Facebook boots 115 accounts after FBI tip on eve of U.S. election

FILE PHOTO: A man is silhouetted against a video screen with an Facebook logo as he poses with a laptop in this photo illustration taken in the central Bosnian town of Zenica, August 14, 2013. REUTERS/Dado Ruvic/File Photo

SAN FRANCISCO (Reuters) – Facebook Inc blocked about 115 user accounts after U.S. authorities tipped it off to suspicious behavior that may be linked to a foreign entity, the company said in a blog post on Monday, hours before U.S. voters head to the polls.

The social network said it needed to do further analysis to decide if the accounts are linked to Russia’s Internet Research Agency or another group. The U.S. has accused the Russian government body of meddling in U.S. politics with social media posts meant to spread misinformation and sow discord.

Eighty-five of the removed accounts were posting in English on Facebook’s Instagram service, and 30 more were on Facebook and associated with pages in French and Russian, the post said.

Some accounts “were focused on celebrities” and others on “political debate,” it added.

The tip came from the Federal Bureau of Investigation on Sunday night, Nathaniel Gleicher, Facebook’s head of cybersecurity policy, wrote in the post.

The company announced its actions earlier in its investigation than typical “given that we are only one day away from important elections in the U.S.,” he added.

This year’s contest has been portrayed as crucial by both Republicans and Democrats because both chambers of Congress, and the accompanying ability to pass or reject President Donald Trump’s agenda, are up for grabs.

“Americans should be aware that foreign actors, and Russia in particular, continue to try to influence public sentiment and voter perceptions through actions intended to sow discord,” including through social media, federal authorities said in a statement on Monday.

Social media companies say they are now more vigilant against foreign and other potential election interference after finding themselves unprepared to tackle such activity in the U.S. presidential election two years ago.

Reporting by Philip George in Bengaluru and Paresh Dave in San Francisco; Editing by Gopakumar Warrier and Clarence Fernandez

Kyocera BrandVoice: Can The Right Office Equipment Improve Our Legal Culture?

By Amanda Reaume 

The legal industry is ripe for tech disruption.

That’s partly because the field is rife with paperwork, whether it’s the records that first-year attorneys and other staffers need to search for discovery or the hard copies of legal documents that many firms are legally required, or think it’s critical, to keep. All that paperwork represents costs—the cost of the work hours needed to search through, organize and file all that documentation, as well as the cost of physical storage space itself. If you’re paying, say, $10 per square foot to rent space and need an extra 200 square feet for paper storage, that will set you back $24,000 per year.

It’s critical to start looking for the technological solutions that will help your office keep up with the times—whether that’s getting a new Kyocera MFP or investing in a better eDiscovery provider.

It’s critical to start looking for the technological solutions that will help your office keep up with the times—whether that’s getting a new Kyocera MFP or investing in a better eDiscovery provider. Getty

An ocean of paperwork isn’t the only challenge that law firms, district attorneys’ offices and courts are facing. There are other process inefficiencies within the legal sector that the right office technologies, like multifunction printers and copiers and document solutions software, can improve.

In addition, artificial intelligence and machine learning can streamline case law searches or help to complete legal forms, reducing costs for firms and clients. Automated billing systems can also help simplify law firms’ complex accounts-receivable processes.

Here are some equipment-related steps you can take towards changing your law firm’s or legal department’s office culture.

 1. Get the right multi-functional printers and copiers. 

Law firms, courts and district attorneys’ offices can benefit from making the right choices when it comes to their multi-functional printers and copiers (MFPs). Equipment with faster page-per-minute outputs, longer-lasting toner cartridges, higher paper-storage capacity and fewer downtime-inducing technical issues will make your office more efficient.

The right machine for your office will also let you quickly scan documents. That MFP component will enable you to create legal files and connect scanned information with your existing document management software to improve workflow and reduce the need for paper copies. The best solutions are designed specifically for your industry and business and include built-in workflow automation, document management and security solutions—something that select MFP manufacturers like Kyocera provide.

Document management software that connects with your MFP can transform your law office by  facilitating digital document processing, letting you organize your files and automatically backing up and securing your client information.

 2. Use artificial intelligence. 

Artificial intelligence (AI) is the next big thing in the legal business. A survey from HBR Consulting showed that while only 6 percent of law firms have currently implemented an AI solution, 14 percent have identified an area of their business that could benefit from AI, and 26 percent recognize that they need to look into AI in order to stay competitive.

The main areas where artificial intelligence is making its presence felt include contract review, law searches and electronic discovery analytics. McKinsey & Company estimates that automation can do around 22 percent of the work lawyers do and 35 percent of the work that law assistants do—AI is the future of law firms.

If firms don’t take advantage of AI, they might find themselves losing business to legal startups like wevorce, which already provides automated divorce processes for a fraction of the cost of a typical divorce.

 3. Upgrade client billing and management systems. 

While many law firms already have some form of client billing and management system, it might be time to upgrade, as the options have improved.

