Author: Stephanie Longpre

1. Los Angeles is the manufacturing capital of the United States.

2. The city has full support from its mayor.

3. There’s a $155 billion valuation in Silicon Beach.

4. There’s a wide variety of entrepreneurs.

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TOKYO (Reuters) – Japan’s Canon Inc reported a 12.4 percent drop in third-quarter operating profit on Thursday, dented by lean demand for high-end cameras, and lowered its full-year earnings outlook for the second time this year.

The camera and printer maker posted an operating profit of 68.3 billion yen ($610 million) for the quarter ended September, compared with 78 billion yen a year earlier.

The company’s profit missed an average estimate of 86.57 billion yen projected by six analysts, according to Refinitiv data.

Canon slashed its annual profit forecast to 335.5 billion yen from 378.5 billion yen, compared with analysts’ estimates of 375.4 billion yen.

Watching the flames devour the wing of a World War II-era aircraft that crash-landed on the 101 Freeway in Los Angeles, a few questions come to mind. How did the pilot escape unharmed? How’d he manage not to whack any cars as he came down around 2 pm on Tuesday? Why was the plane, a T-6 Texan, dressed up like a German fighter aircraft (sans swastikas)? And, most pressing of all, what is anybody doing flying a 70-year-old plane over northwest LA?

That last one, at least, is easy enough to answer.

“The T-6, out of all the airplanes I’ve flown, is one of my favorite aircraft to fly. It’s a beautifully handling aircraft, it’s extremely well built, very powerful, and it’s just a lot of fun,” says Dave Whitcomb, a professional pilot who has logged about 500 hours in the T-6 while working with a group called History Flight, which takes members of the public out flying in old-timey planes.

The crashed plane, a North American T-6 Texan, currently belongs to Condor Squadron, KTLA reports. (The Van Nuys-based non-profit’s pilots fly the vintage aircraft for parades and other events, according to its website.) In its previous life, the aircraft saw some combat during World War II and the Korean War, but mostly served as a trainer for pilots preparing to climb into the cockpits of Mustangs and Corsairs. Like a driver’s ed car, the two tandem seats each have a full set of controls. Forty-two feet from wingtip to wingtip, the plane can hit 205 mph at 5,000 feet, thanks to its single engine.

The joy of flying a vintage aircraft is similar to that of driving an old race car, Whitcomb says. Without any of the automated systems that pilots now spend most of their time monitoring, operating the T-6 requires constant adjustments to the stick in your right hand, the throttle and propeller controls in your left.

“You’re always flying the airplane,” he says. “In a smaller aircraft like that, it feels like it’s a part of you. Whereas big heavy jets today, you’re not manipulating the controls as much, because they’re so stable.”

Throw in the joy of reliving history, and it’s easy to see why you’d want to climb into the T-6’s cockpit, slide open the canopy, and slide through the air like the pilots of old.

Most of the folks flying T-6’s today are very experienced, Whitcomb says, largely because insurance companies aren’t in the business of covering rookies who want to zip about in a relatively rare and expensive plane. (Someone in Italy’s selling one for $28,735.) Most of the aircraft now have GPS navigation systems; they all have modern radios.

And while the T-6 is generally reliable, it only has a single engine, meanings that if that one craps out, you’re gonna make like Icarus. (This is why Whitcomb avoided flying the T-6 over large bodies of water or unlandable terrain.) That’s where the experience comes in. When an engine failure turns your plane into a glider, it’s time to look for a long, smooth landing surface—like the 101— steadily drop altitude, float down gradually, and hope everybody in their 21st century car can get out of the way.

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SAN FRANCISCO (Reuters) – Microchip firm Qualcomm Inc (QCOM.O) is joining Amazon.com Inc (AMZN.O) to spread the use of Amazon’s Alexa voice assistant in wireless headphones, the companies said on Monday.

Under the deal, Qualcomm will release a set of chips that any maker of Bluetooth headphones can use to embed Alexa directly into the device. When the headphones are paired to a phone with the Alexa app on it, users will be able to talk to the voice assistant by tapping a button on the headphones.

The functionality would be similar to Apple Inc’s (AAPL.O) AirPods wireless earbuds, which enable users can tap the devices to talk to Apple’s virtual assistant, Siri.

Amazon and Alphabet Inc’s (GOOGL.O) Google, whose voice assistants have most often been found in their respective smart speakers for the home, are rushing to partner with headphone makers.

Models from Bose Corp and Jabra feature Alexa built in, and Sony Corp (6758.T) said earlier this year that a software update will make some of its headphone models work with Alexa. Google Assistant can be used on headphones from Bose, JBL and Sony, along with Google’s own Pixel Buds.

The Qualcomm partnership could expand that lineup. Qualcomm has developed a pre-made circuit that headphone makers can drop into their device to imbue it with Alexa.

“This radically reduces their [engineering] cost and time to market,” Anthony Murray, senior vice president and general manager of voice and music for Qualcomm, told Reuters in an interview. “It makes it simple for the industry to adopt this.”

Murray declined to comment on whether Qualcomm would make a similar offering for Google Assistant but said the chip firm plans to support other partners in the future.

The move is part of a broader push by Qualcomm to diversify away from its dependence on processor and modem chips for mobile phones. That business proved lucrative for Qualcomm, but its patent licensing model drew regulatory fines and lawsuits from customers such as Apple Inc (AAPL.O).

At a conference in Hong Kong slated for early Tuesday local time, Qualcomm also said it is working with action camera maker GoPro Inc (GPRO.O) to put more Qualcomm chips for image processing in the devices. The firm has said it expects about $5 billion in revenue from non-mobile sources this year, or more than 20 percent of the $22.4 billion in sales that analysts expect.

TOKYO (Reuters) – Japan’s government on Monday told U.S. technology firm Facebook Inc (FB.O) to better protect its users’ personal data following lapses this year affecting tens of millions of people globally.

The government asked the world’s largest social media network to fully communicate security issues to users, increase surveillance of providers of applications on its platform, and inform regulators of any change in security measures.

The request comes after Facebook this month said attackers stole data from 29 million user accounts. That followed the April revelation that personal data of nearly 87 million users was improperly accessed by British firm Cambridge Analytica.

Japan’s Personal Information Protection Commission, which investigated the Cambridge Analytica incident with authorities in Britain and elsewhere, issued a statement on Monday detailing its request to Facebook. The request carries no administrative orders or penalties and is not legally binding.

Facebook has promised to detail on its Japanese-language website how it will address the request, the Commission said.

It also said the Cambridge Analytica incident potentially affected up to 100,000 users in Japan, and that the cyber attack may also have had an impact on users in Japan.

Representatives of Facebook did not immediately respond to a Reuters request for comment.

In response to mounting criticism from consumers, citizens, and lawmakers, Facebook is pursuing a public relations blitz. The media giant wants to change people’s perceptions about how it is handling the scourge of misinformation and concomitant threat to elections presented by its websites and apps.

