Philippa Kaur

SAMSUNG ELECTRONICS (SE) is a behemoth. The South Korean tech company is the crown jewel of the mighty Samsung chaebol, as the country’s conglomerates are known. It makes more smartphones than any other company in the world, as well as home-entertainment systems and appliances. It dominates the manufacturing of memory chips, which are used to store data on electronic devices and whose price has been pushed up by the global semiconductor shortage. SE’s annual revenues of $200bn are not much lower than those of Apple, the most valuable firm in history, and it is sitting on a cash pile of $100bn.Now both SE and its parent group, whose name means “three stars”, are entering a critical new chapter. In August Lee Jae-yong (pictured above), the scion of the family which founded Samsung in 1938, was released from prison, where he spent two stints after a conviction for his involvement in a bribery scandal. He is finally taking full control of the empire from his late father, Lee Kun-hee, who died last year. Succession was complicated first by the elder Lee’s six-year coma, then by his son’s conviction for bribery, linked to SE’s efforts to win the government’s backing for a merger of two Samsung subsidiaries that would cement his control.Free at last, Mr Lee has grand plans for the company, which he wants to become as dominant in cutting-edge logic chips, used for processing information, as it already is in memory and smartphones. That will pit SE head-to-head with chipmaking powerhouses such as TSMC of Taiwan and America’s Intel, and thrust it into a global contest over one of the world’s most strategic industries.On October 7th SE confirmed it will manufacture some of the world’s most advanced logic microprocessors, based on its novel “gate-all-around” architecture with transistors measuring three nanometres (billionths of a metre), in 2022. It also surprised analysts by announcing a plan to mass-produce two-nanometre chips from 2025. It is forecast to invest an eye-watering $37bn or so in capital expenditure across its businesses this year. And it is winning new customers, such as Nvidia, an American chip designer, and Tesla, an electric-car maker.The outcome of Mr Lee’s gamble will have profound consequences—and not just for Samsung. It matters to South Korea, whose president justified Mr Lee’s parole as being in the national interest, given the chaebol’s importance to the economy. And it will affect the global semiconductor industry, the critical nature of which has been underscored by the worldwide chip shortage. To ensure success, the man whom acquaintances describe as shy, decent and astute must also summon ruthlessness.The Samsung constellationSE is a complex corporate creature with a strategic challenge and underwhelming stockmarket performance. It is best understood as divided into two main businesses. The first makes “sets”: smartphones, televisions and household appliances. The second produces “components”, which go into Samsung’s own sets, as well as being sold to external clients like Apple. Samsung splits its sets business further into two divisions: TVs and appliances such as washing machines, and digital devices (chiefly smartphones). The component business comprises semiconductors and displays.The sets business is not a growth engine. In Mr Lee’s hierarchy of SE operations, say people close to the company, home appliances sit at the bottom, below the TV unit with similarly low margins but a bigger role in reinforcing SE’s valuable brand. Next comes the handset business, which in the early 2010s contributed over half of profits. Although its obituary has been written several times before, it continues to generate lots of cash and, thanks to a new fast-selling range of phones with foldable screens, some fresh optimism.Atop the hierarchy sit semiconductors. Historically, SE has focused on memory chips, where it has 44% of the global market for DRAM chips (used for temporary storage in desktops) and 36% in NAND devices (used for permanent storage in mobiles). The memory business brings in just over 20% of revenues but nearly half of operating profits (see chart 1). Everything else is potentially expendable in the service of its juicy margins. If a “set” business has a disagreement with a components unit over pricing or other terms, insiders say, the component business takes precedence. According to the company, its unique ecosystem benefits from having diverse businesses which allow internal innovation while providing stability through the ups and downs of industry cycles.Analysts reckon that SE’s memory-making has plenty of life left in it. Because such chips are critical for storing data across industries, it is “only going in one direction: up”, says Nicolas Gaudois of UBS, a bank. Omdia, a research firm, predicts the global memory-chip market will expand by double digits each year between 2020 and 2025. It is now less cyclical thanks to surging demand from data centres and, on the supply side, consolidation in the industry where ever more extreme miniaturisation means that rivals can no longer step up production as easily as before. SE says that it has proven an ability to innovate and extract value in established businesses. Internally, though, certain SE executives worry that memory is a mature operation. And some investors fret that demand for memory chips may soften towards the end of the year.One option would be to follow Apple and develop a services business, which has grown from 8% of the iPhone-maker’s revenues in 2012 to a fifth. However, despite a few successes, notably in payments and health apps, SE’s efforts to add software and services to its world-beating hardware have been sporadic.This is partly because SE’s hardware-first approach is deeply rooted in its culture. It will probably be reinforced by Mr Lee’s character and experience. “His disposition is very cautious and conservative, more so than his father,” says a former SE executive. This innate conservatism may have been strengthened by his first major endeavour after attending Harvard Business School. In the late 1990s, at the height of the dotcom bubble, he invested in eSamsung, a venture-capital firm. Watching the subsequent bust left Mr Lee highly