Category Archives: Cloud Computing

Elon Musk Is Leaving the Board of an AI Safety Group He Co-Founded

Tesla CEO Elon Musk has been described as an artificial intelligence alarmist even as the tech billionaire invested in AI research. Now, Musk is leaving the board of a non-profit AI research company he co-founded in 2015 due to potential conflicts with his ongoing work at Tesla.

The research group, OpenAI, said in a blog post this week that Musk will leave its board in order to avoid any conflicts with his work at Tesla and its AI-supported autonomous driving technology. “As Tesla continues to become more focused on AI, this will eliminate a potential future conflict for Elon,” OpenAI said in the blog post. Musk will remain an advisor to the group and he will continue to donate to OpenAI’s research efforts.

Over the past couple of years, OpenAI has worked to develop applications of AI in fields such as robotics and gaming, among others. Its goal is to independently research artificial intelligence “in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return,” the group said in 2015.

At the same time, Musk’s Tesla continues to push deeper into the world of AI research itself as it develops machine learning technology for autonomous vehicles. He has also been vocal about the potential dangers of artificial intelligence—even describing AI as “the greatest risk we face as a civilization” while engaging in a war of words with Facebook CEO Mark Zuckerberg over their disagreement on the subject. Among Musk’s concerns regarding AI are the idea that artificial intelligence could become dangerous if it evolves past the point of human intelligence, and that unregulated AI could potentially be used to start global conflicts by “manipulating information.”

Musk created OpenAI with technology executives and investors including LinkedIn co-founder Reid Hoffman, Y Combinator’s Sam Altman and Jessica Livingston, and PayPal co-founder Peter Thiel. With additional support from corporate backers such as Amazon and Infosys, the group formed with over $1 billion in donations.

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OpenAI also announced a group of new donors this week, including former Olympic athletes Ashton Eaton and Brianne Theisen-Eaton as well as Skype founder Jaan Tallinn.

CBL's 17% Dividend Yield And What Investors Should Make Of It

By Jonathan Weber for Sure Dividend

CBL & Associates Properties (CBL) currently offers a very high 17% dividend yield to investors, but the future of the REIT is highly doubtful. There are not many securities with yields near that of CBL’s. You can see the full list of all 402 securities with 5%+ yields here.

In this article I will lay out why I believe that CBL may not be a good choice for conservative income focused investors. For adventurous investors CBL offers some chances though, as the valuation the REIT is trading at is extremely low.

Company Overview

CBL, which was founded more than 50 years ago, owns a large portfolio of grade B malls and other real estate assets that it operates throughout the US.

Source: (CBL’s 10-K filing)

Despite the struggles in the mall industry CBL’s performance through 2016 has not been bad at all:

Source: (CBL’s 10-K filing)

CBL had managed to grow its sales per square foot whilst at the same time reducing its debt levels significantly.

Retail trends such as shoppers moving from malls to online shopping avenues has hurt brick and mortar retailers in the recent future, and has had an impact on retail REITs as well:

Source: ^DJUSRL data by YCharts

Over the last three years the Dow Jones Retail REIT index is down 25%, but CBL’s performance has been significantly worse over the same time frame; Shares dropped by more than 75%.

CBL Looks Like It Is Priced For Bankruptcy

This deep decline in CBL’s share price has brought down the REIT’s valuation, and it currently looks like the market is pricing CBL as if it would go bankrupt in a couple of years.

Source: CBL Price to Book Value data by YCharts

CBL trades at 0.7 times book value right now. This indicates a steep undervaluation by the market, assuming that CBL’s stated book value is what it would receive if it sold its assets.

Source: (CBL 8-K)

More than 90% of the company’s assets are made up of real estate, and those values already include $2.5 billion of accumulated depreciation. Depreciation rules do not necessarily reflect the exact real world worth of a building, though. It is possible that the buildings CBL owns, which were originally valued at $6.7 billion, have a current worth of more than the $4.2 billion they are valued at in the balance sheet.

These so called hidden reserves are something we see regularly among assets such as real estate and other long-lived assets. Balance sheet values for short-lived items such as inventories usually have to be adjusted downwards to get their real values.

