After losing half its value, Nvidia faces reckoning

Nvidia is a company that has reached the highest highs and the lowest lows, all in the span of a couple of weeks.

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Over the past two months, Nvidia’s stock has dropped from a closing price of $289.36 on Oct. 1 to today’s opening of $148.42, a decline of 48.8%.

It takes a lot for a company to lose nearly half its value in such a short period of time, but Nvidia is proving that an otherwise strong technology business can disappear in a blink of an eye. The company faces an almost perfect barrage of headwinds to its core products that is stalling its plans for long-term chip domination.

To step back a bit first though, Nvidia has traditionally made graphical processing units (GPUs) that are excellent at the kinds of parallel computation required for gaming and applications like computer-assisted design (CAD). It’s a durable and repeatable business, and one that Nvidia has a commanding market share in.

Yet, these markets are also fairly narrow, and so Nvidia has endeavored over the past few years to expand its product offerings to encompass new applications like artificial intelligence / machine learning, autonomous automotive, and crypto hashing. These applications all need strong parallelized processing, which Nvidia specializes in.

At least part of that story has worked well. Nvidia’s chips were extremely popular in the crypto run-up over the past few years, causing widespread shortages of the chips (and annoying its core gaming fans in the process).

This was huge for Nvidia. The company had revenues of $1.05 billion for the quarter ending Oct 31, 2013, and $1.31 billion two years later in 2015 — a fairly slow rate of growth as would be expected for a dominant player in a mature market. As the company expanded its horizons though, Nvidia engorged on growth in new applications like crypto, growing to $3.2 billion in revenue in its last reported quarter. As can be expected, the stock soared.

Now, Nvidia’s growth story is being hammered on multiple fronts. First and foremost, the huge sales of its chips into the crypto space have dried up as crypto prices have crashed in recent months. This is a pattern we are seeing with other companies, namely Bitmain, which has made specialized crypto chips a major part of its business but has lost an enormous amount of its momentum in the crypto bust. It announced it was shuttering its Israel office this week.

That bust is obvious in Nvidia’s revenues this year: they are essentially flat for three quarters now, hovering between $3.1 and $3.2 billion. Some have called this Nvidia’s “crypto hangover.” But crypto is just one facet of the challenges that Nvidia faces.

When it comes to owning next-generation application workflows, Nvidia is facing robust competition from startups and established players who want access to this potentially gigantic market. Even its potential customers are competing with it. Facebook is reportedly designing its own chips, Apple has been doing so for years, Google has been in the game a while, and Amazon is getting into the game fast. Nvidia has the know-how to compete, but these companies also understand the nuances of their applications really, really well. It’s a tough market position to be in.

If the challenges around applications weren’t enough, geopolitical tensions are also causing Nvidia serious harm. As Dan Strumpf and Wenxin Fan wrote in the Wall Street Journal two weeks ago in a deep dive, the company is emblematic of the challenge Silicon Valley firms face in the US / China trade standoff:

Nvidia executives are watching the trade fight with growing unease over whether it will curb its access to Chinese customers, according to a person familiar with the matter. Almost 20% of Nvidia’s $9.7 billion in revenue last year came from China. Many of its chips are used there for assembly into other products, and it has invested heavily to tap China’s burgeoning AI industries.

The company also is concerned that deteriorating relations between the world’s two biggest economies are causing Beijing to double down on efforts to reduce reliance on U.S. suppliers of key hardware such as chips by nurturing homegrown competitors, eating into Nvidia’s long-term business.

Crypto, customers, and China. That’s how you lose half your company’s value in two months.

Quick Bites

Hạ Long Bay, Vietnam. Photo by Andrea Schaffer via Flickr used under Creative Commons.

Google ‘studying steps’ to open headquarters in Vietnam in accordance with cybersecurity laws Following the testimony yesterday from Sundar Pichai on Capitol Hill, it’s interesting to see Google reportedly attempting to open this office in Vietnam, where it faces many of the same challenges as its expansion into China. Vietnam, like many other nations around the world, has recently passed a data sovereignty law that requires that local data be stored locally, forcing Google’s hand. China may be the bogeyman du jour, but the market access challenges posed by China are hardly unique.

Japan’s top 3 telcos to exclude Huawei, ZTE network equipment, according to Japanese news reports – Huawei’s bad news continues, this time with Japanese telcos supposedly vowing not to use the company’s equipment. This is something of a major development if it pans out — so far, the blocks on Huawei equipment have originated from the group of five nations known as the Five Eyes, who share intelligence information. Japan is not a member of that network, and could set the tone for other nations in Asia.

