06
APR
2018

In the Headlines – April 6th, 2018

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Chinese Upstart Phone Maker Tecno Mobile Takes a “Think Local” Approach to Win Big in Africa

During his eight years in Ethiopia, Yu Weiguo has helped turn little-known Transsion Holdings, owner of the sleepy Chinese brand Tecno Mobile, into Africa’s leading mobile device maker. Having sold at least 200 million phones on the continent, he picked the outskirts of Addis Ababa, Ethiopia’s capital, as the site for a 280,000 square foot factory. It was supposed to be pumping out as many as 2 million phones a month by July, but Ethiopia’s ruling coalition declared a state of emergency in mid-February after the surprise resignation of Prime Minister Hailemariam Desalegn destabilized the rest of the autocratic regime. For Transsion, the fallout has been a lesson in risk. The company profits from China’s checkbook diplomacy in Africa but now faces the downside: public outcry against worsening inequality and repression. “There are many things that can’t be controlled in Africa,” Yu says. “Sometimes your plans don’t work.”
To say Transsion and its phones are little-known outside Africa is an understatement. Tecno has never cracked the top-10 smartphone brands in China and does not sell in the U.S. or Europe. Yet its parent accounts for 30% of African phone sales, compared with 22% for second-place Samsung, according to researcher Canalys. Reclusive founder Zhu Zhaojiang controls the private company via a string of related backers and funds, as well as some government-backed investment. Zhu, 44, has said he plans to go public at some point through a reverse merger with Shimge Pump Industry Group, a Chinese manufacturer of stainless steel pumps.

Transsion’s rise in Africa comes at a time when the continent is undergoing rapid transformation, owing significantly to the convergence of technology, trade, urbanization, and a huge swing in Chinese investment, including $60 billion since 2016. “What Transsion embodies is a kind of reading of the Chinese state, which beginning in the 1990s saw the opportunity that Africa represented,” says Howard French, author of China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa. “Transsion had a discipline and stick-to-itiveness that allowed it to achieve results.”

The company’s origins were humble. Founded in 2006, it built its African business on cheap hardware and software tailored for customers who had been underserved by companies from the U.S., Europe, and Japan. At Transsion’s first assembly line in Ethiopia, Yu and five other Chinese expats slapped together phones on the ground floor of a three-story villa in the center of town. “The place was very small, but we had everything we needed to produce a cellphone,” he recalls. Yu sold his first two thousand Tecno flip phones in bulk to local resellers. He charged at least 10% less than rivals in the $20 to $50 range, according to analysts’ estimates, and promised to handle customer service, including repairs. Within a few months, as demand hit the tens of thousands, he moved production from the villa to a proper factory and began focusing on custom features.

Transsion added slots for multiple SIM cards and made it easier for customers to toggle between wireless networks, saving money. Chinese engineers developed camera software that could better register darker complexions. A lack of electricity infrastructure shifted the focus toward longer battery life. “These are what you call micro-innovations,” says Arif Chowdhury, an early Transsion staffer who now oversees expansion in Latin America, India, and Southeast Asia. “What made us different was that, from early on, we made a product just for the Africa market.” The company says it has about 5,000 staffers in Africa, and Chowdhury says more than 90% of them are locals.

The company expanded across Africa and into higher-end models. Today, it is no longer perceived as only a knockoff. In the Tanzanian city of Moshi, Tecno owner Nicodemas Gobre says he spent $160 for the Camon CX’s strong camera, battery life, and air of trendiness. Now 1 in 6 people on the continent is a customer, and Transsion’s success has helped draw in Huawei and Xiaomi, China’s star domestic phone brands. “Tecno is changing the narrative that Africans cannot afford smartphones,” says Mbwana Alliy, a venture capitalist whose Savannah Fund focuses on local internet startups. “Facebook, WhatsApp, Instagram—all those apps owe a lot of their success to Tecno,” he says.

In Ethiopia it is less clear if Transsion will benefit from growing demand for representation among the country’s largest ethnic groups, the Oromo and Amhara, or whether the company—having built its business under the oppressive regime—will suffer from perceptions of coziness. “I find it quite incredible how China agencies, investors, and governments continue to promote Ethiopia as an investment destination,” says Gamechu Ibrahim, an activist in Oromia. “Think twice.” Yu does not see it that way. He argues that Transsion is bringing mobile and internet connection to the country and hiring and training locals, which all helps economic growth. “Political stability is a huge concern,” he says, but he’s optimistic. He says Transsion is investing for the long term, and the new Addis Ababa factory could be running by August, regardless of who’s running the country.