In CBL’s case, since the majority of its assets consist of buildings and land, the true value of its assets is likely higher than what is stated on the REIT’s balance sheet. A scenario analysis gets us to this picture:

Depreciation overstated by

Adjusted book value of Real Estate

Adjusted book value of equity

Price to book ratio

$5.16 billion

$1.24 billion

0.72

5%

$5.29 billion

$1.37 billion

0.65

10%

$5.42 billion

$1.49 billion

0.60

15%

$5.54 billion

$1.62 billion

0.55

20%

$5.67 billion

$1.74 billion

0.51

It is obvious that past depreciation being too high has a large impact on CBL’s price to book valuation. This is due to the fact that CBL is very highly leveraged (its debt to equity ratio is about four) — small changes in book value therefore have a big impact on the price to book multiple.

The high depreciation expenses CBL accounts for have another big impact. CBL’s net earnings are negligible, but since depreciation expenses are a non-cash item we can add those back to get to the REIT’s funds from operations.

Source: (CBL 8-K)

CBL trades at 2.2 times last year’s FFO, and at 2.3 times last year’s adjusted FFO (using a market capitalization of$816 million). CBL’s funds from operations have declined by about fifteen percent over the last year, and the market currently prices CBL as if this trend would not only continue, but accelerate:

Year

Adjusted FFO

Present value of FFO

Accumulated present value of FFO

2017

$355 million

$355 million

not included

2018

$308 million

$280 million

$280 million

2019

$268 million

$221 million

$501 million

2020

$233 million

$175 million

$676 million

2021

$202 million

$138 million

$814 million

2022

$176 million

$109 million

$923 million

I discounted all future FFOs by 10% annually to get to the present value number in the above table. We see that the present value of the funds from operations over the next five years is higher than the current market cap even if FFO continues to decline by a whopping 15% annually.

The current price of CBL’s shares thus only makes sense when we assume that the market believes that either FFOs will drop at an even faster pace going forward, or that the REIT will go bankrupt in the not too distant future.

Dividend Investment And What Management Should Do With The REIT’s FFO

Like all REITs CBL uses parts of its FFO to pay dividends to its shareholders. After a dividend cut in 2017 CBL currently pays out $0.20 per share per quarter, which means a dividend yield of 16.7% with shares trading $4.80.

CBL’s payout ratio (relative to its FFO number) is rather low at 45%, which means that CBL has a lot of excess funds that it can utilize elsewhere. When we look at CBL’s cash flows this becomes even more apparent:

Source: (CBL 8-K, page 19)

CBL has produced $423 million in cash flows during the last year, this means that cash flows after dividends total $264 million annually (all else equal). CBL has been using the majority of these cash flows to pay down debt and to upgrade its malls over the last quarters. Both of these actions imply that CBL plans to remain in business for a long time — otherwise upgrading malls would not make any sense.

Since the market seems to have the opinion that CBL will not remain a going concern forever, another approach could be more beneficial for shareholders. If CBL chose to return all of its cash flows to its owners via dividends and / or buybacks investors would very likely get much more than $4.80 over the coming years.

At the same time CBL could try to drive its cash flows further by selling off properties wherever possible. This approach would, in the long run, result in the shutting down of the REIT, but investors would at least receive a substantial amount of cash during the process.

The current approach (investing a lot of cash back into the business) is not showing a lot of success yet. Rent per square foot and other operating metrics continue to decline, and the market is not putting a lot of value on CBL’s shares.

What does this mean for income investors? Currently they receive a very high dividend yield (17%), and CBL can very likely continue to pay this dividend for the next couple of years even if its FFOs decline further. It is doubtful whether management is planning to do that though, currently it looks like the focus is being put on investing for the future to keep the REIT going.

This approach, which leads to a lot of cash being deployed into property improvements, could make management cut the dividend again in the future. CBL thus will very likely not be forced to cut the dividend in the next couple of years (due to the payout ratio being so low), but the REIT might still announce another cut. That is, if management comes to the conclusion that it is in the REIT’s best interest to invest for the future rather than to return more cash to its owners.

Management has an incentive to prioritize the long term survival of the REIT (their income depends on it) over total shareholder returns, more dividend cuts could therefore be coming in the near future.