You should be looking for a new system if you’re not already doing the following: automatically collecting monthly fees and retainers using recurring billing; sending email invoices to clients and accepting their payments electronically; and easily tracking client payment, billable hours and cash flow.

The best billing management systems allow you to use your data to look at past revenue and predict future earnings with easy-to-create reports. Some systems integrate additional functionalities. PracticePanther, for example, can create a “customer portal” for your clients that also helps you manage your calendar and book meetings with clients.

The right system will help save your firm hundreds of hours of work per year.

 4. Introduce practice management software. 

If your firm is using a generic accounting software solution to manage your finances or relying on expense forms that lawyers must print out to fill out, then you might be missing out on some process innovations that purpose-built practice management software provides.

Practice management software systems like Abacus were built with law firms in mind and you can customize them for your needs. They make expense reporting more efficient and give you real-time information about your business by connecting your accounting system with your corporate credit cards. That way you always have the most up-to-date understanding of where you stand financially.

 5. Get the best eDiscovery software. 

Electronic discovery software allows attorneys to more easily identify, collect, store and produce electronic information in the event of a legal request. Many document requests involve searching complex databases such as servers or email accounts; eDiscovery software allows you to data mine in order to more quickly find the documents that you need.

Even if you already have an eDiscovery provider, you might want to make sure that it is still the best option available. Many new offerings allow you to collect data remotely so that it doesn’t tie up an employee’s computer.

They also allow you to integrate your search with existing document management systems, use AI to automatically redact data such as social security numbers and credit card information, and leverage metadata details such as access time and file type.

 Innovate Or Fall Behind 

The legal industry is facing pressure to embrace technology. To stay competitive, it’s vital for your firm to embrace system automation, improve your workflow processes and reduce your costs.

This holds true for the public and private sectors alike. Just as law offices lose money when they don’t implement key advances, bottlenecks in courts and backlogs in legal aid and prosecutors’ offices often have outdated technologies and workplace strategies to blame.

The fact is, the entire industry could benefit from leveraging technologies for greater efficiency. That’s why it’s critical to start looking for the technological solutions that will help your office keep up with the times—whether that’s getting a new Kyocera MFP or investing in a better eDiscovery provider.

Amanda Reaume is a freelance writer and the creator of the blog Millennial Personal Finance. She is also the author of two personal finance books aimed at Millennials: Money Is Everything and The Complete Guide to a Debt-Free Education.

Chinese chipmaker's ambitions hit hurdle with U.S. indictment

HONG KONG/BEIJING (Reuters) – Chinese state-backed semiconductor maker Fujian Jinhua Integrated Circuit Co Ltd billed itself as a national leader in the tech industry. It planned to drive a shift towards locally made chips and end a heavy reliance on imports, especially from the United States.

“The era of Chinese chips has arrived,” it said in a recent promotional online pamphlet to attract chip industry talent. Underneath was a picture of a circuit board emblazoned with the Chinese flag.

“China once relied on chip imports, but the tireless work of untold numbers of chip experts has meant that from 90 percent imports we have been able to attain localized production,” it said, highlighting a high-skilled global workforce harking from the United States, Japan and South Korea.

“Jump with us into an chip era that belongs to China.”

That bold ambition now faces major hurdles.

The U.S. Justice Department on Thursday indicted Fujian Jinhua and Taiwan-based United Microelectronics Corp (UMC) (2303.TW) for industrial espionage.

The indictment said the companies conspired to steal trade secrets from U.S. semiconductor company Micron Technology Inc (MU.O) relating to its research and development of memory storage devices.

Under a technology cooperation agreement signed in 2016, UMC develops memory-related technologies for the Chinese firm.

The charges came after the U.S. Commerce Department banned U.S. companies from selling hardware and software components to the Chinese firm and UMC. The Taiwan firm said shortly afterwards that it will temporarily halt its research and development activities with Fujian.

The Commerce Department action could deal a significant blow to the Chinese semiconductor maker, given its reliance on U.S. supplies, and China’s technology ambitions.

On Saturday, Fujian Jinhua said in a statement posted on its website that it had not stolen any technology and that it “always attaches great importance to the protection of intellectual property rights.”

Chinese government officials have said privately that Fujian is of high strategic importance to China, which is looking to boost home-grown technology under its “Made in China 2025” plan, a bid to catch up technologically in key areas such as semiconductors, where it has long been reliant on imports – notably from America.

“You can’t build a fab (fabrication plant) without U.S. equipment companies. You just cannot do it,” said Risto Puhakka, a semiconductor industry expert at VLSI Research.

The world’s most important suppliers of the tools needed to make memory chips – Applied Materials Inc (AMAT.O), KLA-Tencor Corp (KLAC.O), and Lam Research Corp (LRCX.O) – all hail from the United States.


China imported $270 billion in semiconductors in 2017, more than its total imports of crude oil, highlighting the country’s lack of a true rival to U.S. chip making giants like Micron, Intel Corp (INTC.O) or Qualcomm Inc (QCOM.O).

