Monthly Archives: November 2015

What’s Next For Copper?

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Samsung replaces head of sluggish mobile unit

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

NTT Docomo Inc.'s Galaxy Active neo smartphones manufactured by Samsung Electronics Co. sit on display at an unveiling in Tokyo, Japan, on Wednesday, Sept. 30, 2015. Docomo, Japan’s largest mobile-phone carrier by subscribers, introduced 10 smartphone models today. Photographer: Kiyoshi Ota/Bloomberg©Bloomberg

Samsung Electronics has replaced the head of its mobile business for the first time in six years, as it seeks to reverse a recent trend of falling smartphone sales.

Shin Jong-Kyun, who fostered the successful Galaxy smartphone series as Samsung’s head of mobile communications from 2009, will hand the mantle to Koh Dong-jin, head of mobile research and development, the company said on Tuesday.

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Mr Shin, 59, will retain his formal position as one of three co-chief executives, to focus on long-term strategy — but he will “step back from day-to-day operations”, Samsung said.

The move follows extensive speculation — beginning in the lead-up to last year’s reshuffle — that Mr Shin would be sidelined in response to setbacks in the mobile division.

Samsung remains the world’s leading smartphone producer by sales but its handset profits have fallen since the first half of last year, as it lost share to lower-cost Chinese peers at the low end of the market, and a resurgent Apple at the high end.

“In the context of Samsung’s culture, somebody has to be held responsible,” said Daniel Kim, an analyst at Macquarie. “I expected him to resign last year, actually, but he stayed another year and the handset division is still not showing any meaningful sign of improvement.”

Mr Shin’s retention as co-chief executive seemed a “mark of respect for his contribution in the past”, Mr Kim said, calling his move “one step towards retirement”.

The Galaxy series achieved huge market success from 2011 onwards, spearheading Samsung’s rise to become the world’s leading smartphone maker. But as competition intensified last year, the bloated portfolio of products that cost more than those of Asian rivals failed to attract consumers.

This year’s Galaxy S6 flagship won enthusiastic reviews but sales undershot targets.

Cost cuts have borne some fruit and the mobile division’s third quarter operating profit rose year-on-year for the first time since 2013 — but the figure of Won2.4tn was just over a third the record earnings achieved exactly two years before. During the same period Samsung’s global smartphone market share fell from 33 per cent to 24 per cent, according to analysts at IDC.

Analysts do not anticipate a significant new driver of sales for the smartphone division until Samsung’s widely anticipated launch of phones with flexible screens, rumoured to be planned for 2017.

There were no other key role changes among the promotions announced, with no change in title for Samsung vice-chairman Lee Jae-yong, the only son of chairman Lee Kun-hee.

There had been some speculation that the younger Mr Lee might be elevated to the chairmanship, with his father bedridden since a major heart attack in May last year. It is unclear how such a decision would be taken: Samsung’s “chairman” position is informal in terms of South Korean law and does not entail a seat on the board, though it comes with sweeping de facto power.

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Samsung replaces mobile chief as smartphone lead dwindles

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

SEOUL, South Korea (AP) — Samsung appointed a new mobile president at Samsung Electronics for the first time in six years after growth stalled at the world’s largest smartphone maker.

The Samsung Group conglomerate said Tuesday that Koh Dongjin was promoted to president. He will replace Shin Jong-kyun as the head of the mobile business at its flagship company Samsung Electronics starting next year. The change was announced as part of annual management reshuffle at South Korea’s top conglomerate.

Samsung Electronics’ smartphone sales lead has been dwindling in the face of competition from Apple Inc. in the premium market and Chinese companies in cheaper devices. The management change comes as Lee Jae-yong, the only son of ailing Samsung chairman Lee Kun-hee, takes a bigger role in Samsung after his father suffered a heart attack in May last year.

Shin will step away from day-to-day operations and focus on long-term strategies. He keeps his title of CEO of the IT and mobile division that encompasses phone, network and computer businesses.

Koh, an engineer, was an executive vice president leading mobile research and development.

Samsung said he led the development of two flagship smartphones released this year, the Galaxy S6 and Galaxy Note 5. He was also behind development of the Samsung Pay mobile payments system.