Due to these reasons I believe that CBL might not be a very good income investment at the current level, even though its dividend yield is very high. The very low valuation and the price to book discount (which does not yet include any hidden reserves) make CBL a value play that could be interesting for adventurous investors though.

Final thoughts

CBL has operational problems and it is unlikely that this will completely reverse. Due to a very low valuation shareholders could see positive total returns even if things do not improve going forward, though — right now CBL is priced as if the REIT would go bankrupt in a couple of years.

Investors can get a very high income yield if they buy here, and the payout ratio looks quite low. Operational problems and management’s strategy of trying to turn the ship around via investments into its properties could lead to more dividend cuts.

CBL is not necessarily a bad investment, but it is more likely suitable for adventurous investors that want to speculate that CBL’s equity is undervalued. For conservative income investment there could be significantly better REIT choices, but with lower yields than CBL’s.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Broke Out Of This Jailhouse REIT

It’s one thing when jails are successful in housing and rehabilitating prisoners, but when those jails themselves become dysfunctional, something has to give. We were originally very positive on the concept of private prison ownership, knowing that the government couldn’t handle or didn’t want to handle the workload. But with its own set of issues and challenges, we are throwing in the towel on this Jailhouse REIT.

CoreCivic Inc. (CXW) (formerly Corrections Corporation of America) is a real estate investment trust company specializing in correctional, detention, and residential reentry facilities and prison operations. It also makes certain healthcare, food, work and recreational programs available to offenders as well as providing a variety of rehabilitation and educational programs like basic education, faith-based services, life skills and employment training, and substance abuse treatment – programs that intend to help reduce recidivism and prepare offenders for their successful reentry into the society upon their release.

It earns revenue on an inmate per-day based on actual or minimum guaranteed occupancy levels. In 2016, the company recorded $1.9 billion revenue. It has 13,755 employees and is the largest player in the correctional facilities industry with 34% market share. It owns 57% of all privately owned correctional and detention capacity.

Source: CoreCivic Investor Presentation

If Planning To Visit

As of September 30, 2017, CoreCivic owned 79 real estate assets and manages 7 additional facilities owned by its government partners. It owns 44 correctional facilities with 64,064 bed capacity and manages 7 facilities with total bed capacity of 8,769 beds. It leases 2 correctional facilities with 4,960 beds capacity and leases 7 residential centers with a total of 1,047 beds capacity to other operators and leases another 3 properties with total area of 30,000 sq. ft. to the federal government. It also operates 23 residential reenter centers with total capacity of 4,792 beds.

Aside from its principal executive offices in Nashville, TN, it also owns two corporate office buildings.

Source: CoreCivic Investor Presentation

Customers/Key Buyers

CoreCivic’s customers consist of federal and state correctional and detention authorities. Its key federal customers include the Federal Bureau of Prisons (BOP), the United States Marshals Service (USMS), and U.S. Immigration and Customs Enforcement (ICE).

Contracts from federal correctional and detention authorities account for about 51% of the company’s revenue whereas contracts from state customers account for about 42% of its revenue. Most of these contracts contain clauses allowing the government agency to end the contract at any time without cause. Moreover, these contracts are also subject to annual or biannual legislative appropriation of funds.

Aside from diversifying within federal, state, and local agencies, the risks of ending a contract prematurely is that CoreCivic has staggered contract expirations with most of its customers having multiple contracts. In the past, BOP has tended to let contracts end rather than end them prematurely as it is dependent on private prisons to house low-security inmates – typically undocumented male immigrants.

We knew about the concentration of government dependence when we invested in the stock but have become increasingly concerned with both the lack of inmate growth (see below) and the potential for government decisions that could adversely affect revenues – particularly in a highly polarized political environment that frankly, we find unpredictable.

Source: CoreCivic Investor Presentation

Recent Trends

Because the majority of the company’s revenue come from the federal government, its contracts are susceptible to annual or biannual appropriations, and having short terms of just three to five years, CoreCivic could be largely affected by an impending government shutdown. At present, immigration policy is one of the major issues wherein the Republicans and Democrats have opposing stances. For example, from January 19th to the 22nd, the U.S. entered a government shutdown after the two parties failed to come to an agreement about the funds allocated to immigration issues like the Deferred Action for Childhood Arrivals (DACA).

