Chasing the Dream of Half-Price Gasoline from Natural Gas

A startup called Siluria thinks it’s solved a mystery that has stymied huge oil companies for decades.

By Kevin Bullis

At a pilot plant in Menlo Park, California, a technician pours white pellets into a steel tube and then taps it with a wrench to make sure they settle together. He closes the tube, and oxygen and methane—the main ingredient of natural gas—flow in. Seconds later, water and ethylene, the world’s largest commodity chemical, flow out. Another simple step converts the ethylene into gasoline.

The white pellets are a catalyst developed by the Silicon Valley startup Siluria, which has raised $63.5 million in venture capital. If the catalysts work as well in a large, commercial scale plant as they do in tests, Siluria says, the company could produce gasoline from natural gas at about half the cost of making it from crude oil—at least at today’s cheap natural-gas prices.

If Siluria really can make cheap gasoline from natural gas it will have achieved something that has eluded the world’s top chemists and oil and gas companies for decades. Indeed, finding an inexpensive and direct way to upgrade natural gas into more valuable and useful chemicals and fuels could finally mean a cheap replacement for petroleum.

Natural gas burns much more cleanly than oil—power plants that burn oil emit 50 percent more carbon dioxide than natural gas ones. It also is between two and six times more abundant than oil, and its price has fallen dramatically now that technologies like fracking and horizontal drilling have led to a surge of production from unconventional sources like the Marcellus Shale. While oil costs around $100 a barrel, natural gas sells in the U.S. for the equivalent of $20 a barrel.

But until now oil has maintained a crucial advantage: natural gas is much more difficult to convert into chemicals such as those used to make plastics. And it is relatively expensive to convert natural gas into liquid fuels such as gasoline. It cost Shell $19 billion to build a massive gas-to-liquids plant in Qatar, where natural gas is almost free. The South African energy and chemicals company Sasol is considering a gas-to-liquids plant in Louisiana that it says will cost between $11 billion and $14 billion. Altogether, such plants produce only about 400,000 barrels of liquid fuels and chemicals a day, which is less than half of 1 percent of the 90 million barrels of oil produced daily around the world.

The costs are so high largely because the process is complex and consumes a lot of energy. First high temperatures are required to break methane down into carbon monoxide and hydrogen, creating what is called syngas. The syngas is then subjected to catalytic reactions that turn it into a mixture of hydrocarbons that is costly to refine and separate into products.

For years, chemists have been searching for catalysts that would simplify the process, skipping the syngas step and instead converting methane directly into a specific, desired chemical. Such a process wouldn’t require costly refining and separation steps, and it might consume less energy. But the chemistry is difficult—so much so that some of the world’s top petroleum companies gave up on the idea in the 1980s.

Siluria thinks it can succeed where others have failed not because it understands the chemistry better, but because it has developed new tools for making and screening potential catalysts. Traditionally, chemists have developed catalysts by analyzing how they work and calculating what combination of elements might improve them. Siluria’s basic philosophy is to try out a huge number of catalysts in the hope of getting lucky. The company built an automated system—it looks like a mess of steel and plastic tubes, mass spectrometers, small stainless steel furnaces, and data cables—that can quickly synthesize hundreds of different catalysts at a time and then test how well they convert methane into ethylene.

The system works by varying both what catalysts are made of—the combinations and ratios of various elements—and their microscopic structure. Siluria was founded based on the work of Angela Belcher, a professor of biological engineering at MIT who developed viruses that can assemble atoms of inorganic materials into precise shapes. Siluria uses this and other methods to form nanowires from the materials that make up its catalysts. Sometimes the shape of a nanowire changes the way the catalyst interacts with gases such as methane—and this can transform a useless combination of elements into an effective one. “How you build up the structure of the catalyst matters as much as its composition,” says Erik Scher, Siluria’s vice president of research and development.