Shin became the head of mobile in 2010. Three years later, Samsung was the world largest smartphone supplier despite being a latecomer behind Apple.

But in the past year, Samsung’s global smartphone market share has dwindled to less than one quarter and its quarterly mobile profit shrank to less than half of its best quarters.






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Samsung replaces mobile chief as smartphone lead dwindles

This post was originally published on this site



Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER






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China Factory Data Show Economy's Shift, Not Meltdown

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

China’s official manufacturing index fell to a 3-year low in November. But the services PMI rose, highlighting an economic shift helping Apple (NASDAQ:AAPL), Nike (NYSE:NKE) and Starbucks (NASDAQ:SBUX).

The manufacturing activity gauge fell 0.2 point to 49.6, the worst since August 2012, according to the National Bureau of Statistics on Tuesday local time. The reading was slightly below views and further below the neutral 50 level. That’s bad news for companies exposed to China’s smokestack economy.

But the service-sector index rose half a point to 53.6, indicating accelerating growth. It’s the latest evidence that China is rapidly shifting from an export-focused industrial economy to one relying on services and domestic demand. While industrial production and capital spending data have flagged Retail sales growth has remained robust, as the urban middle class becomes increasingly large and well-off.

Apple reported greater China sales nearly doubled in its latest quarter, fueled by strong demand for the Apple iPhone. Starbucks also has shined, with company opening 1.5 Starbucks stores every day in the third quarter. Nike’s greater China sales rose 30% in the quarter ended Aug. 31, with earnings before taxes and interest up 51%.

Not all consumer-focused sectors have thrived. Automakers have struggled with slowing sales growth and overcapacity. Yum Brands (NYSE:YUM) once saw huge growth, but food safety concerns have hit sales, and Yum now plans to spin off its Yum China division.

Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM) still see Macau as the future. But China’s gaming enclave has seen casino revenue plunge as a crackdown on corruption in Macau and in China overall has curbed VIP high roller visits. Las Vegas Sands, Wynn Resorts and MGM shares are all well off 52-week highs, with Sands and Wynn near multi-year lows.

One word of caution for Apple, Nike and other U.S. consumer companies faring well in China. China just won reserve currency status from the IMF. Some analysts speculate that Beijing could now devalue the yuan vs. the dollar to regain lost competitiveness with the yen and other Asian currencies that have fallen sharply in the past couple of years. That would pinch Chinese sales and earnings in dollar terms.

Just to add a bit of confusion, the private-sector Caixin manufacturing index rose 0.3 point to 48.6, a 5-month high. But it too shows continued contraction.

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[$$] Microsoft Angles for Calls

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My 2014 Best Performers, Looking Ahead To 2015

Microsoft Corp. MSFT 0.78 % is angling to manage more corporate phone calls and meetings, adding cloud-based services that compete with offerings from vendors like Cisco Systems Inc. CSCO -0.26 % and Alphabet Inc., GOOGL -1.18 % the parent company of Google.

The software giant on Monday introduced new features to its Office 365 service, best known for providing online versions of Microsoft productivity applications, that lets users conduct voice calls as well as audio and video conferences.

Microsoft said one new feature, called Cloud PBX, routes voice calls so customers don’t need to operate private branch exchange equipment or install software on their own premises. Another feature can host online meetings with up to 10,000 attendees, the company said.

The company is adding unlimited conferencing and other new features to Office 365 in a bundle priced at $35 a user per month, compared with $8 to $20 for other packages. International calling plans cost $24 extra.

“That’s pretty disruptive,” said Bill Haskins, an analyst at Wainhouse Research. “They have hit the market pretty aggressively on the price point.”

Microsoft is one of many vendors to exploit the shift of communications services to a digital format that can be combined with data traffic and carried over the Internet. Cisco, for example, sells Internet-based office phones and conferencing services. Google’s Apps for Work service includes email, online storage and video meeting capabilities.

Microsoft placed a large bet on Internet telephony with its $8.5 billion acquisition in 2011 of Skype SARL, a Web-based service known for letting users make free voice and video calls from their PCs. Skype remains hugely popular among consumers, but business customers have signed up at a slower rate despite Microsoft’s changing the name of its corporate telephony service, formerly called Lync, to Skype for Business.

