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IBM will no longer make its own chips

Mon, 2014-10-20 07:00

IBM just announced that it’s no longer making its own chips, a part of its business that it was losing money on. IBM is paying $1.5 billion to GlobalFoundries Inc. — a company based in Santa Clara, California but owned by an Abu Dhabi sovereign wealth fund — to take over its the division.

GlobalFoundries has a lot to gain by acquiring IBM’s chip division. The company will get access to IBM’s engineers and intellectual property.

“GlobalFoundries will also pick up some semiconductor process technology expertise that hopefully makes the company more competitive going forward,” says Needham analyst Quinn Bolton.

Fewer and fewer tech companies make their own chips. Apple, Dell, Qualcomm all rely on outside manufacturers. It makes sense economically because chip companies have the advantage of scale, says Gartner analyst Sergis Mushell. “If you are making ten of something vs a million of something from a price point perspective it’s more attractive when you make millions.”

The largest contract chip maker, Taiwan Semiconductor Manufacturing Company, quadrupled its capital spending in the last five years from $2.5 billion to $10 billion. If you are a company like IBM you have to look at those numbers and ask yourself, does it make sense to take a loss in chip making when you could just buy them from someone else?

IBM’s answer as of today is no, it doesn’t.

Social media that doesn't compromise privacy

Mon, 2014-10-20 05:08

Four college students came together to create a social network that does not collect users' personal data. They wanted to build something better than Facebook or an alternative to Facebook. They did end up building that site, but it's by no means a rival to Facebook. That site is called Diaspora.

Author Jim Dwyer documents the start-up story in his latest book, "More Awesome Than Money." He says that Diaspora is supposed to be a decentralized social network focused on privacy, while giving users the sense of connection they crave.

"What they did that was important — and will continue to be worked on — is to look for ways to keep the web a democratic institution where people have authentic control over what they share and who they share it with," Dwyer says.

Diaspora's goals:

  • Not compromise people's privacy: What drove the project from the beginning was the idea that you didn't really need to compromise your privacy to have a good social experience on the web.
  • Keep it decentralized: The entire project of the web as invented was not intended to be in the hands of giant corporations. It was sort of a democratic, decentralized setup.
  • Put control into the user's  hands: You can take your data off of Diaspora. Facebook now says you can take your data off of their servers although that takes a while and they don't really want you to do that.

Why it didn't succeed, as planned:

  • It lacked organic networks: Users' real life friends weren't using it, that causes people to lose interest in using it.

Some consultants see a payday in super PACs

Mon, 2014-10-20 04:24

A super PAC is sometimes born out of a strong sense of mission – maybe its founder cares about gun control or education reform. But other times, says Stefan Passantino, a partner at McKenna Long & Aldridge, “part of that mission is to create a client for their own consulting firm.”

Political consultants can create super PACs or political nonprofits to raise money, Passantino says, and then they can use that money to pay themselves.

“Yeah, I would say it is the new growth industry,” says Trevor Potter, former chair of the Federal Election Commission and general counsel to John McCain’s two presidential campaigns. “If you are a consultant who is part of the control group that forms a super PAC or one of these nonprofits, then you get to figure out how you are going to compensate yourself, and it is not always a matter of public record.”

Inside a ‘black box’

There are a few ways this can work. A super PAC can pay a fee to a consulting firm that is run by the same consultant who started the super PAC. That firm could charge fees on ads the super PAC buys. According to Potter, this happens in what he calls “a black box.”

“It’s actually pretty hard to figure out how much administrative costs many of these groups have, and then, how much of that is ending up back in the consultant’s pocket,” he notes.

A super PAC’s founder can be an employee of his own super PAC. “Under election laws, there is nothing improper about taking a salary out of your own super PAC,” says Ken Gross, who spent most of his career as an FEC attorney. That money is taxable, however. He notes there is also nothing improper under election laws about taking money you have raised and spending it on personal items.

