Business & Finance
Google's Tensor: The Data Company's Data Chip
Ever since the release of the iPhone in 2007, Apple has designed and fabricated its own chips for its own devices. At the time, "owning the supply chain" or the vertical, was the way of controlling the full stack of hardware down to software of the manufacturing and distribution process. Since then, we have seen the practice known as economies of scale, for Apple to make more revenue on each phone sold.
An unrealized benefit at the time is that the creation of a device makers own chips, also allows for unique customization and experimentation of SoC's to differentiate themselves from each other. Other examples include Samsung utilizing its own chips overseas, Microsoft's SQ series chips in the Surface Pro X, Windows ARM offering, and the newest entrance: Google's Tensor chip, which is the focus here. What's important to take away from these examples is the ease of which the manufacturer owns both the hardware and software stack, so in theory, components can become efficient and more intelligent with the entire device. Outside of mobile, we see Apple bringing the same concept to its laptops with the M1 series.
As the focus of this blog turns to all things data, the Tensor chip is the most interesting and dynamic from the aspect of AI and ML on the new Pixel 6 and Pixel 6 Pro devices. This is not a site for phone reviews, so I will not stray into its review, but rather what the Tensor's specifications and future is for Google.
Throughout the pandemic, Google was slow to release innovative instances of its Pixel line. Likely due to chip shortages and creating a SoC from scratch, Google entered the market last month with the Tensor, which is unlike anything else on the market, for better or worse. Since Google, itself, is not a semiconductor company, nor does it utilize fabs, they have chosen Samsung to produce the final product.
Functionality such as improved speech recognition, voice typing, live translate, and magic eraser to remove photobombers from pictures are all based on AI.
ZDNet
As the Tensor based devices offer these differentiations on product use, one of the often-forgotten benefits to a AI/ML blend is the security on the SoC. The Titan M2 component on the die, allows for hardware based security that will ideally stop any attacks aimed at the device itself; i.e. brut-force entrance by bypassing the fingerprint sensor.
Google's first Tensor device will learn from your habits and make suggestions based on usage to save battery, utilize Automatic Speech Processing, and the magic eraser to get rid of those unwanted background intruders on your photos. Out of all of the Pixel's features over the years, the place where the Tensor SoC really shines is its computational photography.
Other cool camera features thanks to Tensor include Magic Eraser, a feature that erases unwanted objects or people from photos. This feature uses Google's ML to do the task of what somebody would need to do on Photoshop, but in an instant.
Tom's Hardware
Rather than optics like a traditional camera, Tensor utilizes it's AI components to fill-in areas that are dull, or even missing. In theory, the machine learning component of the SoC, will allow features like Magic Eraser and Face Unblur to improve over time based on individual usage trends.
Given that this is the first generation Tensor SoC and Google is primarily a data company, this type of component is its core competency. Though Google is famous for deprecating or ending previous products like Google Wave, and Google+, research intensive projects such as SoC design and implementation is not something that can easily be explained away as a "failed software product". Hardware costs much more to develop in any technology company's R&D department.
The rumor mill is already circulating about the next generation Pixel, presumably the Pixel 7, with the next generation Tensor stack. It would make sense given all of the data and usage Google has collected from the first Tensor chips and their usage, and utilize that to improve the AI & ML on future devices.
Disclosure: I own the Pixel 6 and use it as my daily driver.
A Primer on Apple's Q1 2021 Earnings
I won't normally write about quarterly earnings reports from companies. You can get that story from many various sources. For the purposes of this article, I want to discuss why Apple's most recent earnings report was remarkable. I am also not recommending buying or selling Apple stock one way or another.
Yesterday, Apple released an almost perfect Q1 2021 earnings report to Wall Street. Keep in mind this report ended on December 26, 2020, so these numbers do not reflect the post-holiday bump that most consumer electronics companies receive.
