IBM gets a boost from low taxes and cloud computing

It’s a question fit for IBM’s artificial intelligence platform Watson. Is the worst finally over for Big Blue?

IBM reported Tuesday that sales and profits topped forecasts. The stock surged 9% on the news Wednesday morning, helping to lift the Dow more than 100 points and pushing it past 23,000.

But IBM is still down 4% this year, making it one of the Dow’s worst performers — and with good reason.

Sales were better than analysts’ expectations, but they still fell slightly from a year ago to $19.2 billion. That’s the 22nd consecutive quarter of year-over-year revenue declines for IBM — not a streak that any company wants.

What’s more, IBM’s profits continue to be lifted by a super low tax bill. It paid just an 11% tax rate globally in the third quarter.

IBM critics argue that the company is benefiting from various tax loopholes to justify its lower rate and thereby boosting earnings in the process.

In other words, the earnings growth would be much lower if IBM paid a tax rate closer to what many other companies pay. That could be as high as 39.1% in the U.S. when factoring in current federal and state tax rates.

The company has continually pointed out that it has operations around the world where corporate taxes are much lower.

CFO Martin Schroeter said during a conference call with analysts on Tuesday that it does business in 162 countries. That is a key reason why its tax rate is so low.

But President Trump and Republicans in Congress are hoping to push that rate lower in order to entice companies like IBM to bring cash it has sitting overseas (which is usually taxed at a lower rate) back to America.

IBM ended the third quarter with $11.5 billion in cash. It uses a chunk of its cash every quarter to buy back stock and pay a dividend to shareholders. So it’s possible IBM could boost the dividend and buybacks further if it is taxed at an even lower rate.

That could anger activists who already think that IBM is benefiting too much from low global tax rates.

Still, there is undeniably good news for IBM beyond its relatively puny tax bill.

The company, which has struggled in the past few years because of a shift in the technology landscape, is finally starting to benefit from investments it’s made in cloud computing and other more dynamic and rapidly growing areas of tech.

IBM’s revenue from cloud computing businesses grew by 20% in the quarter to $4.1 billion. Cloud revenue now accounts for more than 20% of Big Blue’s overall revenue.

There also continues to be slow and steady growth in its Cognitive Solutions unit, which includes Watson applications for health care companies and financial firms. Revenues rose 4% in the quarter to $4.4 billion.

Continued growth from the cloud, Watson, security software (where revenues surged 51% in the third quarter) and older businesses like mainframes and storage could help IBM finally end its ignominious streak of falling sales in the fourth quarter.

Schroeter said during the conference call that sales could be $2.8 billion to $2.9 billion higher in the fourth quarter than they were in the third quarter. That works out to $22 billion to $22.1 billion. Big Blue’s sales in the fourth quarter of 2016 were $21.8 billion.

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Cancer drugs grown in chicken eggs may lower their cost

Researchers in Japan may have found a way to use chicken eggs to produce cheaper drugs that could be used to treat a range of diseases.

They have successfully genetically modified hens to produce eggs containing large amounts of interferon beta protein, a protein used to treat various illnesses, including multiple sclerosis and cancer.

The protein is very expensive, costing between $300-$1000 for just one microgram, according to pharmaceutical company Cosmo Bio, which co-led the research.

For treating MS, for example, the interferon dosage can start at 30 micrograms and increase from there.

The research was jointly conducted by scientists from the National Institute of Advanced Industrial Science and Technology (AIST), the National Agriculture and Food Research Organization and Cosmo Bio.

According to Mika Kitahara, a spokesperson for Cosmo Bio, this technology will reduce the price of cancer drugs at least by 90% if proven successful in further trials.

The conventional production of interferon needs large aseptic (sterile) facilities, but eggs work as a protein-producing aseptic system, said Kitahara.

Isao Oishi, chief researcher from the cell and molecule mechanism research group at AIST said the research was conducted to test whether the eggs from genetically modified chickens can be used for cheap production of these proteins.

A range of biological systems can be used to try and create drugs, such as bacteria, yeast and some mammalian cells, but “some proteins just don’t suit these systems,” said Professor Helen Sang from the Roslin Institute at the University of Edinburgh in the UK. For those that don’t quite work, “making protein from egg-white is relatively easy,” she told CNN.

