Data Sheet—Silicon Valley Emotions Are Caught Between Morose and Giddy
This is the web version of Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.
Silicon Valley is feeling schizophrenic.
Part of its brain is morose. Google and Facebook are under attack. European regulators menace them, U.S. legislators threaten them, and Chinese officials simply bar them. Fears of a weak iPhone X and an irrelevant HomePod nag Apple. The best and the brightest, who flocked from investment banking in New York to consulting on airplanes to “growth hacking” in Silicon Valley, are searching for the new new thing. Denizens of the tech landscape are realizing there’s a depressing amount of truth in their embarrassing portrayal on Silicon Valley as soulless, vapid, greedy, socially awkward opportunists.
But wait. There’s another part of Silicon Valley’s brain that’s giddy with opportunity. Google and Facebook mint money. (Facebook Tuesday reported a $5 billion profit. For one quarter.) Apple, whose CEO Tim Cook graced a White House state dinner with his presence Tuesday night, is worth more than $800 billion. More, it’s a one-company version of the U.S.-China trade policy mutually assured destruction: Neither Beijing nor Washington wants to endanger Apple’s contractors’ hundreds of thousands of employees in China or Apple’s profits there. Thousands of Silicon Valley employees stand to become real-estate-buying millionaires when their companies go public in the coming IPO boom.
If the pendulum is swinging in Silicon Valley, it’s tough to tell which way.
Quarterly report cards. As Adam mentioned, Facebook reported booming earnings that allayed some of Wall Street's concerns about the impact of recent scandals. Elsewhere, Twitter only partially allayed Wall Street's concerns after reporting a strong first quarter but offering a weak forecast for the rest of the year. AMD pleased investors with a 40% revenue gain and a forecast 50% jump for Q2. So, too, did PayPal with a 24% revenue increase. Qualcomm is still suffering from Apple's royalty fee cut-off, but the rest of its business looked relatively healthy. In premarket trading, Facebook was up 7%, Twitter gained 2%, AMD jumped 9%, PayPal was up 4%, and Qualcomm was up 1%.
We did not read. Facebook may have stirred new concerns on Thursday, as chief technology officer Mike Schroepfer testified at a U.K. parliamentary hearing. Facebook never read the "terms of service" that Cambridge University researcher Aleksandr Kogan included with his data harvesting app (which revealed the data harvesting bit). Kogan later sold the data to political consulting firm Cambridge Analytica. "We (had) an automated check there at the time —this was in 2014, maybe earlier," Schroepfer said. "We did not read all of the terms and conditions."
Fooled me once. Speaking of new concerns, the Federal Trade Commission sued online lender LendingClub, accusing the company of deceptive practices like charging hidden fees. LendingClub's stock price hit an all-time low of $2.77, down 15% on Wednesday, on the news.
Semiconductor hopscotch. Legendary chip designer Jim Keller has left Tesla, where he was developing the AI brains for self-driving cars, to join Intel. Keller helped design AMD's hit Athlon processor in the 1990s, went to Apple to build the A4 and A5 chips that powered iPhones and iPads, and returned to AMD to work on the Ryzen CPU before joining Tesla in 2016. At Intel, Keller will be reunited with Raja Koduri, AMD's former top graphics chip designer who jumped ship in November.
Wide open spaces. Speaking of autonomous cars and all that, the cost of owning a car and using it for commuting will exceed the cost of relying solely on ride hailing services within 10 years, at least in Seattle and Denver, according to a study by insurance startup QuoteWizard. Still, outside of cities, car ownership will remain sensible, the company noted: “It’ll take much more than a decade before it makes sense for someone in Wyoming, for example, to ditch their car.”
Chain the door shut. Hotel rooms in 166 countries and 40,000 locations could potentially be unlocked and opened by hackers by exploiting a flaw in the electronic key software created by Assa Abloy, formerly known as VingCard, cybersecurity firm F-Secure warned on Wednesday. A software patch to eliminate the flaw is under development.
