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CEO Daily: Wednesday 26th October

October 26, 2016, 10:47 AM UTC

Good morning.

Capital One announced this week it is partnering with blockchain startup Gem to use the digital ledger technology to track claims for medical patients. I mention this not because it’s the most important story of the day, but because the notion of banks using the blockchain to address the nightmare that is our health payments system is just another sign of how quickly technology is changing the fundamentals of modern business.

And probably no industry faces more profound change than healthcare. Whether it is sensors tracking your vital statistics, or IBM Watson providing assistance in clinical diagnoses, or massive gene data providing new insights in personalized disease treatment, or the blockchain piercing the payments system, health care stands at the cusp of a transformation that my colleague Cliff Leaf says is the 21st century version of the discovery of penicillin. “Near simultaneous advances across an enormous spectrum of new tech – deep learning, big-data analytics, wearable sensors, hyperconnectivity, 3D printing, gene editing, virtual reality, and much more—are suddenly, and rapidly, shaking up a sector that now accounts for $3 trillion of spending every year in the U.S.,” Leaf says.

To chronicle that revolution, Leaf and Fortune writer Sy Mukherjee have started a new daily newsletter, Brainstorm Health Daily, which you can subscribe to here. And next week in San Diego, we will host our first Brainstorm Health conference, which brings together some of the leading business people, thinkers and innovators in this area to explore where the revolution is headed, including GSK CEO Andrew Witty, Fitbit CEO James Park, AthenaHealth CEO Jonathan Bush, IBM’s Deborah DiSanzo, Dr. David Agus, Deepak Chopra, Arianna Huffington and the founder of the aforementioned blockchain startup, Gem CEO Micah Winkelspecht. We’ll hit the highlights here in CEO Daily, but you can get deeper coverage in the Brainstorm Health Daily.

More news below.

Alan Murray

Top News

Apple: a Service Company

Apple posted its first annual decline in revenue since 2001, as a lack of major new products laid bare the maturity of its core smartphone business. Revenue fell 9% in the year ending Sept. 24 and would have fallen by more had the company not moved up the launch of the iPhone 7 this year. Net profit fell 19% to $9 billion, while  sales of the iPhone fell from 48 million to 45.5 million. Against that background, the company unsurprisingly talked up the rapid growth in its services business such as ApplePay, currently adding 1 million new users each week. But it needs growth from more sources, and not just of the type that depends on its competitors fouling up.   Fortune

Mary Barra Dials up IBM’s Watson

General Motors and IBM said they would combine IBM’s AI software Watson with the carmaker’s OnStar system in order to market services to drivers in their vehicles. The feature, called OnStar Go, is set to debut early next year in more than 2 million GM vehicles with 4G service. Watson will sift through data in order to recognize a driver’s habits, allowing third-party marketers to deliver targeted offers. The two companies said they would share revenue with third-party partners, but didn’t give details. The deal may pave the way for a more in-depth alliance between the two as the creeping union of tech and automotive companies progresses. Fortune

Stock Market Calls a Top to Auto Earnings

There was, however, a pretty big slug on Mary Barra’s lettuce by dinner time. GM’s shares fell 4.2% on the company’s third-quarter earnings report, despite profits doubling from a year earlier to $2.8 billion and revenue jumping 10% to $42.8 billion. The market appears to be remembering how slow Detroit was in the past to realize that the cycle had peaked. A $400 million writedown due to Brexit-related effects didn’t help either. Elsewhere, Fiat Chrysler raised its outlook due to strong demand for Jeep SUVs and pickups but the broader signs of plateauing demand have been too clear for too long for that to propel the company’s shares higher. This morning, meanwhile, Korea’s Hyundai reported an 11th straight drop in quarterly profit and said it could miss this year’s sales target. Fortune

Obama Takes Aim at Non-Compete Contracts

The Obama administration on Tuesday called on states to ban agreements prohibiting workers from moving to their employers’ rivals, saying it would lead to a more competitive labor market and faster wage growth. The administration said so-called non-compete agreements interfere with worker mobility and states should consider barring companies from requiring low-wage workers and other employees who are not privy to trade secrets or other special circumstances to sign them. According to the White House, 20% of U.S. workers are bound by non-compete agreements, including 14% of those earning less than $40,000 per year.  It's not clear how much momentum the initiative will have past Nov. 8. Fortune

Around the Water Cooler

AT&T Rolls out Cheap Internet TV

AT&T CEO Randall Stephenson fleshed out one of his core plans for the company after its merger with Time Warner, saying he would pitch the company’s planned 100-channel Internet TV service at $35 a month. That’s a clear discount to comparable packages available from some cable operators, but doesn’t answer the existential question of whether consumers will stay loyal to the format of multi-channel packages over freer-form services like Netflix and Amazon Prime. Talking at a conference, Stephenson also repeated that the merger with Time Warner won’t result in higher prices for consumers. Fortune

Under Armour Stumbles

Oh well, it was a good run. Under Armour, which rose from nowhere to become the biggest challenger to Nike in the sports apparel business, reported its slowest quarterly sales growth in six years and cut its outlook for future growth. It also dropped back behind a resurgent Adidas in the U.S. market. The success of its endorsement from NBA star Stephen Curry couldn’t overcome a loss of sales due to the bankruptcy of Sports Authority, a key distribution channel. Its shares fell 13%, although some analysts stuck by their bullish recommendations, pointing to the outlook for sustained growth in the (albeit lower-margin) footwear segment. Fortune

U.K. Approves Heathrow Expansion

Desperate to prove that the U.K. is still ‘open for business’ despite increasing signs of isolationism and anti-foreigner sentiment, the British government approved the construction of a third runway at London’s Heathrow airport. That will add much-needed capacity to what used to be the world’s biggest aviation hub and bring a substantial boost to the economy. But the cost (over $20 billion), the environmental impact, U.K. planning procedures and profound divisions in the Tory government over the project all make even a far-off target date of 2030 seem ambitious. Elsewhere, PM Theresa May suffered a bout of Hillaryitis after The Guardian revealed that she had expressed serious fears about the economic impact of Brexit in a speech to Goldman Sachs before the referendum.   BBC

The Best Place to Do Business

New Zealand is the best place in the world to do business in 2016, according to the wonks at the World Bank. It pushed Singapore out from top spot, while the U.S. floundered in 8th place (behind Denmark, Hong Kong, Norway, South Korea and the U.K.). The U.S.’s ranking was dragged down by things such as getting construction permits and electricity connections, as well as the complexity of paying taxes (no surprises there). The U.S. also scored surprisingly badly on protecting minority investors, where it only came 41st out of 190 states. Still, there is such a thing as being too light-touch: the ease with which one can set up companies in New Zealand has recently become a matter of serious concern for anti-money laundering police.  Fortune