To close the gap, analysts said earlier this year money was “raining down” from Beijing and state-backed funds, like the country’s state chip “Big Fund”, to support firms such as Fujian Jinhua.

The Chinese firm has been working to open a giant $5.7 billion chip factory in October to produce 60,000 semiconductor wafers per month in its first stage of production, and 120,000 in its second stage, according to domestic media.

Fujian is just one of a handful of Chinese semiconductor firms that have in recent years looked to crack the global chip industry. They are working on chips that can be used in smartphones to missile guidance systems.

Two officials at a state-linked semiconductor fund said Fujian Jinhua was working with highly specialised semiconductor materials to make circuits, a high priority for Beijing and the country’s chip fund.

“You could consider Fujian Jinhua a top three China chip company in terms of their research and development,” one of the people said. Both asked not to be identified because they were not authorized to speak publicly on the matter.


Fujian Jinhua was established in 2016 with funding from state-owned Fujian Electronics & Information Co and Jinjiang Energy Investment Co..

Other backers include municipal governments from the southern cities of Quanzhou and Jinjiang. Fujian Jinhua’s former board chairman served as a provincial-level party secretary.

The firm’s focus was to become a manufacturing leader in DRAM, or dynamic random access memory, a chip commonly used in personal computers, workstations and servers. The sector has been long dominated by U.S. firm Micron and South Korea’s SK Hynix Inc (000660.KS) and Samsung Electronics (005930.KS).

“Once completed, the project will fill the gap in the field of DRAM memory in China,” the company said in a news post last year. It added the factory had been included in a list of the country’s top engineering projects supported by the state.

“In the information age, integrated circuits have been a strategic basic industry for China,” it wrote. “Future prospects are bright.”

Reporting by Josh Horwitz and Cate Cadell; additional reporting by Shanghai newsroom; Editing by Adam Jourdan and Neil Fullick

The Next Billion Dollar Disruption. You Read About It Here First

If there’s anything true about high tech, it’s that the big fortunes are made when a new technology disrupts an existing industry. The money to be made is greatest when 1) the industry being disrupted is bureaucratic and inefficient, and 2) the new technology transcends, rather than merely automates, the previous processes.

Early in my career, I lived through and participated in, one of the biggest disruptions of all time: desktop publishing. Within ten years, photo-offset printing setups that cost millions of dollars each were replaced by PCs and laser printers. Entire job categories and companies disappeared. Millions lost their jobs but entrepreneurs made untold billions of dollars.

While I built my career riding that wave, I was too young and inexperienced to start my own company until the revolution was over. Now, as I see another, even more amazing technology about to massively disrupt another hidebound, inbred industry, I’m past the point where I want to start my own company. Too much damn work. (I’m a lazy S.O.B., truth be known.)

So I’m going to share with all you readers what I absolutely know is about to happen. I say “absolutely” because entirely by accident I’m uniquely positioned to see the disruption coming and uniquely qualified to explain how it’s going to happen. And, strangely perhaps, it has nothing whatsoever to do most of the stuff I write about in this column.

So let’s get started but, bear with me and be patient, because I’m going to explain this in my own way and without trying to package the concept with a nice, neat bow. Put on your thinking cap.

Rick and Morty

About two weeks ago, I attended a live interview with Bryan Newton, one of the animation directors of the hit cartoon series Rick and Morty. He’s been involved with the project since its inception and has become a bit of a legend among animators for pioneering some of the crazed look-and-feel of that style of animation.

Why was I at that interview? Well, it was presented by AniMAtic Boston, a group of student and professional animators, mostly graduates of local colleges, most of whom work in the fields of commercial and corporate animation but many of which are true artists in this field.

I belong to that group and support it because, in addition to all the business writing and experiences I’ve had over the years (and which I chronicle in this column), I’ve also been a hobbyist in the field of computer animation since the mid 1980s. I’ve animated using several programs; I also made a feature-length film that’s pretty well-known in some circles. (Let’s just say it gave me permanent nerd cred.)

From time to time, I’ve played around with the idea of changing careers and becoming a professional animator, probably in the field of cut-scene animation for computer games, which is a field I know pretty well. Anyway, I was interested in Newton’s perspectives about working in a big studio.

Well, I don’t know whether it was because he had had a long day and was tired, but he made it very clear that he was no fan of the studio system. As he ragged on all the inefficiencies and politics, I realized that I’d heard all this before. It seems like EVERY creative person in Hollywood hates the studios–especially the executives with their “notes.”

Anyway, it turns out that even shows like Rick and Morty–which involves relatively simple animation–must go through an insanely Byzantine process to move from conception to writing to animation to completion. Over a hundred people are involved and from what I can see a great deal of them aren’t adding much or any value.

And, don’t kid yourself, animated entertainment–TV, movies and Internet–is a multi-billion-dollar business. More important, it’s a business that’s weighed down by bureaucratic overhead and entrenched power-brokers who essentially drag down the creative process.