sceptical of Korean software engineers, says the former executive; eSamsung was shut down.Going big on services could also jeopardise SE’s long-standing and successful partnerships with software giants such as Google and Microsoft. In 2014 SE launched a music-streaming service called Milk Music, which despite its success was shut down two years later. “Google viewed Samsung’s software efforts as fragmenting the Android ecosystem and felt threatened,” recalls a former executive. “I feel pretty sure that Samsung has given up on software and services,” he sighs. He worries about a big missed opportunity. Even if the company talks about making another run at it, he adds, this would probably be merely to keep Google and other partners honest.Another problem is China. The country is an important source of demand for both memory and logic chips. To help satisfy it, SE is finishing its second memory-chip plant in the western city of Xi’an this year. Despite rising tensions between China and the West, in particular America, neither SE nor any other South Korean chipmaker is likely to give up on their giant neighbour, which is likely to remain a big buyer for many years (especially for the technically more complex DRAM chips). This means that SE must walk a line to keep Chinese clients while not relinquishing American customers.This array of complications and risks helps explain SE’s underperformance relative to other giants, both in consumer technology (Apple and Xiaomi of China) and chipmaking (TSMC and Intel). Because it combines several relatively distinct businesses, the company suffers from a conglomerate discount. The stock is listed only in Seoul, where limits on exposure to individual stocks have in the past pushed local investors to sell SE, which accounts for nearly a fifth of the KOSPI stockmarket index, whenever its share price spiked. And SE’s enormous cash pile depresses returns.As a result, despite solid operating performance SE’s shares have traded between one and one-and-a-half times forward book value, far below its peers. Increasing its dividend from 22% of net profit in 2018 to 78% in 2020 helped more than double SE’s market value in the two years to January. But Apple’s nearly trebled in the same period. A strong outlook for semiconductors and lower cyclicality in memory chips have yet to translate into a richer valuation. Having surged by nearly half in late 2020, SE’s market capitalisation has declined by 13% since the start of the year, while New York’s tech-heavy NASDAQ index and a basket of global chipmakers have made gains (see chart 2).The logical moveMr Lee’s bet on cutting-edge logic chips is designed to reverse the underperformance. The idea is to win a big slice of a fast-growing and lucrative market for non-memory chips, which account for 70% of the $550bn global semiconductor market. Mr Lee has set out a goal to match SE’s roughly 40% market share in memory in the “foundry” business of manufacturing processors for customers.The Samsung scion has his work cut out. SE’s foundry took a hit in 2016 when Apple moved all its business for the A-series processor for the iPhone to TSMC. That shock was a stark example of how SE’s complex structure throws up conflicts of interest with key customers. Half of SE’s foundry output goes to its sets divisions, with the rest supplying outside customers. Apple preferred TSMC, a pure foundry firm, to SE, with which it competes in smartphones.So far progress towards Mr Lee’s ambitious target, first signalled a few years ago, has been slow. The firm has around 15% of the foundry market, compared with more than 50% for TSMC, which plans to spend $100bn over the next three years on new capacity. SE’s non-memory chip revenues make up only 7% of total sales (though that is up from nothing in 2005 and the company also makes some other specialised processors for sensors and the like). The share of profits is even lower.Perceived conflicts of interest are not its only challenge. Although the memory and logic businesses share some commonalities and overheads, they differ in important ways. Producing memory chips is chiefly about speed, volume and economies of scale. Making high-end logic processors is much more complex technologically, with engineering done at nanoscopic scales and customers increasingly desiring silicon customised for their purposes.On technology SE (and, to be fair, just about everyone else) has fallen behind TSMC in at least the last two generations of cutting-edge processors. Part of that may be down to sensible caution. But reticence can further complicate relations with customers, many of which are reluctant to place orders unless they can get capacity guarantees, says a semiconductor executive at another firm. Rather than anticipating their needs, SE has been reactive, says the executive.Cognisant of these problems, Mr Lee clearly wants to accelerate SE’s transformation. The company is using its research-and-development (R&D) prowess to take some risks on next-generation logic chips, for example with its new advanced chip architecture. The company does not break out how much of its capital spending is going to memory chips and how much to logic. According to CLSA, a broker, there is an emphasis on logic chips, which are also more R&D intensive. SE is also mulling a $17bn factory to manufacture cutting-edge logic chips in Texas, to appease America’s desire to bring more chipmaking back home from Asia (and, possibly, to partake in a $52bn subsidy splurge on the semiconductor industry that Congress is soon expected to pass). And the new customers it is courting, such as Nvidia and Tesla, have no overlap with its other businesses, notes Sanjeev Rana of CLSA.Help could come from the fraught geopolitics of semiconductors. Although rising technonationalism over chip design and manufacture makes governments favour domestic production and local champions, it may nevertheless end up benefiting SE. As China ratchets up military pressure on Taiwan, which it considers part of its territory, fears are growing over TSMC’s future. According to another semiconductor executive, many firms that use TSMC are scrambling to reduce exposure to the Taiwanese company, just in case. As TSMC’s closest rival, Samsung