Enter the “war room.” Facebook invited journalists from a number of publications—Fortune included—to visit a cramped conference room on the company’s Menlo Park campus inside which a squad of 20-or-so employees is tasked with valiantly defending democracy around the globe—from the U.S., to Brazil, and beyond. The walls and desks are cluttered with video screens and computer monitors. Around them, Facebook’s freedom fighters huddle, clattering away on their keyboards, stemming a tide of malicious, politically-motivated influence campaigns.

One moment in Fortune reporter Jonathan Vanian’s account of the war room made me grin widely. A Facebook executive, Samidh Chakrabarti, director of elections and civic engagement for the company, tells Vanian that having everyone in the same room allows for “face-to-face” communication and quick decision-making. A few paragraphs later, we learn why Facebook does not plan to invite collaborators from other misinformation-besieged Silicon Valley companies, like Twitter and Reddit, to take seats in the room. It is easier for these groups to collaborate “virtually” rather than physically, says Nathaniel Gleicher, Facebook’s head of cybersecurity policy. Hmm…

Facebook’s war room seems, to this columnist, like a PR stunt. It is reminiscent of the cybersecurity fusion centers that banks and other companies set up to dazzle visitors. Such displays are “mostly for show,” as Jason Witty, chief information security officer at U.S. Bank, told the New York Times for an unrelated story about such flashy workspaces. They, you know, look cool.

I do not mean to denigrate Facebook’s efforts entirely. To be fair, the company is trying to address the many problems that plague its platforms. And the war room does serve an important purpose: making the company’s behind-the-scenes battles more tangible for its own employees, for regulators, and for the public. Hopefully it does help quench disinformation.

Still, the tidy image of the war room comes across as a bit of marketing misdirection. After all, the walls of this room extend far, far beyond Menlo Park. Ask any journalist. As the Times’ editorial board notes in a recent op-ed, Facebook effectively relies on news reporters as an army of unofficial, unpaid, outsourced content moderators, helping to root out spammers, trolls, and propagandists. Companies like Facebook “have all the tools at their disposal and a profound responsibility to find exactly what journalists find—and yet, clearly, they don’t,” the Times writes.

Indeed, the real war room has no walls.

***

Last week I warned readers about the many ways Bloomberg Businessweek’s recent report about Chinese spy chips smells foul. Just yesterday Apple CEO Tim Cook took the unprecedented move of personally calling for Bloomberg to retract the story. So far Bloomberg has not backed down. We’ll continue to track this story and its fallout.

Have a great weekend.

Robert Hackett

@rhhackett

robert.hackett@fortune.com

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. Fortune reporter Robert Hackett here. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

Why did Apple’s Jony Ive name Pinterest co-founder Evan Sharp as one of the figures in technology who he believes will change the future?

If you were wondering about that, here’s a great chance to learn a little bit more about Sharp and make the call yourself. During the 25th anniversary festival for WIRED last week, the Gadget Lab team had the chance to interview Sharp on stage, among other high-profile technologists. Over the next few weeks we’ll be publishing these taped conversations as a part of the podcast.

In this particularly interview, Mike and Arielle ask Sharp what it’s like to receive praise from Ive, how machine learning is changing software design, and whether Pinterest can remain once of the internet’s last happy places.

Show notes: Click here to read more about Jony Ive’s nomination of Evan Sharp for our 25th anniversary issue. And here’s Lauren’s WIRED 25 interview with Kevin Systrom, which we mentioned in this week’s show.

Recommendations this week: Lauren recommends the Dakota backpack from Dagne Dover. Mike recommends these awesome smartphone accessory lenses made by Moment.

Send the Gadget Lab hosts feedback on their personal Twitter feeds. Arielle Pardes can be found at @pardesoteric. Lauren Goode is @laurengoode. Michael Calore can be found at @snackfight. Bling the main hotline at @GadgetLab. Our theme song is by Solar Keys.

How to Listen

You can always listen to this week’s podcast through the audio player on this page, but if you want to subscribe for free to get every episode, here’s how:

If you’re on an iPhone or iPad, open the app called Podcasts, or just tap this link. You can also download an app like Overcast or Pocket Casts, and search for Gadget Lab. And in case you really need it, here’s the RSS feed.

If you use Android, you can find us in the Google Play Music app just by tapping here. You can also download an app like Pocket Casts or Radio Public, and search for Gadget Lab. And in case you really need it, here’s the RSS feed.

We’re also on Soundcloud, and every episode gets posted to wired.com as soon as it’s released. If you still can’t figure it out, or there’s another platform you use that we’re not on, let us know.

Please Fasten Your Seat Belts. 

The People’s Verdict.

FRANKFURT (Reuters) – Germany’s SAP said that its cloud revenues grew by 41 percent in the third quarter as its business transformation gathers pace, enabling management to raise guidance for revenues and profits this year.

SAP, Europe’s most valuable tech company, said it now expects revenues to grow by 7.5-8.5 percent in 2018 and operating profits by 9.5-11 percent, its confidence buoyed by a strong order pipeline for the final quarter.

“The future has never been brighter at SAP – we’re fired up and ready to go,” CEO Bill McDermott told reporters on a conference call.

($1 = 0.8699 euros)

SEOUL (Reuters) – Samsung Electronics Co Ltd (005930.KS) said on Wednesday it has bought Barcelona-based network data analysis firm Zhilabs, as the South Korean giant gears up to launch products for connected devices and 5G mobile services that require fast data crunching.

Samsung did not disclose the value of the deal, which marks the first announced acquisition in new technologies since companies in the Samsung group pledged in August a 25 trillion won ($22.23 billion) investment in artificial intelligence, 5G, electronic components for autos, and biopharmaceuticals.

Samsung is betting that Zhilabs, which uses artificial intelligence to analyze network data, would help its transition to newer 5G gear, as it uses automated network analytics tool for fast data crunching.

Established in 2008, Zhilabs provides analyses of network condition, performance, and data traffic for about 50 telecom companies. Fully owned by Samsung, Zhilabs will continue to operate independently under its own management.

Samsung also said on Wednesday that it “will also explore and invest in other business opportunities powered by the emerging technologies”.

It contributes to filter bubbles, he said. It risks silencing people, he said. And when it’s not silencing them, it might be incentivizing them to behave badly, or basely, he said. His biggest criticism of the social media site he runs was that it could be nudging its users in the wrong directions.

“What does the service currently incentivize?” asked Twitter CEO Jack Dorsey on stage at the WIRED25 summit today. It’s the question he and his whole team are asking themselves right now—about every aspect of the site “Right now we have a big Like button with a heart on it and we’re incentivizing people to want it to go up” and to get more followers, he pointed out. “Is that the right thing? Versus contributing to the public conversation or a healthy conversation? How do we incentive healthy conversation?”

When he co-founded the website 12 years ago, it was meant as a place for friends to share pictures of their lunch. “Now it’s become a place to launch nuclear war,” said Wired editor in chief Nick Thompson. That evolution, from innocuous late-night destination for cryptic jokes to lubricator of social movements to a cesspool of outrage and the platform for geopolitical discourse was not a result of Twitter’s code, Dorsey’s argued. But it was inevitable.