“Corporate telephony hasn’t been there,” said John Case, a Microsoft corporate vice president who handles marketing for Office 365. “Companies like Microsoft haven’t given them enterprise solutions they can bet on.”

One factor is that earlier offerings from Microsoft commonly required users to install and run communications software on their own server hardware. Microsoft and Internet-based competitors also typically haven’t offered all the functions associated with handling traditional phone calls, including calling plans of the sort long offered by traditional carriers.

Mr. Case said the new Office 365 bundle, dubbed E5, addressed both issues. Companies that may now operate PBX systems and have relationships with both telephone carriers and specialized conferencing services should be able to save money by shifting to Microsoft, he said.

But some customers may prefer to maintain their relationships with carriers or hardware vendors, and Microsoft planned to help them do that, Mr. Case said. The company, for example, has identified Polycom Inc. PLCM 1.26 % as an initial phone provider to work with its new services.






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[$$] Japan Seeks Tech Revival With Artificial Intelligence

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Daisuke Okanohara, co-founder of artificial-intelligence venture Preferred Networks, sees his expertise as a perfect fit for the ‘Internet of Things.’
ENLARGE

Daisuke Okanohara, co-founder of artificial-intelligence venture Preferred Networks, sees his expertise as a perfect fit for the ‘Internet of Things.’


Photo:

Takashi Mochizuki/The Wall Street Journal

TOKYO—Waiting for his mother to finish grocery shopping one day in 1994, 12-year-old Daisuke Okanohara passed the time with a little reading—of a research paper describing a new method to speed up data compression. He says he felt his body shake with excitement.

“It was a breathtaking method,” recalls Mr. Okanohara, now 33. He spent months testing it to see how it worked.

Today, as the co-founder of Tokyo-based artificial-intelligence company Preferred Networks Inc., Mr. Okanohara is aiming for breakthroughs of his own—with the weight of a nation’s beleaguered technology industry on his shoulders.

Over the past quarter century, Japan lost its technology leadership to rivals in the West in large part because of software shortcomings. Apple Inc.
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pushed Japanese consumer-electronics makers out of the market with more elegant interfaces and better systems for software developers.

Japan is still at the forefront in hardware such as robots, tiny smartphone parts and automobiles. But even that stronghold is in danger of being breached, because software is increasingly critical to making those products work.

Enter Mr. Okanohara and “deep-learning” software—programs that, like the human brain, can learn on their own, without human hand-holding each step of the way. “Deep” refers to the networks of artificial neurons: They have more layers and so can tackle trickier problems.

Deep learning is already big in Silicon Valley. Alphabet Inc.
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’s Google last year acquired London-based startup DeepMind Technologies for an estimated $500 million, while Apple, Amazon.com Inc.,
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Facebook Inc.
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and Tesla Motors Inc.
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also have invested in the field. Chinese Internet-search provider Baidu Inc.
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set up a deep-learning research center in Silicon Valley in 2014.

U.S. market-research firm Tractica forecasts that annual software revenue for enterprise applications of deep learning will reach $10.4 billion in 2024, up from $109 million this year.

To Silicon Valley, deep learning is mainly a way to make software better—so that, for example, voice-recognition programs such as Apple’s Siri respond more naturally to human questions. The Japanese companies beating a path to Mr. Okanohara’s door tend to look at deep learning differently, as a way to improve hardware. They believe a deep-learning machine could improve itself much faster than humans could improve it, because it could share what it learns with its fellow machines and would never get tired.

Japanese industrial-robot maker and Apple supplier Fanuc Corp.
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recently took a small stake in Preferred Networks, with hopes of developing machines that can figure out on their own how best to assemble devices and even repair other robots.

“PFN has the most advanced expertise in the world,” says Chief Executive Yoshiharu Inaba, referring to Preferred Networks by its nickname. Also working with the startup are Toyota Motor Corp.
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, developing autonomous-driving technology, and Panasonic Corp.
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, hoping to leverage Preferred Networks’ knowledge for surveillance cameras and consumer electronics.

