What to Make of Amazon's Reported Plans for a Free Music Service
Sources (likely in the music industry) tell Billboard that Amazon.com (AMZN) is in talks to launch a free, ad-supported, music service. The service will reportedly feature "a limited catalog" and be marketed via Echo speakers, and could launch as soon as this week.
Spotify (SPOT) shares fell 4.4% in Monday trading following the news. Satellite radio leader Sirius XM (SIRI) , which recently bought web radio leader Pandora, fell 1.8%.
Though I've long had mixed feelings about Spotify as a business, Amazon's service is unlikely to be a major threat to Spotify's core subscription services, which had 96 million subscribers (up 36% annually) at the end of 2018, or for that matter rival services such as Apple Music, YouTube Premium and Amazon's own Music Unlimited service. It's hard to imagine many engaged Spotify subs accustomed to getting an ad-free music listening experience switching over to an ad-supported service -- particularly one that will have a "limited" song library.
On the other hand, Amazon's service could be a threat to Spotify's ad-supported services, which had 111 million monthly active users (MAUs) as of Q4, and also Pandora's ad-supported services. Though Spotify's ad-supported services accounted for just 12% of its Q4 revenue and an even smaller percentage of its gross profit, they do act as valuable customer acquisition vehicles for Spotify's subscription offerings.
One notable risk for Spotify and Sirius/Pandora's free services: Amazon offers a free music service with a smaller ad load than rival offerings. Amazon's potential to use its shopping data to deliver targeted ads that (on average) feature higher prices than ads played on rival services could help it pull this off, as could its well-known willingness to absorb losses for new businesses.
Looking at the big picture, the Billboard report is one more sign that Jeff Bezos' firm is bent on growing its ad inventory and scale, as its ad business, which might now be on a $10 billion-plus annual revenue run rate, becomes a bigger company priority. The company also has been trying to expand its video ad inventory; Amazon was recently reported to be planning to show some video ads in its mobile shopping app, and to also be working on an ad-supported video news app for its Fire TV devices.
TSMC Is Intent on Keeping its Newly-Won Chip Manufacturing Lead
A report from Taiwan's Commercial Times states Taiwan Semiconductor (TSM) , by far the world's biggest chip contract manufacturer (foundry), will start volume production for a revamped version of its cutting-edge 7-nanometer (7nm) manufacturing process in Q2. The process, named N7+, will be the first to use extreme ultraviolet (EUV) lithography, a technique for imprinting circuit patterns onto chip wafers that's seen as vital over the long run for extending what's left of Moore's Law.
The report also states that TSMC will roll out a revamped 7nm process known as N7 Pro -- from the looks of things, it doesn't rely on EUV -- later in Q2. Apple's (AAPL) A13 system-on-chip (SoC), set to go into this year's iPhones, will reportedly be made using N7 Pro.
TSMC is also moving aggressively to commercialize its next-gen 5nm process, which is expected to enter volume production in 2020. The company recently announced that it has started risk production for its first 5nm process, named N5, and that it has also finished creating the tools needed by customers to develop 5nm chips. Relative to the original 7nm process that began mass-production last year, TSMC claims its 5nm process will deliver an 80% improvement in chip transistor density, as well as a 20% drop in power consumption when performance is kept constant.
All of this has to be music to the ears of the major chip developers that rely on TSMC -- a group that includes not only Apple, but also Nvidia (NVDA) , AMD (AMD) , Qualcomm (QCOM) , Xilinx (XLNX) and a host of others. AMD has indicated it plans to use TSMC's N7+ and N5 processes, and it wouldn't be surprising to see Apple use N5 to manufacture the SoCs going inside its 2020 iPhones.
On the flip side, TSMC's strong manufacturing execution spells more pressure for Intel, which has surrendered its age-old manufacturing process lead to TSMC thanks to delays for a 10nm process node that's seen as competitive with TSMC's 7nm node, to avoid seeing additional delays. Intel plans to ship notebook processors and certain other chips that rely on its 10nm process later this year, and plans to ship 10nm server CPUs at some point in 2020.
Huawei's 5G Modem Offer to Apple Looks Like a PR Tactic
In a CNBC interview, Huawei founder and CEO Ren Zhengfei declared that his company, now the world's third-biggest smartphone maker, would be willing to sell its 5G modems to rival Apple ( AAPL) . The comments come a week after Engadget reported that Apple is the only company that Huawei, which is using a home-grown modem known as the Balong 5000 in its first 5G phones, is willing to sell 5G modems to.The remarks also arrive after multiple reports arrived indicating that Intel (INTC) is struggling to deliver its XMM 8160 5G modem in time for Apple's 2020 iPhone launches. Intel responded to those reports by saying it's still planning to have the XMM 8160 ready for devices launching in 2020.
Even if Intel is unable to launch the XMM 8160 in time and/or meet Apple's performance needs, the odds of Apple turning to Huawei still don't seem that high. There are other suppliers that Apple can turn to -- namely, Samsung, Taiwan's MediaTek and (though the companies might need to settle their licensing dispute for Apple to be comfortable with such an arrangement) Qualcomm (QCOM) . Moreover, at a time when the U.S. government is quite opposed to the use of Huawei and ZTE's 5G infrastructure equipment, and has been pressuring other governments to reject its use as well, Apple would undoubtedly get a lot of pushback if it chose Huawei to supply the chips used by its phones to communicate with mobile networks.
Huawei's fractured relationship with the U.S. government, together with the fact that Huawei CFO Meng Wanzhou (Ren's daughter) was arrested over the alleged violation of Iran sanctions, likely has a lot to do Ren's out-of-the-blue offer to sell 5G modems to Apple. The same might go for the effusive praise that Ren showered on Apple and Steve Jobs during his interview.
At a time when its relationship with the U.S. is at a low point, no one can accuse Huawei of failing to understand the importance of PR.
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