From the second it launched, Twitter was a free app with which anyone could text message the entire world. “Once the world saw that, there was no taking it back,” Dorsey said. “Once they saw it, they needed it. Our job now is to make sure we are actually serving that need.” By which he means the need for a global public square, a place for a global conversation to discuss the most important topics—he cited climate change and poverty as topics that can only be tackled in a global discussion—which he feels it is Twitter’s responsibility to facilitate.

If that means not being an absolutist about free speech, so be it. “We can only stand for freedom of expression if people feel safe to express themselves in the first place,” he said, adding, “A lot of people come to Twitter and they don’t see a service. They see what looks like a public square and they have the same expectation as they have of a public square, and that is what we have to get right.”

To get it right, Dorsey indicated everything was on the table. Twitter, he indicated, may need to be radically changed. He noted right now the service only allows you to follow accounts, not topics. It only allows you to like or retweet. What should it allow you to do instead? He’s not sure, but he’s considering every option.

And he’s open to your ideas. “When we started the company, we weren’t thinking about [any of] this at all,” he said. “One of the interesting things about Twitter has been this amazing experiment in creating with others—the hashtag, the thread, the retweet—have all been invented by the people using our service, not us.” So if you have ideas for how to fix Twitter, make it known. Dorsey is listening.

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NEW YORK (Reuters) – OnDeck Capital Inc has set up a subsidiary that will provide technology and other services to banks looking to lend to small businesses online, it said on Tuesday.

Called ODX, the new company will expand OnDeck’s existing business of providing online lending software to banks, such as JPMorgan Chase & Co, the company said.

ODX plans to announce a new bank partnership imminently and has a pipeline of other potential bank partners across the world, the company said.

It believes ODX will make it faster and easier for banks to digitize their lending to small businesses.

“We felt that given the robust demand we are seeing by the largest banks, it is not a question of if they are moving into online lending, but of when,” Noah Breslow, chief executive of OnDeck, said in an interview. “We thought that by creating ODX, we would set ourselves to take advantage of that opportunity.”

New York-based OnDeck is one of the most established companies that extends credit to small businesses through its website and then sells loans to financial institutions such as banks.

It announced a partnership with JPMorgan Chase in late 2015, through which the bank uses OnDeck’s technology to lend to small businesses.

Brian Geary, who served as vice president of OnDeck’s partnership unit, has been appointed president of ODX.

The company also hired financial technology executive Raj Kolluri to serve as ODX’s head of product and technology.

Kolluri joins ODX from financial services software provider SS&C Primatics, where he served as vice president of product and engineering.

Social movements have spurred major transformations in society, from the end of slavery to universal suffrage, the rise of labor unions, and universal education. Yet somehow after decades of economic stability, we began to rely on technological rather than social tools to remake the world, says Glen Weyl, a principal researcher for Microsoft.

While technology flourished, we “did not allow our social wisdom and social infrastructure to balance that out,” says Weyl. “I think it’s killing equality and structure of our society, so I think we need to regain that spirit of being open to those fundamental social innovations.”

Weyl spoke at the WIRED25 Festival on Sunday, during a panel that explored the ideas in the book he co-authored, Radical Markets: Uprooting Capitalism and Democracy for a Just Society. The book argues that markets, radically reimagined, are the best place to combine social innovation with technology and then disseminate those changes to the masses.

WIRED cofounder Kevin Kelly, who was moderating the panel, asked Weyl why he seemed so confident that the world needs to try his sophisticated, but rather mathematical ideas.

Weyl says his faith in economic theory comes from his own political evolution. At age 10, he was a socialist, but that gave way to Ayn Randian libertarianism in his teens. “By the age of 18, I realized that I had inhabited these two completely contradictory ideologies,” and yet believed in both. For Weyl, the puzzle pieces only fit together when when he was studying for a PhD in economics. Deep inside economics were “all these really powerful ideas for transforming the world,” which “allowed me to reconcile my randianism and my socialism,” he said. Finally he was able to connect “my deep economic theory work back to the passions that I had since the age of 18.”

Likewise, the ideas in Radical Markets will only take root if people reconcile different approaches, said Weyl. Take, for instance, quadratic voting, his idea to solve problems caused by majority rule by allowing people with a strong preference to vote more often on issues they care about, if they abstain from other votes.

Technocrats could experiment on quadratic voting, but “they can’t press a button and make this happen and we wouldn’t want them to,” says Weyl. “Activists can hope to build imagination” around the idea, but no one will follow them until they see an opportunity to experiment with it. “Entrepreneurs can build things and find areas where you can use quadratic voting to do ratings of online services or polling or whatever, but they can’t figure out what it should feel like to people in order to make them be able understand it.” For that, we need artists and designers.

Weyl’s hope is that the same diverse, intersecting communities needed to bring about these ideas will, in turn, build a world that better embraces diversity and more flexible ideas around individual and collective identity.

As an example of the interplay between social and technological change, Weyl pointed to blockchain technology, which allows for a decentralized and transparent public ledger. Blockchain may not be the answer to every need, but “It’s a great technology for bringing fundamental social change the world that can sustain liberalism,” he said.

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“I never want to be beholden to a vote of some board or politics or anyone else.”- Kevin Plank

Sometime last month, Under Armour (UA, UAA) posted the latest in a long line of restructuring updates (fifth within a year), with the 2018 restructuring program now running at $200m-$220m (from $190m-$210m). That’s another $10m to the growing pile of one-offs, and at some point, some tough questions will have to be asked. In the meantime, here’s UA’s reasoning behind the latest update:

“Following further evaluation, the company has identified approximately $10 million of cash severance charges related to an approximate 3 percent reduction in its global workforce.”

With the latest update on the board, I think it’s an opportune time to shed some light not just on the latest restructuring attempt, but also the various governance deficiencies within UA which have enabled the never-ending restructuring “one-offs”.

Don’t Trust the Restructuring

With the $10m severance one-off firmly in the guidance, here’s how adjusted guidance gets impacted:

	FY18 Pre-update	FY18 Post-update
Op Income (Loss)	$(50)-(60)m	$(60)m
Adj Op Income (Loss)	$130-160m	$140-160m
Adj EPS	$0.14-0.19	$0.16-0.19

(Source: Under Armour)

Here’s how the math works – we have a $10m charge which brings guided (actual) operating income down $10m and (adjusted) income up by $10m – but only at the lower end. Somehow, the market was fooled into believing this was positive.

(Source: Yahoo Finance)

It appears UA has yet again, adjusted its earnings to paint a more optimistic picture. Aside from the fact that the $10m adj op income raise at the low end ($0.02 raise at low end adj EPS) from severance is hardly positive, there’s two key takeaways the market seems to have missed – 1) the top end of guidance was not raised and 2) UA did not update revenue and gross margin guidance. The former likely implies that UA was heading for the low end of its initial guidance while the latter indicates little improvement from the demand side.

