Samadhi Partners

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Samadhi Partners is a tech-focused equity research firm that treats the tech sector "as its own asset class." Our research is actionable and designed to help generalist institutional investors compete with tech sector specialists and provide tech sector specialists an iconoclastic perspective. Register for our Samadhi Brief Newsletter today. You can follow our analysts here: Fred McClimans, John Freeman, Zach Mitchell.

The Fight Club Edition: Facebook Inc (FB), Snap Inc (SNAP), Apple Inc. (AAPL), Alphabet Inc (GOOGL), NVIDIA Corporation (NVDA)

by Fred McClimans, John Freeman, Zach Mitchell

With the past week flush with Me vs. You and Us vs. Them issues, both in the tech sector and beyond, we welcome you to the Fight Club edition of the Samadhi Tech Brief:

Facebook’s Instagram Vs. Snapchat with ‘Instagram Direct’

Facebook Inc’s (NASDAQ:FB) Instagram released Instagram Direct, a direct-messaging interface that allows users to send ephemeral messages baked directly into its core messaging app. This feature, which encourages the “spur of the moment” sharing of thoughts and activities, was Snap Inc’s (NYSE:SNAP) original and most renowned feature. Is this a game changer? Perhaps, but not in the way most expect.

Facebook’s continued Snapchat-copying moves are not likely to move the needle any faster from a revenue perspective, but they are shoring up a market position that will be difficult for Snap to match.

Bottom line: Facebook, whose robust social media portfolio includes Instagram, Messenger and WhatsApp, has proven adept in its ability to recreate Snapchat’s core features across its own offerings. We’re not sure this is a win for Facebook as much as it is a slap to Snap, which may find its ability to expand beyond its core (and saturated) demographic base increasingly difficult. We reiterate our OWN position of Facebook in the Samadhi Capital Partners client portfolio and additionally restate our present concerns on Snap.

Apple Vs. Dialog Nothing but Rumors

Shares of UK-based Dialog Semiconductor (OTCMKTS:DLGNF) (DLG.F) dropped as much as 36%, before recovering to close down 20%, after Bankhaus Lampe downgraded the company from Hold to Sell and published a research note suggesting that Apple Inc. (NASDAQ:AAPL) may move to discontinue use of Dialog’s PMIC (power management integrated circuits) in its mobile products.

Apple has a recent history in bringing third-party products in-house, including the development of its own Bluetooth/Wireless chips in 2016, and the just-announced plan to bring graphics processor development in-house, to the detriment of UK-based Imagination Technologies Group.

From a cost perspective, scale is the key factor, and Apple has enough anticipated volume as well as the internal resources/experience to develop the product it needs at the right cost point, not that dissimilar from the internal development efforts of firms such as Google and Amazon.

Dialog, on the other hand, has everything to lose, as it relies upon Apple for over 70% of its annual revenue.

Bottom line: While still unconfirmed, this shift by Apple fits within its strategy of bringing selected technologies in-house to increase value and/or control, and is exactly what we’d expect from a firm that is as operationally focused as Apple. While Apple has been more public about some of its non-core expansion plans, such as Project Titan’s autonomous car and its non-invasive glucose-monitoring project, we maintain our short position in the Samadhi Capital Partners client portfolio (via puts) based on our long-term thesis.

Alphabet Vs. Nvidia (Will AMD Bring the Chips)?

Alphabet’s Google has begun releasing performance benchmarks for its TPU (Tensor Processing Unit) and highlighting its over-performance against traditional CPU (Computer Processor Unit) and GPU (Graphics Processor Unit) products, including those of Nvidia (NASDAQ:NVDA). The TPU is a Google-developed chip designed to handle AI (Artificial Intelligence) and machine learning applications that are optimized to Google’s business and operational requirements.

Bottom line: The war of words between Google and Nvidia is relatively small, but does represent an emerging conflict between GPUs and custom chips (not that unlike RISC and ASIC challenged CPUs years ago). This GPU/TPU comparison does portend a coming conflict (years away) in which cloud-based TPU services may begin to erode the market potential of standalone GPU implementations. We reiterate our positive long-term thesis on both Google and AMD and maintain our OWN position on both in the Samadhi Capital Partners client portfolio.


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