With the U.S. Immigration and Customs Enforcement being one of the major customers of CoreCivic, the company is directly affected by these shutdowns.

During a shutdown, the government will not be able to pass any short-term spending bills that allow budget allocations to be released to various agencies. Companies like CXW receive fixed monthly payments so the BOP may not be able to release funds or pay CoreCivic for a short period of time, depending on when and how long the shutdown occurs – resulting in cash flow and working capital challenges. Luckily, the government shutdown did not last very long, but the potential for a similar risk in the future is still relevant.

Another trend that is likely to affect CoreCivic’s business is the continuous decline in the number of prisoners. The number of prisoners under state and federal jurisdiction has declined by 7% from 2009 when the U.S. prison population peaked (See the table below). Federal prison makes up 13% of the total U.S. prison population and contributed 34% of the decline in the total prison population in 2016.

Source: U.S. Department of Justice

Accordingly, prisoners being held in private prisons have declined. According to Pew Research, after a period of steady growth, the number of inmates being held in private prisons has declined since 2012 and continues to represent a small share of the nation’s total prison population. We’re not confident this trend will reverse.

Another reason for the declining population in private prisons is the growing government commitment to progressive criminal justice, particularly to nonviolent offenders – low-security prisoners who are catered by private prisons. For example, the recommended mandatory minimum sentencing for nonviolent drug traffickers has been reduced. These progressive trends are likely to lead to further decreases in inmate populations.

Source: Pew Research

In August 18, 2016, the DOJ also issued a memorandum to the BOP directing that as each contract with privately operated prisons expires, BOP should either decline to renew contacts or substantially reduce scope in line with the BOP’s inmate population.

However, despite the said memorandum, BOP did exercise a two-year renewal option for CoreCivic’s McRae Correctional Facility. Moreover, in February 2017, the Department of Justice also reversed the memorandum to phase out private prison. It argues that this policy will impair the government’s ability to meet the future demands of the federal prison system. This decision saves the private prison industry from the risk of being phased out in the near future but may only push that decision out a few years. The uncertainty worries us.

To make matters worse, a class action lawsuit (Grae v. Corrections Corporation of America et al.) was filed against CoreCivic’s current and former offices in the United District Court for the Middle District of Tennessee. The lawsuit alleges that from February 27, 2012 to August 17, 2017, the company made misleading or false information and public statement regarding its operations, programs, and cost-efficiency factors to inflate its stock price. CoreCivic insists that these accusations are without merit but it still puts CXW and private prisons in a negative light.

Lastly, CoreCivic has also been receiving criticisms about its services. Complaints were received from Trousdale Turner Correctional Center in Hartsville after allegedly failing to address the concerns of prisoners and their families, including the healthcare needs to diabetic inmates. The scabies outbreak in its Metro-Davidson County Detention Facility is also cited as an example of its negligence to protect the wellbeing of prisoners. These lawsuits do not help CoreCivic’s image especially after it has laid off 500 employees after losing three jail contracts in Rusk, Jack, and Willacy counties.

Outlook

According to IBISWorld, the correctional facilities industry revenue is expected to grow minimally at an annual rate of 0.1% to reach $5.3 billion from 2017 to 2022, but industry profit is not expected to rise significantly. The trend in the number of prisoners will slow down the growth of the industry despite the overcrowding problem in the state prisons, which may or may not compensate for decreased demand for its services at the federal level.

Overall, we do not view the company’s prospects favorably in light of industry trends, governmental risks, and reputational image that can affect fundamentals and create unwanted headline risk. For this reason, we are selling CXW out of the REIT Portfolio.

America is the land of the second chance – and when the gates of the prison open, the path ahead should lead to a better life. – George Bush

Disclaimer: Please note, this article is meant to identify an idea for further research and analysis and should not be taken as a recommendation to invest. It is intended only to provide information to interested parties. Readers should carefully consider their own investment objectives, risk tolerance, time horizon, tax situation, liquidity needs, and concentration levels, or contact their advisor to determine if any ideas presented here are appropriate for their unique circumstances.