But that’s not all. Here’s UA’s last word on the updated guide:

“The reduction in workforce…represents the final component and update to the company’s 2018 restructuring plan”

If that sounds familiar, one only has to look back to the 4Q17 call when management made a similar promise:

“Also, important to note that we anticipate the majority of our restructuring to be completed in the first half of 2018”

Immediately after, UA announced a new 2018 restructuring program which has ballooned from $110-130m to $200-220m as of Sept . Here’s a nice compilation by Macquarie:

Notably, that brings total restructuring costs since 2017 to a staggering $350m at the upper end. Here’s the thing though – UA has been using some form of restructuring as a vehicle to adjust earnings for a very long time now. Pre-2017, explanation for the one-offs ranged from the Dickerson era (“product flow” and “improving customer service levels”) to the Molloy-era (everything from “promotions” to “foreign exchange rates”).

Here’s how the rationale behind the elevated inventory was explained while Dickerson was CFO:

Event	Dickerson-era Updates
2015 Investor Day	“First, on the near term — over the course of the rest of this year and through 2016, we are focused on delivering our products to our consumers more timely, specifically on key seasonal floor set dates. This focus specifically in comparison to some prior years’ challenges will result in elevated inventory growth rates over this time frame to flow product earlier”
3Q15	“Switching over to inventory, as we outlined in our Investor Day, over the next few quarters we are focused on delivering our products to our consumers more timely, specifically on key seasonal floor set dates. We anticipate this will result in elevated inventory growth rates over this period to flow product earlier.”
4Q15	“Finally, inventory. As we previously stated, our focus is on delivering our products to our consumers in a more timely manner and improving our customer service levels. As a result, we continue to expect inventory growth rates to be slightly elevated above the revenue growth rate in the front half of 2016, with growth rates expected to level off and be in line with revenue growth in the back half of 2016.”

(Source: Under Armour)

Chip Molloy was a lot more straightforward as CFO – here’s how his narrative evolved:

Event	Molloy-era Updates
1Q16	“As previously mentioned, the strategy to improve wholesale, customer service levels resulted in elevated inventory investments beginning in the second quarter of last year. We expect the growth in inventory will be more in line with sales as we begin to anniversary the strategy during the second quarter of this year”
2Q16	“Inventory for the quarter increased 30% to $1.1 billion, compared to $837 million at June 30, 2015. As we noted last quarter, we are beginning to anniversary the strategic inventory investments that we implemented in the second quarter of last year, and expect the growth in inventory to remain relatively in line with sales throughout the remainder of the year”
3Q16	“In the quarter, gross margin declined more than planned, driven predominantly by higher-than-expected promotions, both the volume and rate of liquidations, and foreign exchange rates. Despite liquidations having been a headwind on margin rates for most of this year, we now believe that our inventory position is healthier and liquidation should not have the same negative impact moving forward”
4Q16	“In our efforts to manage the brand appropriately for the marketplace, we are planning for inventory growth to be higher than revenue growth for the first three quarters of 2017 and coming more in line with revenue growth during the fourth quarter.”

(Source: Under Armour)

The difference between then and now is that UA’s restructuring has expanded far beyond inventory one-offs – the asset and labor cost base has also been trimmed substantially.

	2Q18	Sep-18
Pre-Tax Restructuring & Related Charges	$190-210m	$200-220m
Cash Charges	Up to $155m	Up to $155m
-Facility & Lease Terminations	Up to $75m	Up to $75m
-Contract Termination & Other	Up to $80m	Up to $90m
Non-Cash Charges	Up to $55m	Up to $55m
-Inventory	Up to $20m	Up to $20m
-Asset Impairment	Up to $35m	Up to $35m

(Source: Under Armour, Author)

But it may not be enough. In a follow-up with an analyst, management disclosed the following – 1) “the full fruits of the new Frisk era” are “not expected to hit full stride until FY20”, and 2) “Construction costs for UAA’s NYC Flagship have been pushed back until at least late 2019 (and potentially 2020).” In other words, FY19 is going to be another restructuring year for UA. That makes it the fifth consecutive restructuring year.

With high-flying expectations already embedded in next year’s consensus expectations ($0.31 FY19 EPS; +63% YoY implied), it will be interesting to see how the market reacts when the news finally hits.

Don’t Trust the Disclosures

Unbeknownst to most, the restructuring update actually came on the heels of a curious letter from the SEC. Here’s the two comments the SEC noted in its letter to UA:

Comment 1:

“You state that as of December 31, 2017, no impairment of goodwill was identified and the fair value of each reporting unit substantially exceeded its carrying value. We also note that your Latin American segment has experienced operating losses in the past three years.”

Comment 2:

“You present a full non-GAAP income statement for the quarter ended March 31, 2018 when reconciling non-GAAP measures to the most directly comparable GAAP measures. Please tell us how your presentation complies with the guidance in Question 102.10 of the Non-GAAP Compliance and Disclosure Interpretations”

The letter (dated May 23 2018) required a response within 10 business days, a window which UA was unable to meet.

“The comment letter requires that the Company respond within ten business days or inform the Staff when the Company will respond. As discussed with Ms. Suying Li, we hereby request an extension to respond by no later than June 15, 2018. This additional time will enable the necessary internal review related to the Company’s response to the comment letter”

Now, on its own, this wouldn’t be a big deal. But a look into UA’s SEC correspondence history indicates a curious pattern – barring one occasion, UA has never been able to respond within the allotted window. In fact, UA has almost always needed 20-30 day extensions.

Query Year	Request for Extension
May 2011	✓
Aug 2011	✓
Oct 2011	✓
Dec 2011	✗
May 2017	✓
May 2018	✓

(Source: SEC)

Clearly, the SEC is asking some tough questions.

When they did finally answer though, UA’s (delayed) reply to SEC comment 1 provided some insight into how they’ve been accounting for their international units.

Per UA management, despite the LatAm business posting three consecutive years of losses, “the fair value of the reporting unit exceeded its carrying amount by approximately $130.3 million”. If that boggles the imagination, here’s UA on how they arrived at the estimate – 1) using a DCF model, management has assumed long-term profitability, 2) revenue assumed to grow at sub-41%, 3) gross margins also assumed to grow via higher DTC contribution, 4) SG&A assumed to fall as a proportion of revenue.

All these expectations are fine and dandy but here’s the reality of UA’s LatAm unit – it hasn’t just been loss making at the EBIT-level for three years, it’s been negative for four.

(Source: Under Armour)

Meanwhile, LatAm sales growth has been slowing significantly – 2Q only saw a 7% rise YoY with no sign of a turnaround in margins. Yet, UA has somehow been allowed to input aggressive growth and margin assumptions into the model.

The $130m LatAm “headroom” is especially strange. As I’ve highlighted in the past, almost all of UA’s goodwill is tied up in Connected Fitness (MapMyFitness + MyFitnessPal + Endomondo). Because of the way Plank as Chief Operating Decision Maker (“CODM”) has allocated the goodwill, LatAm’s ~$40+m in goodwill is mainly tied up in Connected Fitness (“CF”) with a tiny portion (~$1m) tied to the actual LatAm operations.