The process of making and testing catalysts isn’t completely random—Siluria has the work of earlier chemists to guide it, and it has developed software that sorts out the most efficient way to screen a wide variety of possibilities. The result is that what used to take chemists a year Siluria can now do in a couple of days, Scher says. “We’ve made and screened over 50,000 catalysts at last count,” he says. “And I haven’t been counting in a while.”

Nonetheless, some seasoned chemists are skeptical that Siluria can succeed. Siluria’s process is a version of one that chemists pursued in the 1970s and 1980s known as oxidative coupling, which involves reacting methane with oxygen. The problem with this approach is that it’s hard to get the reaction to stop at ethylene and not keep going to make carbon dioxide and water. “The reaction conditions you need to convert methane to ethylene do at least as good a job, if not better, of converting ethylene into carbon dioxide, which is useless,” says Jay Labinger, a chemist at the Beckman Institute at Caltech.

In the late 1980s, Labinger wrote a paper that warned researchers not to waste their time working on the process. And history seems to have borne him out. The process “hasn’t been, and doesn’t appear at all likely to be” an economically viable one, he says.

Yet in spite of the challenging chemistry, Siluria says the performance of its catalysts at its pilot plant have justified building two larger demonstration plants—one across San Francisco Bay in Hayward, California, that will make gasoline, and one in Houston that will only make ethylene. The plants are designed to prove to investors that the technology can work at a commercial scale, and that the process can be plugged into existing refineries and chemical plants, keeping down capital costs. The company hopes to open its first commercial plants within four years.

Siluria can’t tell you exactly how it’s solved the problem that stymied chemists for decades—if indeed it has. Because of the nature of its throw-everything-at-the-wall approach, it doesn’t know precisely how its new catalyst works. All it knows is that the process appears to work.

The hope for finding more valuable uses for natural gas—and making natural gas a large-scale alternative to oil—doesn’t rest on Siluria alone. The abundance of cheap natural gas has fueled a number of startups with other approaches. Given the challenges that such efforts have faced, there’s good reason to be skeptical that they will succeed, says David Victor, director of the Laboratory on International Law and Regulation at the University of California at San Diego. But should some of them break through, he says, “that would be seismic.”

The Power to Decide

What’s the point of all that data, anyway? It’s to make decisions.

By Antonio Regalado

Back in 1956, an engineer and a mathematician, William Fair and Earl Isaac, pooled $800 to start a company. Their idea: a score to handicap whether a borrower would repay a loan.

It was all done with pen and paper. Income, gender, and occupation produced numbers that amounted to a prediction about a person’s behavior. By the 1980s the three-digit scores were calculated on computers and instead took account of a person’s actual credit history. Today, Fair Isaac Corp., or FICO, generates about 10 billion credit scores annually, calculating 50 times a year for many Americans.

This machinery hums in the background of our financial lives, so it’s easy to forget that the choice of whether to lend used to be made by a bank manager who knew a man by his handshake. Fair and Isaac understood that all this could change, and that their company didn’t merely sell numbers. “We sell a radically different way of making decisions that flies in the face of tradition,” Fair once said.

This anecdote suggests a way of understanding the era of “big data”—terabytes of information from sensors or social networks, new computer architectures, and clever software. But even supercharged data needs a job to do, and that job is always about a decision.

10 billion
Credit scores generated each year

In this business reportMIT Technology Review explores a big question: how are data and the analytical tools to manipulate it changing decision making today? On Nasdaq, trading bots exchange a billion shares a day. Online, advertisers bid on hundreds of thousands of keywords a minute, in deals greased by heuristic solutions and optimization models rather than two-martini lunches. The number of variables and the speed and volume of transactions are just too much for human decision makers.

Of course, there’s danger in letting the data decide too much. In this report, Duncan Watts, a Microsoft researcher specializing in social networks, outlines an approach to decision making that avoids the dangers of gut instinct as well as the pitfalls of slavishly obeying data. In short, Watts argues, businesses need to adopt the scientific method (see “Scientific Thinking in Business”).