  • Past performance is not an indicator of future performance.
  • Investing in any security has risks and readers should ensure they understand these risks before investing.
  • Real Estate Investment Trusts are subject to decreases in value, adverse economic conditions, overbuilding, competition, fluctuations in rental income, and fluctuations in property taxes and operating expenses.
  • This post is illustrative and educational and is not a specific offer of products or services.
  • Information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein, nor is the author compensated by any of the products mentioned.
  • Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the topics or subjects discussed.
  • Information presented is not believed to be exhaustive nor are all the risks associated with the topic of each article explicitly mentioned. Readers are cautioned to perform their own analysis or seek the advice of their financial advisor before making any investment decisions based on this information.
  • Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision.
  • All expressions of opinion reflect the judgment of the author, which does not assume any duty to update any of the information
  • Any positive comments made by others should not be construed as an endorsement of the author’s abilities to act as an investment advisor.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Beware of Pranksters Crashing Apple iPhones Using Twitter

If you’re an Apple iPhone user who also enjoys Twitter, listen up.

Pranksters on the social media service have been sharing a character from the Indian Telugu language that causes iPhones to crash, according to Mashable. The offending users have been putting the character into their Twitter usernames and tweets and encouraging people to share them with their friends. If the character lands in a user’s Twitter feed, it will cause the social app to crash. The app will continue to crash after users try to boot it back up, ultimately stopping victims from accessing the service on their iPhones.

Last week, reports surfaced saying that a single Telugu character was enough to wreak havoc on iPhones. When the character is sent via any messaging or social networking app, the affected user’s app will crash. While it’s an obscure bug that only affects Apple’s iOS 11, it’s one that pranksters and those trying to cause harm are exploiting across the Internet. Worst of all, there’s no fix at the moment and unsuspecting victims needn’t do anything to be affected.

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Apple acknowledged the Telugu bug last week and has promised a fix. The company hasn’t yet delivered, though, and it’s impossible to say when it’ll be released.

According to Mashable, which tested the bug on Twitter, the only way for affected users to regain access to the app is to log in via Safari and block the person that shared the character. At that point, the character won’t show up in their feeds and Twitter will be accessible.

Sentiment Speaks: GLD May Not Yet Be Ready To Break Out

For those that follow me regularly, you will know that I have been tracking a set up for the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), which I analyze as a proxy for the metals mining market. I believe that the GDX can outperform the general equity market once we confirm a long term break out has begun, and I still think we can see it in occur in 2018. This week, I will provide an update to the GDX, but want to also discuss the GLD, which is an ETF which attempts to mirror the movements of gold. While I have gone on record as to why I do not think the GLD is a wise long-term investment hold, I will still use it to track the market movements.

While the GDX did move through the resistance region I noted last weekend, it did not do so in what I wanted to see as an “impulsive” move. That is a term of art which means a standard 5-wave structure which adheres to our Fibonacci Pinball methodology. Rather, when the market broke out over 22.30, it set up to run strongly towards the 23.20 region, which is the analysis I presented to those that follow my work daily. In fact, just before the market opened on Valentines Day, I sent out an Alert to my members noting how I viewed the smaller degree structure:

“Over 22.30, and we have an initial indication of a bottom in place. 23.20 then becomes the next higher resistance.”

As we saw, the market broke over 22.30, and then moved quite strongly higher, and topped out this week at 23.16. But, as I noted once we reached the 23.20 resistance region, this can still be a 4th wave rally and point us down towards the low 20 region unless we are able to take out the 23.20 resistance strongly. As we now see, the market may be pointing us directly down towards that low 20 region in the GDX, as we have been unable to break over 23.20, and have turned down.

As far as the GLD is concerned, this is still presenting as a very bullish pattern. While I would have loved to have seen this break out already, the current micro structure is not strongly suggestive of an immediate break out. In fact, should we see an impulsive drop below 127 in the coming week, it opens the door to a drop down to at least the 124 region, but more preferably down to the 121.50-122 region, before we can set up again for a break out.

But, as I have noted many times before, for those who are looking for a long-term investment hold for gold, I would not suggest using the GLD as I have presented in this webinar I did some time ago. Rather, I tend to use the GLD as a trading vehicle rather than an investment vehicle.