So, it makes sense that UA hasn’t written down any LatAm goodwill – virtually all of it is Connected Fitness-related and thus, unrelated to the operating losses. UA’s response detailing the $130m headroom without clarifying the source of LatAm goodwill is interesting.

To the second SEC comment re non-GAAP P&L, UA said –“We respectfully acknowledge the Staff’s comment and undertake that in future filings we will reconcile our non-GAAP measures to the most directly comparable GAAP measures without presenting a full non-GAAP income statement.”

Now, all this raises some interesting questions – 1) why is UA being allowed free rein to input unrealistic assumptions into the LatAm DCF, 2) are they using similar methods to stave off a major CF goodwill impairment, and 3) why was UA not more forthcoming about its goodwill composition with the SEC?

Most importantly, just what is going on with UA’s auditor?

Don’t Trust the Auditor

UA’s auditor PricewaterhouseCoopers (PwC) has been in place for a while now at ~15 years. There are two ways to interpret long tenures – that they’ve been around long enough to know their way around UA’s accounting or that they’ve been around too long and have gotten too cozy with the company.

If PwC’s recent fees are anything to go by, the UA gig isn’t just lucrative, it gets more and more lucrative by the year. Here’s UA’s audit fees trend:

(Source: Under Armour)

Note the sharp rise in FY17 – audit fees rose ~48% in one year. Including everything else (audit-related, taxes and all other fees to the auditor), UA paid its auditor a grand total of $3.8m in FY17, a staggering 56% YoY pay hike. It also represents an eye-popping tripling in fees since FY12.

Now, there’s a few reasons why this might be the case, with the most innocuous explanation being UA’s growth (unlikely when benchmarked vs similar growth cos). The more likely reason in my view, may be that the audit may be getting more extensive e.g. digging into areas where results are uncertain.

Don’t Trust the Board

While the media fixates on the deficiencies of Tesla’s (TSLA) governance, UA’s is just as bad, if not worse. With Kevin Plank wearing the CEO/ Chairman/ Founder/ CODM hats while controlling the shareholder vote, there really isn’t much governance here at all.

I noted some interesting points on UA’s Board breakdown – 1) Seven out of ten Board members are at or past the age of 60, 2) Only one has accounting expertise, and 3) The members hold a large number of management roles and Board positions elsewhere.

Name	Position	Committee	Age	Accounting Expertise?
Kevin Plank	Chairman/ CEO		46
George W. Bodenheimer	Acting Chairman of ESPN, Inc.	Comp	60	✘
Douglas E. Coltharp	Executive Vice President and Chief Financial Officer, Encompass Health Corporation	Audit; Finance (Chair)	56	✓
Jerri L. DeVard	Executive Vice President, Chief Customer Officer of Office Depot, Inc.	Comp	60	✘
Mohamed El-Erian	Former CEO and Co-Chief Investment Officer of PIMCO		60	✘
Karen W. Katz	President and Chief Executive Officer, Neiman Marcus Group LTD LLC	Audit; CG; Finance	61	✘
A.B. (“Buzzy”) Krongard	Former Chief Executive Officer and Chairman, Alex.Brown, Incorporated	Audit (Chair)	82	✘
William R. McDermott	Chief Executive Officer and Executive Board Member, SAP SE	CG (Chair)	57	✘
Eric T. Olson	Admiral, U.S. Navy (Retired) and Former Commander, U.S. Special Operations Command	CG	66	✘
Harvey L. Sanders	Former Chief Executive Officer and Chairman, Nautica Enterprises, Inc.	Comp (Chair)	68	✘

(Source: Under Armour, Author)

Now, UA’s Board also has a bit of an “old boys club” feel and conflicts of interest are rampant. For instance, Olson, who has served with Krongard on the board of Iridium (IRDM), was recommended by Krongard to the UA Board. Meanwhile, Bodenheimer serves with Plank on a separate Board, which may bias his judgment as an independent director.

The low female representation is telling as well.

Besides Plank, Krongard is the key piece – as lead independent director, he acts as the “liaison between the non-management directors of the Board and the Chairman, CEO and President, Kevin Plank and the other members of our management team.” On the UA site, Krongard is listed as the former CEO and chairman of Alex Brown Inc. But his Alex Brown days do not begin to do justice to Krongard’s colorful history.

In fact, Krongard was at some point the executive director at the CIA, following which he held board positions at Blackwater and ArmorGroup. During his tenure at both these companies, he was no stranger to conflicts of interest, for instance, he was brought onto the Blackwater advisory board while his brother (then State Dept inspector general) was tasked with investigations into the firm. Similarly, ArmorGroup faced allegations of counter-intelligence failures and security breaches during his tenure.

A recent lawsuit (see Andersen et al vs Plank et al) highlights, on April 25, 2016, Krongard sold 16,800 personally held shares of Under Armour stock for total proceeds of approximately $762,849.36.

(Source: Andersen et al vs Plank et al)

The timing of this was highly suspicious considering it came right on the heels of the company raising guidance on April 21, 2016. In fact, Krongard seemed to have sold his shares at the same time as fellow Board members Plank and Sanders (ironically the compensation committee chair). From the lawsuit:

“In total, the 933,600 shares sold by Plank, Krongard, and Sanders, and the $39.8 million received from those sales, within mere days after the Company raised guidance on April 21, 2016, represent approximately 19% of the total shares sold and 11.8% of the total proceeds from such sales by all Insider Selling Defendants during the Relevant Period”

Interestingly, the slew of insider sales also came right before UA’s rapid downfall in 2016 and 2017.

(Source: Google Finance)

It isn’t just the audit (Krongard) and compensation (Sanders) chairs that have colorful backgrounds though, finance chair (Coltharp) also has a controversial history. While at Saks, Coltharp “was relieved of responsibilities for accounting and financial reporting matters… in connection with an internal investigation into improper collections of vendor markdown allowances.” He later joined Healthsouth (now Encompass Health), a company plagued by accounting fraud, where he currently serves as CFO.

Meanwhile, McDermott (CG chair) currently runs SAP, where UA is a client. Although UA’s Board claims the relationship is immaterial and has no impact on McDermott’s independence, it seems strange that all four committee chairs either have controversial backgrounds, conflicts of interest or both.

