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Apple paid $5 billion to $6 billion to settle with Qualcomm: UBS

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Apple CEO Tim Cook participates in an American Workforce Policy Advisory Board meeting with U.S. President Donald Trump and others in the White House in Washington, March 6, 2019.

Leah Millis | Reuters

Apple CEO Tim Cook participates in an American Workforce Policy Advisory Board meeting with U.S. President Donald Trump and others in the White House in Washington, March 6, 2019.

Apple probably paid Qualcomm between $5 billion and $6 billion to settle the litigation between the two companies, UBS analyst Timothy Arcuri estimated in a note distributed on Thursday.

Apple probably also agreed to pay between $8 and $9 in patent royalties per iPhone, estimated UBS, based on Qualcomm’s guidance that it expects earnings per share to increase by $2 as a result of the settlement.

The UBS estimate suggests that Apple paid a high price to end a bitter legal battle that spanned multiple continents and threatened Apple’s ability to release a 5G iPhone and put pressure on Qualcomm’s licensing business model that contributes over half of the company’s profit.

Since the settlement, Qualcomm stock is up over 38%. Apple shares are 2% higher.

The companies, which announced the settlement on Tuesday as a trial in one of their many legal disputes got underway, said that the settlement included a one-time payment from Apple to Qualcomm as well as a chipset supply agreement that suggested that future iPhones would use Qualcomm modem chips.

Arcuri wrote that the one-time payment was likely for royalty payments that Apple had stopped paying when the two companies were embroiled in litigation, and that is how it was calculated.

The settlement is “a solid outcome for Qualcomm and certainly better than the [roughly] $5 [royalty payment] assumption we had been making,” Arcuri wrote.

If Apple does pay between $8 and $9 in royalties per iPhone it would be a significant increase over the $7.50 in royalties that it previously paid Qualcomm per phone, according to Apple COO Jeff Williams’ testimony in an FTC trial.

Apple and Qualcomm didn’t reply to a request for comment. When CNBC asked Qualcomm CEO Steve Mollenkopf how much Apple pays it per phone on Wednesday as well as the size of the one-time payment, he declined to answer.

“Well, a deal like this, there’s a lot of value back and forth, and it’s just best to keep it confidential,” he said.

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Oculus co-founder Nate Mitchell leaves Facebook

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A visitor tries out the Oculus Gear VR virtual reality goggles at the Facebook Innovation Hub on February 24, 2016 in Berlin, Germany.

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Facebook just lost the last remaining co-founder from one of its biggest and most important acquisitions.

Oculus co-founder Nate Mitchell announced Tuesday that he’s departing the virtual reality company after seven years. Mitchell headed up virtual reality product development at Facebook.

“After seven incredible years, I’ve decided to move on from Oculus / Facebook,” Mitchell wrote in a post on Reddit. “I expect the incredible team at Facebook to continue to surprise and delight us on this mission to build the next computing platform. I can’t wait to see what comes next.”

Mitchell said he’s now taking some time off “to travel, be with family and recharge.” His departure follows the exit of co-founder Palmer Luckey in 2017, who now runs defense start-up Anduril Industries. Brendan Iribe, the former CEO and a co-founder of Oculus, also exited the company in 2018.

Facebook acquired Oculus for $2 billion in 2014 in a move that represented a major bet on virtual reality. Since then, Oculus has released several iterations of its headsets, most recently launching a fourth-generation standalone version for $399.

Mitchell’s departure marks the latest example of a co-founder departing the company after Facebook acquired it. Last April, Jan Koum, cofounder of Facebook-owned WhatsApp, said he was leaving the company. Instagram co-founders Kevin Systrom and Mike Krieger departed the social media app last September.

Representatives from Facebook were not immediately available for comment.

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Hong Kong airport calm, after police clashed with protesters earlier

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Riot police disperse anti-extradition bill protesters during a mass demonstration after a woman was shot in the eye, at the Hong Kong international airport, in Hong Kong China August 13, 2019.

Thomas Peter | Reuters

The Hong Kong airport returned to calm as most protesters left the airport early Wednesday morning.

Earlier, riot police clashed with pro-democracy protesters late Tuesday night, moving into the terminal where the demonstrators had shut down operations at the busy transport hub for two straight days.

The Tuesday night demonstrations involved officers armed with pepper spray and batons confronting the protesters who used luggage carts to barricade entrances to the airport terminal.

Police took several people into a police van waiting at the entrance to the airport’s arrivals hall.

Police said they tried to help ambulance officers reach an injured man whom protesters had detained on suspicion of being an undercover agent.

Protesters also detained a second man who they suspected of being an undercover agent. After emptying out his belongings, they found a blue T-shirt that has been worn by pro-Beijing supporters that they said was evidence he was a spy.

Earlier in the day, authorities were forced to cancel all remaining flights as the city’s pro-Beijing leader warned that the protesters had pushed events onto a “path of no return.”

After a brief period when flights were able to take off and land, the airport authority suspended check-in services for departing flights as of 4:30 p.m. Departing flights that had completed the process were able to continue to operate.