Apple's estimates were for a $103 billion in revenue. The actual number was $111.4 billion, the most in the company's history; and the first quarter with over $100 billion in revenues. Earnings per share (EPS) came in at $1.68, well above the $1.40 projections. For an entity as large as Apple, growth of 20% from year over year is absolutely stellar. Apple's market cap is quickly approaching $2 trillion, a modern-day phenomenon.
“These results helped us generate record operating cash flow of $38.8 billion. We also returned over $30 billion to shareholders during the quarter as we maintain our target of reaching a net cash neutral position over time.”
Source: Apple Investor Relations
Apple's total cash on hand for the quarter totaled $195 billion. While still impressive, this was significantly higher before the company ramped up its dividend and share buyback program several years ago.
In the quarter, a perfect storm of new iPhones, Macs, iPads, and services such as Apple TV+ and Apple Fitness+ created conditions for this record revenue.
Apple's iPhone revenue continues to be the bulk of revenue for the company. An estimated $65.6 billion versus estimates of $59.6 billion was earned in the segment. Apple's more streamlined lineup with the iPhone 12 models ranging from the 12 Mini to the 12 Pro Max, offered customers more options while utilizing Apple's sought-after supply chain to maximize margins.
Looking at the Mac, the launch of Apple's new M1 chips for the MacBook Air and the Mini were quite healthy, again, as Apple competes with its former suppliers, creating a more vertical and controlled supply chain capable of full-stack solutions. Owning every component of the process to the hardware and software creates a new experience.
The M1 chip was based off of Apple's A-14 chips that are used in the iPhone and iPad. They are not new to the semiconductor/ARM game. This was an iterative move into the desktop, which paid off as people continue to work from home as a result of COVID and the continuation of work from home situations. Revenue from the Mac division came in just under expectations at over $8.6 billion, however, it is still 21% higher than this time last year.
As the Japanese and Chinese markets move past the worst of their current COVID situations, a bit of a rebound appears to be occurring. It is notable that China itself, is almost responsible for 20% of Apple's quarterly sales.
Greater China sales surged 57% from the year-ago quarter to $21.31 billion, accounting for 19.1% of total sales. Japan sales soared 33.1% year over year to $8.29 billion, accounting for 7.4% of total sales.
Source: NASDAQ
Even what some analysts consider a downside exceeded expectations. Apple's services unit which includes iTunes, the App Store, Apple Music, Apple TV+, and new Fitness+ services came in at $15.8 billion vs. $14.9 billion. During the past several years, Apple has attempted to diversify away from its heavy reliance on iPhone and iPad sales. Thus, it has been building out its services business.
As the iPhone and iPad continues to blow past expectations, Apple seems to have some work to do to get it's built in-user base to utilize some of its services and invent or iterate on new services moving forward. 2021 also surely holds plans for Apple to release new accessories to complement its margins such as AirTags, new M1 products inside the iMac, updated AirPods, and rumored AR/VR devices.
The Rush to Public
Over the course of 2020, the global IPO market was on fire. For these purposes, I'd like to focus on the United States market.
The stock market crashed in March when it was evident that COVID would not subside soon; most investors believed that both public, and private, particularly venture capital would dry up. This turned out not to be the case. In fact, quite the opposite occurred.
With traditional listings, direct listing and the adjuration of SPACs on various exchanges, the ease of public issuance and exits of PE firms is now easier than ever.
To briefly summarize: by traditional listings, the term IPO is used. The classic form involves an investment bank issuing a number of shares, matching buyers and sellers to raise a certain amount of capital to fund corporate operations, expansion, or various other avenues. Direct listings often take out the "middle man", the investment bank, to take its fundraising directly to shareholders.
SPACs, however, require a bit more explanation and add a layer of complexity to the situation. SPACs, Special Purpose Acquisition Companies, or "blank check companies," groups of activist investors, investment banks, or wealthy individuals or entities take a "blank" entity public. They do not know what company the funds will ultimately help to take public.
For obvious reasons, SPACs are often very risky, yet offer an attractive opportunity to help take smaller entities public at a later date. A few examples of high-profile SPACs in 2020 were UTZ Snacks, Nikola Motors (an electric vehicle manufacturer), and DraftKings (the online sports betting company).
