Tech Brew Ride Home - Mon. 05/23 – Big Tech Consolidation Coming?

Episode Date: May 23, 2022

Is a big mergers and acquisition wave about to hit the tech industry. I make the case from several different angles. AMD releases its next generation Ryzen chips. And a super interesting new startup in the Web 3 space. Is it game? Is it a fitness app? Can you earn money for moving? Yes. Sponsors: Zapier.com/ride LCX.com/ride Links: Broadcom in Talks to Acquire Cloud Company VMware (Bloomberg) Report: EA Looking To Sell Or Merge (Kotaku) Big Tech Is Getting Clobbered on Wall Street. It’s a Good Time for Them. (NYTimes) AMD Ryzen 7000 Announced (AnandTech) 'Move-to-earn' Solana app StepN is latest crypto gaming craze (TechCrunch) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the tech meme right home from Monday, May 23rd, 2022. I'm Brian McCullough. Today is a big mergers and acquisition wave about to hit the tech industry. I make the case from several different angles. AMD releases its next generation, Risen Chips, and a super interesting new

startup in the Web 3 space. Is it a game? Is it a fitness app? Can you earn money just for moving? Yes. Here's what you miss today in the world of tech. sources say Broadcom is in talks to acquire VMware, which has around a $40 billion market cap, but the discussions are ongoing and there's no guarantee they will lead to a purchase, quoting Bloomberg. Broadcom, which has a valuation of about $213 billion, fell 4.4% on the rumors. A deal for VMware would rank among the biggest ever acquisitions of a technology company. The industry has been one of the bright spots for bankers in recent months, even as the overall pace of deal-making slows from 2021's record pace.

Takeovers of technology companies globally are up 463 billion dollars, according to data compiled by Bloomberg. The tally was buoyed by Microsoft's agreement in January to buy Video Game Publisher Activision Blizzard for $69 billion. A consortium backed by Vista Equity Partners is acquiring Software Maker Citrix Systems for $13 billion, while Elon Musk announced a $44 billion deal for Twitter, last month. The transaction would extend a run of acquisitions for Broadcom chief executive officer Hock Tan, who has built one of the largest and most diversified companies in the chip industry. Software has been a key focus in recent years with Broadcom buying CA technologies in 2018 and Symantex Enterprise Security business in 2019. Broadcom makes a wide range of electronics with

its products going into everything from the iPhone to industrial equipment. But data centers have become a critical source of growth, and balking up on software gives the company more ways to target that market. Broadcom was previously in talks to acquire S-A-S-S institute, a closely held software company valued at $15 to $20 billion, but those discussions ended last year without a deal. Tan also was thwarted in his biggest takeover attempt of them all, a bid to buy rival chipmaker Qualcomm. He had to walk away from that deal in 2018 after Broadcom encountered resistance from the Trump administration, end quote. And over the weekend, the big rumor was reporting that gaming giant electronic arts is looking to sell or merge.

Sources say EA pursued an NBC Universal merger and held acquisition talks with Disney, Apple, and Amazon previously. Quoting Kotaku. The Battlefield and FIFA Maker recently pursued a merger with NBC Universal and also held potential acquisition talks with Disney, Apple, and other companies, according to a new report by Puck. While a deal isn't currently in the works, it doesn't sound like EA plans to give up anytime soon. Quote, in recent years as media companies have taken greater interest in the rapidly growing gaming industry, Wilson and Electronic Arts have held talks with a number of different potential suitors, including Disney, Apple and Amazon sources with knowledge of those talks told me, wrote Puck's veteran media reporter Dylan Byers.

Several sources familiar with these talks say EA has been persistent in pursuing a sale and has only grown more emboldened in the wake of the Microsoft Activision deal. Others say that EA is primarily interested in a merger arrangement that would allow Wilson to remain as chief executive of the combined company, end quote. But it was apparently a deal with NBC Universal that got the farthest along. According to buyers, Comcast CEO Brian Roberts was looking to spin off the entertainment conglomerate into a separate entity with EA, with one version of the deal leaving current EA CEO Andrew Wilson in charge of the new mega business. Negotiations eventually fell apart over price, however, end quote. So gaming is clearly in a consolidation phase, but do you get a sense of a theme here? Note that

tech mergers and acquisitions, as we said previously, are already up 46% this year. So with tons of once high flying, but still in theory, high growth companies facing cratered market caps and perhaps a lot of high-profile startups on private markets unable to IPO because of market turmoil, could we be in for a wave of M&A activity in tech these next few months? Quoting the New York Times. Apple, Amazon, Microsoft, and the parent companies of Facebook and Google have lost $2.7 trillion in value so far this year about the annual gross domestic product of Britain. So what have the companies done about this thrashing on Wall Street? Microsoft has doubled its employees' bonus pool. Google has committed to hiring more engineers

