Archives for January 2018

The #1 Lesson Cryptocurrency Investors Can Learn from the Dot-com Bubble

Life as we once knew it drastically changed in the mid-90s. The Internet’s popularity was on the rise, and many savvy businesses and companies saw the potential of a hyper-connected, digital world. This lead to the dot-com bubble–a sharp rise, and fall, in stock prices that was fueled by investments in Internet-based companies.

With experts predicting we are now in a cryptocurrency bubble, it seems as if history is at risk of repeating itself.  

While we’ve moved far past the early stages of Internet start-ups and e-commerce companies, digital is continuing to change our everyday lives–from how we work, live, and play to the future of money itself. Interest in cryptocurrency, similar to the frenzy we saw in the early days of the dot-com bubble, is reaching a crescendo–yet many experts are already predicting its demise.

Warren Buffet has gone on the record saying that crypto will come to a bad ending. Jamie Dimon, J.P. Morgan’s CEO, called Bitcoin a fraud before later admitting that he regretted making that statement.

Meanwhile, other big-name investors and companies are going out of their way to invest in crypto–from Richard Branson to Microsoft .

But are the naysayers right? Are we headed toward a catastrophic implosion of dot-com level proportions?

Yes, the crypto market is volatile. There are too many unknowns to be certain, but if we look at the histories of companies like Amazon, eBay, Priceline, and Shutterfly, then maybe we can gain some clarity.

These e-commerce companies were born during the dot-com era, and they weathered the storm and emerged as some of the most successful and stable companies in history. The dot-com crash didn’t destroy the concept of e-commerce or the fact that consumers want to buy airline tickets, antiques, or pet food online–there was simply a gold rush in the early development stages. Once the dust settled, however, the strong survived.  

Don’t call it a comeback

In the end, the dot-com bubble was a movement. Smart investors saw the future of digital-based commerce and, as they invested, the movement snowballed into madness. Many of the companies that popped up during that time were run by people who were in over their heads, or they didn’t have the technology to keep up with the demand. When the crash happened, it thinned the herd.

Mona El Isa, the chief executive and co-founder of Melonport, summed this notion up at a recent TechCrunch conference when she said, “The dot-com bubble was messy, but if we look at some of the largest companies that exist today they are a result of the dot-com bubble and they are part of our everyday lives.”

Which leads us back to what we’re seeing with cryptocurrency today. Even if this bubble bursts, the concept of digital currency will not go away. It may wipe out 90% of today’s existing startup currencies, but the strong will survive. Companies, like Kodak, who try to create a currency without providing real customer value may see efforts go to waste. And this will pave the way for the Amazon of cryptocurrency to make its mark on the world.

To further the power of this movement, it’s important to remember that cryptocurrency isn’t a company. It doesn’t have shareholders. It isn’t VC-backed. Which means this movement extends beyond any other economic bubble we’ve seen–it’s happening in an arena that’s removed from the stock markets. So, when, and if, the bubble bursts, it won’t go quietly into that good night. The parameters may change drastically from what we are seeing today, but digital currency–in one form or another–is the future.

How to invest in a movement

So, if cryptocurrency is the future–how do you invest? From a business standpoint, it’s important to look at crypto through a risk-management lens. Business leaders and board members should be learning everything they can about this new trend so they can determine how, where, and why it might affect or fit into the business. Is there a way to offer customers value through cryptocurrency? Is the time right to execute? Is there a long-term strategy in place that will take advantage of the crypto movement when the stormy waters calm down?

These are the types of questions you need to consider. Do what’s best for your business and what’s best for your customer. As with any digital movement, you need to be aware of the trends and aware of how it could change your business. This is the only way to defend your company from possible disruption.

Final word

For anyone who is considering investing in cryptocurrency, it’s important to remember that this is a long-term movement. Our world is becoming increasingly smaller and more reliant on digital means–currency transformation is inevitable.

