This California legislator is taking on SmileDirectClub


California Assemblymember Evan Low is not what most people would consider anti-technology.

A Democrat from Campbell, Calif., Low represents several towns and bedroom communities of Silicon Valley in the state legislature, including Cupertino, the hometown of Apple Inc.
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He also was co-chairman of former presidential candidate Andrew Yang’s campaign, and before the pandemic shelved it, he introduced a California basic income bill inspired by Yang’s universal “freedom dividend.”

“I represent Silicon Valley,” Low told MarketWatch in an interview. “I have always been supportive of the tech economy.”

But in the past year, he has become a rare legislator willing to take on the controversial and litigious teledenistry company SmileDirectClub Inc.
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Low has already written one law signed last October by California Gov. Gavin Newsom, which provided some new protections for those using direct-to-consumer dentistry products. Now, he is backing another new bill with additional protections, but one that in the age of COVID-19 had to be amended to recognize that in-person dental visits cannot be mandated.

SmileDirect is known for taking its battles with critics through the legal system. In May, SmileDirect — which makes lower-cost self-applied straightening aligners for mild to moderate teeth-positioning problems — filed a $2.85 billion defamation lawsuit against NBC News for an investigation into consumer complaints about the company. In that story, Comcast Corp.’s
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NBC interviewed two patients who said they believed SDC aligners caused problems with their teeth and/or bite and caused other problems, like headaches for one patient.

SmileDirectClub called NBC’s story a “hit piece” that ignored data on the lack of credibility of the patients, such as the criminal record of one and the failure to adhere to instructions by the other, and ignored the opportunity to interview patients pleased with their aligner results. NBC told The Wall Street Journal that it stands by its reporting. In its longer, online version of the story, NBC included comments of four patients who had positive experiences.

In its lawsuit against NBC, SmileDirectClub mentioned Low, contending that NBC omitted from its report “the bias of the congressmen who wrote to the FDA and FTC and the state representative (Evan Low) involved with the California regulation discussed,” which the lawsuit credits to “financial ties to dental organizations and doctors who are attempting to block teledentistry, generally, and SDC, in particular.”

Low began tangling with the company last year while researching a review of the continued status of the California Dental Board, which regulates licensed dentists in the state. Low and his staff learned of consumer issues and complaints involving the use of the self-applied aligners by mail, and dug in a bit more, he said in an interview with MarketWatch.

He believed that there needed to be more protections in place for consumers, some of whom have said they had to sign nondisclosure agreements in order to receive a refund for SDC’s treatment plans, which cost less than metal braces or plastic aligners provided by orthodontists.

“We found there could be additional consumer harm, and so we want to limit that,” he said. “Given the info we learned last year, I could not just do nothing.”

Low likens the need for regulations for teledentistry companies like SmileDirectClub to the regulations in optometry. Low is the son of an optometrist, and noted that optometrists want you to buy your glasses and sunglasses in their offices.

“I personally don’t always do that. …That is my right. …But the prescription is done by a doctor. This is the same thing,” he said. “I just cannot go to the mall and buy glasses without a prescription, but I went to the mall because my dad had a terrible selection.”

The result of that review by Low and his staff was last October’s AB-1519, which provided protections for teledentistry consumers. It required that all dentists in the state providing orthodontia in the “correction of malpositions of human teeth or the initial use of orthodontic appliances” must review diagnostic digital or conventional radiographs of a patient before diagnosing braces or aligners, or their conduct would be deemed unprofessional under the Dental Practice Act. The law also states that a dental provider shall not ask a patient to sign an agreement that would prevent their ability to file a complaint with the dental board.

“I support innovation, I support tech, but you have to make sure you are doing it in an appropriate fashion. If there is unethical behavior, I am going to call you out,” Low said.

SmileDirectClub said it is in compliance with the law, and tells investors that the dentists in its network review a complete photo set and an intra-oral scan of a patient’s mouth, which, prior to the pandemic, were taken in-person at a SmileShop retail location. Potential patients also can make an impression of their mouth with an at-home kit and send it in to the company, which then creates a dental plan and the aligners.

If an X-ray is needed, “it’s really up to the treating doctor, not the state legislature,” SmileDirectClub Chief Executive David Katzman said in an earnings call last November, after the new California law passed. “That was our opposition to the bill. But as far as being in compliance, we’re in full compliance as it stands today.”

