IBM Expects Sales to Grow for the First Time in Five Years

(Bloomberg) — After more than five years of declining sales, IBM says it will finally show investors it can grow again.

Some of that boost will come from one of the company’s legacy hardware businesses, rather than the new services such as cloud and data analytics on which IBM has been pinning its prospects for growth.

Fourth-quarter revenue is projected to be $22 billion to $22.1 billion, which will represent as much as a 1.5 percent bump from the same period in 2016. It also tops analysts’ average estimate of $21.8 billion. In the last quarter of the year — historically IBM’s strongest — revenue will improve by as much as $2.9 billion sequentially, boosted in part by sales of its new mainframe server, Chief Financial Officer Martin Schroeter said Tuesday on a call to discuss earnings.


“The mainframe is going to drive a lot of the positive growth in the fourth quarter,” said Josh Olson, an analyst at Edward Jones & Co. “When you’re selling mainframes, you’re also selling a lot of software and services with that.” He rates the stock a hold.

If IBM achieves its outlook, it will end a 22-quarter streak of shrinking sales. During the third quarter, International Business Machines Corp. came the closest to stemming that decline since the same period in 2016. Getting back to growth on the top line has been a major goal for Chief Executive Officer Ginny Rometty and a milestone investors are looking for as proof that the company can finally climb out of its rut.

But the mainframe business is cyclical, and analysts aren’t convinced that IBM can sustain growth after server sales start tapering off. To prove it has reached the inflection point, IBM will need to show that its other categories — in particular its newer businesses including cloud software and services — can pick up the slack, Olson said. Analysts see positive signs in some of those areas, but are looking for continued growth before saying IBM’s turnaround is successful.

“They definitely have some potential going into 2018 in certain parts of the business, and you couldn’t say that a few years ago,” said Daniel Ives, head of technology research at GBH Insights. “It’s an execution story and 2018 will be a huge proving year for Rometty and IBM.”

Total revenue in the third quarter was $19.15 billion, a decrease of less than 1 percent from a year earlier, but higher than the analyst average estimate of $18.6 billion. Growth came from hardware, as well as the group that houses much of its software products.

Cognitive solutions, a segment that includes Watson analytics and other newer products for IBM, grew 3.9 percent, after a decline during the prior period. The systems unit also reported a gain, helped by improved sales in data storage products and the new mainframe server, which became available late in the third quarter, Schroeter said in an interview.

The shares rose as much as 5.3 percent in late trading to $154.33.

“Cognitive solutions has attracted a lot of our investment, and when we look at underlying performance, it captures and reflects a lot of the new strategic imperative areas we’re going into,” Schroeter said. These “strategic imperatives” include analytics, security and Watson-branded products and are a key indicator for IBM’s future success. “We saw pretty broad-based growth across all cognitive solutions elements,” he said.

Big Blue had a rough first half, missing revenue estimates for the first two quarters. The stock is down more than 11 percent this year, while the broader technology sector has been soaring to records. IBM’s status as a bellwether stock that paid high dividends had kept many investors hopeful that the company could turn things around, but the multiyear revenue declines have eroded confidence. Warren Buffett, once IBM’s most vocal champion and largest shareholder through his Berkshire Hathaway Inc., soured on the company and sold about a third of Berkshire’s investment in IBM earlier this year.

Under Rometty, Armonk, New York-based IBM has been working to add revenue in cloud-based software and services. These newer operations now make up more than 40 percent of IBM’s total sales. But legacy businesses continue to deteriorate. Rometty has also invested more in artificial intelligence technology under the Watson brand, peddling the suite of products as IBM’s future and the driver for long-term growth. But the company doesn’t break out sales for Watson services and folds the group under the cognitive solutions segment — implying Watson isn’t yet big enough to be material.

Operating profit, excluding some items, was $3.30 a share in the quarter ended Sept. 30, compared with the average analyst estimate of $3.28. IBM improved its gross margins from the previous quarter, in line with Schroeter’s forecast. That’s in part because IBM increased its software sales, which is highly profitable, and in part because the company is also growing its cloud business, which has better margins the bigger it gets, he said.

Dropbox Seeks More Paying Customers Ahead of Expected IPO

(Bloomberg) — Dropbox Inc. introduced a new cloud-based file-sharing option for individual business users and a new feature for marketing and creative workers to share projects, seeking to lure more paying customers ahead of an expected public share sale.