Baidu among 80 plus companies found faking corporate information – Baidu was censured for erroneous information in its Chinese corporate filings. That’s bad news for Baidu, which has hit rock bottom in its share price in the past few days, declining from a 52-week high of $284.22 to today’s opening of $180.50.

What’s next

Arman and I are still investigating the next-generation silicon space. Some good conversations the past few days with investors and supply-chain folks to learn more about this space. Nvidia’s analysis above is the tip of the iceberg. Have thoughts? Give me a ring: danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York

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Apple could end up manufacturing iPhones in another country due to tariffs

According to a new report from Bloomberg, Apple is thinking about multiple scenarios when it comes to tariffs and iPhone production. Right now, iPhones are not affected directly by the trade war between China and the U.S.

But if U.S. President Donald Trump decides to raise tariffs on smartphones, it could be a big deal for the company. Apple manufactures most of its iPhones in China right now and works with Foxconn for the final assembly of those devices.

In some countries with high tariffs, Apple has worked with suppliers outside of China. For instance, Taiwanese manufacturer Wistron has built an assembly facility in Bengaluru, India. At first, the plan was to manufacture iPhone SE devices in India.

Similarly, Foxconn opened a facility in Brazil back in 2011. But results have been disappointing as devices were still much more expensive in Brazil than in the U.S.

But the U.S. is such a key market for Apple that tariffs on U.S. imports could have significant consequences. According to Bloomberg, Apple would keep the same supply chain even if the U.S. decides on a 10 percent tariff on smartphones. If might move production away from China with a 25 percent tariff.

It’s unclear if all production would move to another country or just production for the U.S. But nothing is changing for now. It’s just executives playing a little game of “what if.”

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Apple could end up manufacturing iPhones in another country due to tariffs

According to a new report from Bloomberg, Apple is thinking about multiple scenarios when it comes to tariffs and iPhone production. Right now, iPhones are not affected directly by the trade war between China and the U.S.

But if U.S. President Donald Trump decides to raise tariffs on smartphones, it could be a big deal for the company. Apple manufactures most of its iPhones in China right now and works with Foxconn for the final assembly of those devices.

In some countries with high tariffs, Apple has worked with suppliers outside of China. For instance, Taiwanese manufacturer Wistron has built an assembly facility in Bengaluru, India. At first, the plan was to manufacture iPhone SE devices in India.

Similarly, Foxconn opened a facility in Brazil back in 2011. But results have been disappointing as devices were still much more expensive in Brazil than in the U.S.

But the U.S. is such a key market for Apple that tariffs on U.S. imports could have significant consequences. According to Bloomberg, Apple would keep the same supply chain even if the U.S. decides on a 10 percent tariff on smartphones. If might move production away from China with a 25 percent tariff.

It’s unclear if all production would move to another country or just production for the U.S. But nothing is changing for now. It’s just executives playing a little game of “what if.”

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Watch Google CEO Sundar Pichai testify in Congress — on bias, China and more

Google CEO Sundar Pichai has managed to avoid the public political grillings that have come for tech leaders at Facebook and Twitter this year. But not today.

Today he will be in front of the House Judiciary committee for a hearing entitled: Transparency & Accountability: Examining Google and its Data Collection, Use and Filtering Practices.

The hearing kicks off at 10:00 ET — and will be streamed live via our YouTube channel (with the feed also embedded above in this post).

Announcing the hearing last month, committee chairman Bob Goodlatte said it would “examine potential bias and the need for greater transparency regarding the filtering practices of tech giant Google”.

Republicans have been pressuring the Silicon Valley giant over what they claim is ‘liberal bias’ embedded at the algorithmic level.

This summer President Trump publicly lashed out at Google, expressing displeasure about news search results for his name in a series of tweets in which he claimed: “Google & others are suppressing voices of Conservatives and hiding information and news that is good.”

Google rejected the allegation, responding then that: “Search is not used to set a political agenda and we don’t bias our results toward any political ideology.”

In his prepared remarks ahead of the hearing, Pichai reiterates this point.

“I lead this company without political bias and work to ensure that our products continue to operate that way. To do otherwise would go against our core principles and our business interests,” he writes. “We are a company that provides platforms for diverse perspectives and opinions—and we have no shortage of them among our own employees.”

