ALTIOTAKE FROM 17-19 OCTOBER

Each week, we review the press, highlighting and responding to interesting and relevant articles in the news.

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Apple's Break-up with Intel

Apple is set to officially announce a shift to their own ARM-based chip, severing its long standing relationship with Intel Corporation. The Apple Silicon Mac will likely debut at the surprise “One More Thing” event on 10 November. In ditching Intel, the transition to an inhouse ARM-based chip will provide Apple with greater control over its own hardware and software, opening up endless possibilities and new capabilities. However, the switch from Intel Macs to Apple Silicon Macs marks the end of a 14 year partnership. Microsoft, too, is dabbling in chip development in its Surface Windows PCs, though it has not cut ties with Intel as of yet. These developments threaten Intel’s domain as the company makes 30% of its revenues from mobile processors, with Apple representing about $3 billion of the company’s yearly revenue. Altio perceives this sector-wide shift to inhouse chip development as foreboding for companies like Intel. While inhouse chip development greatly helps tech companies such as Apple gain greater control and operation of their own products, it threatens the very existence of manufacturers of microprocessors and semiconductors. Are the days of Intel’s monopoly in the chipmaking industry over?

Google's Journalist Studio

Google recently unveiled Journalist Studio, a suite of tools designed with reporters and journalists in mind. Within this tool suite, Google announced two new tools powered by AI and machine learning, Pinpoint and The Common Knowledge Project. With Pinpoint, say goodbye to "Ctrl + F,”  as now reporters can automatically search through large sets of PDFs, images and audio content with the help of AI-powered Knowledge Search. Though still in beta, the Common Knowledge Project allows users to explore, visualise, and share data using public data points gathered from Data Commons. Altio observes with increasing visibility that this is an example of Google's strategic path towards a quasi ‘custom-made Microsoft Office’ designed for each profession, providing tailored toolbelts featuring Google’s own products. At Altio, we believe it makes sense for a company to hone in and return to its core competencies. For Google, that means a return to search engines. Accordingly, Altio optimistically sees the introduction of new searching products from Google in alignment with particular professions as a concept with great potential.

Regulating Tech in China

In October, China passed a new export control law to protect its tech. The law will allow China to retaliate with reciprocal measures when foreign individuals or entities violate export rules, claiming this is to protect national security or interest. Both civilian and military use “goods, technologies, and services,” along with the data accompanying them, are all to be controlled under these restrictions. A direct response to rising tensions with the US, this law is aimed at generating leverage against similar measures passed by foreign governments. At Altio, we think this looks like yet another nation fighting against its own control laws on tech. In seeking to protect ‘national security,’ China has fashioned a Catch-22, claiming to protect tech with heavy regulation while actually stunting and limiting tech growth. As this law enters into force in December, Altio ponders what its impact may be on future deals. Will it be difficult for Chinese companies to export their algorithms internationally? In what ways will existing and prospective foreign investors comply with these restrictions?

Alibaba's expansion to brick-and-mortar

Alibaba Group recently ramped up its stake in Sun Art Retail Group, a Chinese hypermarket operator. The $3.6 million purchase from A-RT Holdings (Auchan Retail) raised Alibaba’s ownership to approximately 72%. And they’re not finished yet, as Alibaba has expressed an interest in buying the remaining shares of Sun Art. It seems as if Alibaba is on the path to reinforce its offline presence and establish brick and mortar operations, following in the footsteps of Amazon’s 2017 acquisition of Whole Foods. Altio has a few takeaways from this transaction. Firstly, tech drives innovation in tough sectors like retail. Digitisation from existing players tends to be more like that of consultant marketing advertisements rather than being a proven reality. Secondly, retail needs consolidations in order to gain market power. This point is illustrated by the selloff of international branches from traditional players, such as Walmart with Asda, Groupe Casino with its Thai subsidy, and Carrefour and Tesco’s “strategic alliance.” Thirdly, we note that its evident that Chinese expansion generally belongs to Chinese players.

Groupe Renault's downhill struggle

Groupe Renault is showing the first symptoms of a lack of strategic focus. Despite gaining a new CEO in July, Luca de Meo, the proposed strategies and changes for the company are not promising. In the first half of 2020, Renault lost $7.3 billion, so De Meo needs to implement some serious interventions or the company will continue its steady decline. However, just three months into his new position, De Meo announced that he wants to consolidate the company’s sporting strategy into a “mini Ferrari.” De Meo thinks combining the Formula One Team, RenaultSport, and Alpine, the company could combat serious financial concerns, empty factories, and sinking interest. Altio recognises that automakers need three features to successfully operate in the sport-car market of the auto industry: brand recognition, a big engine, and customer reach. Renault, however, primarily makes small fuel engines that are primarily sold in Europe to a wide range of customers, though none of these customers include wealthy, sport-car enthusiasts. Not even the most revolutionary of marketing campaigns could transform Renault into a haven for luxury sport-cars. Altio sees Renault's core attributes as inconsistent with a Ferrari-like branding and product line.