“Right now, there are 109 super PACs in our data that reported spending money but have made no independent expenditures,” says Sheila Krumholz, who tracks political spending at the Center for Responsive Politics. All they are doing, Krumholz explains, is paying staff and consultants to help them raise more money. “They are capitalizing on political interests in order to siphon off money that would otherwise go to support candidates and parties, and instead, they are using it for their own personal enrichment.”

Krumholz worries that is weakening civic engagement and making the electorate even more cynical.

Easy to set up

Super PACs have only been around since 2010, and according to Potter, one reason they have proliferated is they are so easy to set up. “It has an incredibly simple one-page form you file with the FEC,” he says.  “You need a treasurer and a bank account, and that’s it. You’re off and running.” And creating a political nonprofit that doesn’t have to disclose donors is not much harder.

There are, according to the FEC, about 900 active independent expenditure-only committees, commonly called super PACs, and on top of that, there are hundreds of political nonprofits that have registered with the Internal Revenue Service as 501(c)4s and 501(c)6s.

Potter says that, because there are so many super PACs and nonprofits, political consultants are busier than ever. “The good ones used to just have a campaign or a party they could work for,” he points out. “Now they have all these super PACs; so, people end up bidding for their services.”

Of course, every cycle, some super PACs whither on the vine. Richard Briffault, an election law expert at Columbia Law School, says this highlights something eve the savviest consultant should keep in mind: “At some point, they do have to get donations.”

You can start your own group, hoping it will become a steady source of income, but you have to make sure there is money in the coffers.

PODCAST: The next billion

Mon, 2014-10-20 03:00

Leave the chip-making to Frito Lay: International Business Machines will sell off its microchip factories. More on that. And SolarCity, the country's biggest installer of rooftop solar-power systems, has a new product: Bonds for consumers to buy into the future of solar in thousand dollar increments. SolarCity has $200 million in bonds for sale. But it already has billions in capital from banks and the stock market. So why go after retail investors? Plus, we've been hearing about Apple and what could be their record profits due out later today. Meanwhile, Google, Facebook, and Samsung are interested in what they see as a new frontier. The catch phrase is The Next Billion...the next billion customers for digital devices. Who are these people and where do they live?

What local government can learn from Hurricane Sandy

Mon, 2014-10-20 02:00

Just two years ago, Hurricane Sandy knocked out power stations and shut down Wall Street.

Now, Scientists say by the middle of this century, low lying areas from Boston to Baltimore will flood frequently due to climate change, with recovery becoming increasingly expensive. A storm on the level of Hurricane Sandy could cost as much as $90 billion in 2050.

These kinds of changes in the weather will put increasing pressure on state and local governments to boost their financial resilience. 

Click the media player above to hear more.

Is inflation a problem? Look at income brackets

Mon, 2014-10-20 02:00

It was a case of two people, separated by 243 statute miles, having the same thought at the same time. 

I was on the air talking to an expert about the government’s main assessment of inflation, and meanwhile, a listener near Washington, D.C. was getting annoyed. It would turn out that Gregory, from Falls Church, Virginia was thinking the same thing I was: It’s one thing to say that the Consumer Price Index  hasn’t moved up much in recent years. But be careful before you conclude that inflation is therefore not a problem. 

“Can you please get someone on your show who actually knows that there is real price inflation?” Gregory wrote in a note to us. “Every time I hear one of your guests talk about low inflation, or CPI as reported by the government, I cringe with disbelief!”

I myself wasn’t cringing with disbelief in that shared moment, but I was thinking I’d better do something soon in our ongoing Marketplace Inflation Calculator series on what has been happening to incomes over time. It is one thing to point towards low inflation (low if you leave out the cost of higher education; low if you leave out the cost of health care; low if you leave out the cost of rental apartments in America). Gregory, however, was pointing out that if what we earn is sliding, then our budgets will still be stretched – even when CPI just treads water.   

Experts often tell us that our incomes are mostly “stagnant,” but what do the official numbers show? Our inflation series looks at prices over the last 25 years. The government helpfully examines household income over time by breaking down what we earn into five categories (or brackets). These include the bottom 20 percent of earners, the next to the bottom 20 percent, the middle 20 percent and so forth. When I looked through the data and adjusted for inflation, the numbers were there for everyone to see.