Lastly, a break out over last week’s high in either GLD or GDX can alter the analysis presented above, as it is contingent on last week’s highs holding as resistance. Remember, we cannot know what will happen in the future with certainty. Rather, we can plan for what may happen based upon probabilities. But, we also have to know rather quickly when and where those probabilities are no longer in our favor. Remaining in a wrong position while “hoping” is what destroys more accounts than anything else.

Housekeeping Matters

It seems that Seeking Alpha has changed the way they tag articles. So, while my articles used to be sent out as an email to those that follow the metals complex, they are now only being sent out to those that have chosen to “follow” me. So, if you would like notification as to when my articles are published, please hit the button at the top to “follow” me. Thank you.

Disclosure: I am/we are long PHYSICAL METALS AND VARIOUS MINING STOCKS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I hedged my portfolio on Friday with stops at 23.20 GDX.

Can Machines Save Us From the the Machines?

Is it just me or is the cyber landscape getting more scary? Even as companies and consumers get better at playing defense, a host of new cyber threats is at our doorsteps—and it’s unclear if anyone can keep them out.

My doom-and-gloom stems from the dire predictions of Aviv Ovadya, the technologist who predicted the fake news epidemic, and now fears an “information apocalypse” as the trolls turbo-charge their efforts with AI. He points to the impending arrival of “laser phishing” in which bots will perfectly impersonate people we know by scraping publicly available images and social media data. The result could be the complete demolition of an already-crumbling distinction between fact and fiction.

Meanwhile, the phenomenon of crypto-jacking—in which hackers hijack your computer to mine digital currency—has quickly morphed from a novelty to a big league threat. Last week, for instance, hackers used browser plug-ins to install malignant mining tools on a wide range of court and government websites, which in turn caused site visitors to become part of the mining effort.

The use of browser plug-ins to launch such attacks is part of a familiar strategy by hackers—treating third parties (in this case the plug-ins) as the weakest link in the security chain, and exploiting them. Recall, for instance, how hackers didn’t attack Target’s computer systems directly, but instead wormed their way in through a third party payment provider. The browser-based attacks feel more troubling, though, because they take place right on our home computers.

All of this raises the question of how we’re supposed to defend ourselves against this next generation of threats. One option is to cross our fingers that new technologies—perhaps Microsoft’s blockchain-based ID systems—will help defeat phishing and secure our browsers. But it’s also hard, in an age when our machines have run amok, to believe more machines are the answer.

For a different approach, I suggest putting down your screen for a day and picking up How to Fix the Future. It’s a new book by Andrew Keen, a deep thinker on Silicon Valley culture, that proposes reconstructing our whole approach to the Internet by putting humans back at the center of our technology. Featuring a lot of smart observations by Betaworks founder John Borthwick, the book could help us fight off Ovadya’s information apocalypse.

Have a great weekend.

Jeff John Roberts

@jeffjohnroberts

[email protected]

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

Swiss watchdog to treat some coin offerings as securities

ZURICH (Reuters) – Switzerland’s financial watchdog will regulate some digital currency fundraisers, known as initial coin offerings (ICOs), either under anti-money laundering laws or as securities, it said on Friday.

The guidelines provide more clarity on the country’s stance toward the hot fundraising method in which Switzerland has become a global leader but whose regulators had not yet weighed in significantly.

ICOs skyrocketed in 2017, reaching nearly $3 billion through September, with Switzerland attracting around a quarter of the money, according to data compiled by cryptocurrency research firm Smith + Crown.

Groups based in Switzerland have launched many of the world’s biggest ICOs.

Regulation has become a hot button issue since the U.S. Securities and Exchange Commission deemed last year that some ICOs could count as securities. Many other global authorities followed suit.

“Blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tried and tested regulatory framework,” Financial Market Supervisory Authority (FINMA) chief Mark Branson said in a statement.

“Our balanced approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system.”

FINMA said regulation would be based both on the purpose digital tokens served as well as whether the tokens were already tradeable or transferable when the ICO took place.

Fundraisers launching digital currencies intended to function as a means of payment, and which could already be transferred, would be subject to anti-money laundering regulations but would not be treated as securities, FINMA said.