could be a big beneficiary. SE has the biggest industrial complex of semiconductor engineers in the world, and some of the best chip technology, says Mark Newman, a former SE executive who is the chief commercial officer of Nyobolt, a battery startup.One way to turbocharge the transition would be to split SE into its constituent businesses, as investment bankers have long recommended. This would also eliminate the potential conflicts of interest that have hampered SE’s foundry division. A dual listing in America, meanwhile, could help with the KOSPI-related drag.Neither a break-up nor another listing looks likely, however. Mr Lee seems reluctant to countenance the radical first option. One attempt at persuading SE into the second around 2016, as part of an activist campaign by Elliott Management, an American hedge fund which had taken a stake, failed. Aware of this, shareholders are therefore putting pressure on SE to at least do something about its unused cash. One idea would be to pay out 100% of free cashflow to them. Alternatively, SE could do a big acquisition. The company states that “the founding family is clearly aligned with all other shareholders in its objectives to create maximum value and see that value properly reflected in the market.”To make a material difference to SE’s financial performance any deal would have to be big. Mr Lee’s preferences make such a gamble improbable in software and services. That leaves chipmaking as the place where the firm’s cash could be spent. One potential takeover target is NXP Semiconductors, a Dutch firm that specialises in the fast-growing market for automotive chips. With a market value of $50bn it would be a heavy lift, but not an impossible one.If Samsung Electronics is to become a logic-chip star to rival TSMC, Mr Lee had better get lifting. Last year he vowed not to hand management of SE to his children (though the Lees are likely to retain the biggest stake in the company through various family-controlled vehicles). The promise to be the last Lee to run the firm, combined with what insiders say are other improvements to corporate governance, clears the path to the top for its multitude of talented executives. They must be hoping that Mr Lee leaves them a legacy that is less complicated than his father’s. More

BY SILICON VALLEY standards, Adobe is a dull company. Nudging 40 it is middle-aged. It does not make headlines with mega-mergers or have a swashbuckling chief executive. “I feel very comfortable not being out there pounding my chest,” confesses its boss, Shantanu Narayen, in a rare interview. All the while, Adobe has quietly managed to adapt to the age of cloud computing. It has done a better job of reinventing itself perhaps even than Microsoft, the technology industry’s best-known comeback kid. Microsoft’s CEO, Satya Nadella, is said to have examined Mr Narayen’s handiwork closely—and not just because he attended the same secondary school in India as Adobe’s leader, albeit a few grades down. Since 2007, when Mr Narayen took the helm, Adobe’s market capitalisation has swelled from $24bn to $276bn. In the past ten years it has outperformed both Mr Nadella’s Microsoft and Salesforce, another rival business-software maker.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

A HORMONE CALLED relaxin helps loosen up pregnant women’s hips. Without it, the pain of delivery would be unbearable. Its job done, however, relaxin lingers in female bodies for up to a year, when softer ligaments make new mothers more prone to injury, as Jessica Ennis-Hill, an Olympic champion heptathlete, discovered in training after giving birth in 2014. Five years later Dame Jessica started Jennis, a fitness app to help other women perform safe post-natal workouts. It now lets users optimise workouts for the different phases of their menstrual cycles, and has just concluded a successful funding round.Dame Jessica’s startup is part of a wave of “femtech” firms coming up with ways for women to overcome health problems specific to their sex. The market could more than double from $22.5bn last year to more than $65bn by 2027, reckons Global Market Insights, a research firm. Having ignored it for years—in 2020 femtech received only 3% of all health-tech funding, and a modest $14bn has been invested in it globally to date—venture capitalists are at last waking up to the opportunity. So far this year they have invested nearly $1.2bn in the industry, nearly half as much again as the annual record in 2019 (see chart).Last year Bayer, a big German drugmaker, paid $425m to buy KaNDy, a British developer of a non-hormonal treatment for menopause symptoms, and Bill Gates, Microsoft’s billionaire co-founder, backed BIOMILQ, a startup that has produced cell-cultured human breast milk and aims to bring both parents closer to their newborns. In August Maven Clinic, an American startup which began as a femtech but has expanded to other areas of health, raised $110m and achieved “unicorn” status, with a valuation of more than $1bn. In September Elvie, another British firm, raised $97m from venture-capital firms.Unlike heath tech aimed at men, which often focuses on erectile dysfunction, a condition that afflicts perhaps one in ten potential users, femtech offers products like period trackers, which could be of value to virtually all of the world’s 4bn women at some point in their lives. Moreover, women are 75% likelier than men to adopt digital tools for health care. That makes for a huge potential market.A big reason femtech has been slow to grow has to do with the underlying medical science. For conditions that affect all humans, men are more commonly studied, largely owing to misplaced worries that women’s hormonal fluctuations can confound results (male mice are favoured for the same reason). In the few more inclusive studies, results are seldom disaggregated by sex, obscuring how diseases—and the drugs used to treat them—affect women differently. “We have been operating as if women are just smaller versions of men,” observes Alisa Vitti, a hormone expert whose work on the 29-day “infradian” body clock, which affects everything from metabolism to sensitivity to pain and is a uniquely female phenomenon, underpins many period