The income of the bottom 20 percent of households in America, on average, did not go up in 25 years, once you adjust for inflation. Those incomes didn’t just stagnate, they went down. The next-to-poorest of the five income categories? The average household income for those Americans also fell. Let’s call the middle income category a draw; depending on which inflation assumptions you use, incomes either went up a tad or fell a tad over 25 years. You already know about the top two earning categories; those went sharply up the last quarter century, the top category by a lot. 

When hearing statistics like these, it’s common to argue that many families these days have not just one, but two or more earners to consider, and this should be taken into account before claiming that incomes are “stagnant” for many Americans. Even so, the data is already adjusts for that in the case above: It is data for average households, not average individual incomes.

The numbers showing that the bottom 40 percent of Americans make less now than they did a quarter century ago is a core notion for anyone thinking about wealth and poverty in America.

SolarCity courts customers by selling bonds

Mon, 2014-10-20 02:00

SolarCity, the country’s biggest installer of home rooftop solar-energy systems, now has a new product: bonds that let consumers invest in thousand-dollar increments. But with billions in capital from big banks as well as the stock market, what's the point of borrowing up to $200 million from consumers?

It's not the cash, says the company's CEO, Lyndon Rive. At least not primarily. "The number one reason is to create more awareness," he says. "For people to participate, get a financial return. Now they tell their friends: 'Hey, have you looked at solar bonds? Have you looked at solar?'"

And have you looked at SolarCity?  

In addition to raising money, the campaign could cut down on one of the company's biggest costs: sales. An investor is a hot lead, and a source of referrals. 

"Customer acquisition is maddeningly expensive for residential-solar," says Shayle Kann, senior vice-president at GTM Research, which tracks the green-energy sector. 

Right now, SolarCity’s business model only works in about 15 states. But the company can sell bonds — and build relationships — in all 50, for the day when, or if, other states open up.

Advocates in those states — for instance, bond-holders — can only help. "They're not exactly customers if they buy bonds," says Kann. "But they're probably advocates, or supporters."

The push to expand into new markets, and to lock up potential customers in those markets, is key to SolarCity’s overall strategy, says Severin Borenstein, an economics professor at Berkeley who studies renewable energy.  

SolarCity's competitors are trying the same thing. "Right now, a lot of solar companies have the strategy of trying to get large enough on what is basically a bet on getting out ahead and being the recognized name brand, which could potentially have huge value," says Borenstein.

He compares it to the bet Microsoft made on computer operating systems in the 1980s. SolarCity wants to be the Microsoft of solar.

But what if it’s the AOL instead? Remember all those CDs from the 1990s?

That's not the worst-case scenario, says Borenstein. "It's not just a matter of whether they're going to be the Microsoft of solar or the AOL of solar," he says, "but whether they're going to be the Microsoft of solar or the Microsoft of a product that never takes off at all."

Residential solar isn't a sure bet, says Borenstein, so neither are SolarCity's bonds. "While it's a very exciting company right now, I think it's probably in a more volatile business than most people would invest in."

You've got mail! AOL sent out zillions of these.

unknown/PandoDaily.com

Making a smartphone for just $25

Mon, 2014-10-20 02:00

Here’s a market you’ll be likely to hear more of in tech: “The Next Billion.” It's shorthand for the next billion people that will become online consumers, and that makes them the target of tech giants like Google, Facebook and Samsung.

The next billion live in emerging economies like China, India, Brazil and Africa. Jenna Burrell, a professor at UC Berkeley’s School of Information, has been studying one of these markets, namely Ghana, since the early 2000s. She says even back then, it was clear that people who wanted to get online weren’t going to use desktops.

“You know it’s a small number of people who were going to Internet cafés, but almost everyone was either using, or owning or getting possession of a mobile phone,” Burrell says.

While a growing number of people in Ghana have smartphones today, the market is very different from the U.S.

Burrell shows me a phone she bought there. It has an antenna for the built-in transistor radio, and it has a flashlight for when the electricity goes out.