Fundraisers launching digital tokens intended to provide access to an application or service would be treated as securities if they functioned as an economic investment.

Access — or “utility” — tokens that didn’t function as an investment and could already be used to access the application at the time they were issued wouldn’t be considered securities.

Fundraisers launching digital tokens that represented assets — like a share in a company, earnings or underlying physical goods — would also be regarded as securities, subject to trading laws and prospectus requirements.

Editing by Michael Shields

EU tells Facebook, Google and Twitter to 'do more' for users

BRUSSELS (Reuters) – Europe’s justice commissioner told Facebook (FB.O), Twitter (TWTR.N) and Google (GOOGL.O) on Thursday to do more to bring their user terms in line with EU law, saying proposals submitted by the tech giants were considered insufficient.

Slideshow (2 Images)

The European Union executive and consumer protection authorities said the three companies have only partially addressed concerns over their liability and how users are informed about content removal or contract terminations.

The authorities across the bloc, who requested the changes last year, have the power to issue fines if the companies fail to comply.

“EU consumer rules should be respected and if companies don’t comply, they should face sanctions,” European Commissioner Vera Jourova said in a statement. “Some companies are now making their platforms safer for consumers; however, it is unacceptable that this is still not complete and it is taking so much time.”

Reporting by Alissa de Carbonnel @AdeCar; editing by Robert-Jan Bartunek

Toshiba appoints ex-banker as CEO, forecasts first profit in four years

TOKYO (Reuters) – Toshiba Corp appointed a former banker from a key creditor bank as CEO and forecast its first annual profit in four years, making progress in its efforts to recover from billions of dollars in losses at its U.S. nuclear unit Westinghouse.

Nobuaki Kurumatani, a former executive of Sumitomo Mitsui Financial Group, will become chief executive and chairman from April 1 and will be responsible for longer-term strategic decisions as well as dealing with outside parties.

Current CEO Satoshi Tsunakawa who has overseen Toshiba’s attempts to dig itself out of its financial crisis, will become chief operating officer and be responsible for day-to-day operations.

Bolstered by its chip business, the struggling industrial conglomerate predicted net profit of 520 billion yen ($4.9 billion) for the year ending March, up from a prior forecast of a 110 billion yen loss and much higher than a consensus estimate of a 188 billion yen profit.

The revised estimate comes on the back of a sale of Toshiba’s claims against now-bankrupt Westinghouse Electric Co LLC to a group of hedge funds, a deal that also affords the Japanese firm tax benefits.

The return to net profit, combined with an additional 600 billion yen gained from the issue of new shares to overseas funds, will help Toshiba avoid falling into negative net worth for a second consecutive year, allowing it to remain a listed company.

That in turn means less urgency for Toshiba to sell its prized chip business – the world’s second biggest producer of NAND memory chips – to a consortium led by U.S. private equity firm Bain Capital.

The revised estimates also showed, however, that without the memory chip division, its annual operating profit is set to be zero.

Toshiba says it aims to complete the sale of the chip unit by an agreed deadline of the end of March but it is widely viewed as unlikely to gain the necessary regulatory clearance in time. If it doesn’t complete the deal by then, it has the option of walking away, sources have said.

Kurumatani is currently the president of the Japanese arm of European private equity firm CVC Capital Partners and is a former deputy president of Sumitomo Mitsui Banking Corp, one of Toshiba’s main lenders.

Reporting by Makiko YamazakiEditing by Edwina Gibbs

Walmart goes to the cloud to close gap with Amazon

SAN BRUNO/SUNNYVALE, Calif. (Reuters) – One of Walmart Inc’s best chances at taking on Amazon.com Inc in e-commerce lies with six giant server farms, each larger than ten football fields.

These facilities, which cost Walmart millions of dollars and took nearly five years to build, are starting to pay off. The retailer’s online sales have been on a tear for the last three consecutive quarters, far outpacing wider industry growth levels.

Powering that rise are thousands of proprietary servers that enable the company to crunch almost limitless swathes of customer data in-house.

