Tech Brew Ride Home - Mon. 10/24 – Investing In Chinese Tech Means Investing One Man’s Whims?

Episode Date: October 24, 2022

Did investing in Chinese tech become a fool’s errand over the weekend? A deep dive on how TSMC is caught in the middle of all the things. Is Elon’s Twitter deal presenting systemic risk to corporate finance? Are M2 Mac Pro and Macbook Pro’s still coming soon? And Bono tries to justify putting that U2 album on your iphone. Sponsors: Masterclass.com/ride for 15% off Links: China Stocks Crater in US as Alibaba Leads $130 Billion Wipeout (Bloomberg) TSMC: the Taiwanese chipmaker caught up in the tech cold war (Financial Times) Elon Musk’s Twitter Takeover Debt to Be Held by Banks Amid Turbulent Markets (WSJ) These artists found out their work was used to train AI. Now they’re furious (CNN Business) The iPad Lineup Is Perplexing — Here’s How Apple Could Fix It (Bloomberg) Bono on the birth of U2, that iTunes album and Live Aid: ‘There’s only one thing I can see when I watch it: the mullet’ (The Guardian) 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 for Monday, October 24th, 2022. I'm Brian McKellar. Today, has investing in Chinese tech become a fool's errand over the weekend. A deep dive on how TSMC is caught in the middle of all the things. Is Elon's Twitter deal presenting systemic risk to corporate finance? Our M2 MacPro and MacBook pros still coming soon, and Bono tries to justify putting that U2 album on your iPhone. Here's what you missed today in the world of tech. going to start off this week a bit from left field. Overnight, Chinese tech stocks basically got wiped out on the Chinese stock market.

I'm talking about companies, the likes of Alibaba, JD.com, NASPERS, etc., all down by more than 10%. Basically, the consensus from analysts seems to be this. You might have seen over the weekend that President Xi Jinping consolidated his grip on China's ruling party, and thus his grip on that entire country. including its economy. This means that essentially an investment in China, especially Chinese tech, going forward, is basically now an investment in the whims of one man. And I guess investors don't exactly fancy that, quoting Bloomberg. The NASDAQ Golden Dragon China Index of 65 Chinese stocks sank 15% erasing about $89 billion in market value. Major internet companies from Alibaba group to jd.com

saw double-digit declines. The crane shares, CSI-China Internet Fund, which tracks more than 40 Chinese stocks, tumbled 15%. Monday's sell-off came after Xi packed the Politburo's Standing Committee with six loyalists during the party's twice a decade leadership shuffle, with the unprecedented power play demonstrating his unchallenged control of the country's top decision-making body. Hong Kong's Hangseng Tech Index, which tracks shares of internet giants, including Alibaba and Tencent, slumped almost 10%.

Such dominance adds to concerns that China may hold back for longer on fully reopens. its economy, with fewer voices at the apex of power to question Xi's COVID-Zero policies. Investors also worry the ruling party may stick to its hardline approach toward domestic private enterprises and tech entrepreneurs while ramping up military pressure on Taiwan. The concern is that absolute power may lead to harsh policy both locally and internationally, said Sharif Farha, head of investments at HB investments. On a local level, zero COVID policy or tougher regulations on China Tech may not go away. On an international level, the market is definitely concerned about political tensions, end quote.

Now, I'm not exactly an expert in this area, but we have been watching this for a while now. And as all the tech bull market narratives, since the great financial crisis, have seemingly unraveled this year, maybe put some more chalk on the board for this one along the lines of, is China still a viable, investable bonanza for tech investors, question mark? Along similar lines, the narrative of chips being the new oil has been something we've talked about a lot this year. Well, what does that all mean for TSM? If folks are trying to onshore their silicon production, while at the same time, China is being cut off as a viable market, and China might be eyeing some form of military whatever with Taiwan itself. Some thoughts from the Financial Times. Basically, most of that Apple Silicon is still going to be