Burrell cracked open the back of her cellphone and points: “Underneath the battery pack where most of us don’t really look, it’s got a slot for your SIM card.”

Like most of the next billion, the majority of people in Ghana don’t have pre-paid mobile plans. Instead, they use SIM cards, which are basically phone cards or prepaid time that you insert into your phone.

“This unit is worth about two minutes of airtime, and that gives you a sense of how it’s a very precious commodity,” she says.

Burrell says that on a continent where most people make about a dollar a day, even a few minutes of airtime is a big expense. That’s where Mozilla, a non-profit organization teaming up with local carriers to make affordable phones, comes in.

Andreas Gal, Mozilla’s chief technology officer, dumps a number of handsets onto a desk in his Silicon Valley office. 

“I brought these $25 smart phones,” he says. “These are the devices that launched recently in India.”

Critics of these $25 phones say web pages take forever to load, and you can’t run more than one app at a time.  

But forget the quality of the phone, said Rakesh Agrawal, the CEO of reDesign Mobile, which develops products for the next billion. He says in most emerging economies, it's data that's the problem—data plans are prohibitively expensive.

“You have to think about how much people can afford and what kind of services they can use over their smaller data pipes,” said Agrawal.

He says the next billion aren’t going to run apps mindlessly like we do. Which means, in part, tech companies can’t rely on advertising to make money off them.

“If you’re living on a dollar a day, Proctor and Gamble can’t afford to advertise to you, because you can’t afford their products,” Agrawal said.  

Despite these odds, tech companies will continue to pursue the next billion. Smart phone ownership — and sales of apps — will inevitably slow in the developed world over the next decades. Tech companies need the next billion to keep growing. So, they're getting ready.

The American Indian College Fund turns 25

Mon, 2014-10-20 02:00

The American Indian College Fund celebrates its 25th anniversary with a fundraiser in New York on Monday. The nonprofit was created to assist the country’s more than 30 tribal colleges and universities. These are federally-funded schools located on or near native lands.

Only about 10 percent of American Indians and Alaska Natives have a bachelor’s degree or higher, compared to about 30 percent of all adults, according to the group.

The big reason is poverty, says president Cheryl Crazy Bull. Tribal colleges cost on average $15,000 a year to attend, she says. The maximum federal Pell grant for low-income students covers only $5,730. 

“It’s a very affordable education,” Crazy Bull says. But for students living on reservations with a 60 to 80 percent unemployment rate, “it’s a huge gap.”

The College Fund tries to bridge that gap with scholarships. It’s aiming to raise an extra $25 million this year.

The group recently got a boost from Comcast and NBC Universal: $5 million in ad time for a new public service campaign.

Here are a few numbers from the American Indian College Fund:

Up to 95 percent

The unemployment rate on some American Indian reservations. In total, almost 29 percent of American Indians on reservations live below the federal poverty level. 

$16,777

The per capita income of American Indians and Alaska Natives, according the American Community Survey in 2013. Meanwhile, the average cost of attendance at a tribal college or university is $14,566.

10 percent

That's approximate percentage of American Indian and Alaska Natives who have earned a bachelor's degree or higher, compared to about 30 percent of all adults. Natives have the lowest educational attainment rates of all ethnic and racial groups in America.

Quiz: Where student spending hasn’t bounced back

Fri, 2014-10-17 14:17

Per-student funding is still below pre-recession levels in 30 states, according to a report by the Center on Budget and Policy Priorities.

Which state cut per-student funding by the greatest percentage between fiscal 2008 and 2015?

See the report here for information on all the states.

My Money Story: Eustace Conway, off the grid

Fri, 2014-10-17 13:14

Eustace Conway is a Naturalist who lives in the mountains of Boone, North Carolina. He's been living in the forest there for nearly 40 years.

When Conway was 17 years old, he left the suburbs to live outdoors. He has hiked the entire Appalachian Trail, and has crossed the United States on horseback from the Atlantic to the Pacific.