He also seeks to paint a picture of Google as a proudly patriotic “American company” — playing up its role as a creator of local jobs and a bolster for the wider US economy, likely in the hopes of defusing some of the expected criticism from conservatives on the committee.

However his statement makes no mention of a separate controversy that’s been dogging Google this year — after news leaked this summer that it had developed a censored version of its search service for a potential relaunch in China.

The committee looks certain to question Google closely on its intentions vis-a-vis China.

In statements ahead of the hearing last month, House majority leader, Kevin McCarthy, flagged up reports he said suggested Google is “compromising its core principles by complying with repressive censorship mandates from China”.

Trust in general is a key theme, with lawmakers expressing frustration at both the opacity of Google’s blackbox algorithms, which ultimately shape content hierarchies on its platforms, and the difficulty they’ve had in getting facetime with its CEO to voice questions and concerns.

At a Senate Intelligence committee hearing three months ago, which was attended by Twitter CEO Jack Dorsey and Facebook COO Sheryl Sandberg, senators did not hide their anger that Pichai had turned down their invitation — openly ripping into company leaders for not bothering to show up. (Google offered to send its chief legal officer instead.)

“For months, House Republicans have called for greater transparency and openness from Google. Company CEO Sundar Pichai met with House Republicans in September to answer some of our questions. Mr. Pichai’s scheduled appearance in front of the House Judiciary Committee is another important step to restoring public trust in Google and all the companies that shape the Internet,” McCarthy wrote last month.

Other recent news that could inform additional questions for Pichai from the committee include the revelation of yet another massive security breach at Google+; and a New York Times investigation of how mobile apps are location tracking users — with far more Android apps found to contain location-sharing code than iOS apps.

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Apple Pay finally launches in Germany

Apple’s mobile payment technology has finally launched in Germany, some four years after it debuted in the U.S.

On its newly launched Apple Pay website for Germany, Apple lists partner banks and credit card companies at launch, with customers from the likes of Deutsche Bank, O2 Banking, N26, Comdirect, HypoVerensbank, Bunq and Boon able to tap up the payment method directly.

Some fifteen banks and services are supported at launch. A further nine banks are slated as adding support in 2019, including DKB, INK and Revolut.

iOS users in the country can now add supported debit or credit cards to Apple Pay to make contactless payments with their device, rather than having to carry cash. Apple’s Face ID and Touch ID biometrics are used to a security layer to the payment system.

The local Apple Pay site also lists a selection of retailers, with Apple writing: “Apple Pay works in supermarkets, boutiques, restaurants, hotels and many other places. You can also use Apple Pay in many apps — and on participating websites with Safari on your Mac, iPhone or iPad.”

Aside from convenience, the other consumer advantage Apple touts for the system is privacy, with Apple Pay using a device-specific number and unique transaction code — and the user’s actual card numbers never stored on their device or on Apple’s servers — which means trackable card numbers aren’t shared with merchants, so purchases can’t be tied back to the individual.

While that might sound like an abstract concern, a Bloomberg report this summer revealed details of a multi-million deal in which Google pays for transaction data from Mastercard — in order to try to link online ad views with offline purchases in the US.

Facebook has also long been known to buy offline data to supplement the interest signals it collects on users from inside (and outside) its social network — further fleshing out ad-targeting profiles.

So escaping the surveillance net of one flavor of big tech can require buying into another. Or else going low tech and paying in cash.

Apple does not say what took it so long to add Germany to its now pretty long list of Apple Pay countries but Apple Insider suggests the relatively late adoption was down to pushback from local banks over fees, noting that it’s four months after the official announcement of a German launch.

It’s also true that paying by plastic isn’t always an option in Germany, as cash remains the dominant payment method of choice — also, seemingly, for privacy purposes. So Apple Pay is at least aligned with those concerns.

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Move over notch, the hole-punch smartphone camera is coming

First it was the notch, now the hole-punch has emerged as the latest tech for concealing selfie cameras whilst keeping our smartphones as free of bezel as possible to maximize the screen space.

This week, Samsung and Huawei both unveiled new phones that dispense with the iconic ‘notch’ — pioneered by Apple but popularized by everyone — in favor of positioning the front-facing camera in a small “Infinity-O” hole located on the top left side of the screen.

