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Plus: Activists demand spyware moratorium

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Hello from Davos, Switzerland, where I and several Axios colleagues will be covering this week's World Economic Forum.

Situational awareness: Time Magazine has announced its 100 Most Influential People of 2022 list, which includes Tim Cook and Joe Rogan.

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Situational awareness: Broadcom on Thursday announced an agreement to buy cloud computing giant VMware, controlled by Michael Dell, for approximately $61 billion. VMware is set to report earnings after the markets close.

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Frayed supply chains and U.S.-China tensions were on the minds of many tech executives in Davos for the World Economic Forum this week.

Why it matters: Nearly every tech company is dealing with the one-two whammy of a global semiconductor shortage combined with COVID-related disruptions in China and elsewhere.

Long supply chains have always been somewhat vulnerable to disruptions, but the pandemic caused multiple failures, changing the calculus for many in tech.

China-U.S. tensions also appear likely to permanently change the equation.

"There's now a recognition that long supply chains aren't resilient enough," the University of Cambridge's Jagjit Singh Srai, who previously spent 17 years running manufacturing and supply chain operations for Unilever, told Axios during a shuttle ride in Davos.

The big picture: All companies are feeling the heat to greater and lesser degrees. Even Apple, which has been able to better withstand past shocks, says the constraints will dent revenue this quarter on the order of $4 billion to $8 billion.

There are countries that one can't obtain goods from and routes that are now blocked. "That's driving the change," said Singh Srai.

Apple, for example, is considering shifting additional manufacturing out of China to other locations, including India and Vietnam, per Barron's.

Justin Hotard, who runs the unit that builds supercomputers at Hewlett Packard Enterprise, said his unit is affected just like other segments of the tech. "Ultimately, the parts are all the same," he told Axios in an interview in Davos.

Still unclear is just how significantly the tech industry will change to address the current capacity issues combined with U.S.-China tensions. The big question, Hotard said, is whether it will move to "a segregated, more localized supply chain."

Yes, but: Fixing the problem is more complicated than a company just setting up more of its own factories.

"You might regionalize, but if your company's suppliers are still global, you really haven't changed," Singh Srai said.

Between the lines: The notion of economies of scale, which have long dictated how companies evaluate what setup makes the most sense for manufacturing, appears to be changing. In the past, bigger was always better.

That often meant locating factories where there was cheap labor, which often produced marginal cost benefit. The gains were linked to currencies and labor costs, not to performance, but the human cost could be huge when those factors shifted.

Factories are often located not in urban centers but in modest towns where the factory is the major employer and driver of the rest of the economy.

"The factory is the heart of the town. If you take the factory out, there is a lot of devastation," said Singh Srai.

Go deeper: Davos crowd sees power and perils of data

CEOs fret over frayed supply chains

"There's now a recognition that long supply chains aren't resilient enough."

Illustration of a supply ship surrounded by rectangles made of international currency. 

Deep Dive - Davos 2022

Frayed supply chains and U.S.-China tensions were on the minds of many tech executives in Davos for the World Economic Forum this week.Why it matters: Nearly every tech company is dealing with the one-two whammy of a global semiconductor shortage combined with COVID-related disruptions in China and elsewhere.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

A coalition of human rights groups called Wednesday for a moratorium on the use of spyware, saying that tools such as NSO Group's Pegasus threaten democracy itself by allowing the monitoring and suppression of political dissent.

Driving the news: "Spyware kills. Spyware silences. Spyware imprisons." Amnesty international Secretary General Agnes Callamard said in a press conference on the sidelines of the World Economic Forum in Davos. "Spyware is the tool of autocracy."

Amnesty International was joined by Access Now, Human Rights Watch, the UN and other groups in calling for a moratorium until a process is in place to ensure that commercial spyware is not used in ways that suppress human rights.

The call follows a December article in the Washington Post detailing how Pegasus was used to, among other things, spy on a U.S. diplomat in Kenya. The Biden administration has placed NSO on a Commerce Department blacklist.

Between the lines: It's not just the direct impact of individuals who are spied on, but also the chilling effect, noted Peggy Hicks, a director in the UN's office of the high commissioner for human rights.

Be smart: It's not just about not talking on the phone, as Human Rights Watch chief Kenneth Roth points out. Sophisticated spyware can activate a phone's camera and microphone, recording conversations and images without a user's knowledge or consent.

"One cannot carry on conversations in a world with spyware," Roth said.

Between the lines: Activists called on governments in particular to take action, noting that many governments that have decried the misuse of the technology are also customers, thus funding the industry.

Israel, home to NSO, was particularly called out for not regulating the export of such tools and in fact using the ability to purchase NSO's tools as part of their efforts to improve relations with other Middle East states.

Roth said that Israel is sacrificing other countries' dissidents in pursuit of its own interests.

Human rights activists seek moratorium on spyware

A coalition of human rights groups at Davos called Wednesday for a moratorium.

Human rights

Surveillance

A coalition of human rights groups called Wednesday for a moratorium on the use of spyware, saying that tools such as NSO Group&#x27;s Pegasus threaten democracy itself by allowing the monitoring and suppression of political dissent.Driving the news: &quot;Spyware kills. Spyware silences. Spyware imprisons.&quot; Amnesty international Secretary General Agnes Callamard said in a press conference on the sidelines of the World Economic Forum in Davos. &quot;Spyware is the tool of autocracy.&quot;

The new CEO of Arm says that the designer of microprocessors is growing again — following its failed sale to Nvidia — thanks to a strategy to move beyond the stagnant smartphone market.

Why it matters: With the Nvidia deal scuttled by opposition from regulators and competitors, cash-strapped parent company SoftBank is now looking to spin out Arm as a separate public company. 