It will be interesting to see how the addition of El-Erian impacts governance. As things stand, I’m not sure he’ll be making much of an impact anytime soon – per the UA site, he isn’t (yet) on any committee:

(Source: Under Armour)

Besides, there’s only so much one man can do. From what I gather, El-Erian holds so many different roles, it seems unlikely that he will be able to devote the time necessary to address UA’s governance deficiencies. Here’s a list of some of his roles:

Institution	Position
Carnegie Endowment for International Peace	Vice chair
National Bureau of Economic Research	Exco member
Capital Campaign for Cambridge University	Co-chair
King Abdullah University of Science and Technology (KAUST)	Board member
The Pegasus School	Board member
Microsoft Investment Advisory Committee	Chair
Council on Foreign Relations	Member
Allianz	International advisory committee
Allianz	International executive committee
Allianz	Chief Economic Advisor
Investcorp	International advisory committee
Under Armour	Board member

(Source: Author, El-Erian Website, Bloomberg)

Contrary to popular perception, I don’t think the addition of El-Erian is in the best interest of shareholders. Seemingly expert board members such as El-Erian add credibility but only possess tangential expertise and thus, cannot sufficiently challenge management. The busy schedule doesn’t help either and it wouldn’t surprise me if El-Erian ends up nothing more than a symbolic figure on the UA Board.

Don’t Trust Plank

UA’s governance issues really stem from Plank’s lack of accountability. UA’s share class structure (approved by the Board without question) – one-vote-per-share Class A, no-vote per share Class C, and ten-votes-per-share Class B stock – is designed to entrench Plank’s control over UA.

That’s a big problem – Plank is widely credited with promoting an overly aggressive culture within UA and since 2015, has been operating with virtually no check and balance. Here’s a particularly interesting excerpt I came across from a the Andersen lawsuit (see Andersen et al vs Plank et al):

“Within Under Armour, instructions for determining growth forecasts were very simple: take what you sold last year and add 20%. The Company’s “top down” aggression came directly from Plank. Plank’s obsession with the 20% growth streak drove the Company’s revenue growth-at-all-costs strategy.”

Along with UA, Plank also has interests in businesses such as a whiskey distillery, horse racing, venture capital and property development among others. The latter was a major source of controversy due to a related party transaction which occurred in 2016 where Plank (via Sagamore) sold a parcel of land to UA for $70.3m (more than twice the initial purchase price two years earlier).

In response to King’s demand letter dated May 25 2017 (see King et al vs Plank et al), UA came up with the following breakdown to justify the inflated price (note the inclusion of a $31m lease buyout).

	Value ($)
Cost	35m
+Lease buyout	30.6m
+Development, planning and carrying cost	6.4m
-Loss to Sagamore	1.5m
Total Purchase Price	~70.3m

(Source: UA Review Group)

Meanwhile, a UA rep, Diane Pelkey has been posting the following PR statement in response to media coverage (see comment section here):

“Kevin Plank never made money on the transaction with Under Armour. In fact, he actually sold the land to the company at a loss. Moreover, this purchase is going to enable the company to develop a headquarters campus that can support the company’s long-term growth plans. The company followed a thorough process in reviewing and negotiating the transaction, using independent advisors, including Ernst & Young, with close oversight of the company’s Audit Committee to ensure the transaction was fair to the company and free of any potential conflicts.”

Very noble of Plank to take on losses to fund the latest UA headquarters. In fact, Plank claims UA faced a “pressing need for ~100,00 sq ft of office space with even more thereafter” as justification for the purchase in June 2016.

Yet, barely a year later, UA disclosed that their cost base was far too large and needed to be restructured – so much for the “pressing need”. From the 3Q17 call:

“Walking hand-in-hand with this is the need to address our cost infrastructure, which is built for a much larger company than we currently are”

In fact, Plank’s secretive Port Covington real estate purchases began in 2012 after his plans to expand UA’s Locust Point HQ was scuttled by the Baltimore Museum of Industry. Here’s Plank’s reaction in a later interview:

“Number one, I’ve got the engine in Under Armour. Number two . . . I can afford to make these decisions, so why am I waiting on [the Museum of Industry] board of directors?”

Through Marc Weller, who heads Sagamore Development (Plank’s property development co), Plank began discreetly acquiring land in Port Covington that year. His intention was twofold – to sell some of the land to UA for its future HQ, and to develop a mixed-use neighborhood anchored by UA’s HQ.

Throughout this period, Plank discreetly made Port Covington acquisitions totaling over 160 acres at ~$114 million.

Per a Baltimore Sun piece:

“The use of names and addresses that didn’t tie back to Kevin was all very intentional,” Weller said. “We wanted to be successful in acquiring as much as possible as quickly as possible.”

Companies discreetly owned by Plank purchased his first Port Covington property at a foreclosure auction.

Plank sold well over $300m worth of stock into 2014, with the massive sales continuing into 2016, likely to fund the Port Covington development.

In fact, his total stock sales since listing came in at well over $700m.

(Source: Insider Monitor, Author)

Per news articles cited in the King lawsuit (see King et al vs Plank et al), “Sagamore is expected to make $400 million from land sales during the multidecade project, according to an analysis conducted for the city.”

Here’s where it gets dicey for UA shareholders – assuming Plank has been funding Port Covington via UA share sales, would that not imply that UA shareholders have been subsidizing the project? The strategic use of UA’s HQ as a focal point of the development also likely contributed to the funding etc yet, all the upside accrues to Sagamore/ Plank.

Other notable related party transactions include UA’s lease for jet aircraft and a helicopter as well as industrial space and hotel accommodation (all linked to Plank/ Plank Industries and yes, all okayed by the Board, no questions asked).

You Cannot Fool All of the People All of the Time

With the spotlight shining firmly on Tesla’s governance deficiencies, investors may want to check out Under Armour as well. UA’s constant use of restructuring vehicles and aggressive assumptions to mask its busted growth model can only last so long before the market sees UA for what it truly is.

From a valuation perspective, UA looks extremely lofty – the “hockey stick” needed to hit FY18 is already well-known, but FY19 consensus looks way too high as well. With UA already writing off FY19, it wouldn’t surprise me if we see a big reset and consensus’ $0.31 FY19 EPS (implying ~62x fwd PE) gets cut in half. In fact, I don’t see UA’s earnings power being any higher than high-teens EPS. And that’s being generous on margins – I’ve assumed flat gross margins and SG&A going forward. Tack on a 30-40x multiple and you’d have to stretch far to get much higher than a MSD-HSD PT for the stock. With a bit of patience, there’s significant downside to be realized here.

It’s hard to say when the market will finally (de-)value UA accordingly – I’d like to think value/ patience is its own catalyst. As the saying goes:

“You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time” – Abe Lincoln

Disclosure: I am/we are short UAA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

HONG KONG (Reuters) – Data privacy rules in Asia are limiting the spread of financial technology, an industry body said on Thursday, calling on regulators to set out broad principles rather than precise rules.

Companies around the world want to make better use of the large pools of data they have to both cut costs and offer additional services. But governments and regulators in Asia and elsewhere are tightening rules on how that data is used.

“Governments in Asia say that they support fintech, and they want fintech firms to enter their market, but data privacy rules are a major stumbling block,” Paul Hadzewycz, senior associate at the Asian Securities Industry and Financial Markets Association (Asifma), told Reuters.

In a report on Thursday, Asifma urged regulators to avoid an “exhaustive and prescriptive list” of rules and set principles that allow companies to operate “confidently across borders and enter new markets.”