Dropbox Professional is a new tier in the company’s list of paid subscription plans and is intended for independent workers, while the existing Dropbox Business service is priced for teams or companies, said senior director of product management Robert Baesman.

The new Professional version goes on sale Tuesday for $19.99 a month per user, compared with $12.50 a month for the Business tier, which requires purchasing multiple subscriptions.The new option includes Dropbox Showcase, which lets designers, marketers and other employees organize all their work into a single portfolio with branding, captions and layouts. Showcase then lets them track whether the client receiving the portfolio looked at it, interacted with it or shared it.


Dropbox could file its initial public offering documents as soon as this year, people familiar with the matter said in July. The San Francisco-based company is a major seller of software for file-sharing and synchronizing, but is trying to boost revenue by providing new programs that help workers create, edit, share and track work projects. It’s a market that will put Dropbox even further into competition with companies like Google and Microsoft Corp.

Microsoft Email-Access Fight With U.S. Gets Supreme Court Review

(Bloomberg) — The U.S. Supreme Court agreed to decide whether law enforcement officials conducting a criminal investigation can demand data held overseas by Microsoft Corp. and other technology companies in a high-stakes clash over digital privacy.

The justices will review a federal appeals ruling that the Trump administration says has become a major obstacle in criminal probes. Already, Google Inc. and Yahoo, acquired by Verizon Communications Inc., have stopped complying with search warrants for emails and other user data stored outside the country, the Justice Department said.

The lower court said a 1986 law that protects the privacy of electronic communications — and carves out an exception for law enforcement needs — doesn’t extend to data kept in other countries. The ruling came in a case involving emails stored on a Microsoft server in Ireland.


“Under this opinion, hundreds if not thousands of investigations of crimes — ranging from terrorism, to child pornography, to fraud — are being or will be hampered by the government’s inability to obtain electronic evidence,” Deputy Solicitor General Jeffrey Wall argued in court papers.

The case will pit federal and state officials against the technology industry, which has lined up behind Microsoft in the litigation. The court will hear arguments early next year and rule by June.

Microsoft urged the court not to hear the case, saying the justices should leave it to Congress to update the 1986 law and deal with the many complexities that surround worldwide electronic data storage.

“Congress alone has the authority and the institutional competence to craft a new legislative scheme for a world not anticipated in 1986,” Microsoft argued.

Drug investigation

The dispute stems from a 2013 federal effort to get emails that the government says would show evidence of drug trafficking. Officials obtained a search warrant, but Microsoft refused to turn over the information, taking the matter to court instead.

The New York-based 2nd U.S. Circuit Court of Appeals eventually ruled that the company didn’t have to provide the data. A three-judge panel said the 1986 Stored Communications Act wasn’t designed to cross international boundaries.

“Neither explicitly nor implicitly does the statute envision the application of its warrant provisions overseas,” Judge Susan Carney wrote. A larger panel of judges later refused to reconsider the ruling on a 4-4 vote.

Microsoft says its policy at the time of the search warrant was to store email content in the data center nearest to the customer’s self-declared country of residence, while keeping account information on U.S. servers.

The unidentified person at the center of the Supreme Court case registered for his account as a resident of Ireland, according to one of the lower court opinions. The company had data centers in 40 countries as of 2014, according to court documents.

The Justice Department says the logic behind the appeals court decision would apply even if the account holder were a U.S. citizen living and committing crimes in this country.

“The decision provides a roadmap for terrorists and criminals in the United States to insulate electronic communications from U.S. investigators,” Wall argued. “They need do nothing more than falsely state a location outside the United States when signing up for an account.”

A group of 33 states joined the U.S. in urging Supreme Court review.

Microsoft points to past Supreme Court cases that say laws shouldn’t be read to intrude on another country’s sovereignty unless Congress clearly says that’s its intent.

“Execution of a U.S. warrant to seize documents in a foreign country is precisely the kind of foreign incursion that the presumption against extraterritoriality was designed to prohibit, absent clear authorization by Congress,” Microsoft said.

The case is United States v. Microsoft, 17-2.

Your Computer Might Be Working for Currency Miners

(Bloomberg View) — If you thought internet ads were annoying, consider this: The websites you visit could now be harnessing your computer to do cryptocurrency mining.

