Weekly Reads
Weekly Reads - October 2, 2023

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With slowing revenue and a renewed focus on profitability TikTok might be scaling back some of its ambitious projects as it deals with U.S. regulators and intense competition from incumbents. 

TikTok has reportedly seen its revenue growth chopped by more than half from 80% in 2021 to 38% in 2022. After blistering growth during the pandemic over the last year TikTok has made cost-cutting moves looking to scale back some of its more ambitious projects seeking profitability. It seems these moves have paid off with the platform generating more than $20 billion in operating profit, a significant turnaround from the $7 billion operating loss they posted in 2021. According to 23Q1 financial reports sent to employees, TikTok has been slashing its marketing, admin, and R&D expenses potentially indicating that management might be forecasting revenue growth slowing down in the upcoming few quarters. TikTok’s recent launch of TikTok Shop, an e-commerce initiative, might be further evidence that the company may be looking to pump up its growth as advertising spending and new user growth slow down. With Meta and Alphabet replicating TikTok’s signature short-term video content on their platforms it might be tougher to attract new users as easily as in past years. U.S. regulators also continue to come down on the company due to ties to the Chinese government and accusations that ByteDance has had access to American users’ nonpublic data from September 2021 through January 2023. It seems like TikTok might be transitioning from a growth-at-all-cost startup to a more mature platform in which profitability and returns are prioritized. This could be good news for all players as a maturing TikTok is less likely to invest in low ROI projects in hopes of taking market share that pushes incumbents to respond dragging the entire industry down.

Intel’s spinoff of its programmable chips business is a desperate attempt from management to offload a previous acquisition made under a different management team and change the narrative around the company.  

Intel has announced another spinoff looking to separate its programmable chip unit as a standalone business starting in January with plans to hold a public offering in the next 2-3 years. Intel’s programmable chip unit sells customizable chips that can be designed for a single task and used for everything from encrypting data to 5G wireless telecommunications equipment. This move follows Intel’s spinoff of Mobileye and the sale of its memory chip unit to SK Hynix. All of these moves have been focused on getting Intel back to its core competencies by streamlining the business. The company plans to use these funds to continue investing in its manufacturing arm to catch up with rivals like Taiwan Semiconductor. While this move will create value for shareholders since the programmable chip business is a different beast to Intel’s core business it is unlikely to help the company catch up to its peers. AMD and NVIDIA are fab-less manufacturers focusing R&D and capex on chip design outsourcing the manufacturing to Taiwan Semiconductor. Intel’s dedication to both chip design and manufacturing leaves it in a no man's land of having to be masters in both areas. The room for error is much smaller for Intel as design and manufacturing must work in tandem to produce the best chips. It’s far easier to focus on design if you’re AMD and NVIDIA when they know Taiwan Semiconductor is spending resources on getting the next generation of equipment and growing capacity. Intel is fighting an uphill battle in closing the gap on both the design and manufacturing sides of their business and a spinoff of a relatively small business unit is unlikely to move the needle much it comes to funding the investments needed to catch up over the next decade.