Alphabet - Goodbye blue sky pt Ii
It looks like SoftBank needs to really beef up its robotics expertise if it wants to be a player in this space which is what these two acquisitions should start to accomplish.
Alphabet has reached a deal to sell both Boston Dynamics and Schaft to SoftBank leaving it more focused on its core business of collection and monetisation of Internet data. Boston Dynamics is a robotics company that specialises in robots that are autonomous as far as navigating and adjusting to their immediate environment. SoftBank is also acquiring Schaft from Google which is a humanoid robotics company that was spun out of the University of Tokyo. These robots can move around with relative ease but how they would be able generate value for Alphabet shareholders was always unclear. At the end of the day Alphabet is a data and analytics company whose objective is to categorise and understand every piece of digital information that users generate and to sell those insights to marketers. Every other piece of hardware that Alphabet makes from Google Home to Pixel and Internet Balloons, have the capacity to collect huge amounts of data and thereby generate can value to the core business.
Autonomous robots that can carry out physical tasks do not generate data about users because they are designed to replace them making them a bad fit inside Alphabet.
Furthermore, the robotics effort at Google was the brainchild of Andy Rubin and his departure, combined with the much greater focus on fiscal discipline, meant that the robots became homeless inside Alphabet. We have long believed that Boston Dynamics will be much more at home inside a company that can make use of them. Good examples of this are Amazon and Alibaba for logistics or someone like DHL or UPS.
Softbank is a good example of this but also has the benefit of a very long-term mindset when it comes to its strategy. SoftBank already produces the Pepper robot which is supposed to be able to read human emotions and help shoppers when they enter a shop or place of business. We met Pepper when wandering the halls of Mobile World Congress and CES and have to admit were not that impressed by what it was capable of. Consequently, it looks like SoftBank needs to really beef up its robotics expertise if it wants to be a player in this space which is what these two acquisitions should start to accomplish. Hence it looks like this acquisition will not be part of the $93bn Vision Fund but instead be part of SoftBank itself.
Boston Dynamics, Schaft and we suspect SoftBank’s own robotics division have been struggling to find ways to generate revenue necessitating a home with a very long-term view. That home used to be Alphabet, now it is SoftBank. The sale of these two businesses will further boost Alphabet’s short term financial performance but all of the recent fundamental improvement in Alphabet is more than discounted in the share price. Hence, we continue to prefer Tencent, Baidu and Microsoft.
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