Some 13 countries in Asia have data protection rules, Stephen Wong, Hong Kong’s commissioner for data privacy, said at the Refinitiv Pan Asian Regulatory Summit in Hong Kong on Tuesday.

Aside from the privacy rules, companies also face varied, and sometimes conflicting, requirements imposed by financial regulators, privacy commissioners and cyber security bodies in Asia, Hadzewycz said.

Another industry concern are rules that prevent a company from storing customers’ data outside their country.

Vietnam has set rules to force global technology companies like Facebook (FB.O) and Alphabet Inc’s (GOOGL.O) Google to store user data in the country, and India is planning similar legislation..

“Regulators who are bringing in data localization rules are painting themselves into a corner and are hurting their attractiveness as a market to fintech firms,” Hadzewycz said.

Saudi dissident and Washington Post columnist Jamal Khashoggi went missing in Turkey last week. The outspoken critic of Saudi Arabia’s war on Yemen walked into the Saudi consulate in Istanbul at 1 pm on Tuesday, October 2, to obtain documents for his upcoming wedding. Within two hours, Turkish security officials now say, Khashoggi was dead—assassinated by a team of Saudi agents.

Saudi officials deny the allegations, and it’s unclear how Turkish officials—some of whom have spoken to news outlets on the condition of anonymity—concluded that Khashoggi had been killed. But as Reuters reported Wednesday, two of those officials say that Khashoggi’s Apple Watch has factored into their ongoing investigation.

“We have determined that it was on him when he walked into the consulate,” the security official said. The question now is whether the wearable transmitted any forensically useful information to either of his mobile phones, which he left with his fiancée, Hatice Cengiz, before entering the building. “Intelligence services, the prosecutor’s office and a technology team are working on this,” the official told Reuters. “Turkey does not have the watch so we are trying to do it through connected devices.”

Depending on which model of Apple Watch Khashoggi had strapped to his wrist and his proximity to his phones, his wearable could have transmitted data about his location, his activity, or his heart rate to his devices—any and all of which could be used to help make clear what happened inside the consulate during the two hours in which Turkish officials say Khashoggi was assassinated.

Fitness trackers have recorded all three forms of data during instances of violent crime. Earlier this year, police in San Jose, California, used data from a murder victim’s Fitbit to identify the eight-minute window in which her heart rate had spiked, slowed, and finally stopped—timepoints they cross-referenced with video footage to place her accused murderer at the crime scene during the same period.

In 2017, a woman running in Seattle’s Golden Gardens Park stopped to use the restroom when she was assaulted by a man hiding in a bathroom stall. She fought back and managed to escape. The GPS on her Garmin Vivosmart watch recorded the violent encounter in the form of jagged red lines, overlaid atop an aerial view of the park’s restroom.

And in 2015, Connecticut police used activity data from a murder victim’s Fitbit to show that she had been walking around her house at the same time her husband claimed they were both being attacked—evidence that led investigators to question the husband’s account of his wife’s death and place him under arrest.

In other words: Data from Khashoggi’s watch could very well shed light on what happened to him inside the consulate, corroborating the claims of Turkish officials—or contradicting them. In 2015, investigators in Pennsylvania used data from an activity tracker to show that a woman, who claimed to have been sexually assaulted during a break-in, had been walking around when she told police she had been asleep.

“She inserted the device into the crime scene when she told us it was torn off her,” says Christopher Jones, the detective in the East Lampeter Township Police Department who investigated the case. “I figured the activity data from the tracker would either match with her story, or go against it. And in this case they contradicted her account.”

Fitness trackers and smartwatches are far from perfect witnesses. They can mistake hand-movements for footsteps, and their optical heart rate sensors are notoriously finicky. But newer models are more accurate and increasingly more capable. Apple’s first generation wearable checked in on the wearer’s heartbeat every ten minutes—and only if they weren’t moving. The latest iteration of the Apple Watch keeps constant tabs on your ticker, and can even monitor for abnormal heart rhythms.

Jones, who has since spoken at conferences on the use of fitness tracker data in criminal investigations, says he hears more and more about them factoring into detective work, but he’s yet to hear of a case that hinged entirely on data from a wearable. “Ultimately it’s just one piece of the entire puzzle—and when you can use it to corroborate other physical evidence, then it’s a good piece.”

But in the investigation over Khashoggi’s disappearance, compelling evidence, physical or otherwise, has yet to emerge. What traces do exist—flight logs, surveillance footage, whispers of a bone saw—hint at foul play, kidnapping, and perhaps a grisly end. Smartwatch data alone might not be able to determine what really happened, but as more and more devices continue to accrue new and better tracking abilities, the day when it is could be fast approaching.

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More Great WIRED Stories

SAN FRANCISCO/NEW YORK (Reuters) – Japan’s SoftBank Group Corp (9984.T) is in discussions to take a majority stake in shared office space provider WeWork Cos, a source familiar with the matter said, a deal that would increase one of its biggest bets on a late-stage U.S. startup.

Pricing and other details have yet to be firmed up, the source said, adding that it was not a done deal.

A second source also said SoftBank is in talks about a major new investment in WeWork. Both spoke on the condition of anonymity as the details of the talks were private.

The Wall Street Journal reported earlier that SoftBank’s investment could be between $15 billion and $20 billion and would likely come from SoftBank’s Vision Fund.

WeWork and SoftBank declined to comment.

SoftBank and its Vision Fund invested $4.4 billion in WeWork last year and the Japanese company holds two board seats.

WeWork’s prospects have been treated with skepticism by some Silicon Valley investors who see the company as an overvalued real estate play vulnerable to a property market downturn.

A majority stake by SoftBank, which has raised more than $93 billion to create the technology-focused Vision Fund, would be a shift from its more common practice of taking minority stakes in high-profile late-stage startups.

The two companies are closely entwined, with hundreds of SoftBank staff using space at the two companies’ Japanese joint venture and SoftBank considering moving its headquarters into WeWork offices.

Eight-year old WeWork is growing rapidly and in September surpassed JP Morgan (JPM.N), the biggest U.S. bank, as the largest tenant of Manhattan office space, highlighting growing demand for flexible leases.

WASHINGTON (Reuters) – The top Republican on the Senate Commerce Committee has asked Apple Inc, Amazon.com Inc and Super Micro Computer Inc for staff briefings about a Bloomberg report that the Chinese government implanted malicious hardware into server motherboards provided by Super Micro.

Senator John Thune said in letters to the chief executives made public on Tuesday that he had sought staff briefings by Oct. 12 from the three companies.

“Allegations that the U.S. hardware supply chain has been purposely tampered with by a foreign power must be taken seriously,” Thune wrote.

The companies did not immediately comment on Tuesday on Thune’s letter. All have denied the report, published by Bloomberg Businessweek on Thursday.

Separately, Republican Senator Marco Rubio and Democratic Senator Richard Blumenthal wrote to Super Micro’s chief executive, Charles Liang, and asked him to provide by Oct. 17 information including when the company first became aware of the report and whether and how it investigated.