What they're saying: "The years under SoftBank gave us the air cover we needed to do a bit of a pivot," Arm CEO Rene Haas told Axios.

The big picture: When Nvidia was trying to buy Arm, it made the case to regulators that the designer of microprocessors was stuck in the saturated mobile market and faced "significant financial headwinds." 

Haas said that business was actually relatively flat for the prior several years, as Arm worked with customers to craft Arm-based chips for new markets and then get those chips designed into products.  "We knew that was going to happen," Haas said.

But financial results released last week show the company's years-long efforts to diversify itself are paying off with record revenue and a burgeoning pipeline of new customers.

Catch up quick: SoftBank had hoped to sell Arm to Nvidia in a deal initially valued at $40 billion. However, the companies scrapped the effort in February after the FTC sued to block the deal and regulatory approval became unlikely. 

Arm doesn't make chips, or even design entire semiconductors, but its chip blueprints are used in everything from smartphones to cars to data centers. 

Haas, who had been running Arm's intellectual property business, took over as chief executive after the Nvidia deal was cancelled and longtime CEO Simon Segars stepped down.

By the numbers: Arm's latest quarterly results, released last week, show a company that has maintained its strong position in mobile while growing its business supplying chips for cars, servers and other internet-connected devices.

Arm took in $2.7 billion in revenue for the fiscal year, the first time it has topped $2 billion. 

Importantly for its future, the company took in more than $1 billion in licensing revenue. While Arm gets most of its revenue from per-chip royalties, the amount it takes in from licensing deals is often an indicator of growth in future royalties.

It took a while for Arm to get to this point. It helped that it made the transition as part of the much larger Softbank, rather than as a separate public company, as it was for much of its existence.

"The Arm that SoftBank bought was a great company, but very very concentrated in mobile," Haas said. 

Details: Arm is starting to see real revenue from businesses that were once just aspirational targets on its PowerPoint slides.

In the data center, Microsoft offers Arm-based processors as an option for Azure, as does Amazon with AWS.

Cars are including more and more chips, many of them Arm-based, to handle everything from entertainment and navigation to driver assistance features.

Arm chips are also finding their way into all kinds of other devices, including networking gear and all manner of other Internet-of-things devices.

Even in computing, where Arm chips have struggled against those from Intel and AMD, the company is making some headway. Notably, Apple has switched to its Arm-based M-series of chips, while Haas said Arm is gaining ground at the low-end of the Chromebook market with machines powered by Rokchip and MediaTek.

The bottom line: "It's a combination of a strategy you put in place and then good timing and a little bit of good luck," Haas said.

Arm CEO says being part of SoftBank gave it time to pivot

The chip-design firm expects to be spun out after a failed sale to Nvidia.

Photo illustration: Shoshana Gordon/Axios. Photo: Arm

Semiconductors

The new CEO of Arm says that the designer of microprocessors is growing again — following its failed sale to Nvidia — thanks to a strategy to move beyond the stagnant smartphone market.Why it matters: With the Nvidia deal scuttled by opposition from regulators and competitors, cash-strapped parent company SoftBank is now looking to spin out Arm as a separate public company.

Twilio CEO Jeff Lawson imagines that rather than have offices in each city where his firm employs a cluster of workers, he could just open a coffee shop where employees could work and gather.

Why it matters: Nearly everyone agrees that the future of work is hybrid, but everyone is still trying to figure out what that actually looks like.

Like many companies, Lawson has seen the proportion of remote workers skyrocket during the pandemic, going from 15% of workers to nearly 50%. In many cities, though, Twilio now has enough people for some sort of office — if it's the sort of place workers actually want to go.

"Nobody is excited to go back to the office five days a week," Lawson said at a dinner with reporters last week. "They do, however, want a sense of connection and belonging."

Hence the coffee shop idea, where workers could come in and work when they are looking for community, a change of scenery or a double latte. Lawson says he wants to run an experiment to see if it would work. "My CFO tells me not to tell anyone," he said to a room full of reporters.

For its San Francisco headquarters, Lawson said Twilio has also turned two floors of its office in San Francisco to more resemble an offsite meeting space, with breakout rooms. People whose job used to be office manager are more like event managers now, he said.

PagerDuty CEO Jennifer Tejada has taken a similar approach, upping her snack budget for those employees who choose to be in the office. "It's like an offsite," she said. "We took out a bunch of tables and desks."

Yes, but: A hybrid work environment also means fostering connections that don't require in-person presence.

Lawson notes that there is a long history of strong online communities, going back to the early days of the web, and even before that on services like Compuserve and AOL. The trick is figuring out what online community looks like when it's run by an employer.

Tejada says she wants to avoid creating a culture where those in the office get preferential treatment. For example, while she likes to come into the office and chat with employees, she doesn't announce her visits.

The future of the office could look like a Starbucks

One tech CEO wants remote offices to resemble employee-only coffee shops.

Future of work

Column / Signal Boost

Davos crowd sees power and perils of data

There was a growing sense at the annual conclave that the creators of data-producing tools need to take responsibility.

Data

&quot;Data is the new oil&quot; has long been a popular idea in tech. This year&#x27;s Davos event grappled with the double-edged nature of that saying.Why it matters: With autonomous cars, satellites and ubiquitous sensors capturing ever more of what happens in our world, data accumulation will only keep accelerating. While these stockpiles can help society, their risks keep growing too.

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CEOs fret over frayed supply chains

Davos crowd sees power and perils of data

Human rights activists seek moratorium on spyware

The future of the office could look like a Starbucks

Arm CEO says being part of SoftBank gave it time to pivot

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