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
MU,
+1.35%

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.
INTC,
+1.33%

and Nvidia Corp.
NVDA,
+0.49%

NVDA,
+0.49%
,
made last quarter. On Monday, Xilinx Inc.
XLNX,
+1.03%

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.”

NVDA,
+0.49%

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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Vaccine makers face biggest medical manufacturing challenge in history By Reuters


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© Reuters. FILE PHOTO: A woman holds a small bottle labeled with a “Vaccine COVID-19” sticker and a medical syringe in this illustration

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By Julie Steenhuysen and Kate Kelland

CHICAGO/LONDON (Reuters) – Developing a COVID-19 vaccine in record time will be tough. Producing enough to end the pandemic will be the biggest medical manufacturing feat in history.

That work is underway.

From deploying experts amid global travel restrictions to managing extreme storage conditions, and even inventing new kinds of vials and syringes for billions of doses, the path is strewn with formidable hurdles, according to Reuters interviews with more than a dozen vaccine developers and their backers.

Any hitch in an untested supply chain – which could stretch from Pune in India to England’s Oxford and Baltimore in the United States – could torpedo or delay the complex process.

Col. Nelson Michael, director of the U.S. Army’s Center for Infectious Disease Research who is working on the government’s “Warp Speed” project to deliver a vaccine at scale by January, said companies usually have years to figure this stuff out.

“Now, they have weeks.”

Much of the world’s attention is focused on the scientific race to develop a vaccine. But behind the scenes, experts are facing a stark reality: we may simply not have enough capacity to make, package and distribute billions of doses all at once.

Companies and governments are racing to scale-up machinery to address a critical shortage in automated filling and finishing capacity – the final step in the manufacturing process of putting the vaccine into vials or syringes, sealing them and packaging them up for shipping.

“This is the biggest logistical challenge the world has ever faced,” said Toby Peters, an engineering and technology expert at Britain’s Birmingham university. “We could be looking at vaccinating 60% of the population.”

Several developers, including frontrunner Moderna (O:), are experimenting with new ways to mitigate the extreme cold storage demands of their vaccines, which at present need to be kept at minus 80 degrees Celsius (-112 Fahrenheit).

SiO2 Materials Science is working on producing vials that won’t shatter at super-cold temperatures.

Travel restrictions, meanwhile, are posing more prosaic problems; Johnson & Johnson (N:), which plans to start clinical trials this summer, has struggled to send its vaccine experts to oversee the launch of production sites, for example.

‘NEVER IN HISTORY’

By setting up massive clinical trials involving 10,000 to 30,000 volunteers per vaccine, scientists hope to get an answer on whether a vaccine works as early as this October. But even if they succeed, manufacturing in bulk, getting regulators to sign off and packaging billions of doses is a monumental challenge.

Seth Berkley, chief executive of the GAVI vaccines alliance, said in reality, the world is unlikely to go straight from having zero vaccines to having enough doses for everyone.

“It’s likely to be a tailored approach to start with,” he said in an interview. “We’re looking to have something like one to two billion doses of vaccine in the first year, spread out over the world population.”

J&J has partnered with the U.S. government on a $1 billion investment to speed development and production of its vaccine, even before it’s proven to work. It has contracted Emergent Biosolutions and Catalent to manufacture in bulk in the United States. Catalent will also do some fill-and-finish work.

“Never in history has so much vaccine been developed at the same time – so that capacity doesn’t exist,” said Paul Stoffels, J&J’s chief scientific officer, who sees filling capacity as the main limiting factor.

Emergent’s (N:) manufacturing plant in Bayview, Maryland, can accommodate four vaccines in parallel using different manufacturing platforms and equipment.

Funded by the government in 2012, the plant includes single-use disposable bioreactor equipment featuring plastic bags rather than stainless steel fermentation equipment, which makes it easier to switch from one vaccine to another.

This month, the company received an additional $628 million to make those four suites available to support any candidate the government selects, CEO Bob Kramer told Reuters.

BLOW-FILL-SEAL-REPEAT

As well as working with J&J, New Jersey-based Catalent (N:) signed a deal with British drugmaker AstraZeneca (L:) last week to provide vial-filling and packaging services at its plant in Anagni, Italy. It aims to handle hundreds of millions of doses, starting as early as August 2020 and possibly running through until March 2022.

