By Alan Murray and Geoffrey Smith
October 19, 2016

Good morning.

IBM, Walmart and Tsinghua University this morning are announcing a new program that will use blockchain technology to track food that is transported and sold to consumers across China. Food safety is a big issue in China these days, and the program will allow digital tracking of food from suppliers to store shelves and ultimately to consumers, making it much easier to quickly find and address contamination. You can read more about the program here.

The blockchain tracking collaboration is just one of a number of innovative programs that IBM Chief Ginni Rometty talked with me about yesterday while visiting Fortune’s Most Powerful Women Summit in California. The IBM chief has been a regular at this annual gathering, providing updates on her effort to transform Big Blue from a server-based business to a cloud, data and analytics company – a “cognitive” company, as she calls it. It’s been a tough transition, with revenues falling for eighteen straight quarters. But the latest results, reported Monday, show the strategy is starting to yield results. (You can read what analysts have to say about Monday’s earnings report here.)

Among the most exciting new projects she discussed is a recently announced program with Quest Diagnostics that will provide cancer doctors and patients across the country with access to Watson’s vast genomics databases, to improve cancer diagnoses and help patients get the benefit of the latest developments in the rapidly evolving field of cancer research. You can read more about that program here.

Rometty told the MPW crowd that calling such programs “artificial intelligence” is a misnomer, since they enhance, rather than replace, human decision making. But she acknowledged that rapid advances in cognitive computing skills likely will eliminate many existing jobs. And she echoed the call, heard in this column from other CEOs, for business leaders to do more to provide education and training in math and science to support this transition.

“If you step back and look at technology from every era, it has displaced jobs but also created a lot of jobs,” Rometty said. “One day we are going to look back, and whatever this era is called, it is going to put a premium on math and science.” You can read and watch Rometty’s comments yesterday here.

Also this morning, Fortune is publishing a fascinating new account of how Steve Jobs made his first billion. It wasn’t at Apple; it was at Pixar, and this excerpt from a new book by former Pixar CFO Lawrence Levy, which appears in the November issue of our magazine, offers a revealing new look at Jobs’ controversial role in the saga.

More news below.

Alan Murray

Top News

China’s GDP: a Masterpiece of Statistical Botox

The world’s most important fake statistic, China’s annual gross domestic product growth, held steady for the third straight quarter at 6.7% in the three months to September. It’s taken the reflation of a real estate bubble, a 12.5% rise in government spending and a weaker currency to engineer a number that saves face for the country’s economic planners. If that sounds too cynical, ask yourself how likely it is that any economic indicator would flatline given the vast upheavals in the individual sectors that make up the economy, and given the volatility in capital flows during that time. Some components of the data do allow some optimism: consumption accounted for 71% of GDP growth, up from an average 66.4% in 2015. Equally, as we said last week, the manufacturing sector has dragged itself out of deflation. But most judgments beyond that need to be made with crossed fingers and/or a fiddling of rosary beads.

Ecuador Cuts Off Assange’s Internet

Spot the difference in behavior when flagrant interference in the U.S. electoral process isn’t protected by a nuclear weapons arsenal. Wikileaks confirmed that it was Ecuador that had cut off the internet access of its founder Julian Assange after the latest dump of hacked e-mails designed to embarrass Democratic nominee Hillary Clinton. Assange has been holed up in Ecuador’s embassy in London since 2012. In separate news, Reuters reported that Czech police detained a Russian wanted by the FBI in connection with hacking attacks in the U.S., although it’s not clear whether there is any link to either Wikileaks or the repeated hacking attacks on accounts linked to Democratic Party officials and helpers.

Goldman Is Back

Goldman Sachs blew away analysts’ forecasts with its third-quarter earnings statement, fleshing out a strong quarter for Wall Street’s biggest. Revenue from trading bonds, currencies and commodities jumped, more than offsetting continued weakness in areas such as the IPO market. Overall trading revenue rose 17% to $3.75 billion. Volatility in the wake of Britain’s EU referendum contributed to that improvement, and the signs are that such volatility hasn’t run its course yet. The 58% rise in net profit was helped by losing a drag effect from litigation costs, but kept in check by a further rise in compensation and other costs. Bank of America, Citgroup and JPMorgan Chase all benefited from similar trends in their quarterly reports over the last week. Morgan Stanley is due to report today.

