Good morning from Davos.
At 7 a.m., I was standing at the back of a long line in near-zero weather, waiting to get through security and wondering if it was worth the effort to start my day so early (especially after visiting Anthony Scaramucci’s fine wine party the night before.)
Turned out, it was. The breakfast discussion on artificial intelligence, hosted by McKinsey, included Mustafa Suleyman, co-founder of DeepMind; David Kenny, chief of IBM Watson; Microsoft CEO Satya Nadella; and Dow CEO Andrew Liveris. Artificial intelligence is the hot topic at this year’s gathering, and the panel provided a sharp focus on how businesses should be thinking about this rapidly developing technology.
Two points to emphasize:
First, as reported here before, the creation of general intelligence that mimics the human brain is still a long way off. “I’m pretty sure it is possible,” said Suleyman. “It’s just a question of the timetable. Probably six or seven decades.”
Second, in the meantime, artificial intelligence is not going to replace humans, but rather augment them. The key for business people is to understand that artificial intelligence is not an extension of their IT efforts or their digital efforts, but rather, in Kenny’s words, “fundamental to the most important decisions that you make. Anyone in your company who makes important decisions will need to understand this viscerally” to compete in the years ahead.
All on the panel agreed that this technological change would create more jobs than it would eliminate. “There will be more employment, just different,” said Liveris. But they acknowledged two serious societal challenges: first, educating and training workers to take advantage of the change; and second, assuring the benefits of productivity gains are widely shared.
Nadella was particularly compelling on the second point. We need technology breakthroughs to boost productivity and create a “surplus” to address society’s greatest problems, he said. But then “we have to deal with the real issue of equitable distribution of that surplus.” The benefits of technology can’t go only to the owners of capital and the most highly skilled, as they have in recent years. “We’ve got somehow to get this new formula where both the return on capital and the return on labor come together… We need a new social contract.”
Separately, IBM CEO Ginni Rometty in Davos yesterday released her company’s “principles for transparency and trust” in the cognitive (IBM’s term for AI) era. You can read them here. And you can find more of Fortune’s Davos coverage here.
More news below.
• Qualcomm Gets a Parting Shot From Obama’s FTC
The Federal Trade Commission sued chipmaker Qualcomm for allegedly using illegal tactics to maintain an effective monopoly on ‘baseband processors’, an essential component of mobile phones. The FTC accused it of forcing phone makers to excessive patent royalties when they use competitors’ chips, specifically citing a deal with Apple that ran from 2011-2016. Qualcomm said the suit was flawed and based on “significant misconceptions.” The suit may not survive a reshuffle at the FTC under the new administration. The lone Republican commissioner, Maureen Ohlhausen, dissented from the decision to file it. Ohlhausen is tipped by many to be the next head of the FTC.
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• U.S. Business Scorns Xi’s Davos Claims
China as the world’s standard-bearer for free trade and globalization? Hardly, according to U.S. businesses that actually trade there. Over 80% of the American Chamber of Commerce’s members said in an annual survey they felt less welcome now in China than they did in the past, and have little confidence in repeated promises to open its domestic markets. They cited “discriminatory barriers” and investment restrictions. The share of businesses identifying China as a top-three global investment priority fell to a record low of 56% in AmCham’s annual survey, compared to 78% as recently as 2012. Over 60% had “little or no confidence” in Beijing’s promise to open its market further in the next three years.
• Bayer Reassures Trump on U.S. Jobs
Germany’s Bayer made its pitch to the Trump Transition team, promising to create at least 3,000 new high-tech jobs and spend $8 billion on Research and Development in the U.S. after it completes its $66 billion deal for Monsanto. That deal still needs regulatory clearance, something that gives the administration considerable leverage over the German company. Farmers have complained that consolidation in the sector (notably the Dow-Dupont and ChemChina-Syngenta mergers) will lead to higher prices for seeds and pesticides. Bayer had flagged possible layoffs in a September conference call, and shareholders who were already disappointed at the price being paid will want to know how much of the promised $1.5 billion in cost cuts will now be endangered.
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• From Bad to Worse at Pearson
Shares in Pearson plunged 26% to their lowest levels since the 2008 panic, after the company issued yet another profit warning, abandoned its guidance for 2018 and said it was looking to sell its 47% stake in publishing business Random House. Revenue at its crucial higher education development fell 18% last year (and by 30% in the North American market), underlining how traditional print media are declining faster than the company had anticipated. The stock market wasn’t reassured by its pledge to accelerate its transition to digital publishing.
Around the Water Cooler
• Carlos Slim to Launch U.S. TV Channel
Teleom tycoon Carlos Slim said he’ll launch a new TV station “made by Mexicans, for Mexicans” in the U.S. later this year. The move is a clear threat Univision, currently the largest Spanish-language TV station in the country, but also appears aimed at out-maneuvering attempts by established players to keep him out of the TV market in his home country. The combined U.S. and Mexican audience is estimated at around 175 million viewers with an aggregate purchasing power of $2 trillion, according to the Financial Times. It’ll be interesting, to say the least, to see the editorial stance of its news programming.
• Barbie Gets a New Female Boss From Google
Mattel, the company that makes Barbie dolls and Fisher-Price toys, has hired Google Americas President Margaret Georgiadis as its new CEO. She’ll take over next month, relieving stopgap CEO Christopher Sinclair. Sinclair has steadied the ship at Mattel – notably by expanding the core Barbie range – but the company still faces stiff longer-term challenges for growth, given that toys, like everything else, are moving from the physical world to the electronic and virtual one.
• ExxonMobil Joins the Permian Deal Rush
The deals continue to come thick and fast in Texas. ExxonMobil said it would pay the Bass family of Fort Worth an initial $5.6 billion for acreage in the Permian basin. Depending on how the prospects perform, it could pay up to another $1 billion after 2020. It’s the biggest investment in shale by the U.S.’s largest oil company since it bought XTO Energy in 2009, and may signal an important shift in strategy under new CEO Darren Woods. The company said most of the wells to be drilled on the land should provide attractive returns at crude prices of anything over $40 a barrel.
• HPE Buys a Horse With a Lump on Its Head
HPE agreed to pay $650 million for data technology company SimpliVity, a company that had boasted a ‘unicorn’ valuation of $1 billion after its last funding round in 2015. SimpliVity, which makes “hyperconverged” hardware that combines a computer server and storage with networking, had included Kleiner Perkins Caufield & Byers, Accel Partners, Meritech and Charles River Ventures among its backers. They had reportedly been pushing for a price of up to $3.9 billion as recently as November.
Summaries by Geoffrey Smith Geoffrey.firstname.lastname@example.org;