Digital currencies demand a lot of computing power. To complete each block of transactions, computer owners around the world must race to solve an extremely difficult cryptographic puzzle, with the winner getting paid in the relevant cryptocurrency. To increase their chances, such “miners” invest vast amounts in processing capacity — building server farms in far-flung places where electricity is cheap — and are always on the lookout for inexpensive ways to get more.

Website publishers, for their part, are constantly seeking new ways to generate revenue. Subscriptions can be a hard sell. Ads are less than ideal: They often repel users, they can be hijacked by bots and Russians, and big players such as Google typically take a cut of the revenue. So some are resorting to an untapped resource: selling miners access to the computing power of the people who visit their sites.


Here’s how it works. Let’s say you go to a site devoted to cat pictures. When your web browser loads the first page, it also initiates a script that instructs your computer’s processor to do calculations for a cryptocurrency miner, who could be located in Germany or just about anywhere. You might notice nothing more than a slightly slower computer and a slightly higher electricity bill. The miner pays the website publisher for the use of your resources.

Reputable web publishers aren’t going to hijack your computer for profit. But for sites that haven’t had much luck with traditional ad networks — particularly in China — browser-based mining has become a popular revenue stream. Earlier this month, a script even surfaced on Showtime’s Anytime website. An experiment at The Pirate Bay, a hub for largely pirated content, elicited a positive response from users who preferred it to the pornographic banners that typically appear on the site.

The idea of capturing value from underutilized computer resources goes back to the early days of the web. In 1999, a team at the University of California, Berkeley, created the Berkeley Open Infrastructure for Network Computing, a software system that uses the spare capacity on personal computers for scientific purposes. The project was most famous for SETI@home, a screensaver that contributed to the hunt for signs of alien life in radio signals. Since then, it has aided climate prediction, protein folding, drug discovery and many other applications. Today, more than 300,000 users actively participate, making it the largest computing grid in the world.

Such distributed computing isn’t necessarily cost-effective. Given the related energy expense, participants in the Berkeley system could have achieved more by just donating money for cloud computing services. In the case of browser-based mining, visitors are compensating publishers with their computer resources and energy consumption, involving local utility companies in each transaction. They could probably get a better deal by just paying a few cents per page view.

The history of the internet has demonstrated, though, that micropayments don’t work very well. One possible explanation is that the decision-making costs associated with each transaction outweigh the actual value transfer. If I were to charge everyone five cents for access to this article, the time each visitor would have to spend deliberating whether to part with that hard-earned nickel would make the deal look prohibitively expensive.

Hence, the most viable kind of internet payment is one that doesn’t look like a payment at all. Hundreds of thousands of volunteers willingly donated their computing power to SETI@home because it felt costless, even though it consumed $8 of energy each month. Ad-based models have prevailed because users don’t consciously put a dollar value on their attention and data.

In-browser cryptocurrency mining is an inefficient way of paying for content, and it’s not clear that users will welcome the appropriation of resources. On the other hand, it’s potentially less invasive than targeted advertising — which many people find creepy — and takes advantage of underutilized processor resources. Ultimately, mining could make the business model of internet publishing a bit less broken.

Facebook Is Watching You, Belgian Privacy Agency Warns in Court

(Bloomberg) — Facebook Inc. was accused of Big Brother-style snooping on internet users in a fresh attack on the social network by Belgium’s data privacy watchdog.

The regulator sought a court order on Thursday forcing Facebook to stop any collection of data for advertising purposes and the provision of “misleading” information to users, under the threat of a 250,000 euro ($296,000) daily penalty. The company said it disagreed with the allegations.

Trending: Court Orders DreamHost to Identify Anti-Trump Site Subscribers


“What Facebook is doing is unprecedented in monitoring the browsing habits” of millions of people in Belgium, regardless of whether they are signed up to the service, Ruben Roex, a lawyer for the regulator who works at law firm Time.Lex, told a Brussels court. “Facebook systematically collects data without any action by the user, which users didn’t consent to, or which wasn’t clarified to the users.”

Facebook has been a target for Belgium’s data protection commission since at least 2015, when a court ordered it to stop storing non-users’ personal data. While the U.S. tech giant won on appeal last year, Thursday’s hearing is the first in a European court to go to the heart of the company’s use of technology deemed to be essential to its proper functioning.