Preferred Networks’ hope for itself is to have a place at the center of companies’ deep-learning applications, much as Microsoft Corp.
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put itself at the center of the corporate personal-computer revolution in the early 1980s with its operating system. Preferred Networks recently introduced an operating system for deep-learning technology; called Chainer, it helps third-party engineers write artificial-intelligence-enabled programs.

Founded last year, the 30-employee startup was valued in August at $120 million, and has insisted on remaining independent. That is a gamble given Google’s virtually unlimited resources, which allow it to snap up some of the best talent and potentially set global standards. The startup’s executives say they have had to turn down some partnership offerings because of a shortage of workers. Experts also say that the Japanese government’s slow adaptation to new technologies might pose problems as well.

Founded last year, Preferred Networks now has 30 employees.
ENLARGE

Founded last year, Preferred Networks now has 30 employees.


Photo:

Takashi Mochizuki/The Wall Street Journal

“Preferred Networks has great skill sets, but they also need to learn how to deal with capital markets,” says Yutaka Matsuo, an associate professor at the University of Tokyo.

Mr. Okanohara says he started using computers when he was in kindergarten, growing up in Fukushima prefecture north of Tokyo. In grade school, he was already programming flight-simulator software.

“I was not good at mathematics. I guess coding was his natural instinct,” says his father, Hisashi Okanohara, 67, a retired official at a car-audio maker.

Logging on via a pre-Internet dial-up communications service, the boy downloaded computer-science papers such as “A Block-Sorting Lossless Data Compression Algorithm”—the one that gave him those grocery-store shakes back in 1994.

He went on to the University of Tokyo, where he met Toru Nishikawa. The classmates hit it off immediately and eventually co-founded Preferred Networks.

“I knew I wouldn’t have the luck to work with such a genius if I missed the chance,” says Mr. Nishikawa, the company’s chief executive.

Mr. Okanohara, who serves as executive vice president, says he believes his expertise will become useful as items as diverse as cars and toasters go online. For he sees a problem with this so-called Internet of Things: A connected device can access an amount of data so astronomical that no conceivable computing power could analyze or transmit it. A car’s sensor, for example, could record every pixel on a neon advertising sign, information that is useless for the car’s safe operation.

Human brains face the same problem of overload, but learn to discard what is irrelevant. Computers, likewise, must grow able to judge on their own what data is relevant and what should be shared with peers, says Mr. Okanohara.

Artificial intelligence has disappointed some users in the past, in part because of lack of computing power. Deep learning needs a few more breakthroughs to shake up the world, but the arrival of the artificial-intelligence age is inevitable, says Junichi Tsujii, head of artificial intelligence at the National Institute of Advanced Industrial Science and Technology. “Japan has many top-notch firms in many industries, and PFN is an ideal hub to tie them together as a team,” Mr. Tsujii says.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com






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[$$] J.P. Morgan Hired Friends, Family of Leaders at 75% of Major Chinese Firms It Took Public in Hong Kong

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A view of J.P. Morgan Chase’s corporate headquarters in New York.
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A view of J.P. Morgan Chase’s corporate headquarters in New York.


Photo:

mike segar/Reuters

J.P. Morgan Chase
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& Co. hired friends and family members of executives at three-quarters of the major Chinese companies it took public in Hong Kong during a decadelong boom in Chinese IPOs, according to a document compiled by the bank as part of a federal bribery investigation.

The document was prepared by J.P. Morgan to be submitted to U.S. investigators in April, according to a person familiar with it, and analyzed by The Wall Street Journal. It lists 222 candidates hired by the bank under a program known internally as “Sons and Daughters” and names the people who referred them—making it the most detailed accounting yet of the overlap between the program and the bank’s business in China.


ENLARGE



Under the program, which ran from 2004 to 2013, J.P. Morgan took referrals from a broad spectrum of China’s business and political elite, the document shows. Nearly half came from the government, including regulators of the banking, insurance and securities industries, senior executives of major state-owned companies and provincial and central-government officials.

The bank was hired to work on 12 Chinese initial public offerings of $1 billion or more in Hong Kong over the period that was examined, according to an analysis of Dealogic data. The J.P. Morgan document shows the bank hired candidates referred by officials at nine of those companies or their corporate parents.