“Interferon was discovered as a cell-signaling protein molecule in the body which acts against viruses,” said Dr. Robert Bermel, director of the Mellen Center for Multiple Sclerosis at the Cleveland Clinic Neurological Institute. Later it was used to treat auto-immune diseases — where a person’s immune system attacks their body — like multiple sclerosis, he adds.

Multiple Sclerosis (MS) affects the brain, spinal cord and eyes, resulting in a range of symptoms, such as vision problems, numbness and difficulties walking.

Bermel explained that interferon protein molecule is expensive because manufacturing it is a tedious process requiring strict quality control.

“Interferon for MS can be manufactured from bacteria like insulin or from Chinese hamster ovary cells.” The quantity of interferon produced this way, however, is very little. “(The new research) sounds like a relatively inexpensive way to mass produce it,” he says.

Previously, the Japanese scientists tried to produce the modified protein by inserting the required genes into chicken chromosomes using a virus as a vector, but said this produced an “irregular result.” The new method aims to more accurately and stably produce the protein by knocking in edited genes, using a gene-editing tool called CRISPR. The researchers are currently writing up their findings for academic publication.

More research is needed and the interferon beta protein will need safety clearance through trials before it can be used to treat patients.

However, Sang explained it’s not as simple as modifying these chickens to get endless supplies of the drug at a lower cost.

“You’ll have to show (the drug) is exactly the same as the drugs that have gone through all the clinical trials,” said Sang, whose own team has been working on transgenic chickens for over a decade. As well as simply making the drugs in the eggs, they will also need to be purified and validated through additional research, she said.

If this new source of interferon is shown to be the same, structurally, “then there is a lot of advantage in terms of scale,” said Sang. You can start with a few hens then scale up quickly, she said.

One drug, Kanuma, produced using modified chickens has already been approved by the US Food and Drug Administration to treat Lysosomal Acid Lipase Deficiency, a rare inherited condition where the body does not produce enough of a protein that helps the body break down fatty material.

The immediate hope is for the cancer-battling medicine to result in affordable medical products. The team is looking forward as well, with research underway to produce human antibodies using the same method.

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Facebook acquires beloved teen app ‘tbh’

Facebook just nabbed a popular new teen app called tbh.

Teens have been flocking to the app — named after the acronym frequently used in texts, “to be honest” — to participate in anonymous polls and give feedback to friends.

The app creators control the content of the polls, like “Best person to go on a roadtrip with.” It’s a measure that’s meant to keep the sentiments expressed on the app positive, which is something that other anonymous apps have struggled with.

The concept has spread like wildfire amongst teens. The app is designed for people who are 13 and older, and according to the company, over 5 million people have downloaded it in just the past few weeks. And it’s only available on iOS for now.

On Monday, tbh announced it has also attracted the attention of Facebook — which has acquired the company.

The move isn’t surprising given that the social media giant has shamelessly sought out teenagers in recent years amid reports that younger users are abandoning its platform in favor of newer apps and services.

“We were compelled by the ways [Facebook] could help us realize tbh’s vision and bring it to more people,” read a blog post from tbh, which has four cofounders. They wrote that the app’s experience “won’t change.” It will, however, now have “plenty more resources,” it said.

The app is just several months old. It first launched on August 3rd, 2017 in Georgia and is currently available only in 34 states to date “to ensure the reliability of the app.”

Facebook also confirmed the acquisition news to CNN Tech. Terms of the deal were not disclosed but the social media company said tbh’s four co-creators Nikita Bier, Erik Hazzard, Kyle Zaragoza, and Nicolas Ducdodon will join Facebook’s Menlo Park headquarters.

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Google drones will drop burritos into people’s yards in Australia

Drones bearing piping hot burritos are about to start swooping down on the Australian countryside.

At least that’s the plan for Google affiliate Project Wing, which on Tuesday announced new tests of its drone delivery service with two Australian businesses, a Mexican taqueria chain and a drugstore company.

It’s not the first time the Project Wing team has used drones to send people burritos. It did that last year with Chipotle at Virginia Tech University, but that was “in an open field, not to a specific address or location,” said James Ryan Burgess, one of Project Wing’s managers.