It’s the smart investors who understand that this isn’t a fragile economic trend. Digital currency will continue to adapt and change over the next few years–and the companies and entrepreneurs who pay close attention now will have the best chance at deftly navigating the troubled waters.

Amazon.com opens its own rainforest in Seattle

SEATTLE (Reuters) – Amazon.com Inc on Monday opens a rainforest-like office space in Seattle that it hopes will spark new ideas for employees.

While cities across North America are seeking to host Seattle-based Amazon’s second headquarters, the world’s largest online retailer is still expanding its main campus. Company office towers and high-end eateries have taken the place of warehouses and parking lots in Seattle’s South Lake Union district. The Spheres complex, officially open to workers on Tuesday, is the pinnacle of a decade of development here.

The Spheres’ three glass domes house some 40,000 plants of 400 species. Amazon, famous for its demanding work culture, hopes the Spheres’ lush environs will let employees reflect and have chance encounters, spawning new products or plans.

The space is more like a greenhouse than a typical office. Instead of enclosed conference rooms or desks, there are walkways and unconventional meeting spaces with chairs.

Amazon has invested $3.7 billion on buildings and infrastructure in Seattle from 2010 to summer 2017, a figure that has public officials competing for its “HQ2” salivating. Amazon has said it expects to invest more than $5 billion in construction of HQ2 and to create as many as 50,000 jobs.

Earlier this month, the online retailer narrowed 238 applications for its second headquarters to 20. The finalists, from Boston and New York to Austin, Texas, largely fit the bill of being big metropolises that can attract highly educated tech talent.

Amazon started the frenzied HQ2 contest last summer and plans to pick a winner later this year.

Seattle’s mayor, the governor of Washington and Amazon’s top real estate executive were expected to speak during the Spheres’ opening ceremony. The Spheres will become part of Amazon’s guided campus tours, and members of the public can also visit an exhibit at the Spheres by appointment starting Tuesday.

Reporting By Jeffrey Dastin in Seattle, editing by Peter Henderson and Cynthia Osterman

This Oil Dividend Stock Has A 3.3% Yield And Just Raised Its Dividend By 14%

By Bob Ciura

Valero Energy Corporation (VLO) is on a tear—including dividends, it has returned nearly 50% in the past one year. With oil prices trending higher, Valero’s margins are improving, and it is rewarding shareholders with huge cash returns. On January 23rd, Valero increased its dividend by 14%, and also announced a $2.5 billion share buyback.

With the dividend increase, Valero now has a 3.3% dividend yield. This is significantly above the S&P 500 Index dividend yield of 2%. Valero is one of 294 dividend stocks in the energy sector. You can see all 294 energy dividend stocks here.

Valero’s fundamentals are improving, and the stock has an appealing mix of dividend yield and dividend growth. After such an impressive rally in the share price over the past year, today might not be the best time to buy, but Valero remains a high-quality holding for dividend growth investors.

Business Overview

Valero Energy is an oil refiner. It manufactures and markets transportation fuels and other petrochemical products. It an independent petroleum refiner and ethanol producer. The company’s assets include 15 petroleum refineries, with total capacity of approximately 3.1 million barrels per day, along with 11 ethanol plants, with production capacity of 1.4 billion gallons per year. Valero’s petroleum refineries are spread across the U.S., Canada, and the U.K., while the ethanol plants are located in the Mid-Continent region of the U.S.

In addition, Valero owns the 2% General Partner interest, and a majority limited partner interest, in Valero Energy Partners LP (VLP) a midstream MLP. Refining represents about 90% of Valero’s operating income. The company has an impressive network of assets.

Source: January 2018 Investor Presentation, page 4

Valero had an impressive performance to start 2017. The company beat analyst earnings expectations, for both revenue and earnings-per-share, in each of the first three quarters. In the third quarter, revenue of $23.6 billion increased 20% year-over-year, and beat expectations by $4.57 billion. Earnings-per-share of $1.91 beat by $0.08 per share.