trackers.As a result, plenty of woman-specific health issues have, despite their ubiquity, been routinely neglected. Femtechs help fill this research gap. Noting that eight in ten women suffer from premenstrual pain but no treatments have been specifically designed to allay it, founders of Daye, a British startup, designed a tampon laced with cannabidiol, after observing that the vaginal canal has more cannabinoid receptors than any other part of the female body.Hertility Health, also of Britain, offers non-invasive tests which can help diagnose nine common gynaecological conditions. Elvie’s silent wearable breast pump is a best-seller in America and Britain; its app-controlled pelvic-floor trainer reduces the chances of the typical intervention, whereby surgeons insert “a fishing net and lift up your pelvic organs because they are falling out of your vagina”, says Tania Boler, the firm’s founder.Labour painsThat is welcome progress. But too many femtechs face an uphill struggle. Helen O’Neill, who runs Hertility Health, calls the $5.7m funding round her firm closed in June a “soul-destroying” process. “It was predominantly grey-haired men saying they are not sure there is a market for this,” she says. Never mind that all women with a reproductive system require gynaecological help at some point. ■This article appeared in the Business section of the print edition under the headline “Girls uninterrupted” More

POWER CUTS in China. Coal shortages in India. Spikes in electricity prices across Europe. A scramble for petrol in Britain. Blackouts and fuel blazes in Lebanon. Symptoms of dysfunction in global energy markets are everywhere.In recent days the mayhem has pushed oil prices in America above $80 a barrel, their highest level since late 2014. Natural-gas prices in Europe have tripled this year. Demand for coal, supposedly on the slag heap of history, has surged. The chief executive of one commodities-trading firm says he comes into the office at 5am in order to get the latest news on blackouts in one Asian country or another. And winter, with its need for heating, has yet to arrive in the northern hemisphere.A few years ago producers of fossil fuels would have responded to such price signals by swiftly ramping up output and investment. In 2014, with crude above $100 a barrel, Royal Dutch Shell, a European supermajor, put more than $30bn of capital expenditure into upstream oil and gas projects. It then splurged $53bn on BG Group, a British rival, to become the world’s biggest producer of liquefied natural gas (LNG).Not this time. Climate change has led to unprecedented pressure on oil and gas firms, especially European ones, to shift away from fossil fuels. As part of Shell’s long-term shift towards markets for lower-carbon gas and power, its upstream capital spending this year has shrunk to about $8bn. Last month it flogged its once-prized shale assets in the Permian basin in Texas to an American rival, ConocoPhillips, for $9.5bn. It is withdrawing from its onshore operations in Nigeria, a country where it first set foot in 1936. It recently said it would reduce oil production by 1-2% every year until 2030. Asked what the energy-price spike means for investment, Wael Sawan, its head of upstream oil-and-gas production is blunt. “From my perspective, it means nothing,” he says.This view is pervasive throughout much of the oil industry. In Europe, listed oil companies are under pressure from investors, primarily on environmental grounds, to stop drilling new wells. More upstream investment as prices rise could “delegitimise” their public commitments to cleaner energy, says Philip Whittaker of BCG, a consultancy. In America, publicly traded shale companies, which used to be all too eager to “frack” whenever oil prices spiked, are now under the thumbscrew of shareholders who want profits returned via dividends and buybacks rather than poured down a hole in the ground.State-owned oil firms are under budgetary constraints, too, partly because of the covid-19 pandemic. Only a few, such as Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) are expanding production. The result is a worldwide slump in investment in oil and gas exploration and production, from above $800bn in 2014 to just about $400bn, where it is expected to stay (see chart).Keeping it in the groundMeanwhile, demand has returned with surprising buoyancy as the pandemic eases. For the first time ever the oil market could briskly reach a point of lacking any spare capacity, according to Goehring & Rozencwajg, a commodity-investing firm. That might be only a temporary state of affairs; Aramco and ADNOC could respond rapidly. But temporarily at least it would push prices of crude sharply higher, adding further strains to economies already suffering from soaring costs of natural gas for homes and energy-intensive activities, from steelmaking and fertiliser production to blowing glass for wine bottles.From an environmental standpoint, higher prices may be welcome if they sap demand for fossil fuels, especially in the absence of a global carbon tax with bite. In its “World Energy Outlook”, published on October 13th, the International Energy Agency (IEA), an energy forecaster, said that the rebound in consumption of fossil fuels this year may cause the second-biggest absolute increase in carbon-dioxide emissions ever. To reach a goal of “net zero” emissions by 2050, the IEA says there is no need for investment in new oil and gas projects after 2021. Instead it calls for a tripling of clean-energy investment by 2030.The IEA’s argument that no new natural-gas projects, which are less grubby than with other hydrocarbons, are needed rests in part on investments in low-emission fuels, such as hydrogen. But, it admits, these are “well off track”. This points to the risk of treating all fossil fuels, each of which bears the blame for carbon emissions, as equal culprits. Reducing natural-gas supply with no backup could be counterproductive.For one thing, gas is currently the main substitute for thermal coal in countries like China and India that are keen to lower their power-related emissions. Bernstein, an investment firm, predicts China’s imports of LNG could almost double by 2030, making it the world’s biggest