Revolution in Real-Time

At the end of the interview with Newton, he speculated about what animation technology might look like in the future. He said that writers could create characters by morphing standard characters, use libraries of animations to make them move, use motion capture to customize and add dialog. And then release it directly to the Internet.

Essentially he described an environment where creatives like himself would not require the infrastructure, investment, and meddlesome overhead of a studio to develop and release an entertainment product. As I heard him describe this, I considered pointing out that all of this was not just possible but day-to-day reality, at least in the real of 3D animation. 

The technology is called “Real-Time Animation” and it’s been flying under the radar for about a decade. So much under the radar that although I’ve brought up the subject with several people at AniMAtic Boston, I have yet to run into anyone who has even heard of the software-;even though they’re recent graduates of top animation college programs.

The reason I know about Real-Time is that I’ve been working with Real-Time animation software since 2004, probably because I have no formal training in animation. I suspect that most “real” animators have tended to ignore it because up until about two years ago real-time animations have been fairly crude.

However, as CPUs and GPUs (graphics cards) have gotten more powerful in order to handle ultra-realistic games, it’s become possible to create reasonably high-quality 3D animation using real-time tools. These tools are to traditional animation what desktop publishing was to typesetting and paste-up. You create animation on a WYSIWYG (What You See Is What You Get) environment.

A few (very few) traditional, high-end animation shops are getting wise to the incredible power and productivity of developing animation in Real-Time. One of these is UK-based Axis Animation, which created the computer graphics world for the excellent Netflix series Kiss Me First, and which does specialty work for several big name organizations.

I recently had a long conversation with Michael Zaman, who is the supervisor of Real-Time Computer Graphics at Axis. He noted that while in the past they used Real-Time primarily for prototyping, they’re now using it for actual project because the technology can now create quality that rivals the more laborious CG processes of the past.

Zaman had the same “knowing grin” that I’ve come to associate with the handful of people who “get” what’s coming; I have a feeling that he and Axis will end up being major players in the disruption that’s just around the corner. I’m going to save the best part of our conversation for the end of this post, so you’ll want to read the entire thing.

The Underlying Tech

There are four reasons that Real-Time animation has vastly increased in quality. (I’ll be giving some examples soon; bear with me.) 

  1. The first trend is the need to develop video games quickly; real-time animation more naturally emulates the environment in which computer games will be played.
  2. The second trend is the desire among consumers for video games that are more realistic and cinematic; to satisfy his desire, companies like NVidia have developed specialized hardware to process complex 3D graphics.
  3. The third trend is the commoditiziation of high-end technologies, like motion capture (mocap). Ten years ago, a full-body/facial mocap system cost a million dollars; a functionally identical system can be had today for $6,000.
  4. The fourth and final trend is a lively market in pre-created 3D models, including sets, props, and characters, along with the ability to very easily modify those models to suit individual projects.

The result is very much like the “next generation” environment that Bryan Newton described on stage–not just for simple 2D animation like Rick and Morty–but full-on 3D animation similar to major Disney releases.

More important, Real-Time technology makes it possible to do all of this without the overhead of the studio system; in fact, developing a short animated film is considerably less effort than writing a novel.

How do I know this? Because I’ve actually written a novel and have also been using the best (IMHO) Real-Time animation tool–iClone from Reallusion–to do exactly that over the past two years. Here are excerpts from my last three major projects, showing the incredibly rapid development of this technology (very short video):

[embedded content]

I’m not saying any of the above is great art (although the first project did get selected for several film festivals and won two awards.) What’s important here is that they were created by a single person (me) who has NO formal training in animation and with a very limited budget (less than $1,000 total for each project).

The total cost for this kind of Real-Time animation, excluding my labor, comes out to about $500 per minute. For perspective, a typical Disney feature, done with traditional animation tools in a studio setting, costs upwards of $50,000 per second which comes to $3,000,000 per minute. 

I’d say that a cost reduction from $3,000,000 to $500 definitely qualifies as disruptive technology. And that’s just for creating animated cartoons, which although a multi-billion dollar business is only the tiniest tip of the proverbial iceberg.

What’s Next Is Insane

Real-time animation technology is developing so quickly that even people inside the industry are struggling to catch their breath.  However, what all the insiders see very clearly is that the studio technology that Disney uses to insert deceased actors (like Carrie Fisher) into the Star Wars movies will rapidly become available to individuals.

We’re already seeing this kind of thing with the so-called “deep fake” technology where AI pastes a celebrity’s head onto a video with another actor’s body on it. But the real power happens when you combine mocap with ultra-realistic real-time rendering.