Dubbed hole-punch, the approach is part of Samsung’s new Galaxy A8s and Huawei’s View 20, which were unveiled hours apart on Tuesday. Huawei was first by just hours, although Samsung has been pretty public with its intention to explore a number notch alternatives including the hole-punch, which makes sense given that it has persistently mocked Apple for the feature.

The Samsung Galaxy S8a will debut in China with a hole-punch spot for the camera [Image via Samsung]

Don’t expect to see any hole-punches just yet though.

The Samsung A8s is just for China right now while the View 20 isn’t being fully unveiled until December 26 in China and, for global audiences, January 22 in Paris. We also don’t have a price for either, but they do represent a new trend that could become widely-adopted across phones from other OEMs in 2019.

That’s certainly Samsung’s plan. The Korea firm is rolling the hole-punch out on the A8s, but it has plans to expand its adoption into other devices and series. The A8s itself is pretty mid-range, but that makes it an ideal candidate to test the potential appeal of a more subtle selfie camera since Samsung’s market share has fallen in China where local rivals have pushed it hard. It starts there, but it could yet be adopted in higher-end devices with global availability.

As the View 20, Huawei has also been pretty global with its ambitions, except in the U.S. where it hasn’t managed to strike a carrier deal despite reports that it has been close before. The current crisis with its CFO — the daughter of the company’s founder who was arrested during a trip to Canada — is another stark reminder that Huawei’s business is unlikely to ever get a break in the U.S. market: so except the View 20 to be a model for Europe and Asia.

Huawei previewed its View 20 with a punch-hole selfie camera lens this week [Image via Huawei]

Samsung hasn’t said a tonne about the hole-punch design, but our sister publication Engadget — which attended the View 20’s early launch event in Hong Kong — said it was mounted below the display “like a diamond” to maintain the structure.

“This hole is not a traditional hole,” Huawei told Engadget.

Huawei will no doubt also talk up the fact that its hole is 4.5mm versus an apparent 6mm from Samsung.

Small details aside, one important upcoming trend from these new devices is the birth of the ‘mega’ megapixel smartphone camera.

The View 20 packs a whopping 48-megapixel lens for a rear camera which something that we’re going to see a lot more of in 2019. Xiaomi, for one, is preparing a January launch for a device that’ll have the 48-megapixels, according to a message on Sina Weibo from company co-founder Bin Lin. There’s no word on what camera enclosure that device will have, though.

Xiaomi teased an upcoming smartphone that’ll sport a 48-megapixel camera [Image via Bin Lin/Weibo]

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Apple says iPhones remain on sale in China following court injunction

Apple has filed an appeal to overturn a court decision that could ban iPhone sales in China, the company said on Monday, adding that all of its models remain available in its third-largest market.

The American giant is locked in a legal battle in the world’s biggest smartphone market. On Monday, Qualcomm announced that a court in Fujian Province has granted a preliminary injunction banning the import and sales of old iPhone models in China because they violated two patents owned by the American chipmaker.

The patents in question relate to features enabling consumers to edit photos and manage apps on smartphone touchscreens, according to Qualcomm.

“Apple continues to benefit from our intellectual property while refusing to compensate us. These Court orders are further confirmation of the strength of Qualcomm’s vast patent portfolio,” said Don Rosenberg, executive vice president and general counsel of Qualcomm, in a statement.

Apple fought back in a statement calling Qualcomm’s effort to ban its products “another desperate move by a company whose illegal practices are under investigation by regulators around the world.” It also claimed that Qualcomm is asserting three patents they had never raised before, including one which has already been invalidated.

It is unclear at this point what final effects the court injunction will have on Apple’s sales in China.

The case is part of an ongoing global patent dispute between Qualcomm and Apple, which saw the former seek to block the manufacturing and sale of iPhones in China over patent issues pertaining to payments last year.

Qualcomm shares were up 3 percent on Monday. Apple opened down more than 2 percent before closing up 0.7 percent. Citi lowered its Apple price target to $200 a share from $240 a share, saying in a note to investors that while it does not expect China to ban or impose additional tariffs on Apple, “should this occur Apple has material exposure to China.”

The Apple case comes as the tech giant faces intensifying competition in China, which represented 18 percent of its total sales from the third quarter. The American company’s market share in China shrunk from 7.2 percent to 6.7 percent year-over-year in the second quarter as local competitors Huawei and Oppo gained more ground, according to market research firm IDC.

The annual drop is due to Apple’s high prices, IDC suggests, but its name “is still very strong in China” and “the company will fare well should it release slightly cheaper options later in the year.”

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