buyer. In the absence of investment in new projects, Bernstein expects global LNG capacity to be 14% short of what is needed by then. That would hamper Asia’s exit from coal.Moreover, natural gas serves a vital function in maintaining the stability of the electricity grid, especially in places reliant on intermittent wind and solar power (at least until the world’s grids become more interconnected). In such markets the marginal cost of natural gas often sets power prices, even if most electricity comes from renewables with zero marginal cost. The higher the price of gas, the higher the electricity bills. This could dampen popular support for clean power.Whether new supply will be forthcoming remains up in the air. As the boss of another commodities-trader observes, “because natural gas has been put in the dirty-fuels column, no one is investing.” For the private-sector supermajors, the problem is that they are all more or less evenly split between producing oil and natural gas. Because both often come out of the ground together, the two fuels tend to be inter twined in investors’ minds. This is frustrating. “It’s an incredibly myopic view that we lump oil together with gas,” fumes one supermajor executive. Yet his firm does not seem likely to defy investors by ramping up gas output significantly.An executive at another big oil company says the higher prices may add pressure to invest a bit more—but not to deviate from long-term climate commitments. Instead, he says new investment is likely to come from two sources that are not exposed to public pressure: the state-owned oil companies and privately held firms. The executive notes that the bulk of the recent increase in rig counts in the Permian basin has come from unlisted frackers, rather than publicly traded ones. Some compare this to bootlegging in the prohibition era. The higher the price of oil and gas, the more incentives there will be to produce them. Provided, that is, this happens out of the public eye. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Playing for time” More

BY SILICON VALLEY standards, Adobe is a dull company. Nudging 40 it is middle-aged. It does not make headlines with mega-mergers or have a swashbuckling chief executive. “I feel very comfortable not being out there pounding my chest,” confesses its boss, Shantanu Narayen, in a rare interview. All the while, Adobe has quietly managed to adapt to the age of cloud computing. It has done a better job of reinventing itself perhaps even than Microsoft, the technology industry’s best-known comeback kid. Microsoft’s CEO, Satya Nadella, is said to have examined Mr Narayen’s handiwork closely—and not just because he attended the same secondary school in India as Adobe’s leader, albeit a few grades down. Since 2007, when Mr Narayen took the helm, Adobe’s market capitalisation has swelled from $24bn to $276bn. In the past ten years it has outperformed both Mr Nadella’s Microsoft and Salesforce, another rival business-software maker.To most ears, Adobe is synonymous with desktop publishing. Founded in 1982, it set key standards, in particular PostScript, which tells printers where to make the dots, and PDF, the “portable document format” that allows printed documents to be distributed online. It also developed programs for editing digital content. One, Photoshop, became a verb. Adobe’s pricey software was installed on desktop computers, and updated with new versions every year or so. By the late 2000s this model itself looked in need of an update. Smartphones unleashed people’s creativity far from their desks and cloud computing enabled software to be offered as a service over the internet.Rather than cling to the lucrative legacy business, Mr Narayen embraced a chance “to reimagine ourselves”. Putting Photoshop and other popular but complex applications, such as Illustrator, fully into the cloud would have been technically too tricky. But Adobe still found a way to use the cloud to improve its products. Today Adobe’s two original software businesses have morphed into two subscription-based “clouds”. The smaller “Document” cloud provides services ranging from the mundane (converting a PDF into a word-processing file) to the mission-critical (managing the digital documents of government agencies). All have seen a boom during the pandemic-induced shift to remote work. The other, much bigger “Creative” cloud lets users edit all sorts of digital content, from websites to videos. Since this content no longer lives on hard drives but in data centres, it can be worked on from different devices and by several people at a time.Adobe’s transformation would not be half as successful, however, without other innovations. One is what the firm calls its “data-driven operating model” (DDOM), jargon for using data generated by its digital services to improve them and develop new ones in a perpetual feedback loop. Adobe has mastered this both internally and by developing a third cloud, which allows other firms to optimise their digital offerings. This “Experience” cloud lets its subscribers, among other things, track how online buyers behave and how they might best be guided to making a purchase.Another innovation was its management structure. Some tech firms, such as Apple, espouse top-down micromanagement. Alphabet, Google’s parent company, is almost anarchic in its bottom-upness. Adobe is a healthy mix. Mr Narayen sets out the destination, and the managers of the three clouds chart the exact course. To make DDOM and the Experience cloud work, for instance, he set a goal that was both precise and exacting: Adobe’s data platform must be able to serve up content in less than one-tenth of a second. How that objective was reached was then up to the engineers.Adobe’s three clouds, operating model and management style help explain why it offers, in the words of Mark Moerdler of Bernstein, a broker, an “unusual investment combination in software”: high margins and good growth. Its latest quarterly results are emblematic. Revenues rose by 22% year on year, to $3.9bn, while the operating margin edged up to 46%, according to Bernstein.Possibilities for more data-driven growth abound. On October 7th Adobe completed the $1.3bn acquisition of Frame.io, a