And that’s happening already. Real-Time is currently experiencing is a quantum leap in quality from a technology called iRay, which is being built into the newest graphics cards. Here’s a very short video showing how iRay radically increases realism inside Reallusion’s Character Creator tool:

[embedded content]

To understand where this is all going, here’s a demonstration of a high-end system (it uses the Unreal gaming engine) being used to create ultra-realistic animation in Real-Time–so realistic that it’s hard to tell that it’s not a real person:

[embedded content]

While the setup used above is more expensive than most independent film-makers are likely to be able to afford, it’s still geometrically less expensive–and insanely faster–than the systems used inside the studios.

The point here is that the technology shown in the video above will soon drop in price so that it will be widely available to anybody who can spend, say, $5,000 or $10,000. And that’s what’s going to completely change not just animation but the entire filmmaking industry.

Here’s what’s going to happen, based on my conversations with insiders like Michael Zaman from Axis Animation. Within five to ten years, it will be possible for a single person or a small group of people to make entire movies in virtual worlds, without ANY of the overhead of a traditional studio.

And I’m not just talking about animated cartoons. I’m talking about actual feature films with massive special effects. People like you and me will be able to create, with very little investment, content that resembles high-end cinematic work that today costs hundreds of millions of dollars.

So here’s what we’ve got: rapidly developing technology that will upend a massively inefficient and bureaucracy bloated studio system. This revolution will be more disruptive than Amazon was to the book business, or than Netflix was to the TV business. We are about to experience the kind of massive market disruption that happens only once or twice in anybody’s lifetime.

And almost nobody sees it coming. But now YOU do, because you read about it here first. The question is: are you going to start a business that surfs the tsunami? Or are you going to sit back and watch it happen?

Your move.

Trump’s ‘Game of Thrones’ Tweet Is Odd, but Trademark-Infringing? Probably Not

Of all the apparatuses presidents have at their disposal for making pronouncements—press secretaries, official statements, televised addresses from the Oval Office—the one President Trump used to trumpet forthcoming sanctions on Iran is by far the strangest: a Game of Thrones meme.

On Friday morning the president posted the image below on Twitter. It’s a picture of himself emblazoned with the phrase “Sanctions Are Coming” in a typeface not that dissimilar from the one used in the Game of Thrones logo along with the date “November 5.” Subtle, it was not.

As soon as it went up, and as soon as it was clarified by the White House that the sanctions in question were indeed the ones that had been relaxed during the Obama administration and which Trump had been seeking to reimpose, Twitter went nuts. Folks began responding with memes of their own—”Indictments Are Coming” etc.—and even the show’s cast got involved. Sophie Turner, who plays Sansa Stark, replied “Ew,” and Maisie Williams (Arya Stark), in perhaps the best Twitter drag of the day, retweeted the president and just added “Not today.” (“Not today,” for those who don’t remember, is what Arya Stark’s swordfighting instructor, Syrio Forel, told her is what she should say to the god of death.)

Then HBO got in on the action, sending out a tweet reading, “How do you say trademark misuse in Dothraki?” Reached for comment the network added, “We were not aware of this messaging and would prefer our trademark not be misappropriated for political purposes.” Trump evoking the show’s logo and slogan, it seems, doesn’t sit very well with the people who actually make the show.

But could the network or creators successfully sue? Probably not. First off, it doesn’t seem likely that HBO actually wants to make a legal claim of trademark infringement. At most, the network is playing along. Trump referenced the show; they responded. Simple as that. But the response, and subsequent online chatter, did raise some questions about whether or not the president went too far.

Most likely, he didn’t.

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If HBO were to bring a claim, it would probably be for what’s known as trademark dilution, says Daniel Nazer, a staff attorney for the Electronic Frontier Foundation’s intellectual property team. Typically, these are the kinds of claims companies make when they feel their very-famous trademarks are being used in ways that deplete the uniqueness, or dilute, their intended message. A company can’t, say, put something that looks like the Nike “swoosh” logo on the side of a commercial plane or use “Just do it.” to sell condoms.

A dilution claim also generally requires that the entity claiming infringement be able to prove the public was genuinely confused. Because Trump’s tweet wasn’t being used in commerce, and because it’s unlikely anyone thought he was legit affiliated with Game of Thrones, dilution would be a hard argument to make. “I think this would be a tough, a tough case,” Nazer says. “No one is likely to be confused that HBO is endorsing this tweet or sponsoring sanctions against Iran. My view is that this shouldn’t be a viable suit.”

Instead, Nazer says, Trump’s tweet would be treated more like a parody—legally speaking. If, for example, Saturday Night Live did a sketch about waiting for a train in New York titled “The G Train Is Coming” that pokes fun at MTA tardiness and references Game of Thrones, that’s not an infringing use. (It’s also a funny idea, SNL. Please make that sketch and credit Nazer.) As for Trump’s use of the Thrones font, the files used in typefaces can be protected, as is (presumably) the actual logo, but because Trump just uses a script that looks like the GoT emblem, the image the president tweeted is likely not infringing. It’s ironic, but the bottom line is that the man who likes to take shots at the media is protected here by the First Amendment.