Those big deals included state lender Agricultural Bank of China Ltd.
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’s $22 billion IPO in 2010, construction-and-engineering conglomerate China Railway Group Ltd.
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’s $5.9 billion IPO in 2007 and nuclear-plant operator CGN Power Co.
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Ltd.’s $3.6 billion IPO in 2014.

The companies, all of which are state-owned, didn’t respond to requests for comment.

U.S. authorities have been investigating the program for the past two years to determine whether the bank’s hires might have constituted bribery under the U.S. Foreign Corrupt Practices Act, according to bank filings, internal documents and people familiar with the matter. The FCPA makes it illegal for companies or their agents to give anything of value to foreign officials, including employees of state-owned companies, with the intention of improperly influencing them.

Officials are examining whether any of the hires were linked to business subsequently won by the bank, people familiar with the matter have said. J.P. Morgan employees routinely discussed the potential business benefits of making the hires, emails reviewed by the Journal show. However, investigators haven’t found documentation of government officials saying they were giving business to the bank in return for hires, a person familiar with the investigation said.

A spokeswoman for J.P. Morgan declined to comment. Neither the bank nor any of the companies or officials that made referrals have been accused of wrongdoing.

Similar criminal and civil investigations are proceeding into other banks’ hiring practices, according to filings and people familiar with the investigations. Hong Kong authorities also are investigating J.P. Morgan and other banks, people familiar with the investigations said. Hong Kong law bans private-sector bribery as well.

Most of the people J.P. Morgan hired under Sons and Daughters were brought on as interns, according to the April document. They were referred by more than 150 companies, by government agencies and by individuals in Asia. Ninety-nine of the hires, or 45%, were referred to the bank by government officials or employees of state-owned companies, according to the document.

The hiring program coincided somewhat with a rise in J.P. Morgan’s share of Chinese IPOs in Hong Kong, but it is unclear whether there was any correlation between the two. In 2010, 2011 and 2012—the peak hiring years—the bank ranked third, 14th and fourth, respectively, among banks working on Hong Kong IPOs by Chinese companies, according to an analysis of Dealogic data. After it shut down the program it ranked 20th in 2014 and 25th in 2015. From 2000 to 2003, before the hiring began, J.P. Morgan didn’t work on any Chinese IPOs in Hong Kong.

The investigation has rattled the bank’s Hong Kong office. Several senior bankers involved in the hiring have left over the past year, and the bank has had to bow out of some deals because it had hired candidates referred by the companies involved, the Journal has previously reported.

J.P. Morgan and other banks also have beefed up their compliance reviews of potential hires, people familiar with the banks’ procedures say. It is unclear when the investigation will conclude.

Chinese officials who the document lists as having referred candidates to J.P. Morgan include China Banking Regulatory Commission Vice Chairman Guo Ligen; Minister of Public Security Guo Shengkun; People’s Bank of China Vice Governor Pan Gongsheng; the chairman of state-owned grain trader Cofco Corp., “Frank” Ning Gaoning; and a senior executive at state-owned shipping giant Cosco Group, Sun Jiakang.

Guo Ligen and Pan Gongsheng didn’t respond to requests for comment.

A spokeswoman for the Ministry of Public Security declined to comment on what she called a personal matter. Sun Jiakang said through a spokesman that he never referred any of his relatives or friends to work at J.P. Morgan, and didn’t respond to a subsequent question naming the candidate he is listed as having referred.

Ning Gaoning denied any connection between J.P. Morgan’s employment of his daughter—who interned in Hong Kong in 2011 and 2012, according to the document—and his company’s dealings with the bank.“Nothing connected, it’s all rumors,” Mr. Ning told the Journal at a conference in Manila.

Gao Xiqing, at the time vice chairman of China’s social-security fund and later president of China’s sovereign-wealth fund, is listed as having referred an intern to J.P. Morgan in 2007. The U.S.-educated Mr. Gao is now a law professor at Tsinghua University. Reached by phone, Mr. Gao said he had “absolutely no recollection” of having referred the intern.

“Maybe in passing I would sometimes mention people, but this sounds really far-fetched,” Mr. Gao said.