video-editing service. Artificial intelligence, which extracts patterns from digital information, will underpin many new services (such as Adobe’s recent offering that turns PDFs into web pages, which can then be more easily navigated on smartphones). Similar algorithms could help professional content creators be more productive and also make Photoshop more accessible for newbies. The “creator economy” is only just getting going. And then there is the much-hyped “metaverse” of interconnected virtual worlds, which will be full of digital objects Adobe’s tools help build.Head in the cloud, feet on the groundAs Mr Narayen would be first to admit, the software business is full of risks. “Software follows a sort of S curve,” he observes: performance eventually moves sideways if “you do not invest in the right opportunities”. The Creative and Document clouds, which together generate 73% of Adobe’s revenues and 80% of its gross profit, are a ripe target for competitors. Startups such as Figma, a website for designers of online services which is fully cloud-based, are betting even more than Adobe on online collaboration. With 14 years under his belt as boss, talk of succession is in the air. It would be as big a transition as the handover from Steve Jobs to Tim Cook at Apple, says Brent Thill of Jefferies, an investment bank. It is anyone’s guess whether it could be as successful.Investors have indeed cooled a bit on Adobe of late. Its market value is down by $40bn from a peak in September, a steeper decline than at most other tech giants. Yet the company has proved time and again that it can prosper by embracing change rather than fighting it. That has made Mr Narayen the darling of investors and analysts, as well as a role model for tech bosses such as Mr Nadella. Nothing dull about that. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Silicon Valley’s quiet reinventor” More

MEETINGS ABSORB more time and drain morale more consistently than any other corporate activity. Before the pandemic managers were spending an average of 23 hours a week in meetings. Since then the barriers to calling people together have come down. Now that calendars are routinely shared, an empty diary slot attracts invitations like picnics do wasps.Ideas abound for how to make meetings better. Make people stand up, so they cannot settle in for the long haul. Write a memo on the topic at hand that everyone silently reads together at the outset. Toss a ball to each other to make it clear who has the floor and to stop the loudmouths from dominating. Most desperately of all, set aside time at the start for “fun”.Yet there is a form of meeting that reliably results in good decisions and that commands general respect, even reverence. That meeting is the jury. Any system in which people still believe after more than 800 years is worth a closer look. In its broad principles, if not in its details, it has five lessons for meeting-throwers and meeting-goers.First, its purpose is clear. “Why are we here?” is a question that humans grapple with not just in the depth of their souls but also during most Zoom calls. No jury doubts the point of its existence, the nature of its task or the need for multiple people to be involved. That level of shared understanding is something to aspire to in other settings.Second, its size is right. The 12-person formula dates back to 12th-century England and the reign of Henry II. Temporary courts known as assizes summoned this number of men to hear land disputes. It has largely stuck ever since. For good reason. More people would add voices, but not value. Fewer people would mean less diversity of views. The advantages of keeping meeting numbers tight are not lost on Jeff Bezos, who operated a two-pizza rule at Amazon to limit how many people were in a meeting. The one-jury rule works just as well.The third lesson concerns the agenda. Jurors have one, very important, question to consider, and a limited number of choices to make. Clarity keeps people focused. No juror is likely to suggest backing up a bit in order to brainstorm what the criminal-justice system should look like. And whereas many pundits advise keeping meetings short, time is not a constraint: jury members do not leave until a decision is made. “Putting a pin in it” is just not an option.The fourth lesson is about membership. Jurors are less prone to groupthink than the attendees of the average meeting. Prospective members are deliberately drawn from a wide pool, and anyone whose mind is already made up is supposed to be weeded out. Companies cannot convene a bunch of strangers to make decisions for them. But they can consciously try to bring in unfamiliar faces and call on different perspectives. And just as a jury foreman is not chosen by rank, a moderator need not always be the most senior person in the room.The final lesson concerns psychological safety, the willingness of people to speak up. That can be hard when your boss is frowning at you. But structure helps. Trials are expressly designed to weigh lots of evidence and to take in opposing views. Before juries make decisions, they get to weigh competing accounts of what happened. The best firms echo this approach by structuring discussions in order to test arguments properly. Investment decisions at Blackstone, a private-equity titan, are probed at meetings that systematically focus on the risk factors surrounding a potential deal, as well as what makes it attractive.Things can go wrong in juries. Jury selection can rig outcomes rather than improve them. Domineering personalities can sway meeker ones. Also, people really can be idiots. A murder conviction in a British courtroom in 1994 was quashed after it was found that some members had used a Ouija board to ask the obvious question of one of the deceased. (The defendant was reconvicted at a second trial.)Evidently, firms are not the same as courtrooms. Many corporate pow-wows are designed to transmit information and build culture, not to deliver verdicts. Unanimity is no way to run an enterprise. And deciding the fate of a fellow citizen is bound to be more engaging than the average business call. But serving on a jury is not an interruption to work. If you get summoned, you can both do your duty and see what makes for a really good meeting.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “How to run better meetings” More