The parody aspect, though, is compelling, because the metaphor doesn’t quite align. In Game of Thrones, “winter is coming” is a call to remain vigilant, and a warning that White Walkers could come and threaten the living when winter arrives. Yet winter has been coming on the show since the pilot; it’s a slow march that’s taken seven years. Trump’s “November 5” warning promises something he intends to do in a matter of days. Also, one presumes, Trump thinks the sanctions are a good idea, but the coming of winter in Game of Thrones is something most sane people in Westeros fear. It’s possible Trump wants Iran to be afraid of the sanctions, but the wordplay still doesn’t quite land.

“It’s kind of riffing on it, but it’s hard to know what the satirical or parodic intent is here,” Nazer says. “Winter in the Game of Thrones universe is kind of terrible, so I’m not sure if they really thought it through. There’s probably nothing much beyond it looks cool.”

Half an idea without any sense of its viability? Sounds about right.

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US Accuses Chinese Company of Stealing Micron Trade Secrets

The Chinese government has made manufacturing computer chips that store data—memory—a major priority of its centralized science and technology strategy. According to the US Department of Justice, China plans to do it not just through research and development, but through old-fashioned espionage.

In an indictment unsealed Thursday, DOJ accused China’s Fujian Jinhua Integrated Circuit, Taiwan’s United Microelectronics Corporation, and employees including Jinhua’s president, of economic espionage—of stealing proprietary technology from US-based Micron Technology to make dynamic random access memory chips, which are found in just about every gadget. It’s not clear how the companies will respond, nor whether the individuals accused of espionage could ever be extradited to the US. So think of this as a virtual shot in the cold-but-warming trade war between China and the US. “Chinese espionage against the United States has been increasing—and it has been increasing rapidly,” US Attorney General Jeff Sessions said in a statement. “I am here to say that enough is enough.”

How much was enough? In 2013, Micron bought a Taiwanese chipmaker and formed Micron Memory Taiwan, where it planned to build DRAM, the mostly commoditized “short-term memory” in computers and related things that go beep. The DOJ indictment alleges that the president of MMT, Stephen Chen, quit and moved to UMC, set up a $700 million joint agreement with Jinhua (owned by the Chinese government), and then hired two more MMT employees, who starting in roughly 2016 began to bring over Micron trade secrets.

Micron is one of just a handful of companies making DRAM, and the only American one—it’s worth $45 billion and has a fifth of the global market. The technology is essentially a commodity; Micron and its two competitors, both Korean, differentiate themselves through being able to construct smaller and smaller features on their chips and the facility with which those chips talk among themselves and to other components. Jinhua, says the indictment, acquired the processes to build a range of chips, including those that use Micron’s “1x-nm” technology. Over the past year, Micron management has been touting that advance as a major piece of its business.

Until Jinhua started cranking them out, China didn’t have the technology to make tiny-featured DRAM, even though factories there make and assemble a wide swath of the planet’s gadgetry. But China’s government had tabbed developing the capacity as a priority in its most recent Five-Year Plan … which, in retrospect, looks to the US government as an invitation to stochastic espionage. Their ears were open, in other words, if DRAM technology should happen to fall off the back of a truck.

That may well be what happened. It’s possible that Chen, JT Ho, and Kenny Wang realized that their access to Micron’s proprietary technology meant a financial windfall if they took it to the government-owned chipmaker. But the US government hasn’t laid out that part of their case; Chinese economic espionage on the US mainland has typically involved a more elaborate process of spotting and recruitment of assets in advance of their access to information.

In this case, Micron complained; In August 2017, Taiwan filed criminal charges against UMC, and in December, Micron sued UMC and Jinhua. So in January, Jinhua turned around and sued Micron—for infringing on Jinhua’s DRAM patent. Meanwhile, the Taiwanese Ministry of Justice had pinged the San Francisco Division of the FBI, which has made something of a franchise of handling technology-related economic espionage.

That tripped another breaker; in late September, after two years of investigation, the FBI indicted the companies and the employees. (The indictment was only unsealed Thursday.) And last week the Department of Commerce added Jinhua to its “Entity List” of companies presumed to pose a national security threat to the United States (on the grounds that like everyone else in the world, the US military uses a lot of DRAM). That means US companies need a license, which they probably won’t get, for all “exports, re-exports, and transfers of commodities, software and technology” to Jinhua—including components and materials crucial to making DRAM.

From the US perspective, that’s about as tough a move as it can make, because redress through the courts is unlikely. “I don’t want to say we can never extradite people. We’ve seen time and again where somebody goes on vacation and they forget this country has extradition,” says John Bennett, special agent in charge of the FBI’s San Francisco division. “We’re not saying these people are guilty of anything but we’ve been able to provide enough evidence to a court to indict them. If they would like to argue that point, that’s what the American justice system is designed to do.”

In a release, UMC representatives say that the company “takes seriously any allegation that it may have violated any laws and fully intends to respond to these allegations.” The company said it “regrets that the US Attorney’s Office brought these charges without first notifying UMC and giving it an opportunity to discuss the matter.” Jinhua’s website is offline, and the Chinese Consulate General in San Francisco did not return a call asking for comment.