‘Like Button’

The operator of the world’s largest social network uses technological means, such as cookies, pixels or so-called plug-ins underpinning its iconic “Like” button, that are “very invasive” and are able to stay on people’s computers for as long as two years, the court was told. The regulator said it was “striking” that similar techniques were used to also track non-users for commercial purposes.

“That’s our biggest concern,” Willem Debeuckelaere, president of the Belgian data protection commission, said in an interview at the court after the hearing. “We are talking now about practically the whole Belgian population who use the internet.” Belgian has a population of about 11.3 million people.

Users who increasingly depend on Facebook to stay connected to peers, can only sign up if they “consent to everything or nothing,” Roex said. Facebook “is de facto asking for a blanket consent to monitor your browsing behavior and that goes way, way too far.”

Facebook, whose lawyers will present their defense in court on Friday, said in a statement it disagrees with the Belgian watchdog’s claims and that “putting people in control of their privacy is at the heart of everything we do.”

User-Friendly

“Over recent years, we’ve made our policies clearer and more user-friendly to help people in Belgium and all over the world understand how we use information and cookies to make Facebook better,” the Menlo-Park, California-based company said in the statement. “The cookies and pixels we use are industry standard and enable hundreds of thousands of business and publishers to serve ads on and off Facebook.”

Facebook, whose European base is in Ireland, said it remains open to “discussing key elements with them and the Irish Data Protection Commissioner.”

Facebook has been under scrutiny by other European regulators. The company earlier this year agreed under Dutch pressure to stop targeting ads based on users’ sexual orientation as European regulators revealed a concerted clampdown on some of the social network’s data practices. This came on top of a maximum fine of 150,000 euros by France’s privacy regulator for combining user data to display targeted advertising and “illegal tracking” via cookies of what users do on and off the site.

Equifax Pulls Web Page Offline After Another Possible Attack

(Bloomberg) — Equifax Inc. pulled one of its customer help pages from its site so the company’s security team can investigate reports of another possible cyber attack.

“We are aware of the situation identified on the equifax.com website in thecredit report assistance link,” Wyatt Jefferies, a spokesman for Equifax said in an email. “Our IT and security teams are looking into this matter, and out of an abundance of caution have temporarily taken this page offline.”

See also: Equifax Says Unpatched Apache Struts Vulnerability Behind Massive Security Breach


Equifax shares dropped 2.4 percent to $107.83 at 1:08 p.m. in New York, the worst performance in the 68-company S&P 500 Industrials Index. The company is already reeling from the massive data breach that compromised the private data of as many as 145 million Americans.

An independent security analyst found that the removed page had been altered to trick visitors into installing malware, according to a report on technology news website Ars Technica.

Interoute Said to Hire Advisers to Explore $2 Billion Sale

(Bloomberg) — Interoute Communications Ltd, a pan-European fiber carrier and cloud-services operator controlled by the Sandoz Family Foundation, has hired financial advisers to evaluate a sale, according to people with knowledge of the matter.

Interoute is working with Credit Suisse and Evercore Inc. to explore a deal dubbed “Project Nitro,” said the people, asking not to be identified because the talks are private. The London-based company could be valued in a range of seven to 10 times earnings before interest, tax, depreciation and amortization, or as much as 1.65 billion euros ($1.95 billion), the people said.

The company owns and operates one of the largest independent European grids with 72,400 fiber-route kilometers spanning 29 countries, according to a document viewed by Bloomberg News.


Representatives for Interoute, Credit Suisse and Evercore declined to comment.

Interoute, whose clients include BT Group Plc, Vodafone Group Plc and AT&T Inc., reported 2016 revenue of 727 million euros and Ebitda of 147 million euros. The company had Ebitda of 165 million euros for the 12 months ending in the second quarter.

The Sandoz Family Foundation owns 70 percent of Interoute, while Aleph Capital and Crestview Partners together own 30 percent. In 2015 Interoute completed the acquisition of U.K. phone carrier Easynet Ltd, its largest purchase to date, adding revenue of about 240 million euros.

Shopify CEO Rejects Short Seller Criticism, Calls Citron a Troll

(Bloomberg) — Shopify Inc. Chief Executive Officer Tobi Lutke called a short seller that targeted his company a “troll,” in his first public response since being targeted by Andrew Left’s Citron Research last week.