J.R.D. TATA recalled it as his saddest day. In 1978 the illustrious Indian industrialist opened the newspaper to discover that the government had fired him as chairman of Air India, the airline he founded in 1932 and managed even after its nationalisation in 1953. He called his secretary to ask if the story of his sacking was true. She replied that his successor, a former air marshal, was already making himself comfortable in his chair.Tata, who died in 1993, frequently said that his job at Air India was to protect the airline from the central government in Delhi. No doubt the sentiment contributed to his sacking—and was justified. After his exit the flag-carrier entered a spiral. In recent years it was losing nearly $3m a day. Operating costs far exceed the industry average. So do customer complaints. Perhaps realising this, the government began trying to offload Air India in 2001, but deals repeatedly foundered over financial terms and demands that the state retain a residual stake, and possibly residual control.On October 8th the drawn-out process finally concluded. The airline would return to Tata Group, today still one of India’s biggest conglomerates. Its bid of $2.4bn (including $2bn in debt) beat the only other, from the owner of Spice Jet, a heavily indebted low-cost airline. Some of Air India’s non-core assets, and its remaining $6bn in debt, will be transferred to a separate government-run holding company.Given what has unfolded in India’s aviation since J.R.D.’s inglorious dismissal, it is not entirely unfair to conclude the government did Tata Group a favour by taking Air India off its hands. Private carriers have emerged only to go bust. Covid-19 travel restrictions have caused the industry to wallow in losses. Indigo, the most successful carrier with a market share of 57%, is embroiled in litigation between its founders and has ejected multiple top executives.On the surface, Tata Group’s desire to return Air India to the fold looks foolish. The group already controls two smaller airlines through an 84% stake in AirAsia India (an affiliate of a Malaysian carrier) and a 51% stake in Vistara (co-owned with Singapore Airlines). Both have consistently lost money. Adding Air India to the mix seemingly deepens Tata’s aerial woes. The carrier burns cash as fast as its old and frayed fleet burns kerosene. The workforce is unionised, difficult to manage and resistant to change. The terms of the deal prohibit redundancies in the first year and after that only through voluntary attrition.Still, Tata’s move is not without reason. Its current management sees its existing aviation operations as irredeemably subscale. The deal will double Tata’s domestic market share to 27% and give it a platform for growth through Air India’s network of landing slots abroad, particularly in London and New York. Air India owns a low-cost airline based in the state of Kerala that does a booming business ferrying Indian workers to and from the Persian Gulf, and could dovetail with AirAsia India.Tata in turn may be providing Air India with capital and even more desperately needed good management. A pandemic-era depression in global aviation means aircraft are available. Boeing and Airbus are doubtless already pounding Tata’s door. Tata Consulting Services, India’s largest information-technology consultancy, could help tie together the various entities and enable savings in areas such as bookings and loyalty programmes. Tata’s hospitality division, Indian Hotels, could benefit from marketing links.Managing this process will not be easy. Singapore Airlines is thought to have opposed the deal and hoped that Vistara would feed its own global network. Managing no-frills and full-service divisions makes sense in theory but no large airline has done it well. Crucial support for Air India comes from the country’s tight restrictions on foreign carriers, negotiated as bilateral treaties with their home countries. Those may be eased now that the airline is in private hands, reducing its advantage. Having reclaimed J.R.D.’s chair, Tata may find it not entirely comfortable. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The longest layover” More

IMAGINE, IF YOU will, a toy boat that might fit in the palm of your hand. At mid-ship add a squat spool of sewing thread lying on its side. Scale that up about a thousand-fold and the result is the 150-metre-long Nexans Aurora. The thread in question is kilometres of high-voltage power line ready to be deployed from the aft of the ship across the sea floor. Each cable, weighing a hefty 150kg per metre and thick as a tree trunk, is a woven mix of aluminium, steel, lead and insulating material. The single stretch loaded up in a bobbin nearly 30 metres across is as heavy as the Eiffel Tower.The ways electricity is both consumed (more of it, notably by cars) and produced (also more of it, increasingly through renewable sources, see chart 1) are changing. Balancing the supply and demand of energy is never easy, as recent mayhem in European gas prices have shown. It is all the more complex for electricity, which is trickier to store than not just gas, but also coal, diesel or wood chips. Renewables add more wrinkles: wind blows haphazardly; the sun can be obscured by clouds or night. As a result, most of the power that is produced has to be consumed immediately, and mostly in the place that produces it.The idea of separating consumption from production in time—using giant batteries or other storage—has received plenty of attention from entrepreneurs, politicians and investors. But this is currently impractical at scale. So the notion of separating the two in space instead is gaining ground. It requires an upgrade in the behind-the-scenes wiring that carries power from where it is made to where it is used. The task can involve plugging an offshore wind farm into the main grid. Also needed are connections joining up national networks, often within blocs where most of today’s electricity trade takes place, notably the EU.Either way, cables are needed, and boats to lay some of them. The potential is vast. Just 