It has ordered high-speed vial-filling equipment to boost output at its Indiana plant, where it is also hiring an additional 300 workers.

Michael Riley, Catalent’s North American president for biologics, told Reuters his biggest challenge was trying to compress work that normally takes years into months.

Adding to the challenge is that glass vials are in short supply.

To save glass, companies plan to use larger vials of five to 20 doses – but this raises new problems, such as potential waste, if not all the doses are used before the vaccine spoils.

“The downside is that after a healthcare practitioner opens a vial, they need to then vaccinate 20 people in a short, 24-hour time,” said Prashant Yadav, a global healthcare supply-chain expert at the Center for Global Development in Washington.

As part of the same drive, the U.S. Department of Health and Human Services and the Department of Defense have awarded ApiJect Systems up to $138 million to upgrade its facilities to be able to make up to 100 million plastic pre-filled syringes by the end of this year, and as many as 600 million in 2021.

The company plans to use a technology called Blow-Fill-Seal, where syringes are blown out of plastic, filled with vaccine and sealed in seconds. This will need Food and Drug Administration approval, CEO Jay Walker told Reuters.

BREAKING COLD CHAIN

SiO2 Materials Science is, meanwhile, ramping up capacity of plastic vials with a glass lining, which are more stable at ultra-low temperatures.

“You can bring us down to minus 196 Celsius, which none of the vaccines need,” Chief Business Officer Lawrence Ganti said. “You can throw it against the wall and it doesn’t break. Our founder has done that. He’s thrown frozen vials at me.”

The company expects to boost production from the current 5-10 million vials a year to 120 million within three-and-a-half months, he told Reuters.

Once packaged, many vaccines need to be kept cold – and some leading contenders made from genetic material such as messenger RNA need to be kept very cold – presenting another challenge that may limit access.

“People who work with mRNA store it at minus 80 degrees centigrade, which is not something you’re gonna find in most pharmacies or doctor’s offices,” said Dr. Paul Offit, director of the Vaccine Education Center at Children’s Hospital of Philadelphia and co-inventor of the rotavirus vaccine.

Peters of Birmingham university has been gathering data from poorer regions of Africa and Asia, and said breaks in the temperature-controlled supply chain – “cold chain” – are already frequent.

In some places, it is common to lose 25% or more of vaccines because of broken cold chains, he told Reuters.

“So if you’re looking to manufacture four billion, and you reckon you’re going to lose 25%, then you have to manufacture five billion,” he said. “It’s all the elements to move it from the point of manufacture to the point of aggregation, right down to the health centres and then out to the community.”

QUARANTINE QUAGMIRE

Companies developing mRNA vaccines, including Moderna and Translate Bio (NASDAQ:), which is partnering with Sanofi (PA:), are working to make candidates stable at higher temperatures.

Ron Renaud, CEO of Translate Bio, said he was confident this would happen “within a short amount of time”.

Colleen Hussey, a Moderna spokeswoman, said: “We are getting more confident that we could run our supply chain at -20C, which is an easier storage condition than deep freezing,” she said.

Moderna plans to add a small period of time in which the vaccine can be stored at normal fridge temperatures of 2 to 8 degrees Celsius in doctors’ offices or clinics.

“We will know more in the next 2-3 months,” she said.

The pandemic is also presenting obstacles of a less technical nature.

Catalent, which has some 30 plants globally, has had to write special permission slips in eight languages explaining that their workers are considered essential.

J&J is having trouble getting experienced personnel to far-flung labs to oversee the transfer of technology to contract manufacturers because they’re subject to 14-day quarantines.

“It is absolutely a factor,” said Stoffels. “If you have to send your people to the middle of India to get to filling capacity, that’s not easy at the moment.”





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China eases green rules for petrol-electric hybrids, giving makers space to manoeuvre By Reuters


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© Reuters. A Toyota Levin plug-in hybrid vehicle is displayed during a media preview of the Auto China 2018 motor show in Beijing

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BEIJING (Reuters) – China re-classified petrol-electric hybrid vehicles on Monday so they get more favourable treatment than all-petrol or diesel counterparts under new clean car rules, making it easier for automakers to meet environment quotas and offer more choice.

China has some of the world’s strictest rules regarding the production of fossil-fuel vehicles, as it battles unhealthy levels of air pollution in its crowded cities.

