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CEO Daily: Wednesday 10th August

Good morning.


Delta Airlines still isn’t back to normal at the time of writing, after a computer crash Monday forced cancellation of 1600 flights over two days. The company said about 90 more cancellations were expected this morning, before normal operations resume around midday.


The airline company initially blamed Georgia Power for its problem, but later concluded it was the malfunction of a “power control module” that caused a surge to the company’s main computer network. “When this happened, critical systems and network equipment didn’t switch over to backups,” Chief Operating Officer Gil West said. “Other systems did. And now we are seeing instability in these systems.”


Got that? It is every modern CEOs worst nightmare – an inexplicable breakdown of computer systems that brings the whole company to a crashing halt. CEO Ed Bastian, who assumed office in May, took to Twitter twice to abjectly apologize for the mess, saying this is “not who we are.” Today, I’m afraid, it is.


Meanwhile, Donald Trump, who abandoned his teleprompter even faster than I expected, is not apologizing for his comment yesterday about “second amendment people” stopping Hillary Clinton. His supporters are blaming the media for misconstruing the remark as a reference to assassination, and say he was simply referring to the political power of second amendment supporters. We’ll let you do your own construing, by watching here. The brouhaha overshadowed a release of new emails showing the tight relations between the Clinton Foundation and the State Department during Clinton’s tenure as Secretary of State.


And Team USA brought in more gold yesterday, as Michael Phelps became the most decorated Olympian ever, with 21 gold medals, while young Katie Ledecky, who may some day surpass him, won her third.


More below.


Alan Murray

Top News

Disney Prepares to Stream ESPN

Disney said it will pay $1 billion for 33% of BAMTech, the streaming platform that Major League Baseball has been building for the decade and a half to handle both its own digital delivery needs and those of other providers. Disney also gets an option to take a controlling stake by 2023. The move is a clear response to the threat from cord-cutting to its established cable TV business, illustrated again yesterday by stagnant operating profit at the division in the second quarter. Overall profit and revenue beat expectations thanks to the group’s studio and theme parks divisions, but the shares still fell in after-hours trading. Fortune

Papa’s Medicine for Valeant

Valeant Pharmaceuticals’ shares rose 26% after new CEO Joseph Papa upheld the company’s guidance for the first of the year despite the battering it has taken from regulators and commercial partners in the wake of its governance scandal. Papa said the company will sell billions of dollars worth of non-core assets to strengthen its balance sheet after the breakneck expansion of recent years, but said it won’t sell any core businesses. Other elements of house-cleaning included the replacement of the company’s top lawyer and head of PR. Papa also stopped short of reversing Valeant’s controversial drug price hikes, although he did promise to look at the company’s rebate structure. Fortune


• Stocks Hit 12-Month High 

World stock markets hit their highest level in a year after a weak report on U.S. productivity appeared to kill the chance of an interest rate hike from the Federal Reserve in September. Non-farm productivity fell for the third straight quarter for the first time since 1979, as businesses continue to hold back from investing. That suggests at first sight that the current rally has more to do with liquidity conditions (55 central banks have eased them since the start of 2015) than with confidence in durable wealth creation. Many markets have come off a little overnight over signs of weakness in the oil markets, but Wall Street’s famous ‘Fear Gauge’, the S&P VIX index, is at its lowest since 2007. Reuters

The Oil Price War Is Still On

Now it gets serious. Both Big Oil and shale producers have slashed costs, retreated from marginal projects, and the shale industry has also started to clean house through the bankruptcy courts. Having adjusted to a new low-price environment, the U.S. has even started to add drilling rigs. As a result, the government just raised its forecast for domestic oil production this year to an average 8.31 million barrels a day. Trouble is, OPEC producers still often have lower costs, and Saudi Arabia just pumped a record 10.67 million b/d in July. Iran remains over 1 million b/d short of its 5 million target. And consumers still aren’t using as much of the stuff as expected (U.S. crude stockpiles rose again last week). In short, the oil price war isn’t over, even if an upbeat demand forecast from OPEC this morning has helped prices back above $42.50 a barrel.   Bloomberg



Around the Water Cooler

Clouds Over SunPower’s Future

Oil isn’t the only energy source where oversupply is an ever-present threat. SunPower said yesterday it would lay off 15% of its workforce—1,200 jobs in total–and close its assembly plant for solar panels in the Philippines in response to the ongoing glut. It also forecast that losses would widen to as much as $200 million in its fiscal year ending September 2017, from an estimated $75 to $125 million this year. CEO Tom Werner said he would cut his compensation to $1 for the last three months of the current one. SunPower’s problems include sustained pressure on the pricing of long-term power purchase contracts and higher risk premiums demanded by investors in the wake of the SunEdison bankruptcy. Its shares fell over 20% in after-hours trading. Fortune

Another Tesla Autopilot Incident – This Time in China

Tesla’s assisted-driving feature is back in the spotlight again after one of its cars crashed in China while in ‘autopilot’ mode. The driver, a 33 year-old programmer named Luo Zhen, said his car hit a vehicle parked on the side of the road, sheering off the latter’s side mirror and scraping both cars. No-one was injured. Tesla countered that Zhen had failed to abide by the company’s recommendations for using the feature. Reuters cited a number of Tesla drivers in China who alleged that Tesla’s sales force there had exaggerated the feature’s ability to ‘self-drive’ the car. The term “Zidong jiashi”, which translates as “self-driving” and is the term used for an airliner’s autopilot, features heavily on the company’s portal in China. Fortune

Facebook’s War on Adblockers

Facebook said Tuesday that it was going to start sneaking its ads past the ad blockers’ systems, to ensure they end up in front of its users. From Wednesday, it will disguise the tell-tale technical signs that the ads on its site are ads, so the blockers cannot distinguish them from other Facebook content. However, the social network also acknowledged the main reason why people use ad-blockers in the first place—ads can be annoying and irrelevant—by giving its users new tools to control which ads they see. The social network said has made its ad preferences function easier to use, so people no longer have to see ads about unwanted categories of products or services.  Fortune

How to Succeed in the Real Estate Business

Britain’s richest man, Gerald Cavendish Grosvenor, 6th Duke of Westminster, has died aged 64, leaving a fortune valued at nearly $11 billion to his son Hugh. Most of that comes from his land holdings in the swanky London quarters of Belgravia and Mayfair. It’s not clear whether the 7th Duke will also inherit the command of the Queen’s Own Yeomanry regiment in Britain’s reserve army that his father led. Although his record as a landlord was a solid one, His Grace never suffered from any illusions about his business acumen. The Financial Times once asked him what advice he would give to young entrepreneurs. “Make sure they have an ancestor who was a very close friend of William the Conqueror,” came the reply. FT, subscription required