2021:1 Software sales growth, Alibaba, Intel (again), everybody VC, Assa Abloy and GE Haliade-X
First of all: happy new year! Last days of the year were relax. “Celebrating” in what we in Belgium call our bubble (you can actually only invite 1 person into the house in Belgium).
Let’s continue our writing journey in 2021. And also: feel free to reach out!
I feel the quality of the content on Substack and Twitter is getting better and better these last couple of months. Also some high profile investors such joined the club - which might add to the momentum.
To start, an interesting thread on software:
The sales of the three US cloud players (Amazon, Microsoft and Google):
I do like these kind of rule of thumb (not for final decision making but just as an easy automated checklist): the ratio of R&D versus S&M:
For an internal presentation, I was looking at the earnings/sales growth of FANGMAN. Whereas their pricing power is impressive (i.e. 50% gross margin on rapidly growing sales from an already high base), I feel it is really their sales growth that is striking:
Currently I’m wondering what a good SAAS transition looks like. For example: SAP is “struggling” pushing its cloud and S/4 HANA database. But also quality companies like Dassault are still only at 20% cloud. How to assess whether they gonna be successful or whether there cloud transition is going smoothly?
When scrolling through Twitter, it fairly easy to spot what is making big up or down moves. Tesla and the holiday price action of Bitcoin is in the first camp. Alibaba is in the going down camp. Although often too sentiment driven, it is nice to see different people commenting (ie the price action triggers comments - and an opportunity to learn something).
Just to be clear: Alibaba is still up 10% in 2020 (in USD). From the end of October to mid December however, the stock was down 33%. The current sentiment is influenced by:
Jack Ma giving a speech end of October describing banks being operated with a “pawnshop” mentality
financial regulators suspending Ant IPO (on new fintech regulation)
an investigation for “monopolistic practices” (broader than Alibaba)
a US bill forcing Chinese companies on US exchanges to adhere to US Auditing rules
One can imagine that the e-commerce / Ant IPO wave Alibaba was surfing on, was interupted. Bloomberg posted a nice summary with two interesting visualisations:
Secret Capital posted an interesting view on China/Alibaba cloud (from UBS Research):
Dennis Hong pointed out they are investigating the whole ecosystem. So this might be a win for Alibaba (Alipay) in the end:
Beijing Sankuai Online Technology Co. and Beijing Sankuai Information Technology Co. were accused of abusing their dominant positions in the market by preventing customers from using Alibaba’s Alipay to pay for services and goods on their Meituan and Meituan Dianping apps.
In July, users who ordered delivery on Tencent-backed Meituan complained that it only accepted funds via its own payment platform, WeChat pay and Apple pay, forcing many to either open an account with WeChat pay or turn to other online takeaway platforms.
Following the lawsuit, some users said Alipay is now available as a payment method on the Meituan app, but the option is hidden in a drop-down button.
Can’t find the original tweet, but some people where are also basically stating that this is just a short/medium blip on the radar. The regulator wants to show he/she is in charge, but doesn’t want to ruin a Chinese superstar company of course.
The semi industry was once again at the forefront of the news with Daniel Loeb from Third Point taking a USD 1 billion position in Intel (about 0,5% of the company). The letter summarizes a lot of what has been said the last couple of weeks.
Intel is under attack from AMD and Nvidia:
AMD put its liquidity concerns behind it and has been taking meaningful market share in Intel’s core PC and data center CPU markets with its Ryzen and EPYC product lines. NVIDIA’s GPUs have dominated the nascent market for training complex computational models used in AI applications, a market in which Intel has largely been absent.
The question whether Intel should split itself and become the TSMC / Samsung of the US:
including whether Intel should remain an integrated device manufacturer and the potential divestment of certain failed acquisitions. As to the former issue, recent industry developments suggest many customers (such as Apple, Microsoft and Amazon) are now developing their own in-house silicon solutions and sending those designs to be manufactured in East Asia
And an interesting paragraph with regard to employees:
Of special concern is Intel’s human capital management problem and the absence of an articulated plan to address it. The Company has lost many of its most inspiring and talented chip designers and leaders, and our sources indicate that those who remain (several of whom are highly regarded in the industry) are becoming increasingly demoralized by the status quo. Intel was built on the vision of engineering genius and, without the best talent, the current trajectory will not be reversed. Solving Intel’s human capital management issue should be the Board’s most urgent task.
People are a company’s most important asset.
About Intel missing the EUV train: it is related to being integrated or not?
This disadvantage in terms of ecosystem scale and technology was exacerbated by poor decision making at 10 nm. Specifically, Intel decided not to insert EUV at 10 nm and instead rely heavily on multipatterning. This was effectively a message to the world: “We are so good that we do not need EUV. We can do this with DUV, which no one else can.” On top of this, Intel tried to scale aggressively at 10 nm. Moore’s law is actually not constant. The scaling at each node is different. Intel tried to scale transistor density by 2.7x at 10 nm rather than the more common 2x to 2.4x without using EUV. I have tried to to think of a good analogy for this and the best one I can come up with is that Intel attempted the world’s highest pole vault in a torrential rainstorm while blind folded with no mat on the other side.
And some recent news about the competition (H/T Robert Quinn):
According to recent reports, TSMC FinFET and Samsung GAA have encountered different but critical bottlenecks in the development of 3nm process technology. TSMC and Samsung will therefore have to postpone the development progress of the 3nm process technology. According to TSMC’s plan, 3nm will complete certification and trial production this year. However, it will be put into mass production in 2022.
As of now, there are reports that Apple already has a good chunk of TSMC’s 3nm process contracts. This means that Apple will be among the first batch of customers for TSMC 3nm process.
Cathie Wood of Ark talked about launching a PE/VC fund next to their publicly traded ETFs. Next in line: Thirdpoint:
In 2021, I might write a bit more about European companies. Based in Belgium, I should use whatever tiny advantage I have I guess (again just in general - no investment advice or anything transaction related).
Industry wise - I am always interested in industry set-ups like this for example:
Check out their 2018 Capital Markets day slidedeck if interested.
GE is making a monster wind turbine (from NYTimes article):
The prototype is the first of a generation of new machines that are about a third more powerful than the largest already in commercial service. As such, it is changing the business calculations of wind equipment makers, developers and investors.
The race to build bigger turbines has moved faster than many industry figures foresaw. G.E.’s Haliade-X generates almost 30 times more electricity than the first offshore machines installed off Denmark in 1991.
In coming years, customers are likely to demand even bigger machines, industry executives say. On the other hand, they predict that, just as commercial airliners peaked with the Airbus A380, turbines will reach a point where greater size no longer makes economic sense.
A time lapse of the installation in Rotterdam:
I did write something about the wind market / value chain before — feel the GE Haliade doesn’t change anything but worth a revisit of course.
In the meantime - the iShares Global Clean Energy ETF and the Invesco WilderHill Clean Energy ETF reached almost $5 billion and more than $2 billion in assets.
Enjoy!