Those rules have pushed both domestic and international automakers including Tesla Inc (O:) and Volkswagen AG (DE:) to spend billions of dollars on the development and production of new energy vehicles (NEVs), such as all-electric, plug-in hybrid and hydrogen fuel cell vehicles. Plug-in hybrid technology differs from that of petrol-electric hybrid vehicles.

Automakers in China are obliged to manufacture NEVs to win “points” to make up for a portion of the negative points they incur when they produce internal combustion engine vehicles.

However, the system has been criticised for offering few incentives for automakers to improve petrol cars’ efficiency.

The policy published on Monday by China’s Ministry of Industry and Information Technology allows automakers to gradually make more petrol-electric hybrids and less of the more costly all-electric vehicles from 2021 through 2023.

Such hybrids would still be considered fossil-fuelled but re-classified as “low fuel consumption passenger vehicles”. Significantly, the number of negative points incurred for making petrol-electric hybrids will be less than for petrol-only vehicles.

That could see more of those traditionally powered vehicles replaced with petrol-electric hybrids, experts and industry officials said, because when automakers produce those hybrids, they would not have as many negative points to make up for.

Experts have said the beneficiaries of such change would include global petrol-electric hybrid leaders Toyota Motor Corp (T:) and Honda Motor Co Ltd (T:), as well as Chinese makers Geely Automobile Holdings Ltd (HK:), Guangzhou Automobile Group Co Ltd (SS:) and supplier Hunan Corun New Energy Co Ltd (SS:).

China hopes NEVs will account for around a quarter of all vehicles sold in the country by 2025.

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Apple faces new complaints from app makers as EU launches antitrust probes


Apple Inc. is facing fresh complaints about the 30% cut it takes from App Store purchases, as European regulators launch two antitrust investigations into the tech giant.

Axios reported late Tuesday that Match Group Inc.
MTCH,
+4.39%

, parent company of Tinder, OK Cupid and other popular dating services, criticized Apple
AAPL,
+2.65%

for squeezing app makers’ revenue.

“Apple is a partner, but also a dominant platform whose actions force the vast majority of consumers to pay more for third-party apps that Apple arbitrarily defines as ‘digital services,’” according to a statement Match Group made to Axios. “Apple squeezes industries like e-books, music and video streaming, cloud storage, gaming and online dating for 30% of their revenue, which is all the more alarming when Apple then enters that space, as we’ve repeatedly seen.”

Separately, The Verge reported Tuesday that the makers of a new email app called Hey, which launched Monday, received an unpleasant surprise when Apple reportedly threatened to remove the app from its App Store if it did not allow in-app subscriptions, which Apple would get a 30% cut from.

In a series of tweets Tuesday, David Heinemeier Hansson, the founder of Basecamp, which made Hey, likened Apple to “gangsters” trying to shake him down. “This is profoundly, perversely abusive and unfair,” he said.

The makers of Hey maintain that since users can only sign up and pay for the service outside of Apple’s iOS app, it shouldn’t have to pay Apple a cut of its revenue.

In an email to The Verge, Apple suggested it not doing anything out of the ordinary with Hey. Apple reportedly told Protocol that Hey should not have been approved in the first place, since Apple doesn’t allow client apps — that is, where users can sign in but not sign up — for consumer services. For consumer apps, Apple reportedly told Protocol that it requires they offer feature in-app sign-ups and payments, so Apple can take a cut.

Apple did not immediately respond to a MarketWatch request for comment late Tuesday.

The complaints from the app makers come at a bad time for Apple, which earlier in the day found itself in the crosshairs of EU antitrust regulators, who announced they are investigating its Apple Pay service as well as its App Store. Complaints of unfair App Store restrictions from Spotify Technology SA
SPOT,
-1.27%

, among others, led to the EU probe.

If found guilty, Apple could face a fine of 10% of its annual revenue. In 2019, Apple’s annual revenue was about $260 billion, meaning a fine in the range of a whopping $26 billion.

Apple is also facing antitrust scrutiny in the U.S. from the Justice Department and Federal Trade Commission.



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Videogames are flourishing in the pandemic, and game makers aren’t scared of the future


With commerce closed in the real world, money is flowing into virtual worlds instead.