In a statement, SDC, based in Nashville, Tenn., said it has successfully treated more than 150,000 Californians. In a state where 50% of the dentists and orthodontists are located in only five out of 58 counties in the state, remote treatment for some patients may be the only viable option, especially during the pandemic.

Now Low is getting support for another bill. The latest legislation passed the state Assembly in early June and moved to a committee in the Senate last week. That bill, AB-1998, introduced in the pre-COVID-19 world in January, sought to require California dentists to conduct an in-person examination of their patients prior to approving a treatment plan for clear aligners or other orthodontics. SmileDirectClub has a dentist or orthodontist in its network review each case remotely and check in with patients every 90 days, guiding treatment remotely from beginning to end.

But after objections from the California Dental Association and others, the requirement for in-person exams — a huge issue during the pandemic — was removed. When asked about the bill in its pre-amended form in June, SmileDirectClub said that it “would restrict consumer accessibility to quality, affordable care for millions of Californians.” The company also said that the bill “defies logic as well as public health and safety,” as telemedicine has become more necessary in the current pandemic.

The amended bill mandates that a patient can obtain information on how to reach their assigned dentist after they have received the treatment plan (a complaint often heard from teledentistry patients), gives explicit rights on obtaining records signed by the patient, and expands the prohibition for any patient or employee to enter into a contract that limits the ability to complain to a regulator.

Affordable care for all is the mantra for telemedicine companies, but Low said that in his position, as chair of the state legislative committee that watches over consumer affairs, he wants to make sure consumers are not getting subpar health care from these companies.

“This will disproportionately hurt communities of color; not everyone can go to health-care providers,” Low said. “But the reality is that subpar treatment can do real harm, the risk is too high.”

In a statement, SmileDirectClub said “Assemblyman Low’s campaign relies heavily on donations from the California Dental Association and he has a history of protecting the dental industry’s financial interests to the detriment of his constituents.”

Since 2014, Low has received $46,600 in contributions from the California Dental Association including $1,000 from the Dental Access Plan, out of a total of $4.6 million in contributions, according to Followthemoney.org, which uses data from the nonprofit National Institute on Money in Politics.

“Assemblymember Low doesn’t let contributions influence his policy-making decisions,” Low’s chief of staff Gina Frisby said in an email. “The company has hundreds of consumer complaints against them and as chair of B&P, the Assemblymember is only interested in protecting the consumer.”

Low is chairman of the Assembly Committee on Business and Professions and a co-founder of the California Legislative Technology and Innovation Caucus, and has declined to identify the donors to that group, according to a report by CalMatters. After that report in February, the state’s enforcement division of the Fair Political Practices Commission told Low it was investigating potential violations of disclosures, but at that time it had not made any determination about the possible violations. The investigation is still ongoing, a spokesman for the commission said in an email.

Low said that SmileDirectClub’s attitude is typical of many of the startups or unicorn-IPO companies in Silicon Valley, including Uber Technologies Inc.
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and Lyft Inc.
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which have an adversarial approach to regulation.

“By definition, the startups move so quickly, they invest in R&D, sales and marketing, and they think about the regulatory later on,” he said, adding that he tries to get his friends in the VC world and elsewhere to think more about engaging with the government early on. “I was born and raised in Silicon Valley, these are frank conversations I have with my dear friends.”

After growing up in the valley, and being the youngest mayor in the history of the city of Campbell, Low has a lot of friends in the tech business, so he is sometimes in a tough position.

“I did not run for the California state legislature because I wanted to go after companies. It gives me no pleasure to do so. I am chair of the tech caucus, which has VCs from the Silicon Valley. These are my folks. [But] we have to hold our friends to account.”



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European stocks edge higher after SAP cites stronger-than-expected recovery


European stocks advanced on Thursday, heading higher after two days of losses as one of the Continent’s biggest technology companies said its recovery was surprisingly strong.

The Stoxx Europe 600
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rose 0.2%.

Through Wednesday, the index has gained 31% from its March low.

SAP
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was the standout performer, rising 7% as the German business software giant released its second-quarter results early, saying its adjusted operating profit rose 8%, as the Asia Pacific and Japan region had a strong recovery in software license revenue.

That helped the German DAX
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to outperform the other regional indexes in Europe, including the French CAC 40
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and U.K. FTSE 100
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.