Throughput volumes and yields both increased 2% over the first three quarters of 2017. Valero’s adjusted refining operating margin increased 21% in that time, to $3.86 per barrel. The U.S. Mid-Continent region performed exceptionally well, with 92% operating income growth in the first three quarters. Meanwhile, the U.S. Gulf region grew operating income by 5.8% in that period. Valero’s adjusted earnings-per-share increased 31% over the first three quarters of 2017. Going forward, Valero has multiple catalysts for continued growth.

Growth Prospects

The fundamental backdrop remains positive for Valero. Supplies of domestic crude oil and natural gas are abundant, with production growth across several premier U.S. fields, such as the Permian Basin. At the same time, there is limited spare global refining capacity, which helps keep margins high. Global economic growth continues to support demand, which according to Valero, continues to outpace capacity additions. Valero is seeing improved refining availability, combined with lower operating expenses over the past five years.

Source: January 2018 Investor Presentation, page 8

New projects will fuel growth for the company. Valero maintains a strict 25% internal rate of return hurdle rate, in order to move forward with new refining projects. Valero expects to spend $2.7 billion on capital expenditures in 2018, $1 billion of which will be reserved for growth expenditures. It also expects to continue utilizing $1 billion annually for growth investments, through 2021. Approximately half of growth capital expenditures will be spent on refining projects, with the remaining half on logistics.

Recent project completions include the Diamond Pipeline and Wilmington cogeneration unit, which was completed in November 2017. Other near-term projects currently in development, include the Diamond Green Diesel expansion project, set for completion in the third quarter of 2018. Projects set for completion next year include the Houston alkylation unit, and the Central Texas pipelines and terminals project.

Exports are an additional catalyst for Valero, particularly to Mexico, where the company has had a presence for over 10 years.

Source: January 2018 Investor Presentation, page 10

In the third quarter, Valero announced it had signed long-term agreements with IEnova to use terminals to be constructed at the Port of Veracruz, near Puebla and Mexico City. This will import refined products into Mexico beginning in late 2018.

Dividend Analysis

After the recent 14% dividend increase, Valero’s new quarterly dividend rate is $0.80 per share, or $3.20 per share annualized. The stock has a forward dividend yield of 3.3%. It also added $2.5 billion to its existing share repurchase program, resulting in a total of $3.7 billion left in its repurchase authorization. This which represents approximately 9% of the current market cap.

The company has reduced its share count by over 20% since 2011. In that time, it has also increased its annual dividend from $0.30 per share, to $3.20 per share.

Source: January 2018 Investor Presentation, page 13

Valero’s disciplined capital structure allows the company to continue returning cash to shareholders, in good operating climates and bad. Valero has a target payout ratio in a range of 40% to 50% of cash provided by operating activities for 2018. It also maintains a strong balance sheet, with an investment-grade credit rating, and a target debt-to-capital ratio of 20% to 30%. A healthy balance sheet helps Valero keep its cost of capital down, which leaves more cash flow available for dividends and share repurchases.

The only potential problem with buying Valero stock today, is the valuation. On a trailing basis, Valero stock trades for a price-to-earnings ratio of 21.3. This does not seem alarmingly high, since the broader S&P 500 Index trades for an average price-to-earnings ratio of 26.8. However, Valero typically does not trade for a price-to-earnings ratio above 20. According to ValueLine, Valero held an average price-to-earnings ratio of just 8.4, in the past 10 years.

Valero’s earnings growth soared last year, and its stock price followed suit. Investors interested in buying the stock now, have to pay a relatively high price for the company’s strong growth and improved outlook. As a result, this may not be a good time to initiate a new position, or add to an existing position.

Final Thoughts

Refining can be a volatile business. This is certainly a good time to be in the industry. Valero is coming off a great year, and new projects and exports should help continue growth. However, investors should wait for a better buying opportunity. For existing investors however, the stock remains a hold, due to its solid 3.3% dividend yield, and strong dividend growth.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Universe At The Edge Of The Restaurant

We sit here. Whether it be the early morning coffee, or the late night Grand Marnier, we all sit here and ponder the markets’ universe. Our chairs are comfortable enough, but the swirling mass of data, and projections, that surround us, is anything but that. “It’s all going to Hell in a handbasket” or “Equities are headed to the Moon” and the Sayers of Sooth seems to be staring at parallel universes.