It said it did not expect arriving flights to be affected, although dozens were already canceled. The authority advised people not to come to the airport, one of the world’s busiest.

More than 200 flights were canceled Monday and the airport was effectively shut down with no flights taking off or landing. Passengers have been forced to stay in the city while airlines tried to find other ways to get them to their destinations.

For Grace Bendal, a 43-year-old contractor from the Philippines, Tuesday was the second straight day she came to the airport only to learn flights were canceled. She spent the weekend in Hong Kong with her primary school-age children, who were eager to return to classes.

She said they have already missed two days of school and the extra day in the city has cost her around 3,000 Hong Kong dollars ($400). Though there were no airline employees at check-in counters Tuesday evening, Bendal said she and her children planned to stay at the airport all night.

“I cannot blame them, because they are fighting for something,” Bendal said of the protesters. “But then it’s not right if we are the ones suffering.”

The airport disruptions are an escalation of a summer of demonstrations aimed at what many Hong Kong residents see as an increasing erosion of the freedoms they were promised in 1997 when Communist Party-ruled mainland China took over what had been a British colony.

The protests have built on an opposition movement that shut down much of the city for seven weeks in 2014 before it eventually fizzled and its leaders were jailed on public disturbance charges.

The central government in Beijing has ominously characterized the current protest movement as something approaching “terrorism” that poses an “existential threat” to citizens.

While Beijing tends to define terrorism broadly, extending it especially to nonviolent movements opposing government policies in minority regions such as Tibet and Xinjiang, its use of the term in relation to Hong Kong raised the prospect of greater violence and the possible suspension of legal rights for those detained.

Hong Kong leader Carrie Lam said the instability, chaos and violence have placed the city on a “path of no return.”

The black-clad demonstrators have shown no sign of letting up on their campaign to force Lam’s administration to respond to their demands, including that she step down and scrap proposed legislation under which some suspects could be sent to mainland China, where critics say they could face torture and unfair or politically charged trials.

Lam has rejected all calls for dialogue, part of what analysts say is a strategy to wear down the opposition movement through police action while prompting demonstrators to take more violent and extreme actions that will turn the Hong Kong public against them. At the airport, protesters discussed among themselves whether they should simply block all access to the facility.

Meanwhile, paramilitary police were assembling across the border in the city of Shenzhen for exercises that some saw as a threat to increase force against the mostly young protesters who have turned out by the thousands in the past 10 weeks.

On Tuesday, President Donald Trump tweeted that U.S. intelligence informed him that Chinese troops were being moved to the Hong Kong border.

Anti-government protesters try to prevent a passenger from breaching a barricade in front of departure gates, during a demonstration at Hong Kong Airport, China August 13, 2019.

Thomas Peter | Reuters

While China has yet to threaten sending in the army — as it did against pro-democracy protesters in Beijing in 1989 — the Shenzhen exercises were a sign of its ability to crush the demonstrations, even at the cost to Hong Kong’s reputation as a safe haven for business and international exchange. Images on the internet showed armored personnel carriers belonging to the People’s Armed Police driving in a convoy Monday toward the site of the exercises.

The People’s Liberation Army also stations a garrison in Hong Kong, which recently released a video showing its units combating actors dressed as protesters. Hong Kong police also put on a display of water cannons.

Police have arrested more than 700 protesters since June and say they have infiltrated the demonstrators, leading to concerns that officers were inciting violence. Scores of protesters and police have been hurt, including a woman reported to have had an eye ruptured by a beanbag round fired by police during clashes Sunday.

Police said they are investigating the incident, which protesters have taken up as a rallying cry. Some in the airport occupation wore gauze bandages dyed with artificial blood over one eye.

The U.N.’s top human rights official condemned violence around the protests and urged both sides to settle their dispute through “open and inclusive dialogue.”

Rupert Colville, spokesman for U.N. High Commissioner for Human Rights Michelle Bachelet, said her office had reviewed evidence that police are using “less-lethal weapons in ways that are prohibited by international norms and standards.” That includes firing tear gas canisters into crowded, enclosed areas and directly at individuals, “creating a considerable risk of death or serious injury,” Colville said in a statement.

In a sign of rising tensions, protesters in the evening detained a man they claimed was a police officer from mainland China. They tied his wrists using plastic strips and poured water over his head. Airport security guards were present but did not appear to be able to stop the crowd.

Sally Tong, an 18-year-old protester, said they needed to keep holding him as evidence that mainland Chinese authorities are in Hong Kong to monitor the demonstrations. Tong said the man was dressed in black and wore a mask to look like one of them.

“We want to keep him here and investigate,” Tong said. Protesters said the man dropped his wallet when he was running away from them, and they found ID cards from mainland China and also found his name on a list of police officers online.

The Associated Press could not independently verify his identity.

After two months, the protests have become increasingly divisive and prompted clashes across the city.

Demonstrators have recently focused on their demand for an independent inquiry into what they call the police’s abuse of power and negligence. That followed reports and circulating video of violent arrests and injuries sustained by protesters.

Some protesters have thrown bricks, eggs and flaming objects at police stations. Police say several officers have suffered burns, bruises and eye damage from protesters.