The question confronting markets in the short term is whether another round of U.S. stimulus, as well as the European Union recovery fund, get finalized.

The U.K. on Wednesday rolled out a spending package estimated by the government to be worth £30 billion. “Throw Brexit into the mix (what may be the crucial EU Heads of State meeting is on Oct. 15-16) and a potential spike in business failures as we go through Q3 into Q4, and politically, as well as economically, the odds move even more in favor of a much larger fiscal response later in the year,” said David Owen, European economist at Jefferies.

Troubled engine maker Rolls-Royce
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slumped 6%, as the company took a $1.45 billion hit for closing currency hedges early, citing the deterioration in the medium-term outlook caused by COVID-19. Rolls-Royce says that it may announce non-cash accounting adjustments when its first-half results are announced.

Shares of U.K. home builder Persimmon
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rose 5% after saying net reservations rose 30% year-on-year in the final six weeks to June 30.

U.S. jobless claims highlights the economics calendar. Germany reported a 9% rise in exports for May that still left them 29.7% below year-ago levels.

Futures on the Dow Jones Industrial Average
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fell 90 points.



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The ‘work-from-home’ ETF is here. Get ready for some surprises.


For all the weirdness of the past few months — the Zoom fatigue, the challenge of caring for children and pets and aging parents alongside co-workers — the coronavirus pandemic that’s kept millions of white-collar workers in their homes, not their offices, has presented new opportunities.

It seemed only a matter of time before someone launched an ETF for that, and on Thursday, that fund, the Direxion Work From Home exchange-traded fund — sporting the ticker WFH
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, naturally — will start trading.

As it does, a look at what’s inside the portfolio shows some surprises. For such a clearly delineated theme that squares so neatly with the reality of life for so many right now, one of the biggest ironies is how nuanced the fund’s holdings actually are.

The fund is made up of 40 equally-weighted companies ranging from old standbys like Amazon.com Inc.
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and Microsoft Corp
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to the lesser-known, like Proofpoint Inc.
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and Perficient Inc
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It has of-the-moment pandemic darlings, like Zoom Video Communications Inc.
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— and some old guards like Hewlett Packard Enterprise Co
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And its reach stretches from Shenzen, China, with companies like Xunlei Ltd.
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, to Cincinnati Bell Inc.
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“This is global in nature, and the benefit of what they’ve done is not just picking the poster children of the working-from-home phenomenon,” said Todd Rosenbluth, head of ETF and mutual-fund research for CFRA. “This fund gives you a mixture of up-and-comers whose business model is being driven by that theme, and some megacaps that will get stock price growth from many things. This is not really a pure-play work-from-home ETF, which I think is positive.”

Direxion says the fund will focus on companies that fall into four buckets representing sub-themes: remote communications, cyber security, project and document management, and cloud technologies.

Rosenbluth also thinks WFH should sit in an investing sweet spot. As an index-based fund, it offers more diversification, and the benefit of stock-picking from an experienced management team, than if investors were to try to select individual stocks themselves.

But it’s a lot less idiosyncratic than many actively-managed funds, most notably some of the ones run by a company like ARK Invest, which represent strong convictions by a small management team about clear winners among innovative technology leaders.

Related: Wall Street’s road warriors have spent the past three months grounded. How’s that working out?

Still, this ETF, like any fund, will have to prove itself. “I don’t think any investors would dispute that we are going to be working from home and thus using the benefits of cloud computing and telecoms,” Rosenbluth said in an interview. Investor interest and flows into the fund will likely be robust because most people agree with that thesis, he noted.

But what will keep people invested is the performance of the individual companies, and thus the fund’s overall returns, Rosenbluth said.

As ARK’s CEO, Cathie Wood, told MarketWatch in early June, even her team struggles to understand how much of a moat some of the early technology winners really have.

WFH will charge a 45-basis point fee, track the Solactive Remote Work Index, and rebalance semiannually.

See:The first — and only — negative-fee ETF didn’t make it. Here’s what that tells us about investing.



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Micron shows how the cloud is saving chip makers


Memory-chip maker Micron Technology Inc. was saved by a boom in data centers, adding to chip makers’ growth as the pandemic forces more companies to expand their cloud computing capabilities.