Citations

  1. https://bloom.bg/2GzIVu3 – BusinessWeek
  2. https://on.ft.com/2GSH6pL – Financial Times

Augmented Reality Changes the Game for Oil and Gas Companies

Replacing parts of an outdated Baker Hughes turbine at a petrochemical plant in Johor Bahru, Malaysia, is tedious and time consuming. The chore was supposed to halt operations at the facility for at least 10 days and cost $50,000 to fly a specialized U.S. work crew about 9,000 miles. Instead, once the equipment upgrade began last year, it took only five days and zero air travel—just an on-site technician wearing a helmet camera and a few American engineers supervising remotely. They watched and coached the local crew via the helmet from a Baker Hughes site in Pomona, Calif.

Augmented-reality (AR) headsets, which overlay digital images on a real-world field of vision, are driving advances in industrial technology. While the likes of Apple, Amazon.com, Google, and Microsoft race to develop mainstream AR consumer gadgets in the next couple of years, they have been outpaced by oil companies looking for ways to cut costs.
Some are simply buying the goggles and building custom software; others are investing directly in AR startups; still others are making the hardware as well. Baker Hughes, a General Electric Co. subsidiary, calls its rig a Smart Helmet. “Traditionally I would have to pay for two people’s travel, two people’s accommodations, and so forth to visit the customer’s site to do the mentoring,” says John McMillan, a regional repairs chief at the company whose team uses the helmet regularly. “It’s saved me a lot.”

Baker Hughes co-created its AR headset with Italian developer VRMedia S.r.l. and wrote its own software. BP Plc says it is using AR glasses to bring remote expertise to sites across the U.S. Startup RealWear Inc. says it has signed two dozen other energy companies, including Royal Dutch Shell Plc and Exxon Mobil Corp., to test its $2,000 headset. Recently, AR software maker Upskill announced a fresh $17 million in venture funding from Boeing Co., Cisco Systems Inc., and other investors.

Remote gear can help experienced workers stay on the job even if they can no longer handle the travel or other physical demands of rig maintenance. “With these technologies, it’s more about the people than the hardware,” says Shell Executive Vice President Alisa Choong. Janette Marx, chief operating officer for industry recruiter Airswift, says remote work is also a good sales pitch to skilled technicians who might be lured by cushier gigs in Silicon Valley.

The bigger prize for oil companies is reduced downtime for equipment. Each day offline for a typical 200,000-barrel-a-day refinery can mean almost $12 million in lost revenue. Offshore oil and gas facilities often halt operations while waiting to fly specialists in by helicopter and, according to industry analyst Kimberlite International Oilfield Research, shut down 27 days a year on average. Little wonder, then, that analyst ABI Research estimates energy and utility companies’ annual spending on AR glasses and related technology will reach $18 billion in 2022, among the most of any industry.

Remote AR work does not always go smoothly. Oil rigs often lack reliable wireless networks, and many headsets do not yet meet the strict standards for areas near hazardous materials or high-risk jobs. Under certain conditions, for example, the headsets might emit dangerous sparks. That is one reason many of the oil companies’ pilot programs remain just that for now. Baker Hughes has not had to worry about those issues yet, says John Westerheide, director of emerging technologies. In Malaysia, engineers were able to view equipment, send images to the headset screen, and talk directly to the on-site workers with few hiccups. “The way that we currently go to work,” Westerheide says, “that’s going to become much more virtual, interactive, and collaborative.”

Citations

  1. https://bloom.bg/2I63uLI – Bloomberg
  2. https://bit.ly/2pNRbNF – OilPrice.com

The Good News Is . . .