made by TSM for a long time to come. However, quote, the global semiconductor industry is now dominated by Taiwan thanks to TSM's meteoric rise. TSM now finds itself at the center of both a tug of war between Washington and Taipei and the fiercest front in the new Cold War between China and the U.S. Taiwan sees its chip dominance as a crucial security guarantee, sometimes referred to as the Silicon Shield. The government believes that the concentration of global semiconductor production in the country ensures the U.S. would come. to the rescue if China were to attack. But Taiwan's determination to keep as much of the industry as can on the island is clashing with U.S. strategic goals and its fears of China. As competition between

the U.S. and China heats up and the risk of a military conflict over Taiwan increases, Washington is seeking to both cut Beijing off from supplies of key advanced semiconductors and reduce its own dependency on Taiwan for chip supplies. Both of these objectives potentially undermine TSM, whose success is built on serving customers in all markets and on doing so from a cost-efficient cluster of plants almost entirely in Taiwan. On the one hand, the U.S. pressures TSMC to move to the U.S. On the other, it is waging technology war on China, pushing tension to a higher level that puts Taiwan at risk, says Jason Sue, a former Taiwanese lawmaker and now a senior fellow at the Harvard Kennedy School. If you have something that both sides want, you have leverage. But if you don't play that

card you become a pawn. We and Taiwan are kind of playing along with what the U.S. wants, end quote. Industry experts believe that diversifying its footprint might become necessary for TSM for reasons beyond geopolitics. It is already getting harder for the company to find the thousands of engineers for its larger and larger fabs. Another question is whether Taiwan will be able to provide enough water and power to keep expanding chip manufacturing. But at the same time, recent efforts by global governments like the Chips and Science Act from the Biden administration might not be the revolution that some anticipate, and others perhaps TSM, among them, fear. Quote, the way the FAB funding section has evolved and is now playing out as a train wreck waiting to happen, says Dick Thurston, former

general counsel for TSM, and now a consultant in the U.S. There will be a lot of disillusionment. Actually, U.S. semiconductor manufacturing will suffer because of it. In order for this to succeed, you need several multiples of the money committed over a period of 10 to 15 years at least, end quote. Underlying the size of the challenge, the Semiconductor Industry Association and Boston Consulting Group estimate that upfront investments of up to $1.2 trillion would be needed for each region to have fully localized supply chains at 2019 levels, followed by continuous spending of up to $125 billion a year. Edlin Levine, Chief Science Officer at America's Frontier Fund, which aims to invest in companies that will help the U.S. stay ahead in critical technologies, says it is

a, quote, fantasy to think that the U.S. could completely decouple from TSM. The idea is technically not feasible, says Levine, end quote. Ending our string of things to consider that are maybe outside of our normal purview, but still related to things we care about in tech. According to several sources over the weekend, U.S. banks backing Elon Musk's Twitter deal, which, as far as we know at this point, is still scheduled to close at the end of this week, plan to hold all of the $13 billion of debt necessary to close the deal on their balance sheets rather than attempting to sell it amid a difficult debt market. Basically, the plan had been to repackage the debt that they're froning to close the deal to investors, but no one wants it. So the banks have to keep it on the

books. And this could be important because, you know, $13 billion is a lot of money and banks only have so much to lend at any given time. So this could potentially sort of stop up commercial lending available to other companies to one degree or another. Quoting the journal. Banks would likely face losses of around $500 million or more if they try to sell Twitter's debt at current market prices, the Wall Street Journal previously reported. If all the banks hold the debt instead, they can market at a higher value on their books on the premise that prices will eventually rebound. Twitter could have the dubious distinction of being the biggest so-called hung deal of all time, surpassing a crop of them in the global financial crisis when banks were stuck with around $300 billion of committed debt

they struggled to sell to investors. The Twitter move threatens to bring the faltering leveraged buyout pipeline to a standstill by tying up capital that Wall Street could otherwise use to back new deals. So far this year, banks have already taken hundreds of millions of dollars worth of losses and been forced to hold a growing amount of buyout debt. Banks also face a timing problem. Mr. Musk and Twitter have until October 28th to close his planned purchase, And there is still no guarantee the unpredictable billionaire will follow through or some other trouble won't arise. If the deal doesn't close by that time, the two parties will go to court in November. That means the banks wouldn't have enough time to market the debt to third-party investors, a process that normally takes weeks, even if they wanted to sell it now.