Guessing game. Where, oh, where will Amazon locate its $5 billion second headquarters known as HQ2? The Puget Sound Business Journal reviewed the flights of Jeff Bezos' private jet and found the craft was in Boston just before the HQ2 search was announced and in Washington, D.C. the day the search was honed to 20 finalists. Could be a clue—though those are two cities that already have important Bezos operations. (My money is still on the Northern Virginia/D.C. area for HQ2.) Meanwhile, Amazon introduced its latest Alexa product, an $80 Echo Dot smart speaker aimed at kids and creatively named the Echo Dot Kids Edition. The small puck-sized device can tell jokes, read books aloud, and comes with built-in parental controls.
Assist me to riches. Speaking of smart speakers, ask Alexa when Sonos is going public. The high-end speaker maker, which has partnered with Amazon for voice-controlled smarts, confidentially filed for an IPO that would value the company at up to $3 billion. GE is already public but its new line of smart air conditioners will be compatible with Alexa, Google Assistant, and Apple's HomeKit. Alexa, I'm freezing, turn off the AC.
FOOD FOR THOUGHT
One of the legends of tech journalism has written a profile of one of the legends of tech and the controversy is just getting started. But it's not because writer Steven Levy was critical of software developer Ray Ozzie–just the opposite. Levy's tale in Wired of Ozzie's idea to allow law enforcement agencies to get access to encrypted smartphone data has ignited a firestorm of criticism from encryption and security experts. In today's "Food for Thought," a sampling of the debate. First, from Levy's article:
So, say the FBI needs the contents of an iPhone. First the Feds have to actually get the device and the proper court authorization to access the information it contains—Ozzie’s system does not allow the authorities to remotely snatch information. With the phone in its possession, they could then access, through the lock screen, the encrypted PIN and send it to Apple. Armed with that information, Apple would send highly trusted employees into the vault where they could use the private key to unlock the PIN. Apple could then send that no-longer-secret PIN back to the government, who can use it to unlock the device.
Ozzie designed other features meant to reassure skeptics. Clear works on only one device at a time: Obtaining one phone’s PIN would not give the authorities the means to crack anyone else’s phone. Also, when a phone is unlocked with Clear, a special chip inside the phone blows itself up, freezing the contents of the phone thereafter. This prevents any tampering with the contents of the phone. Clear can’t be used for ongoing surveillance, Ozzie told the Columbia group, because once it is employed, the phone would no longer be able to be used.
And a bit from one critique by Columbia University computer scientist Steven M. Bellovin:
At the meeting, Eran Tromer found a flaw in Ozzie's scheme: under certain circumstances, an attacker can get an arbitrary phone unlocked. That in itself is interesting, but to me the important thing is that a flaw was found. Ozzie has been presenting his scheme for quite some time. I first heard it last May, at a meeting with several brand-name cryptographers in the audience. No one spotted the flaw. At the January meeting, though, Eran squinted at it and looked at it sideways—and in real-time he found a problem that everyone else had missed. Are there other problems lurking? I wouldn't be even slightly surprised. As I keep saying, cryptographic protocols are hard.
The other point is that security is a systems problem. To give just one example, the international problem alone is a killer issue. If the United States adopts this scheme, other countries, including specifically Russia and China, are sure to follow.
Security expert Robert Graham was slightly more quotable in his retort:
According to this Wired article, Ray Ozzie may have a solution to the crypto backdoor problem. No, he hasn't. He's only solving the part we already know how to solve. He's deliberately ignoring the stuff we don't know how to solve. We know how to make backdoors, we just don't know how to secure them.
IN CASE YOU MISSED IT
What Happens When a Self-driving Car Is At Fault? By Kirsten Korosec
Elon Musk Just Revealed His Next Project: A Cyborg Dragon By Lisa Marie Segarra
United Kingdom Plans $1.3 Billion Artificial Intelligence Push By Jonathan Vanian
Why Comcast's Wireless Service Hasn't Shaken Up the Market–Yet By Aaron Pressman
Huawei Is Under Investigation for Violating Iran Sanctions: Report By Lisa Marie Segarra
BEFORE YOU GO
Jazz musician and composer Bob Dorough died this week at 94. In a full and creative life, Dorough might be most famous (at least among people of a certain age) as the creator of the cartoon musical TV show known as Schoolhouse Rock! that ran on ABC in the 1970s and 80s. The New York Times picked their five favorites, which are all great, but nothing beats "Conjunction Junction." And, but, and or—they'll get you pretty far.