Most retailers rent the computing capacity they need to store and manage such information. But Walmart’s decision to build its own internal cloud network shows its determination to grab a bigger slice of online shopping, in part by imitating Amazon’s use of cloud-powered big data to drive digital sales.

The effort is helping Walmart to stay competitive with Amazon on pricing and to tightly control key functions such as inventory. And it is allowing the company to target shoppers with more customized offers and improved services, two top executives told Reuters in interviews at Walmart’s San Bruno and Sunnyvale campuses in California.

“It has made a big difference to how fast we can grow our e-commerce business,” said Tim Kimmet, head of cloud operations for Walmart.

He said Walmart, for example, is using cloud data to stock items frequently ordered by customers via voice shopping devices such as Google Home.

The network is helping the retailer improve its in-store operations as well. Using data gleaned from millions of transactions, the company sped up the process by which customers can return online purchases to their local stores by 60 percent. And Walmart can adjust prices at its physical locations almost instantly across entire regions.

“We are now able to execute change faster,” Jeremy King, Walmart’s chief technology officer, told Reuters. He added that Walmart can now make over 170,000 monthly changes to software that supports its website, compared to less than 100 changes previously.

To be sure, Walmart, the world’s largest brick-and-mortar retailer, holds just a 3.6 percent share of the U.S. e-commerce market compared to Amazon’s 43.5 percent, according to digital research firm eMarketer.

Still, Walmart’s cloud effort is significant at a time when U.S. retail is undergoing immense disruption, and data-based decision making has become more important than ever to understand how shoppers make purchases.

Walmart employees work at the company’s network operations center in Sunnyvale, California, U.S. October 25, 2017. REUTERS/Nandita Bose

Walmart’s online revenue climbed 50 percent year-over-year during the third quarter, helping it post its strongest-ever quarterly growth since 2009.

“The battle between Walmart and Amazon has been playing out on all fronts and the cloud is the latest frontier,” said Kerry Liu, chief executive of Rubikloud Technologies, which offers artificial intelligence technology services to retailers.

EXCESS CAPACITY

The cloud initiative is but one of several steps Wal-Mart is taking to boost its e-commerce business. The company has expanded its online selection and acquired smaller e-commerce retailers. Walmart is offering free two-day shipping on orders of $35 or more, and it recently asked vendors to supply it with merchandise priced at $10 and up to help it turn a profit online.

Walmart has stored information in smaller internal data centers for years. And it uses public cloud storage for non-critical data. Most retailers rent server capacity offered by companies such as Amazon Web Services, Alphabet Inc’s Google, Microsoft Corp and IBM.

(For a graphic on big players in the cloud market, see tmsnrt.rs/2EYe9Ii)

But Walmart’s decision to build a network that is not reliant on a single third-party cloud technology provider has transformed its ability to understand shoppers, who now move between store, desktop, mobile and app to make purchases. About 80 percent of Walmart’s cloud network is now in-house.

Walmart’s Kimmet said security was another big factor behind the effort, enabling the retailer to better protect customer data. That secrecy extends to the locations of its six “mega clouds” or giant server farms, and 75 “micro clouds” whose locations the company declined to disclose publicly.

Walmart shareholders so far appear supportive of its cloud strategy. The company’s shares have risen 49 percent in the last 12 months, defying the broader retail sector downturn and outperforming the wider S&P 500 index, which has risen 14 percent over the same period.

Still, some investors have expressed concerns that Walmart’s approach will make it harder for the retailer to downsize if market conditions change significantly. A few of them told Reuters they would like to see Walmart commercialize its excess capacity, much as its rival Amazon has done.

Amazon Web Services (AWS) generated $18.34 billion in revenue in 2017 and has garnered 26 percent of the cloud market, according to estimates from Jefferies Group LLC.

“Walmart is very good at following Amazon’s innovations. Now they must find a way to monetize the cloud business they are building the way AWS did,” said Charles Sizemore, founder of Sizemore Capital Management LLC, who owns shares of Walmart.

Walmart’s Kimmet said the retailer has no immediate plans to provide cloud services for other companies. But he did not rule it out as a future revenue driver.

Reporting by Nandita Bose in San Bruno, Sunnyvale California; Editing by Greg Roumeliotis and Marla Dickerson