To do that, they have been hiring a highly trained breed of business skeptics called data scientists. These are the people who create the databases, build the models, reveal the trends, and, increasingly, author the products. And their influence is growing in business. This could be why data science has been called “the sexiest job of the 21st century.” It’s not because mathematics or spreadsheets are particularly attractive. It’s because making decisions is powerful.

When there’s a person in the loop, technology takes a softer approach (see “Software That Augments Human Thinking”). Think of recommendation engines on the Web that suggest products to buy or friends to catch up with. This works because Internet companies maintain statistical models of each of us, our likes and habits, and use them to decide what we see. In this report, we check in with LinkedIn, which maintains the world’s largest database of résumés—more than 200 million of them. One of its newest offerings is University Pages, which crunches résumé data to offer students predictions about where they’ll end up working depending on what college they go to (see “LinkedIn Offers College Choices by the Numbers”).

These smart systems, and their impact, are prosaic next to what’s planned. Take IBM. The company is pouring $1 billion into its Watson computer system, the one that answered questions correctly on the game show Jeopardy! IBM now imagines computers that can carry on intelligent phone calls with customers, or provide expert recommendations after digesting doctors’ notes. IBM wants to provide “cognitive services”—computers that think, or seem to (see “Facing Doubters, IBM Expands Plans for Watson”).

Andrew Jennings, chief analytics officer for FICO, says automating human decisions is only half the story. Credit scores had another major impact. They gave lenders a new way to measure the state of their portfolios—and to adjust them by balancing riskier loan recipients with safer ones. Now, as other industries get exposed to predictive data, their approach to business strategy is changing, too. In this report, we look at one technique that’s spreading on the Web, called A/B testing. It’s a simple tactic—put up two versions of a Web page and see which one performs better (see “Seeking Edge, Websites Turn to Experiments” and “Startups Embrace a Way to Fail Fast”).

Until recently, such optimization was practiced only by the largest Internet companies. Now, nearly any website can do it. Jennings calls this phenomenon “systematic experimentation” and says it will be a feature of the smartest companies. They will have teams constantly probing the world, trying to learn its shifting rules and deciding on strategies to adapt. “Winners and losers in analytic battles will not be determined simply by which organization has access to more data or which organization has more money,” Jennings has said.

Hacking the Immune System to Prevent Damage after a Heart Attack

Microparticles that block the body’s immune response to damaged tissue could help prevent further harm.

By Mike Orcutt

Using tiny biodegradable particles to disrupt the body’s normal immune response after a heart attack could help save patients from tissue damage and certain long-term health problems that often follow. Researchers have shown that injecting such particles into mice within 24 hours of a heart attack not only significantly reduces tissue damage, but also results in those mice having stronger cardiac function 30 days later. The inventors of the new technology now plan to pursue human trials.

Much of the tissue damage that results from a heart attack is the result of inflammation, the body’s natural response to harmful stimuli such as damaged muscle. But in the case of a heart attack, these immune cells do more harm than good, explains Daniel Getts, inventor of the new therapy and chief scientific officer of Cour Pharmaceutical Development. The system’s weaponry is “fairly generic,” he says. While the toxic compounds that the immune cells secrete can be beneficial in defending the body against an infection, they also cause tissue damage. This phenomenon occurs not only after heart attacks, but also in a range of other diseases, including West Nile Virus, inflammatory bowel disease, and multiple sclerosis.

The 500-nanometer particles must be negatively charged, and can be made of several different materials, including the one used for biodegradable sutures. The new research suggests that once the particles are in the bloodstream, the negative charge attracts a specific receptor on the surface of inflammatory monocytes. The particles bind to that receptor and divert the immune cells away from the heart and toward the spleen, where they die.

Preventing these cells from reaching the heart allows the damaged muscle to regenerate “along more regulated processes,” says Getts. Should the therapy translate to humans, he says, it has the potential to substantially reduce the long-term health drawbacks that some heart attack patients experience, including shortness of breath and limited ability to exercise.