On Monday, Micron
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reported better-than-expected fiscal second-quarter earnings and had a stronger outlook for the next quarter, despite some issues with the global supply chain due to the COVID-19 pandemic. Micron’s shares jumped nearly 6% in after-hours trading. At Monday’s close, Micron was trading at $49.15, down 8.62% for the year but a huge recovery from its plunge in March, when it hit a low of $31.13 in the early days of the pandemic.

“We continue to see healthy demand trend in cloud in the second half of the year,” Micron Chief Executive Sanjay Mehrotra told analysts on a conference call. “Cloud is still actually in early innings, and long-term trends for cloud are strong.” In the second quarter, the company said that the work-from-home economy, e-commerce and videogame streaming all drove a strong surge in demand for more cloud-computing capabilities.

Micron’s comments echo those that other chip giants, such as Intel Corp.
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and Nvidia Corp.
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made last quarter. On Monday, Xilinx Inc.
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joined the crowd when it updated its guidance for its fiscal first quarter, noting that strong performance in wireless and data center were offsetting weakness in consumer segments.

In the second half of the year, Micron said that it expects demand for consumer technology products such as PCs and smartphones to improve. That’s in part due to the ongoing rollout of 5G networks, which will drive demand of new smartphones that have more dynamic random access memory (DRAM) chips, compared to 4G-network phones. The company said that average selling prices of both DRAM chips and NAND flash memory were up sequentially from the previous quarter.

One issue hovering over the company, and indeed most chip makers, is the growing rise in inventories, both by Micron and its customers, especially in the smartphone market. When asked by an analyst about the growing inventories, Mehrotra said its customers are trying to prepare for when consumer demand returns.

“Customers want to be prepared to supply the smartphone demand” when it returns, he said. “So, overall, you know, it’s a mixed picture with respect to the inventory on the customer front. Cloud inventories are in decent shape,” while mobile inventories are “somewhat in anticipation of demand.”

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The chip industry has been amazingly resilient during the coronavirus pandemic, and most of the demand is due to data centers and the demand for more cloud computing. If the PC and smartphone markets return to growth, there could be even more upside for chip makers such as Micron. But for now, the sure thing is centered around the data center.



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Micron earnings show spike in memory sales, forecast suggests more of the same


Micron Technology Inc. shares jumped in after-hours trading Monday after the memory-chip maker said sales surged in the third quarter and are expected to remain strong in the final period of its fiscal year amid the COVID-19 pandemic.

Micron
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forecast adjusted fiscal fourth-quarter earnings of 95 cents to $1.15 a share on revenue of $5.75 billion to $6.25 billion, which would be a big gain from a year ago when the company reported earnings of 56 cents a share on revenue of $4.87 billion.

Analysts surveyed by FactSet, on average, were predicting fourth-quarter earnings of 79 cents a share on sales of $5.46 billion, according to FactSet.

Shares gained more than 5% in after-hours trading, following a 1.4% gain in the regular session to close at $49.15.

“As we look ahead at the second half, of course, you know, given the total COVID environment and uncertainties around COVID around the globe, we basically have limited visibility,” said Sanjay Mehrotra, Micron’s chief executive, on a conference call.

“Yet, we do believe that cloud demand in the second half of the calendar year will continue to be healthy for us,” Mehrotra said.

Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in USB drives and smaller devices, such as digital cameras. While the COVID-19 pandemic has been cited as fueling a boost in memory-chip sales, many analysts suspect that may have oversupplied the market, which could bode poorly for the second half of the year — but not according to Micron’s forecast.

The company reported fiscal third-quarter net income of $803 million, or 71 cents a share, compared with $840 million, or 74 cents a share, in the year-ago period. Adjusted earnings were 82 cents a share, compared with $1.05 a share in the year-ago period. Revenue rose to $5.44 billion from $4.79 billion in the year-ago quarter.

Analysts had forecast adjusted earnings of 75 cents a share on revenue of $5.27 billion.

Micron had already informed investors that it would outperform its original expectations. In late May, Micron forecast adjusted earnings of 75 cents to 80 cents a share and revenue of $5.2 billion to $5.4 billion, up from its forecast of 40 cents to 70 cents a share on revenue of $4.6 billion to $5.2 billion back in March.

For the year, Micron shares are off about 10%, while the PHLX Semiconductor Index
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is up 4%. Meanwhile, the S&P 500 index
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is down 6%, and the tech-heavy Nasdaq Composite Index
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is up 9%.



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