Whether any of this action will protect Micron’s position in the global market is an open question. The US government is operating under the assumption that, since Jinhua is owned by the state, the technologies for making DRAM may well find their way to other companies in China. It’s possible that the resulting chips will be recognizable as Micron-derived. “We appreciate the US Department of Justice’s decision to prosecute the criminal theft of our intellectual property,” said Joel Poppen, Micron’s general counsel in a press release. “Micron has invested billions of dollars over decades to develop its intellectual property. The actions announced today reinforce that criminal misappropriation will be appropriately addressed.” But company representatives did not answer questions about what impact increased Chinese DRAM production might have.

Whatever effects the indictments have on DRAM and the companies that make it, they might make broader geopolitical noise. An agreement between China and the US to not engage in trade-secret theft seems to have mostly collapsed under the Trump administration (even though the president tweeted Thursday morning that trade talks with China are going swell), so it makes sense that its agents are talking tougher. And the FBI’s San Francisco division hopes to further solidify relationships with Silicon Valley, a frequent victim of Chinese economic espionage. “A lot of times, they have this close hold [on information] because they don’t want to impact stock prices,” Bennett says. But he hopes that the fact that his office was able to investigate the alleged Micron theft for two years with no leaks will help show that his office is trustworthy. “Whether that’s being used as [political] chips or not, we don’t see that in the FBI. This is cases for us. We have economic loss,” Bennett says. “They broke American law, and we’re going to bring them to justice.”

Here is the indictment in the case:

More Great WIRED Stories

Investors bristle as Apple's iPhone data goes the way of its headphone jacks

(Reuters) – First Apple Inc took away the headphone jack on its iPhones. Then it took away the home button.

FILE PHOTO: The Apple iPhone 7 and AirPods are displayed during an Apple media event in San Francisco, California, U.S. September 7, 2016. Reuters/Beck Diefenbach/File Photo

And now, it has taken away a closely watched performance metric that it has disclosed to investors for 20 years.

The Cupertino, California-based company on Thursday said that it will stop reporting unit sales data for its iPhone, iPad and Mac computer products, the latter of which it has given out since 1998. Analysts and investors use the figures to calculate the average selling price of Apple’s devices and gauge the health of the company.

Apple said the data is less relevant to the strength of its business as customers bundle products, such as an iPhone paired with its wireless AirPods headphones, along with paid subscription services like Apple Music to listen to songs and iCloud storage for photos. Analysts were skeptical.

“Companies typically stop reporting metrics when the metrics are about to turn. This is not a good look for Apple,” said analyst Walter Piecyk from BTIG Research.

The move cost Apple dearly, helping to send shares down about 7 percent in after-hours trading. They later settled at $207.81, about 6.5 percent below their previous close.

“Apple is a complex company with lot of moving parts,” said analyst Ivan Fienseth from Tigress “I think they need to give more transparency to their shareholders and not less.”

But now, Apple will give cost-of-sales data for both its total product businesses and its total services business, which will let investors evaluate a gross margin for both. In the past, Apple gave only an overall gross margin figure for the company.

The new numbers are important for two reasons. First, they will show just how lucrative Apple’s hardware business really is. But more importantly, for the first time they give margin information on Apple’s services business, which reached $10 billion in its fiscal fourth quarter, up 17 percent.

Many of Apple’s fastest-growing businesses are subscription based, like its $9.99 a month Apple Music service. And investors tend to value subscription business through a combination of their revenue growth rate and margins – information that Apple investors will now have, said Tien Tzuo, chief executive of Zuora Inc, a company that helps subscription businesses track their finances.

But one problem Apple investors will face is not knowing what the margin mix is within the services business. Some parts of it, like iCloud storage, are likely lucrative, but others, like Apple Music, are probably less so because Apple has to pay music licenses costs and competes with rival Spotify Technology SA.

“You would value the music business with one (revenue) multiple closer to Spotify, and the cloud business with a (subscription software) multiple,” said Tzuo. “Having some sense of which business is growing faster would be nice.”

Reporting by Stephen Nellis in San Francisco; Editing by Lisa Shumaker

General Electric: It Hurts So Good

On October 30, 2018, General Electric (GE) reported its widely anticipated Q3 2018 financial results, which were not well-received by the market.


GE Price data by YCharts

The stock is currently trading close to single digits and some pundits are still calling for further downward pressure for GE shares. As I described in Thoughts On GE Heading Into Judgment Day, I wanted to hear from GE’s new CEO, Mr. Larry Culp, about several key themes (the Power struggles, SEC investigations, and how well the ‘other’ businesses are performing), which are items that I will touch on in this article, but, first, I will cover the news that is getting all of the attention – that is, the shrinking dividend.