The goal is to begin human tests by early next year. The company hopes the relatively simple mechanism of the therapy, and the fact that the material the particles are made of, polyglycolic acid, is already approved by the U.S. Food and Drug Administration, will speed the development process.

But “there is still some homework to do,” in particular the teasing out of any potential side effects the microparticles might produce, says Matthias Nahrendorf, a professor of systems biology at Harvard. For example, the particles may activate the immune system in some yet-unknown way, he says. In addition, it will be important to determine how to administer the therapy so that it doesn’t compromise these cells’ ability to help in healing, and to defend the body against infection and other foreign invaders, says Nahrendorf.

Startup Thinks Its Battery Will Solve Renewable Energy’s Big Flaw

Aquion has started production of a low-cost sodium-ion battery aimed at making renewable energy viable.

By Kevin Bullis

A former Sony TV factory near Pittsburgh is coming to life again after lying idle for four years. Whirring robotic arms have started to assemble a new kind of battery that could make the grid more efficient and let villages run on solar power around the clock.

Aquion, the startup that developed the battery, has finished installing its first commercial-scale production line at the factory, and is sending out batteries for customers to evaluate. It recently raised $55 million of venture capital funding from investors including Bill Gates. The money will help it ramp up to full-speed production by this spring.

Jay Whitacre, the Carnegie Mellon professor of materials science and engineering who invented the new battery, says it will cost about as much as a lead-acid battery—one of the cheapest types of battery available—but will last more than twice as long. And while lead is toxic and the sulfuric-acid electrolyte in lead-acid batteries is potentially dangerous, the new battery is made of materials so safe you can eat them (although Whitacre says they taste terrible). Nontoxic materials are also a good fit for remote areas, where maintenance is difficult.

Most importantly, by providing an affordable way to store solar power for use at night or during cloudy weather, the technology could allow isolated populations to get electricity from renewable energy, rather than from polluting diesel generators. Combining solar power and inexpensive batteries would also be cheaper than running diesel generators in places where delivering fuel is expensive (see “How Solar-Based Microgrids Could Bring Power to Millions”).

The batteries could allow the grid to accommodate greater amounts of intermittent renewable energy. As Aquion scales up production and brings down costs, the batteries could also be used instead of a type of natural gas power plant—called a peaker plant—often used to balance supply and demand on the grid. When recharged using renewables, the batteries don’t need fuel, so they’re cleaner than the natural gas power plants.

In some places, concerns over pollution make new natural gas plants hard to build, which could create an opening for Aquion’s technology, even if it’s somewhat more expensive.

Much of the sprawling factory where Aquion is setting up shop is derelict, with potholes in the floor and piles of abandoned ductwork and manufacturing equipment left over from making old-fashioned cathode ray tube TVs. Aquion has tidied up a section of the factory and installed equipment that’s ordinarily used for making aspirin tablets or wrapping chocolates in foil and arranging them in boxes. Now the equipment stamps out and precisely assembles battery electrodes along with foil current collectors to make batteries the size of briefcases.

By using cheap equipment originally developed for large, existing industries, Aquion is keeping down costs, Whitacre says.

The battery is made of inexpensive materials including manganese oxide and water. In concept, it operates much like a lithium-ion battery, in which lithium ions shuttle between electrodes to create electrical current. But the new battery uses sodium ions instead of lithium ones, which makes it possible to use a salt water electrolyte instead of the more expensive—and flammable—electrolytes used in lithium-ion batteries.

The trade-off is that the batteries store less energy by weight and volume than lithium-ion batteries do, so they’re not practical for cars or portable electronics. But space isn’t as much of an issue for stationary applications, where batteries can be stacked in warehouses or shipping containers. For storing large amounts of power from the grid, success is “all about cost,” Whitacre says.