When it comes to money, Conway says he has little use for it. He is the subject of the book, The Last American Man, by Elizabeth Gilbert.

Tech IRL: What meerkats have to do with the future of the internet

Fri, 2014-10-17 12:01

Thanks to white broadcast spaces, you can stream meerkats at the London Zoo:



Or, otters:



Or, even Galapagos tortoises:



White spaces basically consist of the channels not being used by traditional TV, and, like the partnership between Google and the London Zoo illustrates, can be used to transmit other types of information.

What's interesting about white space waves is that they travel extremely far; the wi-fi in your office starts to slow down when you're too far from an internet router, but white space waves can travel 6 miles without suffering. It could be used to deliver Internet broadband on the open ocean, or for networks of sensors that can protect cities from natural disasters.

But, the future of white space depends on what the FCC and other regulators decide to do, and whether some of these tests, like the meerkat cameras, prove we can use white spaces without interfering with channels that are already being used. 

Weekly Wrap: Volatility, always

Fri, 2014-10-17 11:00

John Carney with the Wall Street Journal and Linette Lopez from Business Insider join Kai to discuss the week in review.

How to stop your people from freaking out about Ebola

Fri, 2014-10-17 11:00

The President has tapped White House veteran Ron Klain to be the nation’s Ebola Czar.

The appointment comes as fears of the virus spread with a poll this week showing nearly half Americans are either “very concerned” or “somewhat concerned” they will contract Ebola.

So how do companies deal with this? How do they keep workers safe and operations running smoothly? The first thing some businesses did this week was call Arun Sharma.

“A lot of the questions we are getting is how do we control the fear and anxiety in the workplace,” he says.

Sharma works for Control Risks, an international firm that helps Fortune 500 companies around the globe manage risk. Especially for those clients with operations in Ebola hot spots, Sharma says the essential word is "communicate."

“If you have an operation that’s based in Africa and you want to give employees an opportunity to ask question, have a town hall meeting, bring a medical advisor in that can answer those medical related questions,” she says.

Certainly multinational corporations must start learning about Ebola and its risks, but at a time when flight attendants reportedly locked a passenger in a plane lavatory after she threw up; it's clear employers here in the U.S. have their work cut out for them too. That could mean executives dusting off a report already many have on their shelves.

Years ago, the CDC designed pandemic preparation guidelines. Dr. Robert Quigley, with the medical assistance company International SOS, says there’d be a lot less fear if companies routinely practiced using this tool they already have.

“And companies are definitely not doing that. And as a result they are all kind of caught now in a panic mode, and there’s some scrambling going on,” he says.

One way to cut down on the corporate chaos, Quigley says, is for companies to focus on their business and develop what he calls a continuity plan.

“They need to have trigger points that indicate when they need to pull people out of harm’s way, whether or not travel really needs to take place, and whether that’s going to negatively impact their bottom line,” he says.

Sorting that bit out should help sober up the room says Quigley. The doctor says remember the more afraid you and your staff are, the more likely operations will be interrupted.

The antidote: education and preparation.

Free Starbucks for life?

Fri, 2014-10-17 11:00

In caffeine-related news, Starbucks announced today it's going to be running a sweepstakes this coming holiday season. If you use a Starbucks card between December 2 and Christmas you're entered for a chance to win Starbucks for life.

Which, if you read the fine print, the company defines as 30 years.

Not exactly what they're advertising, but still... not bad.

Google's PAC spends in search of political influence

Fri, 2014-10-17 11:00

The latest figures from the Center for Responsive Politics in Washington show that Google’s Political Action Committee has just barely overtaken the PAC at Goldman Sachs in campaign spending this election cycle.

Goldman Sachs’ PAC, which has helped the company to wield its impressive lobbying power in Washington, had spent $1.39 million on the 2014 election cycle, as of the end of August. Google’s PAC, named NetPAC, had spent $1.43 million. Company PACs bundle contributions from employees, but don’t include money from the corporation itself.

Google’s political money-play has increased massively in recent election cycles. In 2006, Google’s PAC spent $37,000. By this year, the spending had increased forty-fold.

