Microsoft’s chip move and Disney’s India dilemma

Hello everyone, this is Akito from Singapore.

Earlier this month, I spoke with Intel CEO Pat Gelsinger in Tokyo at an event hosted by Nikkei. Gelsinger, who said he was “pushed out” from Intel in 2009, returned to the company in 2021 at the request of its board of directors. During the decade he was absent, Intel lost ground to rival chipmakers from Taiwan and elsewhere. From the stage in Tokyo, Gelsinger pledged to lead the company to a revival and stressed the importance of AI to achieving that goal.

Whether Intel can pull off a complete comeback remains to be seen, but the tech industry has a long history of fortunes rising, falling and rising again.

The tech company that has made the most spectacular comeback so far is arguably Apple. As a PC company, it lost market share to Windows in the late 1990s, and there was even speculation that it might be acquired by IBM, Oracle or a Japanese company like Canon. Apple’s miraculous revival began with the return of Steve Jobs in 1996. He made the candy-coloured iMac a hit and, in 2001, launched the iPod, turning the company around. With the release of the iPhone in 2007, Apple became the leader in the smartphone era.

Microsoft, by contrast, completely missed the wave. The ruler of the PC era ceded dominance in the smartphone market to Apple, Google and others.

Now, Microsoft has found a new path. Under the leadership of CEO Satya Nadella, who took the helm in 2014, the company shifted its primary business from the Windows operating system to cloud computing. This move positioned the company to seize the opportunity in generative AI, where it is now at the forefront of commercialisation. Its market capitalisation is now approaching that of Apple, the largest in the world.

Fresh chips

Microsoft is stepping into new territory. The company developed its first in-house AI semiconductors to boost the performance of generative AI and reduce costs, writes Nikkei’s Naoki Watanabe. The cloud and software giant has developed two types of chips: Maia, which runs generative AI in data centres, and Cobalt, which will be used in cloud-based software services.

In bad news for Intel’s Gelsinger, mass production of the new chips will be outsourced to Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker. The Cobalt chip is based on architecture from SoftBank-owned Arm and will be incorporated into Microsoft’s Azure cloud services starting in 2024.

Intel has been attempting to increase its own footprint in the contract chipmaking segment, but faces a tough battle to win customers and catch up with Asian rivals like TSMC.

By using chips customised for generative AI, Microsoft aims to speed up data processing and reduce procurement and operational costs.

The AI chip sector is dominated by Nvidia, which holds about an 80 per cent share of the market. But as skyrocketing demand pushes prices as high as $40,000 per chip, some AI development companies are struggling with procurement costs. Microsoft is not alone in advancing into chip design: Google, Amazon and Apple have also developed their own chips.

Back office boom

Multinationals have long favoured low-cost India as a destination for back offices. But in recent years, those offices have become increasingly significant, taking on functions from marketing to data science, writes the Financial Times’ Chloe Cornish in Mumbai.

Back office growth has been enormous. JPMorgan Chase, for example, started with 75 people at its Indian back offices in 2002. It now has 50,000 employees across facilities in five cities.

India’s traditional IT service providers, such as Infosys and TCS, have made the country a software services exporting powerhouse.

Now the rise of these vast back offices — also known as global capability centres (GCCs) — has caused a “huge war for talent” with the traditional IT services industry, said K S Viswanathan, vice-president for industry initiatives at Nasscom, India’s IT industry trade body.

A study of 80 GCCs by specialist recruitment firm Xpheno showed that a third of workers hired by multinational companies’ back offices were from IT services companies.

That doesn’t mean GCCs are taking work from IT service providers, according to experts. “The value add of GCCs and outsourcing companies are very different, and they have coexisted for the past two decades,” said Kumar Rakesh, a technology analyst at BNP Paribas.

Space, the cluttered frontier

The number of satellites orbiting the earth has exploded, from just a handful at the dawn of the space age to thousands today. The most crowded area is the region known as low-earth orbit.

While these satellites enable everything from phone calls to GPS, their sheer numbers present a growing risk of collision, writes Nikkei Asia’s Mitsuru Obe.

Enter LeoLabs, a California-based company monitoring the skies with radar to track the ever-expanding universe of satellites and space junk. Founder and CEO Dan Ceperley says the company is aiming to help insurers better understand the risks and more accurately price policies for satellites that can cost tens of millions of dollars.

Streaming tears

Growing headwinds in India are forcing The Walt Disney Co to consider selling off a portion of its streaming business in the market, write Nikkei’s Rei Nakafuji and Ryosuke Hanada.

Disney streams content in India and its neighbours through Disney+ Hotstar, which evolved from the Star India platform Disney acquired along with other 21st Century Fox assets in 2019. Disney’s subscribers in India peaked in September 2022 at 61.3mn, accounting for roughly 40 per cent of global viewership. By the end of September this year, that figure had shrunk to just 37.6mn, mainly due to the loss of streaming rights to cricket games in the Indian Premier League (IPL).

Disney held streaming rights to IPL games until 2022 but did not renew these for 2023-2027. The company opted out because profitability in India remains challenging, even with more subscribers. Monthly revenue per viewer in the country is only 70 cents on average, far below the $7.50 average in North America. Since around July, Disney has been in talks with funds and other parties over a possible purchase or collaboration, according to a source familiar with the matter.

“Monthly subscriptions are not an established model in India,” said one executive at a major streaming company. “The free ad-supported model is the mainstream, and every streamer is losing money.”

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