Good News

  • The number of Americans filing for unemployment benefits fell to more than a 45-year low last week, suggesting the economy remains strong despite signs of a slowdown in the first quarter. Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 215,000 for the week ended March 24, the lowest level since January 1973, the Labor Department said. Claims have now been below the 300,000 threshold, which is associated with a strong labor market, for 158 straight weeks. Data for the prior week were revised to show 2,000 fewer claims received than previously reported.
  • Walgreens Boots Alliance Inc., the largest retail pharmacy across the U.S. and Europe, reported earnings of $1.73 per share, an increase of 26.5% over year-earlier earnings of $1.36 per share. The firm’s earnings topped the consensus estimate of analysts by $0.18. The company reported revenues of $33.0 billion, an increase of 12.1%. Management attributed the results to growth in its retail pharmacy market share, improved operating margins and the positive impact from recent federal tax cuts.
  • Concho Resources announced it will purchase RSP Permian for $9.5 billion which will make it the biggest shale oil and natural gas producer in the Permian Basin, the oil-rich area of Texas. With 27 rigs, the company said it would have the area’s largest drilling and hydraulic fracturing operation and a reach of 640,000 acres. Producers face rising expenses as competition for service companies that do most of the exploration becomes more vigorous. There is also a shortage of field workers and truck drivers, in part because many employees left the oil business for good after they were laid off when oil prices collapsed four years ago.

Citations

    1. https://reut.rs/2GmV2aG – Reuters
    2. http://cnb.cx/2lwnm3s – CNBC
    3. https://bit.ly/2GnVVjd – Walgreens Boots Alliance Inc.
    4. https://nyti.ms/2pR2ioe – NY Times Dealbook

Planning Tips

Guide to Understanding IRA Rollover Rules

You may have thought about rolling your traditional IRAs from one financial institution to another to achieve higher returns, more investment selections or better service. If you roll over your traditional IRA, there are some common mistakes you should avoid. IRA rules can be tricky and some have changed over the years, so you need to be careful, otherwise you could pay income tax and penalties. Below is a brief guide to IRA rollover rules and how to avoid breaking them. Be sure to consult with your financial advisor if you are considering an IRA rollover.
The 60-Day Rule – After you receive the funds from your IRA, you have 60 days to complete the rollover to another IRA. Note that is 60 days, not two months. If you do not complete the rollover within the time allowed—or do not receive a waiver or extension of the 60-day period from the Internal Revenue Service (IRS)—the amount will be treated as ordinary income by the IRS. That means you must include the amount as income on your tax return, and any taxable amounts will be taxed at your current, ordinary income tax rate. Plus, if you were not 59.5 years old when the distribution occurred, you will face a 10% penalty on the withdrawal.

One-Year Waiting Rule – For one year after you distribute assets from your IRA and roll over any part of that amount, you cannot make another tax-free rollover of any IRA. The downside to this is some banks may charge to issue a check to another bank of custodian when you are moving your IRA. This limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. Therefore, you can roll over more than one distribution from the same qualified plan, 403(b) or 457(b) account within a year. This one-year limit also does not apply to rollovers from Traditional IRAs to Roth IRAs (i.e. Roth conversions.)

RMDs Not Eligible for Rollover – You are allowed to make tax-free rollovers from your IRAs at any age, but if you are 70.5 or older, you cannot roll over your annual required minimum distribution (RMD) because it would be considered an excess contribution. If you are required to take an RMD each year, be sure to remove the current year’s RMD amount from your IRA before implementing the rollover.

Same Property Rule – Your rollover from one IRA to another IRA must consist of the same property. This means you cannot take cash distributions from your IRA, purchase other assets with the cash, then roll over those assets into a new (or the same) IRA. Should this occur, the IRS would consider the cash distribution from the IRA as ordinary income.
When Not to Use a Rollover – If you are simply moving your IRA from one financial institution to another, and you do not need to use the funds, you should consider using the transfer method instead of a rollover. A transfer is non-reportable and can be done an unlimited number of times during any period. A transfer removes the withdrawal process of the rollover, which ensures the assets go directly to their end account and investors remove the risk associated with the 60-day rule. In many cases, a direct transfer is the most optimal solution to move funds from one IRA to another.

Citations

    1. https://bit.ly/2c7qx8K – IRS
    2. https://bit.ly/2rDQkkr – TheBalance.com
    3. https://bit.ly/2pP8Gx3 – Investopedia
    4. https://bit.ly/2pRLNrM – RothIRA.com
    5. https://bit.ly/2E3tMfm – Bankrate.com
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