There is a theory which states that if ever anyone discovers exactly what the Universe is for and why it is here, it will instantly disappear and be replaced by something even more bizarre and inexplicable. There is another theory which states that this has already happened.

– Douglas Adams

The total size of the assets of the world’s central banks are now 21.7 trillion, and they are growing by approximately $300 billion per month, according to Bloomberg data. Yardeni Research has updated its last report and now pegs the assets of the PBOC at $5.5 trillion, the assets of the ECB at $5.3 trillion, the assets of the BOJ at 4.6 trillion and, in fourth place, the assets of the Fed at $4.4 trillion. This totals $19.8 trillion for the world’s “major” central banks and, make note, this number is not decreasing or Flatlining but “Growing.” The assets of the major central banks were up 5% in December alone, according to Yardeni Research.

Yardeni Research also shows that BOJ’s assets are 92.9% of their nominal GDP while the ECB’s assets are 38.0% of their nominal GDP and the Fed’s assets are 22.4% of our nominal GDP. This should give you a comparative landscape for judgment. What we are actually looking at here, in my view, is money created from nothing but “Pixie Dust.”

The economists call it “Quantitative Easing” but it is actually a parallel universe where money is digitally concocted from nothing and tossed out to be spent. at will, on the markets. You see, it is money for the markets alone, because there are no goods or services or virtually any costs, in this newly created central bank economic universe.

There comes a point. I’m afraid, where you begin to suspect that if there’s any real truth, it’s that the entire multidimensional infinity of the Universe is almost certainly being run by a bunch of maniacs.

– Douglas Adams

Oh no!

The significance of all of this newly created money is beyond compare when considering the debt and equity markets, in my estimation. This $21.7 trillion, in newly minted assets, is larger than any economy on Earth, according to data provided by the IMF. The central banks have created a whole new nation, if you will, out of “Pixie Dust,” without any government, without any voting and without any representation.

You may say that each central bank reports to a specific government, but the money that they have created and provided to all of the world’s economies now reports to no one. It has already been tossed out of the various vaults and is useable just like the old, created by some country, money. We once thought all of this impossible. We have learned otherwise. It is Bitcoin, nationalized.

The impossible often has a kind of integrity to it which the merely improbable lacks.

– Douglas Adams

This 21.7 trillion is actually a “free cash flow.” It is unencumbered by wages, or cost of goods sold, or any other data attributed to arriving at the “free cash flow” of a corporation or a government. It is just money, after all, and the cost to make it was almost NOTHING. There are no capital expenditures.

Investopedia states,

Free cash flow (FCF) is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

Let us then turn to data provided by the St. Louis Fed. They stipulate that the Corporate Cash Flow of the United States was $2.231 trillion at the end of the 3rd quarter of 2017. This data may be found here.

This is at a time when the GDP of the U.S. was $19.74 trillion, according to the Bureau of Economic Analysis. This means that America’s “Free Cash Flow” was 11.30% of our total GDP. Consequently, since the central banks’ creation of money is not encumbered by any capital expenditures, at all, no cost of goods or services, zero, this means that the “real value” of the $21.7 trillion is 8.87 times its stated value if compared with the United States in terms of the “actual” effect on both the debt and equity markets.

In other words, the comparison of the central banks’ $21.7 trillion in assets is most accurately compared to the “free cash flows” of a government. This pegs its “actual” significance at a whopping $175.094 trillion, if considered, again, utilizing the “free cash flow” of the United States. Consider that for a moment. Where did this unnamed country come from?

There is no problem so complicated that you can’t find a very simple answer to it if you look at it right.