At least two of the Chinese officials said to have referred candidates to J.P. Morgan have been investigated under China’s sweeping anticorruption campaign: Xu Minjie, a former senior executive at Cosco Group, and Sun Zhaoxue, formerly of China National Gold Group Corp. and Aluminum Corp. of China Ltd.
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Mr. Xu was sentenced to 10 years in prison in 2014 for corruption, according to a court filing. Mr. Sun was accused of corruption and his case was handed to China’s courts in December 2014, according to the website of the Communist Party’s anticorruption agency. Messrs. Xu and Sun couldn’t be reached for comment. There is no claim or evidence of any connection between their arrests and the J.P. Morgan investigation.

Several entities made repeated referrals to J.P. Morgan, the document indicates. It attributes three hires to Citic Group, one of the most prominent state-owned companies, with two 2010 trainees referred by Liu Lefei, the son of China’s propaganda czar at the time and current Politburo Standing Committee member Liu Yunshan. Liu Lefei runs a private-equity fund affiliated with Citic and has done a stint as chief investment officer at China’s biggest life insurer and in the country’s Ministry of Finance. He is also vice chairman of Citic Securities Co.
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Representatives for Citic Group and Citic Securities declined to comment.

J.P. Morgan hired the most candidates referred by people connected to Taikang Life Insurance Co.—six in all, the document shows. The company has been planning a Hong Kong IPO for several years. Taikang Chairman Chen Dongsheng also founded an auction house and a logistics company and is married to the granddaughter of Mao Zedong. Taikang didn’t respond to a request for comment, and Mr. Chen couldn’t be reached for comment via his company.

Write to Ned Levin at ned.levin@wsj.com

 





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Alphabet Inc. Should Fear Windows 10

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My 2014 Best Performers, Looking Ahead To 2015

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Windows 10 logo. Photo: Microsoft

More than 110 million devices are powered by Microsoft‘s (NASDAQ:MSFT) latest operating system, Windows 10 — and that’s a problem for Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Windows 10 includes deep integration with Microsoft’s search engine, Bing. Although Bing remains in a distant second place behind Alphabet’s Google, the launch of Windows 10 is already having a positive affect on Microsoft’s search business. As Windows 10 sees greater adoption, that trend should continue.

Bing finally achieves profitability
For most of its history, Bing has been a source of red ink and heavy criticism. In 2011, Bing was burning the Redmond tech giant for around $1 billion per quarter. Some, including hedge fund manager David Einhorn, encouraged Microsoft to sell it. But over the last four years, the situation has changed drastically, and last quarter (for the first time) Bing achieved profitability. According to management, it wasn’t a fluke. “We expect Bing’s strong trajectory to continue, remaining profitable for the remainder of the [fiscal] year,” said CFO Amy Hood on Microsoft’s most recent earnings call.

That profitability has been driven by greater usage. Bing’s share of the U.S. search market rose to 20.7% last quarter, up from 19.8% in February. According to analytics firm comScore, Bing’s share rose another 0.1% last month, hitting 20.8% in October. Alphabet’s Google, meanwhile, has seen its share of the U.S. desktop search market fall modestly over the same period of time — from 64.5% in February to 63.9% in October.

What Microsoft can do to take more share
In its earnings slides, Microsoft identified Windows 10 as being the primary catalyst for Bing’s profitability. By default, the Windows 10 browser, Microsoft Edge, directs users to Bing. The same was true of Microsoft’s former browser, Internet Explorer, but Edge also includes Microsoft’s digital personal assistant, Cortana, which relies on Bing. Moreover, Microsoft explicitly discourages Windows 10 users from downloading rival browsers that may rely on other search engines. 

More importantly, the Windows 10 taskbar includes a search field that’s powered by Cortana (and by extension Bing). “[Bing was] helped by Windows 10 users asking Cortana more than 1 billion questions,” said Microsoft CEO Satya Nadella on Microsoft’s earnings call.

Windows 10 has enjoyed rapid adoption since it launched in late July, but there are still hundreds of millions of additional PCs that could be upgraded to Windows 10 in the months and years ahead. The total number of installed PCs is around 1.5 billion, giving Windows 10 a penetration rate of under 10%.

