January 31, 2021: r/wallstreetbets, Open Source 5G, Agora Acquisition

Hello Interconnected Readers:

Last week, the world was enthralled by the battle between the subreddit, r/WallStreetBets, and Wall Street itself. I really do mean the world. I saw WeChat posts, tweets in different languages, and even bonded with my dad over it, who lives in Canada. (He signed up for a Reddit account because of all this; he is in his early 60s.)

[If you’d like to skip ahead to the six news stories and commentaries – three from English language sources, three from Chinese language sources -- here are this issue’s items:

• “After Huawei, Europe’s telcos want ‘open’ 5G networks” (English Source: Politico EU)
• “China's Huawei in talks to sell premium smartphone brands P and Mate” (English Source: Reuters)
• “China Trucking Startup Eyes $1 Billion U.S. IPO After Profit” (English Source: Bloomberg)
• “Agora acquires Easemob, one step closer to becoming Twilio” (Chinese Source: 36Kr)
• “Why does the capital market trust in Jia Yueting again?” (Chinese Source: China Venture)
• “ASML delivered 258 lithography machines last year, none of them went to SMIC, so difficult!” (Chinese Source: AI Frontier)]

There have been a lot of commentaries and opinions shared about what this all means by people who know the stock market better than I do. There’s also a lot of noise around who is “right” and who is “wrong”, who should be protected and who should be punished. For anyone who is still catching up on this story, I’d recommend two things to read and listen:

• WSJ’s exclusive profile of the redditor who began buying GameStop in June 2019 and became the de-facto leader of the WSB movement
• The first half of the All-In podcast’s new episode, where Chamath Palihapitiya provided a good rundown of the origin of r/WallStreetBets

At the time of this writing, r/WallStreetBets has 7 million “degenerates.” I have no doubt that number will reach 10 million by the end of next week. Personally, I’m sympathetic to the cause that WSB embodies. I graduated from college in 2008, just a few months before Lehman Brothers collapsed. That timing colored my first career choice -- joining Obama’s first campaign and jumping into government service to try to fix things -- and my attitude towards money and investing -- money was bad and investing was scary.

I have changed quite a lot since then with regard to my own relationship with politics, money, investing, and many other things -- much of that is reflected in this newsletter. Unfortunately, the rigged rules of the game haven’t.

We little guys and gals don’t need “protection.” We just need a fair shot with fair rules to play this game called “life.”

Kevin

Before you read on, please check out last week's deep dive post: "What Does Agora ($API) Do?"

“After Huawei, Europe’s telcos want ‘open’ 5G networks” (English Source: Politico)

My Thoughts: this official support coming from the four largest European telcos (Deutsche Telekom, Telefónica, Vodafone and Orange) for OpenRAN, an open source 5G network project, is significant. (See my previous post where I discussed OpenRAN here.) The 5G landscape has an antitrust problem. Even though Huawei has been pushed out of many European countries due to geopolitical and security concerns, having a Ericsson-plus-Nokia duopoly isn’t healthy either. Ericsson doesn't appear too happy with this endorsement of OpenRAN; Nokia appears more amenable as the smaller player. With something as fundamental and infrastructural as 5G network, open source is the right development model, not end-to-end control by corporations.

“China's Huawei in talks to sell premium smartphone brands P and Mate” (English Source: Reuters)

My Thoughts: this rumored sale of Huawei’s higher end smartphones was vigorously denied by Huawei itself. The likelihood of this sale happening could be high, because the earlier sale of Huawei’s low end smartphone brand, Honor, seems to have accomplished its goal of bypassing US sanctions to stay alive. Honor, under new ownership, now has partnerships with Qualcomm and Intel, with plans to launch a new phone.

“China Trucking Startup Eyes $1 Billion U.S. IPO After Profit” (English Source: Bloomberg)

My Thoughts: also a rumor but published on Bloomberg nonetheless, China’s “Uber for trucks”, Manbang, may be filing for a US IPO. Interestingly, Manbang is the result of a merger between two rival companies, Huochebang and Yunmanman, which you see a lot of in China’s hyper-competitive marketplace tech landscape with no antitrust guardrails. The other high-profile example is the merger of Meituan and Dianping. If this IPO does occur, it will be yet another example of Wall Street bankers wanting to do business with Chinese companies and these companies willing to take the “delisting” risks -- a topic I did a deep dive on a few months ago in “Wall Street Blunts the ‘Delisting’ Hype.”

“Agora acquires Easemob, one step closer to becoming Twilio” (Chinese Source: 36Kr)

My thoughts: last week, I wrote an in-depth analysis on the company, Agora, but missed the announcement of its acquisition of Easemob (sorry about that). Easemob is a Chinese company that provides an API platform for text messaging, which seems to complement Agora’s audio and video offering well. Easemob was also founded around the same time as Agora, but has not grown as much, partly due to the messaging space being more competitive with a lower technology moat. This 36Kr article provides some good analysis on why Agora acquired Easemob as it tries to compete with Twilio. One macro observation worth highlighting is that China’s own enterprise technology and SaaS sector is close to 10 years old, thus this acquisition could be a case of a larger wave of consolidation that will happen in the next few years.

“Why does the capital market trust in Jia Yueting again?” (Chinese Source: China Venture)

My thoughts: Jia Yueting, one of the most notorious figures in China’s tech scene, may be getting a second life. After going bankrupt and defrauding his creditors with an overpromised, grossly under-delivered Le.com, his electric vehicle idea, Faraday, may be going public via a SPAC. With the EV market getting hotter every day, Faraday seems to have attracted an unsophisticated source of cheap capital. How unsophisticated? The sponsors of Faraday’s SPAC partner, Property Solutions Acquisition Corp, are New York real estate developers, with no discernible expertise in electric vehicles, car manufacturing, battery technology or really any technology.

“ASML delivered 258 lithography machines last year, none of them went to SMIC, so difficult!” (Chinese Source: AI Frontier)

My thoughts: ASML, the world’s leading lithography equipment maker, released its earnings for Q4 2020 and the entire last year. While business was booming, it looks like China’s “national champion” semiconductor foundry, SMIC, was not able to acquire any of ASML’s products. Lithography is a critical piece of the puzzle in advanced semiconductor production. The political pressure that the Trump administration has put on ASML via the Dutch government looks to be effective in preventing China from accessing that technology. I don’t see this changing under the Biden administration.

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