– Douglas Adams

Given this massive and unprecedented “Free Cash Flow” I state, with a good deal of certainty, that it is the money the money and the money that is driving equity prices higher, keeping yields relatively low and compressing all risk assets in upon their benchmarks. The economists may call it Quantitative Easing, but I say that the central banks used “Pixie Dust” and poured it into the markets and that we have entered a sort of financial Wonderland where every day is “Happily Ever After.”

The markets are flying!

There is an art … or rather, a knack to flying. The knack lies in learning how to throw yourself at the ground and miss.

– Douglas Adams

Dollar Falls After Mixed Signals From Trump Administration

Disappointing US GDP and contradictory comments on currency strength at Davos burden dollar

The USD depreciated against majors as soft Q4 GDP numbers on Friday and mixed comments on the desired strength and weakness of the currency made at the World Economic Forum in Davos put downward pressure on the greenback. The Trump administration is pushing its tough stance on trade, but tried to soften the tone in an effort to be more inclusive. Economic fundamentals and monetary policy have been supportive of the currency, but political lack of stability has hurt the buck. Next week the market will focus on the U.S. Federal Reserve and the U.S. non farm payrolls (NFP).

  • US President Trump to deliver his first State of the Union Address
  • Fed anticipated to keep rates on hold at 1.25-1.50 percent
  • US forecasted to have added 184,000 jobs in January

Dollar Confused Ahead of US Jobs Report and Fed Statement

The EUR/USD gained 1.73 percent in the last five days. The single currency is trading at 1.2426 after contradictory statements from the Trump administration confused markets. Secretary of the Treasury Steve Mnuchin said on Wednesday that the weaker dollar was good for the US in relation to trade. The USD retreated and the EUR touched three year highs. Next day President Trump said the he ultimately wants to see a strong dollar as the currency is a reflection of the strength of the economy. The USD recovered some ground versus the EUR, but the damage had already been done and the EUR advanced 0.27 percent on Friday.

The first estimate for US GDP for the fourth quarter was released and it was short of expectations at 2.6 percent. The forecast the market was looking for was 3.0 percent, but given its the advanced estimate there will be two more released that could see the final GDP figure higher in the following months.

The EUR has been rising despite the words from European Central Bank (ECB) President Mario Draghi. The central bank kept its rate and massive quantitative easing program untouched. Draghi made sure to mention that stimulus would remain for as long as needed, but had to concede there were few chances it will change interest rates. The ECB President made a comment warning about using verbal intervention to talk down a currency when asked about the Davos statement from Mnuchin.

US President Trump will deliver its first Sate of the Union address on Tuesday, January 30, at 9:00 pm EST. Failing to avoid a government shutdown Trump will focus on the positives during his first year. His achievements in passing legislation came late in 2017 but he is sure to mention the tax reform bill. The stock market record breaking pace and overall strength of the economy while inherited will also be mentioned with the infrastructure plan something to look for in the immediate future. The USD got a Trump bump in late 2016 when just after winning the elections

The U.S. non farm payrolls (NFP) will be published on Friday, February 2 at 8:30 am EST. Economists are expecting the US to add 184,000 positions in January. Last month’s report came in lower than expected but the saving grace for the USD was that hourly wages grew 0.3 percent as expected. There are similar gains forecasted for January wages with a special emphasis on inflationary data as the Fed ponders what to do with stagnant wages despite a strong job component.

The USD/CAD lost 1.38 percent during the week. The currency pair is trading at 1.2323 with a weaker greenback sliding against a stronger loonie. The Bank of Canada (BoC) lifted its benchmark rate 25 basis points earlier in the month and Friday’s release of Canadian inflation coming in even lower than expected at -0.4 percent and validates the slowing inflationary rise view from the central bank.

The uncertain future of NAFTA had previously sapped the loonie from any positive impact from the interest rate hike, but comments this week about the importance trade by the Trump administration have lessened the anxiety about the trade deal. While the US representatives were sure to mention America first, even Trump conceded that America is not alone. The March deadline is fast approaching and negotiations have little to show for it. Elections in Mexico and the United States will make the trade deal a heavy politicized item in 2018. The biggest surprise at Davos from the White House was the apparent softening of their hard line on the Trans Pacific Pact (TPP). The now 11 nation deal was one of the first casualties of the administration and the remaining members agreed to go ahead without the US this week.