Microsoft plans to bring Cortana to its Xbox One video game console next year, which should drive additional incremental search queries. It’s also in the process of testing Cortana apps for iOS and Android. Using a single Windows account, iPhone and Android handset owners can link Cortana on their mobile phones to Cortana on their Windows PC. That utility could bring greater Cortana usage, and drive more search traffic to Bing.

A new operating system for traditional PCs
Microsoft isn’t forcing Windows 10 users to take advantage of Cortana or to use Bing — they can still turn to Alphabet’s Google. Given that Google still controls around two-thirds of the U.S. desktop search market, many likely are. But Windows 10 remains a threat to Alphabet’s business. Mobile computing is increasingly dominant, but around half of Google search queries still originate on the desktop, and desktop ads remain more lucrative. 

In October, Re/code reported that Alphabet plans to introduce a version of Android designed for traditional PCs next year. Alphabet’s Chrome OS has attracted significant attention, but has failed to gain mainstream acceptance. Android-powered PCs could challenge Windows 10 for desktop dominance, and limit Microsoft’s search gains.

In total, Bing generated just over $1 billion for Microsoft last quarter — less than 5% of its adjusted quarterly revenue. But the steady evolution of Bing — from notorious money pit to profit-driver — is one of the more intriguing aspects of Microsoft’s business. It likely won’t dethrone Alphabet in the search space, but Windows 10 is slowly making Bing a legitimate contender.

The next billion-dollar iSecret
The world’s biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn’t miss a beat: There’s a small company that’s powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.






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Apple TV service has odds stacked against it, UBS says

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Apple‘s (NASDAQ:AAPL) rumored pay-TV service, consisting of a skinny bundle of cable and broadcast channels, isn’t likely to appeal to many consumers, UBS analyst Doug Mitchelson said in a report Monday.

Consumers like the idea of a less expensive pay-TV service, but not when it’s missing some of the channels they want, Mitchelson said.

Current skinny bundles are “unpopular because consumers have a surprisingly wide variety of channel bundles that they prefer,” he said.

Skinny bundles such as Dish Network‘s (NASDAQ:DISH) Sling TV and Sony‘s (NYSE:SNE) PlayStation Vue offer fewer channels for a lower price than regular pay-TV services.

Meanwhile, over-the-top Internet television services like Amazon‘s (NASDAQ:AMZN) Prime Video, Hulu and Netflix (NASDAQ:NFLX) typically supplement linear TV services by providing a selection of on-demand TV shows and movies.

UBS reached its conclusions based on data from a survey of 1,855 U.S. pay-TV households. Its study sought “to understand whether a la carte pay TV was viable (it is not), whether slimmed down bundles could prove to be popular (they are not) and the level of importance that each major media network group has to the bundle (all are quite important, including Viacom (NASDAQ:VIAB), but some much more than others),” Mitchelson said.

Apple has been in talks with media companies over the past year about launching an online pay-TV service with a bundle of channels that includes live and on-demand video, to be paired up with its Apple TV hardware, Mitchelson said. Those companies include CBS (NYSE:CBS), Discovery Communications (NASDAQ:DISCA), Walt Disney (NYSE:DIS), 21st Century Fox (NASDAQ:FOXA) and Time Warner (NYSE:TWX). Apple has discussed offering a service costing $25 to $39.95 a month, he said.

But media companies have been “unwilling to let Apple cherry pick channels from their line-up,” Mitchelson said.

Content companies currently have little incentive to break up traditional pay-TV bundles. Cord-cutting, or pay-TV subscribers canceling their service, has not posed a big enough threat for content companies to change their business models, Mitchelson said.

Also, media companies are mandating “new entrant pricing,” which is at a significant premium per customer than what the fully scaled traditional distributors have to pay, he said. “Offering a healthy selection of high quality channels at a low price quickly becomes impossible under the constraints demanded by the media companies,” Mitchelson said.

Apple isn’t the only tech company actively pursuing Internet-delivered pay-TV bundles, he said. Amazon.com and Alphabet‘s (NASDAQ:GOOGL) Google also are in the hunt, Mitchelson said.






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