Aquion will need to compete with companies such as GE and Fluidic Energy, which are also manufacturing novel batteries for the grid (see “GE’s Novel Battery to Bolster the Grid” and “Years in the Making, Promising Rechargeable Metal-Air Batteries Head to Market”).

Power Electronics Smooth Solar Transition

New devices address instability caused by high penetration of distributed solar.

By Martin LaMonica

As rooftop solar panels become increasingly popular, utilities are growing concerned that they will put pressure on local grids, destabilizing power service and requiring costly equipment upgrades.

The rapid adoption of solar photovoltaics has already prompted changes in Germany and parts of Hawaii, California, and New Jersey. Because nearly 10 percent of Hawaiian Electric’s customers have rooftop solar, the utility now requires solar contractors and customers on the island of Oahu to get approval before installing a PV system. It’s also developing a model for sharing the cost of studying what upgrades may be required to add another rooftop solar system, says a spokesperson for the local utility.

To address the instability caused by distributed solar, startup Gridco Systems is introducing a product that uses power electronics to smooth out spikes in voltage caused by solar generators. The company thinks its ground- or pole-mounted devices will create a distributed control infrastructure to monitor and manage the flow of power for a number of uses, including solar integration.

Today’s electromechanical systems, such as capacitor banks or voltage regulators at substations, can take minutes to adjust voltage and are far removed from the solar installations where the problems occur. Meanwhile, prices have come down for power electronics, devices that can change the properties of electricity and precisely control the amount of power going to various applications. That means the technology is more economical for use in the power grid, says Naimish Patel, the CEO of Gridco Systems, which has raised $30 million from venture capitalists.

If voltage on a circuit goes too high, it can endanger utility crews and cause damage to both utility and customer equipment. Distributed solar can also cause reliability problems if there’s a fault on the grid. Power plants can ride through disturbances, but solar PV generators are designed to shut down immediately, which can cause a spike in demand for power.

As a general rule, when solar power represents more than 15 percent of the peak-time load, utilities will want to analyze the potential impact. Given the fast adoption of solar, utility executives say that some sort of planning for equipment upgrades is required. A group of 16 western utilities called the Western Electric Industry Leaders wrote a letter last year to policy makers calling for rules that require the installation of so-called smart inverters. These devices can convert solar panels’ direct current to household alternating current, and they can also address problems with power quality.

The U.S. can avoid what happened in Germany, where utilities and the solar industry spent hundreds of millions of dollars on equipment upgrades, the utility executives wrote: “These new smart inverters will only cost about $150 more than current inverters, approximately one percent of the overall cost (of a solar installation). This is a bargain price given the expensive retrofit process in Germany.”

 

Devices based on power electronics, like Gridco’s, are more expensive than smart inverters but offer more features, analysts say. Gridco’s product, for instance, can be used to regulate voltage in solar-heavy circuits and to support voltage for better efficiency as well. Because they can connect to utilities’ communications networks, utilities can also directly control them, something that is hard to do with inverters on customer premises.

Gridco says its power regulators cost between $5,000 and $8,000. One device could regulate a single cluster of homes with rooftop PV, but managing voltage fluctuations in a utility-scale installation could require multiple devices.

Nest Competitor Monitors Your House’s Leaks on the Cheap

A low-power, multiroom sensor network watches for drips and runs on a coin-cell battery.

By Kate Greene

Earlier this month, as Google was snatching up the smart-thermostat maker Nest for $3.2 billion, a lesser known home sensor company made its own announcement. SNUPI Technologies, a Seattle startup, said it had garnered $7.5 million in funding. That might be pocket change compared to the Nest deal, but it was a significant endorsement just ahead of SNUPI’s first product launch: a low-power wireless sensor network called WallyHome that tracks humidity, water leaks, and temperature throughout a building.