Assuming the deal closes, banks hope to be able to sell some of Twitter's debt by early next year. Should market conditions improve by then, some of the people said. Twitter's banks are discussing how to potentially slice up the debt. into different pieces that could be easier for hedge fund investors or direct lenders to swallow one of these people said, end quote. So I'm not being alarmist here because, again, this isn't my area of expertise. I'm kind of just being a bit cheeky, but is the Elon Twitter deal a systemic risk? Following up on our lengthy discussion from this weekend about the whole AI moment, CNN spoke to several artists whose work, Stability AI included in their data set used to train

stable diffusion, these artists say they are angry that they weren't informed, asked for consent, or paid. Quote, as artists like Hansen have discovered that their work is being used to train AI, it raises an even more fundamental question, that their own art is effectively being used to train a computer program that could one day cut into their livelihoods. Anyone who generates images with systems such as stable diffusion or Dali can then sell them. These specific terms regarding copyright and ownership of these images varies. I don't want to participate at all, in the machine that's going to cheapen what I do, said Daniel Danger, an illustrator and printmaker who learned a number of his works were used to train stable diffusion. Some of these new AI services,

including OpenAI's DALI system, don't disclose the datasets behind their AI. But with stable diffusion, stability AI is clear about its origins. Its core data set was trained on image and text pairs that were curated for their looks from an even more massive cache of images and text from the internet. The full-sized data set known as Lyon 5B was created by the German AI non-profit Lyon, which stands for large-scale artificial intelligence open network. This practice of scraping images or other content from the internet for data set training isn't new and traditionally falls under what's known as fair use, the legal principle in U.S. copyright law that allows for use of copyright-protected work in some situations. That's because those images,

many of which may be copyrighted, are being used in a very different way. such as for training a computer to identify cats. But data sets are getting larger and larger, and training ever more powerful AI systems, including recently, these generative ones that anyone can use to make remarkable-looking images in an instant. While the concerns are real, the recourse is unclear. Even if AI-generated images have a widespread impact, such as by changing business models, it doesn't necessarily mean they're violating artist's copyrights, according to Tsar said, a law professor at the University of Washington. And it would be prohibitive, to license every single image in a dataset before using it, she said. You can actually feel really

sympathetic for artistic communities and want to support them and also be like, there's no way, she said. If we did that, it would essentially be saying machine learning is impossible, end quote. In Mark German's weekly newsletter this morning, word that Mark believes 14 and 16 inch MacBook Pro with M2 Pro and M2 Macs and an M2 Mac Mini are coming soon, Apple, he says, is also testing a Mac Pro with 24 CPU cores, 72 GPU cores, and 192 gigabytes of RAM. Quote, Apple still has some Macs to debut over the next several months, including a new Mac Mini and a MacBook Pro. But there's one Mac that neither I nor Apple has discussed in some time. The Mac Pro. Well, I don't believe the first Apple Silicon Mac Pro will go on sale until 2023.

I know that testing of such a machine was ramped up inside of Apple's walls. Let's start with the more popular machines, though. The new 14-inch-inch and 16-inch MacBook Pros. I'm told that these laptops will come in M2 Pro and M2-Max configurations. The M-2-Max will have 12 CPU cores made up of eight performance cores and four efficiency cores and 38 graphics cores. It will also continue to come up with up to 64 gigabytes of memory. Those options will be available across both screen sizes. The Mac Mini will get the same M2 chip as the MacBook Air and 13-inch MacBook Pro, which includes eight CPU cores and up to 10 graphics cores. The company has also tested an M2 Pro variation of the Mac Mini, which, like on