Lam said dialogue would only begin when the violence ended. She reiterated her support for police and said they have had to make on-the-spot decisions under difficult circumstances, using “the lowest level of force.”

“After the violence has been stopped, and the chaotic situation that we are seeing could subside,” Lam said. “I as the chief executive will be responsible to rebuild Hong Kong’s economy … to help Hong Kong to move on.”

She did not elaborate on any conciliatory steps her government will take.

The early protests were in specific neighborhoods near government offices. However, the airport protest has had a direct impact on business travel and tourism. Analysts said it could make foreign investors think twice about setting up shop in Hong Kong, which has long prided itself as being Asia’s leading business city with convenient air links across the region.

“I don’t think I will ever fly to Hong Kong again,” said Kerry Dickinson of South Africa.

The protesters held signs in Chinese and English to appeal to travelers from mainland China and elsewhere. “Democracy is a good thing,” said one sign in simplified Chinese characters.

Adding to the protesters’ anger, Hong Kong’s Cathay Pacific Airways told employees the carrier has a “zero tolerance” for them joining “illegal protests” and warned they could be fired.

— CNBC contributed to this report.

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Why Carl Icahn invested in Cloudera

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Carl Icahn speaking at Delivering Alpha in New York on Sept. 13, 2016.

David A. Grogan | CNBC

The latest target of Carl Icahn, an investor famous for his activist-takeover campaigns, is Cloudera, a troubled enterprise-software company that recently combined with its biggest rival.

Icahn has taken aim at a company that’s not nearly as richly valued as other technology names. Cloudera’s market cap is less than $2 billion, and it had a price-to-sales multiple of 2.6 for its current fiscal year, according to Refinitiv, while comparable small-cap enterprise software companies MongoDB and Twilio boast multiples of 16.4 and 14.5 respectively.

Cloudera is available at a discount for a few reasons: The person who took it public has left, and big cloud companies like Amazon are picking up business on Cloudera’s turf.

Cloudera shares rose after Icahn’s position in Cloudera became public on Aug. 1. “The Reporting Persons acquired their positions in the Shares in the belief that the Shares were undervalued,” Icahn and Co. wrote in the regulatory filing revealing the ownership stake.

On Monday the company said that as a result of an agreement with Icahn, two employees of Icahn Enterprises, Nicholas Graziano and Jesse Lynn, will join Cloudera’s board. Icahn and his affiliates now own more than 18% of the company, whose market cap is below $2 billion.

Cloudera declined comment. Icahn could not immediately be reached for comment.

Nothing to break up

Founded in 2008, Cloudera sells software that companies use to store and process great quantities of different kinds of data, sometimes referred to as “big data.” It’s best known for popularizing the Hadoop open-source big data software, which was inspired by technology used at Google and put into widespread use by Yahoo. The company went public in 2017 with considerable backing from Intel.

For years, Cloudera competed with other companies selling distributions of Hadoop, including Hortonworks. Then Cloudera and Hortonworks merged in a deal that was originally valued at more than $5 billion. The two companies’ stocks didn’t react well to the news, though. As they worked on integrating, Cloudera saw public cloud vendors pick up some of its sales opportunities, said then-CEO Tom Reilly on an earnings call in June. (Reilly has since left, and Chairman Martin Cole is now the company’s interim CEO.)

Analysts have varying opinions on what Icahn is likely to do.

“Cloudera is a pure-play single platform company and there’s nothing to breakup, so we’d imagine that the compatible areas of Mr. Icahn’s historical playbook would be restricted to 1) agitating for a sale, or 2) pushing for big expense reductions to boost cashflows,” BTIG analysts led by Edward Parker wrote in a note distributed to clients after the Cloudera stake was disclosed.

“The prospect for the latter’s success is complicated by the fact that the stickiness of Cloudera’s current revenue stream is currently subject to a high degree of skepticism. Indeed, Cloudera’s future largely hinges on the success of the upcoming CDP [Cloudera Data Platform] release, which pivots the company’s big data management platform from on-prem towards hybrid and multi-cloud environments.”

Rishi Jaluria, senior research analyst at DA Davidson, believes the company is undervalued.

“While the involvement of Mr. Icahn is a surprise, the involvement of an activist is not – we do believe shares are currently undervalued and the company could benefit from an activist,” he wrote in an Aug. 2 note. With Icahn in the mix, he could contribute to the selection of a replacement for Reilly, or agitate to sell the company to IBM or a private equity buyer.

The consolidation in the industry underscores the difficulty of building strong sustainable businesses selling open-source software. Earlier this month Hewlett Packard Enterprise said it acquired the “business assets” of a smaller Hadoop player, MapR. HPE didn’t disclose terms of the deal.

Icahn is no stranger to technology investing. After investing in Lyft in 2015, he exited the position earlier this year, prior to the company’s initial public offering. Last year he exited a position in PayPal, acquired a stake in VMware and bought into the tracking stock for Dell as the company was plotting its return to public markets. Icahn has also backed Apple and Netflix.

WATCH: BTIG’s Fishbein on cloud companies targeted for takeover

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