Oil prices have been boosted by the weak US dollar and encouraging signs that the global demand for energy is on the rise. The Organization of the Petroleum Exporting Countries (OPEC) production cut agreement was instrumental in stopping the free fall of crude. US shale producers were predicted to have ramped up their supply by now, but weather and other factors have stood in their way. The main risk for crude is a sudden revival of the US dollar that could trigger a sell-off in commodities with investors looking to book profits at current three level highs.

Market events to watch this week:

Tuesday, January 30
10:00am USD CB Consumer Confidence
10:30am GBP BOE Gov Carney Speaks
7:30pm AUD CPI q/q
9:00pm USD President Trump Speaks
Wednesday, January 31
8:15am USD ADP Non-Farm Employment Change
8:30am CAD GDP m/m
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
Thursday, February 1
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI
Friday, February 2
4:30am GBP Construction PMI

*All times EST

1 Unforgettable Life Lesson You Can Learn From Science Fiction Icon Ursula K. Le Guin

Want to change the world? Begin by envisioning it as it could be.

The world of literature–science fiction and otherwise–is a much sadder place this week after the loss of the iconic novelist and writer Ursula K. Le Guin, who died at home, after months of ill health. Her list of accomplishments is impressive–she authored more than 20 novels, a dozen books for children, books of essays, novellas, short story collections, and poetry collections. Later writers, from Salman Rushdie to Neil Gaiman, were influenced by her work. She won the National Book Award and was one of only four authors to have her work collected and published by the Library of America during her lifetime. She not only won both the Hugo and the Nebula prizes–Science Fiction’s highest honors–she was the first person to win both prizes twice for the same two books, her novels The Left Hand of Darkness and The Dispossessed. She authored the Earthsea series, inspired in some ways by J.R.R. Tolkien’s Lord of the Rings, but with a very different point of view.

Robert Kennedy famously said, “There are those that look at things the way they are, and ask why? I dream of things that never were, and ask why not?” That quote perfectly describes what was so powerful about Le Guin’s work. In her best books (or at least the ones I love best) she would create an imaginary world that was more just and more enlightened than the real one, although often the environment was harsh and the people who lived there faced terrible challenges. She was an ardent feminist, and in The Left Hand of Darkness, she created a world in which gender is not a permanent condition, but changes over the course of an individual’s life, as it can for certain fish species in real life. 

Although she wasn’t an anarchist, she was fascinated with anarchy (in which there are no government or laws as such, but people are self-governing) and Taoism, which emphasizes, balance, compassion, and frugality. So in The Dispossessed she imagined a moon colonized by anarchists who had rejected the hedonistic, capitalist ways of the planet it orbited and had abolished all forms of ownership. Except for trading resources from the moon for needed supplies from the planet, the two populations have no contact, until the book’s protagonist, who grew up on the moon, decides to visit the planet and see it for himself. Those are the books that stick best in my memory, but there are others: The Lathe of Heaven, imagines a world in which people’s dreams can change actual reality. 

Le Guin studied anthropology and sociology on the way to creating her alternate worlds and it shows. You wind up asking yourself if a society like this really could exist, or maybe hoping that it could. At least, I did.

She never backed down.

Even in a constantly evolving and sometimes ambiguous age, Le Guin never lost the courage of her convictions or wavered in her deeply held beliefs. In 1987, she turned down a request from a major publishing house to blurb a new science fiction anthology, writing that she could not imagine herself supporting a book “which not only contains no writing by women, but the tone of which is so self-contentedly, exclusively male, like a club, or a locker room.”

Almost 30 years later, when given a lifetime achievement award by the National Book Foundation, rather than focus her speech on praising publishing and thanking the Foundation for the honor–which is certainly what most people would have done–she lambasted the entire industry instead. “Developing written material to suit sales strategies in order to maximize corporate profit and advertising revenue is not the same thing as responsible book publishing or authorship,” she declared. She said that at the end of a long career, “I don’t want to watch American literature get sold down the river.”