Intel Finds There’s No Pleasing Some People

You know you’re out of luck when you beat the street forecast on earnings and your stock still falls. Intel shares tumbled 4.9% in after-hours trading despite the company reporting an unexpectedly strong 9% rise in revenue, and an even-better 21% rise in adjusted earnings per share. The trouble is, the growth came in the PC business, an area that the market has written off as ex-growth. Even Intel expects that trend to reassert itself in the fourth quarter as customers run down inventory. Meanwhile, the company said revenue from chips for data centers (the real growth business) rose 10% to $4.5 billion: its best-ever quarter, but less than Wall Street had expected. CEO Brian Krzanich cut his forecasts for full-year growth in this segment to just under 10%, having earlier promised something north of that.

Around the Water Cooler

Starbucks Goes Large in China

Starbucks named its first chief executive officer for China and said it plans to more than double its store count in that country to 5,000 by 2021 (it currently has 2,300 outlets there, spread across 100 cities). The world’s biggest coffee chain promoted Belinda Wong to the title of CEO of Starbucks China. Wong was already effectively in charge of operations there. Among other things, Wong will oversee the opening of Starbucks’ first international Roastery and Reserve Tasting Room in Shanghai in 2017. But China remains anything but a surefire success for foreign businesses, even in the still-growing consumer-focused areas. French supermarket Carrefour said sales fell 7.8% on the year in the third quarter after it was forced to restructure its operations there (its overall numbers were rescued by an eye-catching 14% rise in sales in Brazil, of all places). 


The parallels between the scandals at Wells Fargo and VW continue to multiply. Just as VW CEO Martin Winterkorn was warned of the scale of his company’s problem well before it became public, so it transpires that a whistleblower wrote to Wells CEO John Stumpf back in 2007 detailing the extent of fraudulent account openings at the bank. CNN Money obtained a letter dated to that year from a staff member who won a federal whistleblower retaliation lawsuit against the company in 2008, warning that “the activity is widespread and so highly encouraged that it has become a normal sales practice.” As with Winterkorn, it’s going to be hard to prove that the ever-busy Stumpf actually read the letter. But it’s hard to believe that he was ignorant of the lawsuit, in the same way that it’s hard to believe that Winterkorn had no idea why the EPA was withholding approval for its new diesel models. Separately, Stumpf yesterday resigned his seats on the boards of Chevron and Target. 

Howzat! Facebook’s New Strategy for Cracking India

Thwarted by network operators and other vested interests in its attempt to grow in India with its “Free Basics” program, Facebook’s Plan B is taking it into the unfamiliar territory of…cricket. The Indian Cricket Board said both Facebook and Twitter had expressed interest in bidding for the rights to livestream the Indian Premier League Twenty20 tournament. It’s hard to overstate the potential impact for the social networks’ presence in the world’s fastest growing major economy. The place occupied by cricket, and by the IPL in particular, in the consciousness of the average Indian sports fan is roughly equivalent to the one occupied by the NFL, MLB and NBA in his or her American counterpart. Bids for the rights are due by Oct. 25.

• Saudi Arabia Calls a (Timely) End to Oil Price Downturn

Saudi Arabian Oil Minister Khalid al-Falih said the “considerable downturn” in the crude oil market was over, telling a conference in London that “we are seeing supply and demand fundamentals continue to improve on their own accord.” Quite by chance, Saudi Arabia is also soliciting bids for an enormous bond issue right now, and reassurances of that kind will be music to the ears of the investors who have placed a reported $50 billion or more of bids despite a yawning budget deficit and other signs that the Desert Kingdom is struggling to keep its currency peg to the dollar. They’ll be even more reassured if al-Falih sticks to that line once the bond is priced. Crude futures are back testing 15-month highs around $51 a barrel on the news.

Summaries by Geoffrey Smith @geoffreytsmith


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