There are already many home monitors on the market; some, such as Lowe’s Iris Home Management System and a water leak and flood sensor from General Electric, are even wirelessly networked. What makes WallyHome novel is its use of a low-power communication scheme that lets sensors send data back to an Internet-connected base station over significant distances and through obstructions like walls and floors while sipping power from a coin-cell battery.

 

SNUPI cofounder Gabe Cohn believes this long-distance, low-power approach will endear the product to homeowners who want a reliable sensor network that requires little maintenance and can be installed easily. The base station plugs into a wall outlet and an Internet router via an Ethernet cable. Six wireless sensors are placed in leak- or humidity-prone areas, such as behind a toilet, under a dishwasher, or near a sump pump. And each sensor’s battery should power the device for up to 10 years without a replacement, Cohn says.

Most sensor networks rely on wireless protocols like Wi-Fi, ZigBee, or Bluetooth to send a signal to a base station tens of feet away. Some of these networks require devices that boost a wireless signal so it can go around walls or through floors, and they tend to require multiple battery replacements during their lifetimes.

Instead of blasting a wireless signal tens of feet, the WallyHome sensors emit a relatively weak wireless signal. While the signal isn’t powerful enough to reach a base station on its own, it can reach inside walls and resonate with the copper wiring that carries electricity. WallyHome effectively turns these internal power lines into antennas, propagating sensor data to a base station, which is plugged into the same lines. Data is then uploaded to a cloud-based data collection and analysis service, and a person can check the status of a sensor using the Web and a smartphone app. The system sends a text, e-mail, or mobile phone alert if water is detected or temperature and humidity thresholds are exceeded. “You have these wireless sensor nodes you can place anywhere in the house or building because power lines go anywhere,” says Cohn.

The concept of using power lines to augment wireless sensor networks arose from research conducted by Cohn and co-inventors Matt Reynolds and Shwetak Patel, both professors at the University of Washington. In addition to cofounding SNUPI (Sensor Network Utilizing Powerline Infrastructure) in 2012, Patel, who was one of MIT Technology Review’s 35 Innovators Under 35 in 2009, also cofounded Zensi, acquired by Belkin in 2010. Patel was awarded a MacArthur award in 2011.

Elizabeth Mead, an analyst at IHS, a research firm, says that energy management is crucial for home networks. Low-power devices are becoming increasingly important, especially as the number of sensors in home networks proliferate.

Cohn hopes WallyHome’s water-watching network will appeal to people who might have a second home that isn’t regularly occupied, or who have previously experienced water damage, which can cause thousands of dollars of damage.

Over time, the system, which runs sensor data through machine-learning algorithms, will eventually be able to infer trends and anticipate changes in the environment, Cohn says. It could, for instance, notice that leaks from frozen pipes are common in certain areas at certain times of the year and issue warnings to customers.

As smart-home technologies ramp up, there’s interest in ensuring interoperability between devices from various vendors (see “CES 2014: Smart Homes Open Their Doors”). Cohn says the WallyHome cloud and mobile device software will be interoperable with existing smart-home products. He adds that future WallyHome sensors will be able to track air quality, monitoring pollen, smoke, and dust.

Mobile Software Learns Your Phone’s Habits to Catch New Malware

Zimperium believes its machine-learning approach to mobile security can outwit hackers.

By Rachel Metz

A mobile security startup is launching software that learns how your smartphone behaves in order to better spot and stop new security threats before they can cause harm or spread to other handsets.

Today, San Francisco-based Zimperium unveiled its zIPS Android app (the “IPS” stands for “intrusion prevention system”), which the company says uses machine learning to watch how your smartphone normally acts and can spot strange changes in its usage, enabling it to detect and prevent attacks, including those that may strike via unprotected Wi-Fi networks. This kind of technique has long been used to spot malware on PCs, but it becomes trickier on smartphones, which can be exposed to ever-growing and changing security issues across different wireless networks.

While the zIPS app is geared toward companies that would deploy the software on employees’ phones and use new companion software called zConsole to manage all the handsets, Zimperium expects to roll out a consumer version in the future, and will perhaps eventually bring zIPS to other devices.