Most strikingly, she said this:

“Any human power can be resisted and changed by human beings. Resistance and change often begin in art. Very often in our art, the art of words.”

She never stopped imagining a world in which things could be made better. Those are big words for the rest of us to live up to. But inspiring ones as well.

Fujitsu in talks to sell mobile phone unit, highlighting fading Japanese presence

(Reuters) – Japan’s Fujitsu Ltd said on Friday it was in talks about selling its mobile phone business to investment fund Polaris Capital Group, becoming the latest Japanese electronics maker to withdraw from the sector.

The sale, if realized, would leave just three Japanese electronics makers – Sony Corp, Sharp Corp and Kyocera Corp – in a global market dominated by Apple Inc, Samsung Electronic Co Ltd and cheaper Chinese rivals.

The potential deal calls for Tokyo-based Polaris Capital to take a majority stake in Fujitsu’s mobile phone unit, which is valued at around 40 billion yen to 50 billion yen ($365 million to $456 million), a source familiar with the situation said.

The size of the stake is still under negotiation, said the person, who asked not to be identified as the discussions were confidential.

An official agreement is expected by the end of the month, the Nikkei newspaper said.

Polaris will aim to list the business in several years, the Yomiuri newspaper reported.

Fujitsu said in a statement that no decision has been made and a representative declined to comment on how large a stake is being negotiated.

Around the year 2000, there were more than 10 major Japanese handset firms producing traditional flip phones, including NEC Corp and Toshiba Corp.

But most have since withdrawn from the business, caught out by the meteoric rise of Apple and Samsung.

Domestic makers failed to gain a global presence by being overly reliant on the lucrative domestic market, which gave them little incentive to change their Japan-specific mobile phone formats and expand overseas.

The rise of low-cost component producers such as Taiwan’s MediaTek Inc also have made it easier for price-competitive Chinese rivals to enter the market.

Fujitsu, whose shares were up 1.0 percent in a flat broader market, has been unloading other non-core businesses as well.

Last year, Lenovo Group agreed to buy a majority stake in Fujitsu’s personal computer unit for up to $269 million in a bid to capture a larger share of a market that is battling weak sales as more people switch to mobile devices.

The Nikkei added that retaining the mobile division’s staff and factories will likely be a condition of the deal. Fujitsu, which wants to focus on its core information technology services business, is also expected to continue operating its Arrows brand under Polaris, the source said.

Fujitsu, which spun off its mobile phone operations into a separate company in 2016, had drawn interest from other investment funds such as Britain’s CVC Capital Partners Ltd and Chinese personal computer maker Lenovo Group Ltd, the Nikkei reported last year.

Reporting by Minami Funakoshi and Junko Fujita in Tokyo, writing by Makiko Yamazaki in Tokyo, with additional reporting by Rushil Dutta in Bengaluru; Editing by Shri Navaratnam and Malcolm Foster

Alibaba, U.S. grocer Kroger had early business development talks: source

SAN FRANCISCO (Reuters) – Chinese e-commerce and technology company Alibaba Group Holding Ltd and U.S. grocer Kroger Co have had early discussions on working together, including a meeting in which U.S. executives traveled to China, a source familiar with the matter said.

The business development talks are at an initial stage, and it is not clear if they will lead to any cooperation, the person said, declining to be named.

The discussions come as U.S. e-commerce company Amazon.com Inc has expanded aggressively into groceries with its acquisition of Whole Foods Market.

The talks between the two firms were reported earlier by the New York Post.

Spokespeople for Kroger in the United States and Alibaba in China did not immediately respond to requests for comment.

This week Amazon opened to the public its Amazon Go checkout-free grocery store, which relies on cameras and sensors to track what shoppers remove from the shelves.