Left, who said he had taken a short position in the stock, published a report on Oct. 4 questioning the sustainability of the Canadian e-commerce company’s growth rate and calling its marketing tactics illegal. Though Wall Street analysts overwhelmingly stood by Shopify and rejected Left’s claims, the company’s shares fell 12 percent, its biggest one-day decline since listing in May 2015.

See also: Shopify Tumbles as Citron Calls Company ‘Get-Rich-Quick Scheme’


“Lots of people want me to address the short-selling troll that’s targeting,” Shopify, Lutke tweeted Tuesday. “Looking forward to next earnings calls to do so.”

Shopify helps small merchants set up online stores. Citron’s report alleges the vast majority of them are recruited by promoters promising the website is an easy way to make money without doing much work, and that eventually the company’s growth will crumble when these merchants fail.

Left immediately responded to Lutke calling him a troll when contacted by Bloomberg, saying it “shows his immaturity as a CEO.”

“The irony of an outfit like Citron accusing any business of being a get-rich-quick scheme should not be lost on anyone,” Lutke added.

NBA’s Knicks Set Uniform Patch Sponsorship With Squarespace

(Bloomberg) — Squarespace Inc., which sells tools to help people create and maintain websites, will have its logo on the uniform of the New York Knicks this season.

Financial terms of the agreement weren’t disclosed by either the company or team, which is the latest to take advantage of the National Basketball Association’s new three-year pilot program that allows clubs to put sponsor logos on their jerseys.

See also: GoDaddy Teams with Toronto Raptors Big Man to Reach Small Businesses


The patch sponsorships have sold for $5 million and up, depending on the team, the market and the sponsor. The defending champion Golden State Warriors got $20 million a year in their deal with Rakuten Inc., which also has a jersey sponsorship deal with Spanish soccer club FC Barcelona.

The NBA ads measure 2.5 inches by 2.5 inches and are worn on a player’s left shoulder.

See also: Squarespace Turns into Registrar with Launch of Squarespace Domains

Squarespace ads are ubiquitous on hip podcasts like “This American Life.” It also produced a Super Bowl ad featuring actor John Malkovich earlier this year. Their competitors include Wix Inc., Weebly Inc. and WordPress creator Automattic Inc.

The jersey will debut when the Knicks, who traded All-Star Carmelo Anthony to Oklahoma City during the offseason, open the regular season Oct. 19 against the Thunder in a nationally televised game.

See also: IBM Cloud Powers Toronto Raptors’ War Room Heading into NBA Trade Deadline

Shopify Tumbles as Citron Calls Company ‘Get-Rich-Quick Scheme’

(Bloomberg) — Shopify Inc. tumbled as much as 10 percent, the most in 11 months, after short-seller Citron Research issued a stinging rebuke of the Canadian e-commerce company, calling it a “get-rich-quick scheme.”

In tweets and videos, Citron said Ottawa-based Shopify is “not the company Wall Street has sold you” and “dirtier” than Herbalife Ltd., which has been targeted by regulators for deceptive business practices.

Andrew Left, the founder of Los Angeles-based Citron Research, said in an email he was shorting Shopify. Shopify didn’t immediately respond to requests for comment.


See also: Shopify CEO Defends Right to Host Controversial Client Breitbart

Shopify, which provides websites, payments and shipping for online merchants, has been one of the top technology stocks globally in recent years, gaining eight-fold from its initial public offering in May 2015. The shares fell 6.1 percent to C$136.78 in Toronto at 11:05 a.m., after falling as low as C$131.09.

Left, who’s perhaps best known for his unsparing assessments of Valeant Pharmaceuticals International Inc., urged the U.S. Federal Trade Commission to look at Shopify’s claims that members can quit their jobs and become millionaires. A post on Shopify’s Facebook page says that “2,700 people become millionaires each day,” and the company brands itself as “the online store for someday millionaires.”

In a $200 million settlement with nutrition company Herbalife, the FTC prohibited the company from claiming that “members can ‘quit their job’ or otherwise enjoy a lavish lifestyle.”

Left also accused Shopify of paying bloggers and influencers to promote the company without disclosing those relationships.

“This is not an $11-billion company,” Left said in a video posted to Citron’s website. “This needs to get completely looked at by the FTC and completely looked at by Wall Street.”