.

The housing-discrimination complaint, filed under the Fair Housing Act, said that advertisers can use Facebook’s ad platform to create target ads that unlawfully favor certain people by suggesting options based on gender or race.

“Facebook unlawfully discriminates by enabling advertisers to restrict which Facebook users receive housing-related ads based on race, color, religion, sex, familial status, national origin, and disability. Facebook mines extensive user data and classifies its users based on protected characteristics,” the complaint said.

“Facebook’s ad-targeting tools then invite advertisers to express unlawful preferences by suggesting discriminatory options, and Facebook effectuates the delivery of housing-related ads to certain users and not others based on those users’ actual or imputed protected traits,” it said.

For example, advertisers can choose to show ads only to one gender, filter out disabled users who show an interest in “assistance dog” or “deaf culture,” and discriminate by national origin by not advertising to people interested in, say, “Latin America” or “Somalia.”

In a statement, Facebook said: “There is no place for discrimination on Facebook; it’s strictly prohibited in our policies. Over the past year we’ve strengthened our systems to further protect against misuse. We’ll continue working directly with HUD to address their concerns.”

Last year, Facebook turned off the ability of its advertisers to exclude racial groups from their audience of ads while it studied how the feature could be use in discriminatory ways.

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Australian teen sparks FBI action after hacking Apple: media

SYDNEY (Reuters) – An Australian teenager has pleaded guilty to hacking into the main computer network of technology giant Apple Inc (AAPL.O), downloading big internal files and accessing customer accounts, because he was a fan of the company, local media reported.

Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New York, U.S., August 1, 2018. REUTERS/Lucas Jackson

The boy, 16, from Melbourne city, broke into the United States company’s mainframe from his suburban home many times over a year, The Age newspaper reported, citing statements by the teenager’s lawyer in court.

The teen downloaded 90 gigabytes of secure files and accessed customer accounts without exposing his identity. When Apple became aware of the intrusion it contacted the U.S. Federal Bureau of Investigation, which referred the matter to the Australian Federal Police (AFP), the newspaper said, quoting statements made in court.

The AFP declined a Reuters request for comment on the grounds that the matter was before the court.

An Apple representative in Australia was not immediately available for comment.

The report said that an AFP raid on the boy’s family home produced two laptops, a mobile phone and a hard drive which matched the intrusion reported by Apple. The sensitive documents were saved in a folder called “hacky hack hack,” the report added.

The report said the boy had boasted about his activities on the mobile messaging service WhatsApp.

The boy’s name could not be made public because he was a juvenile offender.

The report said the boy would be sentenced next month.

Reporting by Byron Kaye; Editing by Leslie Adler

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U.S. judge blocks programs letting 'Grand Theft Auto' players 'cheat'

NEW YORK (Reuters) – A federal judge on Thursday awarded Take-Two Interactive Software Inc, the maker of the “Grand Theft Auto” series, a preliminary injunction to stop a Georgia man from selling programs that it said help players cheat at the best-selling video game.

A promotion for the computer game “Grand Theft Auto Five” is show in a Game Stop gaming story in Encinitas, California September 17, 2013. REUTERS/Mike Blake/File Photo GLOBAL BUSINESS WEEK AHEAD PACKAGE – SEARCH ‘BUSINESS WEEK AHEAD 31 OCT’ FOR ALL IMAGES – S1BEUKBVDTAB

Take-Two had accused David Zipperer of selling computer programs called Menyoo and Absolute that let users of the “Grand Theft Auto V” multiplayer feature Grand Theft Auto Online cheat by altering the game for their own benefit, or “griefing” other players by altering their game play without permission.

U.S. District Judge Louis Stanton in Manhattan said Take-Two was likely to show that Zipperer infringed its “Grand Theft Auto V” copyright, and that his programs would cause irreparable harm to its sales and reputation by discouraging users from buying its video games.

Stanton also said an injunction would serve the public interest by encouraging Take-Two to invest more in video games and was appropriate because of the “high risk” that Zipperer, who claimed to be unemployed, could not afford damages.

The judge dismissed an unfair competition claim against Zipperer, who according to court papers lives in Ellabell, Georgia, west of Savannah.

A lawyer for Zipperer did not immediately respond to requests for comment.

Take-Two did not immediately respond to similar requests. The New York-based company has lost at least $500,000 because of Zipperer’s programs, according to its March 23 complaint.

The case is Take-Two Interactive Software Inc v Zipperer, U.S. District Court, Southern District of New York, No. 18-02608.

Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman

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SEC scrutiny of Tesla grows as Goldman hints at adviser role

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission has sent subpoenas to Tesla Inc (TSLA.O) regarding Chief Executive Elon Musk’s plan to take the company private and his statement that funding was “secured,” Fox Business Network reported on Wednesday, citing sources.

The electric carmaker’s shares fell as much as 4 percent but cut their losses after Goldman Sachs Group Inc (GS.N) said it was dropping equity coverage of Tesla because it is acting as a financial adviser on a matter related to the automaker.

Investors viewed the Goldman statement as confirming a tweet from Elon Musk on Monday about working with Goldman, even as the reported subpoenas indicated the SEC has opened a formal investigation into a matter.

The latest news extended the roller-coaster ride for Tesla investors in recent days, adding to uncertainty about the future course of the company and whether a deal can be done amid growing regulatory complications.

Tesla and the SEC declined to comment.

Musk stunned investors and sent Tesla’s shares soaring 11 percent when he tweeted early last week that he was considering taking Tesla private at $420 per share and that he had secured funding for the potential deal.

FILE PHOTO: A Tesla sales and service center is shown in Costa Mesa, California, U.S., June 28, 2018. REUTERS/Mike Blake/File Photo

The shares fell 2.6 percent to $338.69 on Wednesday, below $341.99, their closing price the day before Musk tweeted his plan to take Tesla private.

The Tesla CEO provided no details of his funding until Monday, when he said in a blog on Tesla’s website that he was in discussions with Saudi Arabia’s sovereign wealth fund and other potential backers but that financing was not yet nailed down.

Musk also tweeted late Monday night he was working with Goldman Sachs and private equity firm Silver Lake as financial advisers. However, as of Tuesday, Goldman was still negotiating its terms of engagement with Musk, according to a person familiar with the matter.

The 47-year old billionaire’s tweet about secured funding may have violated U.S. securities law if he misled investors. On Monday, lawyers told Reuters Musk’s statement indicated he had good reason to believe he had funding but seemed to have overstated its status by saying it was secured.

The SEC has opened an inquiry into Musk’s tweets, according to one person with direct knowledge of the matter. Reuters was not immediately able to ascertain if this had escalated into a full-blown investigation on Wednesday.

This source said Tesla’s independent board members had hired law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP to help handle the SEC inquiry and other fiduciary duties with respect to a potential deal.

The Wall Street Journal said the SEC was seeking information from each Tesla director.

Reporting by Sonam Rai, Michelle Price and Supantha Mukherjee; Editing by Anil D’Silva, Nick Zieminski and Cynthia Osterman

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