No matter how the companies of 2020 went public, there is no doubt that 2020 was a blockbuster year for these entities. A confluence of conditions came together to make this possible.
There were 480 IPOs on the US stock market in 2020, an all-time record. This is +106% more than in 2019 with 233 IPOs. It is also 20% higher than the previous record IPO year of 2000, which had 397.
Source: StockAnalysis.com
With the precipitous drop after COVID striking the world with the lowest 10-year yield on record, negative oil prices, and a bear market stock performance, VCs, PEs, and the like needed to raise funds to offset their loss leaders. Additionally, industry boom trends such as electric vehicles and cloud solutions increase the demand for more names so investors can get in on the action.
Let's take a look at two major themes driving the markets in 2020; the Tesla phenomenon, and delivery as a new COVID trend:
Tesla & Battery Technology Trend
During the past year, Tesla stock surged over 750 percent. While vehicle deliveries did wain a bit, this stock has become such a household name among individual investor trading platforms like Robinhood and E*TRADE, that it's quite difficult for the oxygen to leave the stock. This is on top of a 5:1 split; and Tesla's addition to the S&P 500 late last month.
Some will argue that Tesla, in the end, is just a battery technology company, utilizing its vehicles as a showcase of its storage and capabilities. Whatever Tesla's end game is as a company, it forced many private entities to go public. Companies such as Lordstown Motors, NIO, and Nikola were all attempting to capitalize on the trend. And so far, all have been successful. Just since Lordstown went public, shares have more than doubled in just a year's time. In NIO's case, it went from a $5 per share startup to a company worth over $83 billion in market capitalization.
Retail investors and institutional investors, alike, are starting to hedge bets on which battery company will be the next to revolutionize how we drive and more importantly: master energy storage. Bloom Energy, which did not debut on the public markets this year, went through a bit of a fad a number of years ago; though it seems to have latched on to this trend of finding its momentum in the energy storage space. Once an idea with no markets, it is now worth more than $5 billion.
The COVID Trend
COVID arguably has not revolutionized how we work and live, but rather sped up these factors five to ten years sooner than would have otherwise occurred. Aside from the breakthroughs in mRNA technology that the vaccines have provided (yes, another multi-decade trend). COVID has allowed companies like DoorDash, whose revenues may have peaked, pre-vaccine, to take advantage of its public financing round. Correlations are almost everything in any trading securities. The idea that a decrease in COVID cases will automatically trigger programmed trades to sell DoorDash, Uber, and GrubHub, for example. When the vaccine reaches escape velocity, especially on the second round of doses, it will explain why now was the right time for DoorDash to go public; to maximize its value to shareholders.
The company [DoorDash] is part of a cadre of consumer-facing, web-based businesses that are expected to go public in December -- including home-rental platform Airbnb Inc., which is seeking to raise as much as $3.09 billion in its IPO Wednesday.
Source: MSN Money/Bloomberg
The second name in the quote above, may also come as no surprise to you: Airbnb. With hotels collapsing due to closures and abysmal occupancy rates, airlines at half-capacity (at best); travel has come to a halt on a global scale. What has not is the weekend getaway. Unlike DoorDash, it's timing in the public markets is a bit stickier to a sustainable business model. Even with vaccine distributions, and slowing rollouts at that, families who work at home will inevitably travel by car to local destinations to rent for a long weekend or two.
Hotels have to climb back from a reduction of at least half their business. While Airbnb is not immune to COVID, so to speak, it is in a direct position and threat to the traditional hotelier businesses that will not go away once COVID is a virus of the past.
Looking Forward to 2021
As this January progresses, entities such as Affinity, Roblox, and Coinbase are all looking to go public. Looking at evolving industries such as mobile payments, gaming, and the crypto-craze are going strong at least throughout the first half of '21. If these are successful, look for these sectors to heat up as public dollars will compete for the retail and institutional investor. The fear of missing out has always been a theme of investors both seasoned and new. What evolves throughout 2021, thus far, seems to be no different.