It Hurts So Good

Make no mistake about it, GE had to cut its dividend. Yes, the company has enough cash on hand to cover the previous payout, but it simply did not make business sense for GE to use much-needed capital to keep a specific investor base happy. I have long took the stance that GE should cut the dividend so the move to reduce the quarterly payment from $0.12 to a token $0.01 should be welcomed news, at least in mind.

The dividend cut may hurt now, but I believe that Mr. Culp made a prudent business decision. To this point, GE simply could not afford to maintain the rich dividend based on the company’s cash flow metrics.

Source: Q3 2018 Press Release

GE will need capital for many different reasons as the company enters 2019, but the most notable items are: restructuring efforts (spins and additional sales/spins), potential buildup of insurance reserves, paying down debt, and shoring up the pension position. The reduced dividend will save the company around $3.9B in cash per year, which is meaningful for GE at this point in time. As such, the dividend cut should hurt so good, of course, if you are interested in staying the course.

Q3 2018 Results: Way Too Many Walks

GE reported adjusted Q3 2018 EPS of $0.14, which missed the consensus estimate by $0.06, on in line revenue of $29.6B. The major takeaway from the noisy earnings release is the fact that GE’s new CEO will definitely have to continue to deal with a lot of moving pieces in the months/years ahead.

Simply put, there are way too many “walks” to consider. The $22B goodwill charge was already well-telegraphed, but the important news was the fact that management plans to reorganize GE Power into two separate businesses in order to “further improve [its] cost structure, enhance execution agility, and drive better outcomes for customers and investors”. In plain English, I believe that management is separating the good from the bad in order to isolate what may be sold and/or spun off in the future.

Importantly, both of the new Power units – (1) a Gas lifecycle business and (2) a portfolio of the Steam, Grid, Nuclear and Power Conversion businesses – will now report directly to Mr. Culp. During the conference call, Mr. Culp stressed the importance of fixing Power and moving quickly to right the ship. Remember, Mr. John Flannery, former CEO, said that Power is a multi-year turnaround so the new CEO seems to be taking a different approach.

As expected, the last three months was not a great period of time for the Power unit, but there were some positive takeaways from the results from other businesses.

Source: Table created by author with data from Q3 Earnings Presentation

Some of the positive developments are highlighted in green, with the most notable items being Aviation’s impressive results. Everyone knew Power was going to be a disaster over the last three months, but it was all of the other stuff that has investors concerned about GE’s near-term prospects.

The Real Risks

No one should downplay the risks that come with Mr. Culp attempting to turn around the Power unit, especially if he is moving quickly, but, in my opinion, the risk factors that should be front of the mind are the SEC/DOJ investigations and the potential need to further strengthen the insurance reserves.

It was announced that the Department of Justice (“DOJ”) joined the SEC in investigating GE’s accounting practices with the recent charges ($22B goodwill impairment and $6B insurance reserve adjustment) being the main focus. These types of cases typically only result in settlements and fines (i.e., not enough to materially change the investment thesis), but I believe that there may be some significant issues that could be uncovered from the reviews. As an accountant by trade, I usually run for the hills when investigations like these are announced, but I plan to only monitor/evaluate the developments as they get released until I determine if the risk is too much to handle. I do want to mention that the risk level continues to climb higher and the stock may soon fall into the ‘do not touch’ category if the news keeps trending the same direction.

An analyst recently warned investors that GE could still end up booking billions of dollars in additional insurance reserves, even after the $15B commitment announced a few months ago. On the other hand, there are some analysts that actually believe that GE is starting the trend by strengthening its long-term care reserves (read this article) and that other companies will be playing catch up. It’s hard knowing who will be right, but any way you slice it, there is a great deal of uncertainty that needs to be considered when it comes to the adequacy of the company’s insurance reserves.

It will likely take time for these two risk factors to play out, but I believe investors should closely monitor any new developments on the investigation and reserve fronts.

Bottom Line

It is pure speculation, but I think GE’s stock would not have finished down almost 10% if the financial community only had to worry about a Power turnaround and a dividend cut. Instead, shareholders will need to keep an eye on the Power struggles and restructuring efforts, the SEC/DOJ investigations, the spins/asset sales, the potential for additional restructuring plans announced in 2019, and financial leverage questions (i.e., pension deficit, debt balance, and credit rating). This is a lot to factor in and, in my opinion, plenty of investors will not have the patience to stay the course and/or they will decide that there are other more suitable places to put money to work in the industrial space – makes sense, right? Therefore, shareholders that plan to hold onto their shares should expect a bumpy ride over the next 12-18 months.

Again, I believe that GE is a 3- to 5-year story so I will continue to hold onto my position, but, in my opinion, I would avoid putting new capital to work in this industrial conglomerate until more is known about (1) the SEC/DOJ investigations and (2) the adequacy of the long-term care reserves. GE’s other businesses are performing well, but I believe that the risk level for this industrial conglomerate continues to tick higher so it is hard to get excited about the stock, even after the recent pullback.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long GE, BHGE.

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.