Amazon’s renewed push into groceries with last year’s Whole Foods acquisition put pressure on leading U.S. supermarket Kroger to improve technology including mobile ordering and delivery. Kroger is rolling out curbside pickup as one way to fend off Amazon.

Alibaba has been making an aggressive push into working with U.S. and Canadian companies that could be interested in selling in China as well as rolling out its cloud services and payment products. The talks with Kroger were not CEO-level, said the person, describing Kroger as one of many U.S. companies holding initial discussions with the Chinese company.

In China, Alibaba’s Hema supermarket chain has become a test bed for the e-commerce firm’s move into traditional retail, where mobile phones are used to order, pay and get information about items.

Kroger, which wants to sell more general merchandise like Amazon and Walmart, could direct customers to the Alibaba site, where they could buy general merchandise, the New York Post reported, citing a source.

Reporting By Peter Henderson; Editing by Muralikumar Anantharaman

Software AG fourth-quarter margins hit record; IoT business may double in 2018

FRANKFURT (Reuters) – Software AG reported record margins in the fourth quarter on Thursday and forecast that its new business line serving the industrial internet could as much as double in size in 2018.

Germany’s No.2 business software maker after SAP said its adjusted earnings before interest, tax and amortization (EBITA) rose by 9 percent to 98.4 million euros ($122.4 million), in line with a Reuters poll of analysts.

Reporting by Douglas Busvine; Editing by Maria Sheahan

Qualcomm fine from EU antitrust regulators expected Wednesday: source

(Reuters) – EU antitrust regulators are expected to impose a multi-million euro fine on Qualcomm Inc on Wednesday for paying Apple Inc to use only its chips, according to a person familiar with the matter.

The European Commission in 2015 accused the company of the anti-competitive behavior. The fine could in theory go as high as 10 percent of Qualcomm’s annual revenue, which was $22.2 billion for its most recent fiscal year.

Apple and Qualcomm are engaged in a wide-ranging legal battle over Qualcomm’s business practices, which started a year ago with Apple suing Qualcomm for nearly $1 billion in patent royalty rebates that the chipmaker allegedly withheld from the phone maker.

Other regulators including the U.S. Federal Trade Commission are investigating Qualcomm’s dealings with Apple, and the decision may make Qualcomm more vulnerable to chip maker Broadcom Ltd’s $103 billion hostile bid for it. Broadcom argues it will smooth rocky relations with customers such as Apple.

Europe’s antitrust regulators are pursuing two proceedings against Qualcomm, with the second expected in coming months, the person familiar with the matter said.

In 2015, European regulators lodged a statement of objections against Qualcomm that it had made payments to “a major smartphone and tablet manufacturer” in exchange for the smartphone maker exclusively using its baseband chipsets, which connect mobile devices to wireless data networks. Apple is the customer, this person said.

The Financial Times earlier on Tuesday reported the expected decision, which covers Qualcomm’s behavior from 2011 to 2016. (on.ft.com/2DAGjeY)

In filings in a U.S. federal court case against one another, Apple and Qualcomm gave dueling descriptions of a so-called “transition agreement” signed by the two companies in 2011.

Apple alleged Qualcomm gave it a discount on royalty payments in exchange for exclusively using Qualcomm’s so-called modem chips.

Qualcomm alleged that Apple demanded the discount as an “incentive” to do business with Qualcomm.

In a separate lawsuit filed in January 2017 by the U.S. Federal Trade Commission against Qualcomm, regulators alleged that Qualcomm’s agreement was a “de facto” exclusivity arrangement that violated antitrust rules. The FTC said the chipmaker could cut off Apple’s incentive payments and even require a refund of past payments if Apple tapped a different supplier.

Qualcomm has denied the FTC’s allegations.

The European Commission declined to comment. Apple declined to comment beyond its previous position on Qualcomm’s practices.

Reporting by Aishwarya Venugopal in Bengaluru, Foo Yun Chee in Brussels and Stephen Nellis in San Francisco; Editing by Sai Sachin Ravikumar and Cynthia Osterman