Long combated on computers, malware has begun to hit smartphones, too, as they become a popular (and for some people, predominant) way to get online. Since Android smartphones make up the majority of the market, they’re most affected so far: A recent report from F-Secure found 259 new security threats and variations on existing threats in the third quarter of 2013, 252 of which were focused on Android. According to a Juniper Research report, though, 80 percent of business and personal handsets are still unprotected.

The zIPS software works whether the user is on or offline, says Zimperium CEO and founder Itzhak Avraham, and can protect against malicious apps, such as those that can self-modify, as well as various types of network attacks, like a “man in the middle” attack where a hacker intercepts data being sent between two parties.

Avraham, who previously served as a security researcher for the Israeli Defense Forces and as a white-hat hacker for Samsung, showed me a demo of zIPS in action during a video chat over Skype. Holding two Android Samsung smartphones, he used one to attack the zIPS-running handset, which glowed with a green image meant to look like a radar screen. When Avraham performed a man-in-the-middle attack, a notification popped up on the zIPS display saying that a threat was just spotted and prevented. It also presented information on the type of threat (“MITM” in this case) and the IP address of the attacking device.

Avraham says that attacks such as these aren’t generally spotted by mobile antivirus apps because those apps tend to be designed just to look for incoming file signatures that can be compared with known bad code. “If I download an app, for instance, even if the app itself is benign at that moment in time, I can later download an update that has malicious intent to run outside of the sandbox that the [antivirus] product has access to,” he says.

The zIPS app is trained to recognize such attacks by using existing malware and known attack techniques. This is doable, Avraham says, because while there are tons of different attacks, there are just a few dozen different techniques.

Zimperium, which counts famed hacker-turned-security-researcher Kevin Mitnick among its advisors, hopes its software can eventually be used to prevent hacking on everything from smart TVs to refrigerators, as they are becoming increasingly common in homes (see “CES 2014: Smart Homes Open Their Doors”). Many security experts expect the so-called Internet of things to become a big target for hackers since protections on such devices are typically weak, the devices tend to be plugged in at all times, and it may not be as easy to determine if suspicious activity is taking place as it is on a smartphone or computer.

 

Internet-connected devices are already gaining some unwelcome attention: between late December and early January, one security software company, Proofpoint, noticed an attack in which hundreds of thousands of malicious e-mails were sent by over 100,000 Internet-connected consumer gadgets, including routers, TVs, and at least one fridge.

Icahn takes another $500 million bite out of Apple

BY EDWIN CHAN

(Reuters) – Activist investor Carl Icahn picked up another $500 million of Apple Inc shares on Thursday to take his investment in the iPhone maker to $3.6 billion, while ratcheting up his months-long campaign to pry open the company’s cash hoard.

Icahn, who repeatedly has called Apple a “no brainer” even as he wages a campaign to get it to return more cash to shareholders, tweeted his latest move just a day after revealing a position of over $3 billion in the company.

In a lengthy letter to shareholders filed with the Securities and Exchange Commission on Thursday, Icahn urged shareholders to vote “yea” to his proposal for a new $50 billion buyback, and laid out familiar arguments as to why Apple should share more of its $146 billion cash hoard.

Apple’s strong market position in smartphones and tablets does not justify the company’s official stance that it needed to maintain reserves to compete in a fast-evolving consumer electronics industry, Icahn said.

He said the stock’s price-to-earnings multiple stood 71 percent below the S&P 500′s and that the shares could be worth $840 if that gap was closed. An expansion of its capital return program could help bridge that difference, while allowing the company to express confidence in its own stock.

“Even if the story ended with Apple’s existing product and software lines, we would still choose to make Apple our largest investment,” Icahn said in the letter.

“But there is more to the story! (CEO) Tim Cook keeps saying that he expects to introduce ‘new products in new categories’ and yet very few people seem to be listening.”