“If this news report is accurate, the potential infiltration of Chinese backdoors could provide a foothold for adversaries and competitors to engage in commercial espionage and launch destructive cyber attacks,” the senators said in their letter, which was seen by Reuters.

Apple’s top security officer, George Stathakopoulos, told Thune and other members of Congress in a letter on Sunday that the company had found no sign of suspicious transmissions or other evidence that it had been penetrated in a sophisticated attack on its supply chain.

Stathakopoulos said he would be available for briefings this week.

1. Get used to a different sleep cycle.

2. Take a private jet.

3. Look for coworking spaces when you arrive.

4. Rely on audio.

5. Prepare travel-specific tasks.

6. Say “no” and delegate.

7. Rest (if you can).

Finding Your Own Style

SAN FRANCISCO (Reuters) – Apple Inc’s (AAPL.O) top security officer told Congress on Sunday that it had found no sign of suspicious transmissions or other evidence that it had been penetrated in a sophisticated attack on its supply chain.

Apple Vice President for Information Security George Stathakopoulos wrote in a letter to the Senate and House commerce committees that the company had repeatedly investigated and found no evidence for the main points in a Bloomberg Businessweek article published on Thursday, including that chips inside servers sold to Apple by Super Micro Computer Inc (SMCI.PK) allowed for backdoor transmissions to China.

“Apple’s proprietary security tools are continuously scanning for precisely this kind of outbound traffic, as it indicates the existence of malware or other malicious activity. Nothing was ever found,” he wrote in the letter provided to Reuters.

Stathakopoulos repeated Apple’s statements to the press that it never found malicious chips or vulnerabilities purposely planted in any server or been contacted by the Federal Bureau of Investigation (FBI) about such concerns. He said he would be available to brief Congressional staff on the issue this week.

The letter follows statements on Friday by Britain’s National Cyber Security Centre and on Saturday by the U.S. Department of Homeland Security that those agencies have no reason to doubt denials from Apple and Amazon.com Inc (AMZN.O) that they had discovered backdoored chips.

Bloomberg said on Friday it stood by its story, which was based on 17 anonymous sources. Some allegations were based on fewer accounts or even a single unnamed source, Apple noted in its letter.

A Bloomberg spokeswoman did not immediately respond to questions sent on Sunday.

The Renault Ez-Ultimo brings the high-end glitz to the show this year. Just because cities of the future may prioritize ride sharing over private cars doesn’t mean you should have to slum it on the way to opening night at the Opéra national de Paris.

This rounded bronze box is about as far from a production car as a concept can be (could those wheels even turn? where’s the ground clearance for cobbled streets?) but Renault says it shows a vision of an autonomous future, where passengers demand more from vehicles. In particular, the interior “reflects French elegance” with wood, leather, and marble.

Citroën went the opposite direction, unveiling a very real, very modest EV. The DS3 Crossback E-Tense is a fashionable crossover SUV, and an update on Citroen’s tres popular DS3 supermini car. The electric version comes with a 50-kWh battery—about half that of a high-end Tesla—a range of 186 miles on the generous European test cycle, and a 0-60 time of 8.7 seconds. None of those specs are going to blow buyers away, but at the right (to be revealed) price, the quirky car, with sharp angles and odd window cutouts, could rival the Nissan Leaf or Renault Zoe, as a city runabout.

Europe has taken styling cues from the US for the Peugeot E-Legend concept, albeit with a little added flair. There are plenty of muscle car hints in the styling, with a side profile reminiscent of the modern Dodge Challenger, and a Mustang-like front squint. Of course it’s a concept, so it’s electric and autonomous, and supposed to show that those things don’t have to be boring or bland.

The retro theme continues inside with velvet upholstery and fake wood screensavers for the displays when they aren’t in use. It’ll apparently have a 100-kWh battery pack and all-wheel drive, but it’s so concept-y that wise money should be on all that potentially changing, if and when the E-Legend makes it to production.

It wouldn’t be a European auto show without a city car, and Smart is the brand synonymous with cars so small they can be parked end-on to a curb. The Smart Forease moves that theme into an electric age. The rather optimistic concept banks on the future always being sunny, given that it doesn’t have a roof. Not even an optional one. (Have these people been to Europe?)

Smart has already stopped the sales of all internal combustion engined cars in the US, and if this car makes it across the Atlantic (and to reality) it could find a place in some Californian garages. The Golden State has good EV electric rebates, and as close to a guarantee of good weather as you’re going to find.

Infiniti is keeping it real with its Project Black S hybrid, based on a Q60 coupe and its V6 engine. Infiniti engineers turned to electrification, and lessons from partner Renault’s Formula 1 team (there’s the French connection) to give the machine an e-boost.

It’s a hybrid, but one that delivers performance rather than economy. The three motors add 213 horsepower to bring the total to 563, and drop the 0-60 mph time to under four seconds.

Toyota didn’t use the Paris show to unveil radical new concepts, but did introduce a term that will be new to most buyers: self-charging hybrids. This is no magical perpetual motion-type technology: Self-charging hybrids are just cars that can run on battery power, but can’t be plugged in. The type Toyota has been selling for years with the Prius, when they used to be just called “hybrids.” As they’ve gone from being radical, to commonplace, to somewhat lame given the influx of more robust electric options, Toyota is looking to rebrand to remind people that the tech is still quite clever, and does save fuel.

WASHINGTON (Reuters) – The U.S. Department of Homeland Security said on Saturday it currently had no reason to doubt statements from companies that have denied a Bloomberg report that their supply chains were compromised by malicious computer chips inserted by Chinese intelligence services.

“The Department of Homeland Security is aware of the media reports of a technology supply chain compromise,” DHS said in a statement.

“Like our partners in the UK, the National Cyber Security Centre, at this time we have no reason to doubt the statements from the companies named in the story,” it said.

Bloomberg Businessweek on Thursday cited 17 unidentified intelligence and company sources as saying that Chinese spies had placed computer chips inside equipment used by around 30 companies, as well as multiple U.S. government agencies, which would give Beijing secret access to internal networks.

Britain’s national cyber security agency said on Friday it had no reason to doubt the assessments made by Apple Inc (AAPL.O) and Amazon.com Inc (AMZN.O) challenging the report.

Apple contested the Bloomberg report on Thursday, saying its own internal investigations found no evidence to support the story’s claims and that neither the company, nor its contacts in law enforcement, were aware of any investigation by the FBI on the matter.

Apple’s recently retired general counsel, Bruce Sewell, told Reuters he called the FBI’s then-general counsel, James Baker, last year after being told by Bloomberg of an open investigation of Super Micro Computer Inc (SMCI.PK), a hardware maker whose products Bloomberg said were implanted with malicious Chinese chips.

“I got on the phone with him personally and said, ‘Do you know anything about this?,” Sewell said of his conversation with Baker. “He said, ‘I’ve never heard of this, but give me 24 hours to make sure.’ He called me back 24 hours later and said ‘Nobody here knows what this story is about.’”

Baker and the FBI declined to comment on Friday.