4.3% of power generated in 2018 by members of the OECD, a club of industrialised countries, was exported, up from 2% in the 1970s but a far cry from a fungible commodity like oil.All this has resulted in surging order-books for cable-makers and -layers like Nexans, the Nexans Aurora’s eponymous French owner. Credit Suisse, a bank, forecasts undersea wiring alone to bring in revenue of around €5.5bn ($6.4bn) in 2022, up from €4.5bn this year. It expects cable firms’ revenues from offshore wind installations to more than treble in size between 2020 and 2035. Investor enthusiasm around electric cables has sent share prices of Nexans and the industry’s two other European giants, NKT and Prysmian, up by 48-125% in the past two years (see chart 2). In February Nexans announced that it would soon spin out its non-electric cables business (catering to industry and data centres) to focus on transmission lines.Power imbalanceSatisfying see-sawing electricity demand is complicated but well understood. British grid managers have long known how to turn on power plants just as soap-operas end and tea-craving viewers turn on their kettles. Connecting power grids with different production and consumption patterns is equivalent, matching supply and demand by transferring electricity across distance instead.Take Denmark. It has installed enough wind turbines that, when it blows, no other source of electric power is required. But it needs a Plan B, given the fickleness of wind. Without batteries it could keep old fossil-fuel plants open, and use them intermittently. A more elegant solution is a cable to Norway, which has ample hydroelectric potential. When the wind blows, both places can use Danish wind power, keeping Norwegian water in reservoirs. On calm days the Norwegian lakes are drained a bit faster to succour Denmark.Further links from Denmark to Holland, Sweden, Germany and Britain (planned for 2023) provide yet more options. Add enough links to enough places, and electricity becomes a tradable commodity. For a local grid manager, reducing carbon emissions becomes a case of buying and selling the right contract rather than building a solar or wind farm in the wrong place.That prospect means such interconnections are surging. Europe is the new frontier of cable-laying. Electrification, notably through renewables, is a key plank of its ambitions to reach “net zero” emissions by 2050. National grids have been compelled by EU rules to integrate into a single network, often backed with public cash. The continent’s scraggy coastline means lots of wind power—and also the opportunity to deploy electric cables at sea, away from where anyone might object to them being laid.Shifting power-generation dynamics play a part. Germany, for example, was once a big exporter of power but is becoming an importer as it finishes shutting down its nuclear plants and phases out coal. The green push also means electricity is being generated in all the wrong places. In Italy, power plants were built near where industry was located, mostly in the north of the country. Now the wind blows and sun shines mainly in the less-developed south. “The shift to renewables means we need more rebalancing, more transition,” says Stefano Antonio Donnarumma of Terna, an Italian manager of transmission lines.As a result, the making and deploying of electric cable is one of the rare industrial sectors that European firms dominate. Prysmian is Italian, NKT is Danish and Nexans is French. They have around 80% market share outside China, where demand is largely met locally. Beyond merely manufacturing woven metal wires (among other products), they lay them as well, commissioning and operating ships like the Nexans Aurora, a €170m craft fitted up the coast from an existing Nexans factory in Halden, Norway.Advances in undersea cable-laying have helped open up the prospect of new and novel interconnections. Whereas previous generations of ships risked tipping over if sending wires much below 1,200 metres, the Nexans Aurora and a flotilla of similar ships from its rivals can lay wires at depths of 3,000 metres. (An accompanying robot can lay a trench in shallower waters, the better to protect against stray anchors and fishing nets.) That opens up the Mediterranean. This week the Nexans Aurora was preparing to deploy her first cable, connecting the island of Crete to the Greek mainland.Longer cables mean fewer legs of 100km or so that need to be stitched together. The viability of much longer interconnectors is being mooted as a result. A 720km Norway-to-Britain link started operating this month. Many are in various stages of planning, for example hooking up Greece and Israel, or Ireland and France. Others are more speculative, such as a 3,800km cable linking the sun-baked solar fields of Morocco with Britain. Another consortium wants to link Australia, Indonesia and Singapore, a 4,200km project.Christopher Guérin, boss of Nexans, says 72,000km of such interconnection cables will be laid in the decade to 2030, a seven-fold increase. That comes on top of wiring needed to upgrade antiquated connections on land, many of which are past their sell-by date. A power crisis in Texas earlier this year helped unlock stimulus funds for grid upgrades in America, too.A more immediate opportunity is hooking up wind farms to onshore power grids. Cable salesmen are cheered by the fact that more and more such facilities are being developed far out at sea. The possibility of floating wind farms, which could be farther away still, will add to their order books. The International Energy Agency, a rich-country energy club, estimates 80 gigawatts of offshore wind farms will have to be installed every year by 2030 to meet decarbonisation targets. Each gigawatt of offshore capacity requires around €250m of cable input including the installation, says Max Yates of Credit Suisse. The cable costs roughly as much as the foundations, both second only to the turbine itself.The urgency of this global rewiring effort is almost imperceptible from the deck of the Nexans Aurora. Spools release their wire at a leisurely pace: 10-12km a day is considered tidy work. But the future energy highways are at last becoming a reality. Steady as she goes. More