As an industry, Wall Street still packs a much bigger political warchest than Silicon Valley to support candidates and parties. Investment-industry-related contributors and PACS have spent more than $125 million this year; the computer and internet industry has spent just under $24 million.

Bill Allison, at the campaign finance watchdog group The Sunlight Foundation, says the banking industry may need to spend more to have an impact inside the Beltway on legislation and regulation, because big banks are now disliked and distrusted by many voters. For the most part, he says, that’s not true of big tech companies.

“For Google and Facebook, they have this hip young image,” says Allison.

The big internet players also have a lot of people’s ears and eyeballs, says Mark Jaycox, legislative analyst at the Electronic Frontier Foundation. They use that to leverage their lobbying on Capitol Hill—especially about issues that resonate with the public, like online privacy. “Google and Twitter have massive followings,” said Jaycox, “and they use these outlets and social media to push for email privacy laws and NSA surveillance reform.”

Some of the tech industry’s key legislative priorities, though, aren’t so widely popular, or even well-known to the general public. Those issues include raising the number of visas available for skilled foreign technology workers, said Princeton political historian Julian Zelizer.

“They’re fighting for everything from immigration reform to tax credits, and soon I’m sure, monopoly issues,” said Zelizer. “So they’re going to give a lot of money all over, to both parties.”

Still, Silicon Valley’s general reputation for leaning left comes through in some of the Center for Responsive Politics' data. The industry’s cumulative political contributions this year have split 60-40 — for Democrats.

Have you got what it takes to be a government 'Czar'?

Fri, 2014-10-17 10:43

Our vision of a help-wanted ad for a government czar: 

Requirements:

  • Level-headed, task-driven communicator.  Able to interface with a variety of stakeholders. Must be comfortable translating and explaining government action (or inaction) to the public.  
  • Willing to be a symbol of governmental concern about a specific crisis.  Good at making everyone feel better. Willing  to appear before the press as required.
  • Must be a model of  seriousness, calm and control.
  • Must be comfortable operating behind the scenes and juggling the demands of multiple high-level, ego-driven officials inside government.
  • Comfortable working in a culture of feedback - knows how to take a punch.
  • Willingness to sacrifice sleep and home life.
  • Proven record working with "big personalities" a must.
  • Ability to cut through red tape also a plus. 

 

Brunch: HBO going rogue, markets swinging, frozen eggs

Fri, 2014-10-17 10:25

This week, Lizzie O'Leary sits down for brunch with Business Insider's Joe Weisenthal and Nicholas Carlson to discuss the economic news of last week and what's on their plate this week (get it?).

Topics:

Global stock markets stage rally as volatility continues 

Facebook and Apple to pay for female employees to freeze their eggs

‘Friends’ and Enemies: Netflix and HBO Battle for the Future of TV

Brunch: HBO going rouge, markets swinging, frozen eggs

Fri, 2014-10-17 10:25

This week, Lizzie O'Leary sits down for brunch with Business Insider's Joe Weisenthal and Nicholas Carlson to discuss the economic news of last week and what's on their plate this week (get it?).

Topics:

Global stock markets stage rally as volatility continues 

Facebook and Apple to pay for female employees to freeze their eggs

‘Friends’ and Enemies: Netflix and HBO Battle for the Future of TV

Citrus greening is hurting orange growers in Florida

Fri, 2014-10-17 10:19

Citrus greening was first reported in Asia during the late 1800s, and it has no cure. It isn't a threat to humans or animals, but it has ruined many acres of citrus crops throughout the world, including the United States.

"It’s been problematic and it’s pretty much spread throughout the entire industry now," says Mark Wheeler, a third-generation orange grower and CFO of Wheeler Farms in Lake Placid, Florida.

Wheeler says that although they're seeing elevated fruit prices, the production has been diminished per acre because of the disease.

"It’s all a grower by grower situation and how impacted they are by the disease," says Wheeler. "A grower who is producing 300 to 400 boxes per acre is doing well, but a grower who is producing 200 boxes per acre is struggling to stay in business."

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