The Australian tests are taking place in a rural community near Canberra, the national capital, where residents “face a 40-minute round trip in the car for almost anything, whether it’s a carton of milk, veggies for dinner, or a cup of coffee,” Burgess said in a company blog post.

Flying goods right into their yards is a great deal more complicated than navigating a field at Virginia Tech.

“With each delivery, we encounter a new yard space with its own layout of trees, sheds, fences, and power lines,” Burgess wrote.

The issues range from programming the devices to maneuver safely around obstacles like parked cars or outdoor furniture to following customers’ wishes to set down perishable food items close to their kitchens.

By bringing in Mexican food chain Guzman y Gomez and drugstore company Chemist Warehouse, Project Wing is adding to the challenges.

Its ordering and delivery system will need to handle hot food from Guzman y Gomez and retail goods of all different shapes and sizes from Chemist Warehouse’s extensive catalog of products.

“The information we gather from both of these test partners will help us build a system so that merchants of all kinds can focus on what they’re good at — like making food or helping people feel healthier — rather than being distracted by complex delivery logistics,” Burgess said.

Project Wing is the drone delivery unit working out of X, Google parent Alphabet’s so-called “moonshot factory” that explores emerging technologies.

Its endeavors in Australia are the latest move in the drone delivery race heating up among big brands.

Last year, Domino’s announced it would start using the devices to drop pizza off to customers in New Zealand. Amazon pulled off its first drone delivery in the U.K. last December with an Amazon Fire device and a bag of popcorn. And innovative drone initiatives are also in the works in Rwanda, Tanzania and Reykjavik in Iceland.

— Matt McFarland contributed to this report.

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Netflix to spend up to $8 billion on programming next year

Netflix and chill doesn’t come cheap.The company said Monday that it will spend as much as $8 billion on shows and movies in 2018, up from $6 billion earmarked for content this year. The boost in spending comes at a time when tech giants like Apple, Am…

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Netflix to spend up to $8 billion on programming next year

Netflix and chill doesn’t come cheap.

The company said Monday that it will spend as much as $8 billion on shows and movies in 2018, up from $6 billion earmarked for content this year.

The boost in spending comes at a time when tech giants like Apple, Amazon and Facebook are all using their sizable checkbooks to hunt for original shows and movies.

“We have a good head start, but our job is to improve Netflix as rapidly as possible … to stay ahead of the competition in the decades to come,” the company said in its earnings release Monday.

In particular, Netflix will be ramping up the number of original movies. Netflix chief content officer Ted Sarandos said on an earnings call Monday that the company plans to release “about 80” films next year.

Netflix’s big bet on original content has helped it acquire and retain customers even as it seeks to raise prices and faces pushback from media partners.

The company added more than 5 million new members in the third quarter, with the vast majority of them coming from international markets. It now has 109 million subscribers, up from 86 million in the same quarter a year ago.

Earlier this month, Netflix announced plans to raise prices on its standard and premium streaming subscription services. The change, set to go into effect later this year, will push the monthly cost of its most popular plan from $9.99 to $10.99.

“It’s really about slow and steady. We’ve been in no hurry,” David Wells, Netflix’s CFO, said on the call when asked about the timing for the price hike. “Many investors have sort of criticized us in the past for being under-priced.”

Meanwhile, Netflix faces the threat of media companies removing content from its service. In August, Disney said it would pull its movies from Netflix and launch its own streaming service.

Still, Netflix forecast strong growth in the upcoming fourth quarter. It expects to add more than 6 million members worldwide, in line with Wall Street estimates.

Netflix has doubled down on comedy with the recent release of a Jerry Seinfeld special. Mindhunter, a new series from director David Fincher, just came out. And the second season of Stranger Things, Netflix’s breakout show, is scheduled to be released this month.

During the quarter, Netflix also acquired a comic book publisher with the goal of using it to develop new films and series. The deal was the first acquisition in Netflix’s history, but on the call executives sounded open to similar buys.

At least one acquisition appears to be off the table: buying the beleaguered Weinstein Co. “It’d be extremely unlikely for us to be a bidder for the firm,” Netflix CEO Reed Hastings said on the call.

Investor confidence in Netflix remains high. The stock topped $200 for the first time last week, and was up as much as 2% in after hours trading Monday following the earnings report

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