and Apple has showered its top hardware talent with $200,000 bonuses. The dissonance between the stock market's relative panic and the business-as-usual calm among tech giants foreshadows a period when analysts, investors, and economists predict that the world's largest companies will widen their lead in their respective markets. The bullishness about their prospects reflects an understanding that the companies have tight control of some of the world's most lucrative businesses, social media, premium smartphones, e-commerce, cloud computing, and search. Their dominance in those arenas and toeholds in other businesses should blunt the pains of inflation,

even as those challenges hammer big companies such as Walmart and Target and the stock market nears bear market territory. Big tech can say, forget the economy, said Richard Kramer, founder of the London-based advisory firm Arete Research. Flush with cash, she said, they can invest through the cycle, end quote. Those companies plummeting values will create buying opportunities, said Tony Sakanagi, a tech analyst at Bernstein, a research firm. Large deals may be difficult because the Federal Trade Commission is scrutinizing takeover moves by Facebook, Apple, Amazon, Microsoft, and Google, he said, but smaller deals for emerging technology or engineers could be rampant. During the Great Recession, Facebook,

Amazon, Google, Apple, and Microsoft acquired more than 100 companies, from 2008 to 2010, according to Refinnative, a financial data company. Some of those deals have become fundamental to their businesses today, including Apple's acquisition of the chip company PA-Semi, which contributed to the company's development of its new laptop processors, and Google's acquisition of AdMob, which helped create a mobile advertising business. The big will get bigger and the poor will get poorer, said Michael Cusamano, Chief Dean of the Sloan School of Management at the Massachusetts Institute of Technology, quote, that's the way network affects work, end quote. AMD has unveiled the Risen 7,000 lineup of CPUs with up to 16 Zen 4 cores based on TSM's 5 nanometer process,

plus PCIE5 and DDR5 on the AM5 motherboard coming in the fall of this year, quoting a Nantec. During the AMD keynote at CompuTech's 22, its CEO, Dr. Lisa Sue, officially unveiled their next generation of Risen processors and the successor to the highly successful, Risen 5,000 series. Although the TSM 5-Nameter manufacturing process was initially found in smartphones with Apple and Huawei, both championing the transition, Zen 4 marks the first use of 5-nanometer for X-86 desktop systems. The AMD, Risen 7,000, and ZEN4 are similar to Zen 3, including a chiplet-based design with two core complex dyes, CCDs, based on TSMC's 5-nanometer manufacturing process. While AMD isn't going into great detail on the Zen4 architecture today,

they have to save something to discuss for later in the year. For now, the company is disclosing that Zen 4 will come with one megabyte of L2 cache per CPU core, which is twice the amount of L2 cache as found on Zen 3 and Zen 2 CPU cores. Meanwhile, L3 cache will remain a subject for another day. AMD isn't offering details on its L3 cache or whether we will see Zen 4 models with its 3DV cache stacked packaging. Coupled with that L2 cache improvement, AMD is aiming for higher clock speeds thanks to their architectural design and TSM's 5 nanometer process. Officially, the company is only claiming 5 gigahertz plus max turbo clock speeds for now, but in a demo video shown by Dr. Sue, AMD's pre-production 16-core Ryzen 7,000 chip was shown to be boosting to above 5.5 gigahertz, which is a

significant uplift from the sub-5 gigahertz speeds of AMD's current Risen 5,000 desktop chips. As a result of these cache architectural IPC and clock speed improvements, AMD is touting a greater than 15% increase in single-threaded performance. And checking AMD's disclosure notes, this is based on early Cinebench R23 notes, comparing their pre-production 16C-Risen 7,000 chip to a 16c-5950X. Given the significant clock speed increases that AMD has demoed on this chip, This does imply that most of AMD's performance improvements are coming from the clock speed improvements rather than IPC uplift. However, CineBench is a single benchmark.