the next MacBook Proes, will increase the core counts. On to the Mac Pro, that new high-end machine will include chip options that are at least twice or four times as powerful as the M2 max. Let's call those chips the M2 Ultra and the M2 Extreme. My belief is that the Mac Pro will be offered with options for 24 and 48 CPU cores and 76 and 152 graphics cores, along with up to 256 gigabytes of memory. In fact, I can share one configuration of the Mac Pro in active testing within Apple, 24 CPU cores, 16 performance and 8 efficiency cores, 76 graphics cores, and 192 gigabytes of memory. That particular machine is running macOS Ventura 13.3. Ventura 13.0, the first version of the new MacOS is launching today. As for when Apple could roll out the

Macs, the company has historically introduced new machines in November, January, and in the spring. So I'd expect at least the MacBook Pro and Mac mini models within the coming months, end quote. Finally today, in his recent memoir, Bono, detailed making a deal with Steve Jobs for the U2 iPod back in October 2004, and also convincing Tim Cook to give away a U2 album in September 2014. You might remember that. People weren't happy about it, quoting the Guardian, excerpting, I guess, from the memoir. If just getting our music to people who like our music was the idea, that was a good idea. But if the idea was getting our music to people who might not have had a remote interest in our music, maybe there might be some pushback. But what was the worst that could

happen? It would be like junk mail, wouldn't it? Like taking our bottle of milk and leaving it on the doorstep of every house in the neighborhood? Not quite true. On 9th September 2014, we didn't just put our bottle of milk at the door, but in every fridge, in every house in town. In some cases, we poured it onto the good people's corn flakes, and some people like to pour their own milk, and others are lactose intolerant. I take full responsibility. Not Guy O, not Edge, not Adam, not Adam, not Tim Cook, or Eddie Q. I thought if we could just put our music within reach of people, they might choose to reach out toward it. Not quite, as one social media wisecracker put it, woke up this morning to find Bono in my kitchen, drinking my coffee, wearing my dressing

gown, reading my paper. Or, less kind, the free U-2 album is overpriced. Mea Kulpa. At first I thought this was just an internet squall. We were Santa Claus, and we'd knocked a few bricks out as we went down the chimney with our bag of songs. But quite quickly, we realized we'd bumped into a serious discussion about the access of big tech into our lives.

The part of me that will always be punk rock thought this was exactly what the clash would do, subversive. but subversive is hard to claim when you're working with a company that's about to be the biggest on earth, end quote. Old punks getting old and losing their perspective. I know that aging gracefully is a difficult thing, but as I get older, I'm constantly frustrated by how people seem to be so bad at doing it. Like, everyone's always like, no, now that it's happening to me, don't you see it's different? No, it's not. It's exactly and always like it always was, like those old fuddy-duddy-duddy.

you rebelled against when you were younger. It's just, now you are the fuddy-duddy. Get used to it. But Sick Boys, Unifying Theory of Life from the movie Train Spotting at one point, you've got it, and then you lose it, and it's gone forever. All walks of life, etc. Actually, here, I'll spare you from me doing a Scottish impression, though Lord knows I want to. Any parents listening with kids in the car, there's going to be some curses coming shortly, though they will be in an accent that maybe no one would be able to understand. Georgie Best, for example, had it, lost it. Or David Bowie or Lou Reed.

Lou Reed, some of his solo stuff is no bad? No, it's not bad, but it's not great either, is it? And in your heart, you kind of know that although it sounds all right, it's actually just shanked. So who else? Charlie Nicholas, David Niven, Malcolm McLaren, Elvis Presley. Okay, okay, so what is the point you're trying to make? All I am trying to do, Mark, is to help you understand that

name of the rose is merely a blip on an otherwise uninterrupted downward trajectory. And what about the untouchables? I don't rate that at all, despite the Academy Award. That means fuck all. It's a sympathy vote. So, we all get old, we can't hack it anymore and that's it. Yeah. That's your theory. Yeah.

Beautifully fucking illustrated.