The two largest public videogame publishers in the U.S. reported Tuesday the results of millions of Americans retreating into their homes during a shelter-in-place: Booming profit from online activity. Electronic Arts Inc.
EA,
+2.38%

reported record revenue from live services and doubled its profit, while Activision Blizzard Inc.
ATVI,
+2.74%

said that it reached “new heights” in sales that created its best first-quarter profit in history.

The companies don’t expect much change in the trajectory: EA predicted profits this quarter would triple from the year before to more than a quarter-billion dollars, while Activision forecast adjusted profit of more than $500 million, a 67% increase.

The results were not entirely surprising, given that the results include data from March, when COVID-19 spread across the globe and forced people inside their homes. Superdata has reported that March was the first $10 billion month for videogame sales in history, and NPD Group said U.S sales reached their highest March level since 2008.

That 2008 figure may not be a coincidence. Executives from both companies voiced confidence that any economic slowdown will not massively change the trajectory for videogames, citing periods of growth during that recession as well as an earlier one. Activision Blizzard Chief Financial Officer Dennis Durkin noted that in the dot-com bust and the 2008 financial crisis, gaming spending continued to grow in the low- to mid-single digits.

Full results:Electronic Arts topped sales expectations, Activision Blizzard earnings beat

“We think that’s driven by the lost cost of our gaming, which makes it a great value versus other forms of entertainment,” Durkin said in Tuesday’s conference call.

Durkin said the company stood to benefit from its digital distribution — gamers have been electing to download more games from online stores versus buying physical copies at a steady clip since 2009 — and gaming is considerably more socially connected than it once was. EA said that the closure of bricks-and-mortar retail stores such as GameStop Corp.
GME,
-1.64%

hadn’t yet affected sales, as only 20% of EA’s bookings were from physical game purchases last year, compared with 84% in 2009.

Electronic Arts CFO Blake Jorgensen echoed Activision’s view, saying the videogame market has “historically proven resilient as players have seen games as a relatively inexpensive form of entertainment.”

The main pandemic concern for the videogame publishers appears to be the new work-from-home reality, which could hinder the development of new titles, as it has in the film business. For the remainder of the year, both EA and Activision said that they anticipated continuing with a full slate of releases, and executives did not mention delays related to specific titles in the twin conference calls Tuesday evening.

“Developing a game from home inevitably carries risks, and we haven’t yet solved all those problems, but, for example, we just had a very successful ‘FIFA Ultimate Team’ birthday event,” Jorgensen said in the earnings call. “‘Apex Legends Season 5’ is about to launch, and we expect to see the next ‘Sims’ expansion and ‘Command and Conquer Remastered’ to both launch in June as scheduled. Learning from this period will forever change the way we work at EA.”

Game on: Esports has filled the void of empty stadiums and arenas

KeyBanc Capital Markets analyst Tyler Parker predicted in a note last week that EA would have a harder time hitting its release targets, mentioning that it is in the middle of developing its next “Battlefield” title. The company said Tuesday that development across the board was on track.

Like EA, Activision Blizzard also develops titles at studios around the world and said in its earnings call that working remotely adds “complexity and challenges” to aspects of game development. Specifically, Activision Chief Operating Officer Daniel Alegre said that it makes creative collaboration, motion capture and quality assurance, among other things, more difficult. He said the company has taken measures to minimize the impacts and the company continues to expect its slate of titles this year, including a release of “Call of Duty” and a “World of Warcraft” expansion.

“But so far, based on what we can see, and with true ingenuity and creativity from the teams for managing through this as best as we can, we just need to provide our community with the innovative content that they love that they want to keep playing,” Alegre said. “We’re currently still on track to deliver our key content in the second half of this year, and my primary focus is to ensure that we continue to execute on these top priorities.”

Expectations for the gaming giants were high heading into Tuesday’s earnings, with analysts’ average price targets heading higher for both companies as they slid elsewhere. J.P. Morgan analyst Alexia Quadrani wrote in an April note that she expected gaming giants would experience high levels of engagement and sales amid the coronavirus pandemic, noting the Superdata report.

Electronic Arts shares dipped 5% in the extended session Tuesday, but shares have gained 29% in the past year, as the benchmark S&P 500 index
SPX,
+0.90%

dropped 3.5%. Activision shares are up 45% in the past year and rose 5.8% in after-hours trading.



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