And for the moment, we don't have any further information on what core architectural changes AMD has made, end quote. Stepan, S-T-E-P-N, is a Solana-based app that rewards users with tokens for walking and running. The company says it now has 2 to 3 million monthly active users and makes $3 to $5 million. a day in net profit just from trading fees alone, quoting TechCrunch. Since its launch in December, Steppen, an app that lets users walk and run to earn tokens, has quickly become a household name in the Play to Earn Blockchain Gaming or GameFi world. Two to three million users worldwide are now active on the app every month. Steppen's co-founder Jerry Wong recently told TechCrunch,

that number is nowhere close to the 100 million player size enjoyed by popular Web 2, titles, but in the world of crypto, it's a meaningful breakthrough for a five-month-old app. As of May 22nd, the market cap of Steppen's native token GMT stood at around $860 million. Founded by Wang and his co-founder Jan Wrong in Adelaide, Australia, Stepan debuted at a Salada Hackathon in October. After coming in fourth, its exposure at the event helped land its first batch of beta users. When it officially launched two months later, words about the app that let one earn by staying fit had already spread within the blockchain community. Without any splashy ad campaign, scores of users signed up. In weeks, Steppen was growing so fast that the team needed to cap the number

of daily registrations. Now tens of thousands of new users are joining the app per day, according to Wang. Wang, a serial entrepreneur and wrong, a blockchain venture capitalist, were self-funding the project at first, for the pair, were financially stable. But in September, they decided that fundraising could bring in other meaningful resources such as partnerships and publicity. The founder spoke to over 100 investors and revised their pitch deck over 40 times before closing a $5 million seed round from Sequoia Capital and others in November. We didn't have a product at the time, and many investors couldn't understand what we were doing. Sequoia did.

The process of addressing investor questions also helped us refine the product to where it was later, said Wong. Indeed, the fast-growing app appears to be self-sustainable for now. It's generating $3 to $5 million in net profit from trading fees a day and earning up to $100 million every month. In April, it picked up another round of strategic investment from Binance. Some argue what makes Steppen and other play to earn blockchain games like Axi Infinity successful is the fact that they are essentially financial products with a gamified twist. To start earning tokens and logging ones mileage on Steppen, users need to first spend at least 12 sole or around $600 on a pair of virtual.

shoes at the current market rate. The digital shoes are in the form of a non-fundgible token that runs on the Salana network and Binance's smart chain, so can be resold later, but the entry fee is still not a trivial amount for any casual player. Over time, Steppen users will need to accumulate new kicks to level up. The usual return on investment requires about a month, upon which people can start generating income of up to several thousand dollars per day, depending on their level, activity, and the current price of Steppen tokens. In other, other words, the game can be quite lucrative. In the eyes of some gaming veterans, the gameplay of most existing GameFi apps is easy and mindless. Axi Infinity, for instance, features cute blob-like

creatures that fight in simple battles. As such, Web2 gaming incumbents are entering GameFi in droves, pledging to bring quality back to the industry. Wong begged to differ, quote, a lot of the AAA games overemphasize aesthetics and big budgets, but they aren't really that innovative when it comes to gameplay, whereas some simple-looking games like Plants v. zombies come with brilliant gameplay that makes them last, said Wong, who ran his own gaming studio in China before moving to Australia a decade ago. Other critics questioned the financial sustainability of play to earn. Maintaining such a business model means the gameplay needs to be either so addictive that users continue to play without cashing out their coins or that the app continues to attract

new users who buy in only to replace those who cash out. Critics have even drawn parallels between play-to-earn and pyramid schemes. Axi Infinity hasn't been able to to sustain its meteoric rise. Sky Mavis, the Vietnamese Gaming Studio behind the game, was valued at $3 billion in a $150 million financing round last October, but its token has lost over 80% of its value since peaking in November at $160, and its sales volume has nosedived from $754 million to just $5 million. Losing a few thousand dollars isn't the end of the world for most of Steppen's users, who are 20 to 40-year-olds from affluent countries like the U.S., Japan, and Europe. China, where crypto trading is banned, accounts for less than 5%

of its user base, Wong said. But Axi Infinity's players are concentrated in developing countries, like the Philippines and Venezuela, many of whom are betting a significant amount of their savings on the game, a major source of their income during the COVID pandemic. Stepan proposes a two-fold solution to sustainability. For one, it's working on a price stabilization mechanism to ensure the cost of its coins is always at a rate that the shoes are affordable for new users, but also not so cheap that existing users lack the incentives to mint new shoes, that is, create new shoes on the blockchain and sell. Price manipulation is achieved through its dual token system.

When the price of its utility coin, GST is too high and shoes get pricey, Stepin will ask players to burn its governance coin GMT to mint new shoes. The supply of GST increases as a result, leading to a sell-off and bringing its cost down. Wong also argued Stepan's fitness component makes it fundamentally different from Axi Infinity. Yes, users can make money from Steppen in the early stage, but over time they will also grow accustomed to staying active, so they will continue to walk or run regardless of financial rewards, he said. Many people don't see Steppen as a real game, nor do they consider it a running app because users can make money from it, said Kurt Shee. Founding partner at Weiliner and Shee Capital and an early investor in Steppen.

It's hard to define what it is right now, but time will tell, end quote. Nothing for you today. Talk to you tomorrow.