Apple on Thursday referred back to its December proxy statement, in which it urged shareholders to vote down Icahn’s proposal, warning that it needed ready access to cash in a fast-evolving and competitive mobile devices industry. Arch-foe Samsung Electronics has grabbed market share from Apple in past years while a host of smaller rivals like Huawei are aggressively competing in emerging markets.

Shares of Apple closed up 0.8 percent at $556.18.

NO BACKING DOWN

Icahn, known for decades of strong-arm tactics including proxy fights against major corporations, appears to be stepping up efforts in the technology realm.

On Wednesday, eBay Inc disclosed that Icahn had taken a 0.82 percent stake in the company and was pressing for a spinoff of PayPal, the ecommerce giant’s fastest-growing and most profitable division.

On Thursday, he set his sights again on Apple, accusing its board of lacking investment management experience.

It was unclear when or how much stock the activist investor, who in August began trying to get Cook to agree to a $150 billion buyback, now holds. In a letter to Cook made public on October 24, Icahn said he had increased his stake to 4.7 million shares.

Apple’s stock has surged 17 percent since Icahn first disclosed a significant stake in the company on August 13, when the shares were trading below $500. An additional $500 million investment on Thursday would translate into roughly 900,000 shares at current levels.

Apple is in the midst of returning $100 billion to shareholders, including a total share repurchase program of $60 billion. It said it had already returned $43 billion in dividends and repurchases.

But more could be done, Icahn argued.

“Given this massive net cash position and robust earnings generation, Apple is perhaps the most overcapitalized company in corporate history,” Icahn said in his letter.

Intellectual Ventures, Google face off as U.S. patent trial begins

BY TOM HALS

(Reuters) – Opening statements began on Thursday in patentowner Intellectual Ventures’ trial against Google’s Motorola Mobility unit in a lawsuit that could be a bellwether on public opinion toward intellectual property.

Intellectual Ventures (IV) claims that Motorola infringed on three patents covering a variety of smartphone-related technologies, including Google Play. Motorola has countered that the patents are not valid because the technology is already well-known to those within the industry, and that IV uses its patents to sue others rather than to innovate.

Motorola, which developed the equipment used to broadcast Neil Armstrong’s moon landing in 1969, reminded jurors of its history of building technology. Motorola attorney William Boice played a recording of Armstrong’s “one small step for man” quote in court.

“There’s no building at Intellectual Ventures,” said Boice. “They are in the business of bringing lawsuits.”

To counter those claims, Intellectual Ventures’ attorney Elizabeth Day urged the jury to focus on the inventors behind the patents. One of those patents, which covers detachable handset technology, was issued in 2006 to Rajendra Kumar and acquired by IV in 2011.

“Motorola will try to tell you the man who loved to invent didn’t invent anything,” she said of Kumar.

The trial pits two adversaries in the current debate in Congress over patent reform. Google, which acquired Motorola in 2012, is backing attempts to curb software patents and make it easier to fight lawsuits. IV has warned that Congress should not act too rashly to weaken patent owners’ rights.

Privately held Intellectual Ventures and other patent buyers have been criticized by some in the technology industry for burdening innovation by using the patents they buy to pursue lawsuits instead of building products.

IV argues that unlike some of the firms denounced as “patent trolls,” it invests only in quality intellectual property and does not file frivolous lawsuits. The multi-billion dollar patent firm has other lawsuits in pre-trial stages and has agreed to settlements for other, separate claims, but the Motorola lawsuit is the first case it has taken to trial since IV was founded 14 years ago.

The trial is expected to last about eight days. If Intellectual Ventures prevails, damages will be assessed in separate proceeding.

The case in U.S. District Court, District of Delaware is Intellectual Ventures I and Intellectual Ventures II vs. Motorola Mobility, 11-908.

Samsung Electronics aims to cut mobile marketing budget relative to revenue

REUTERS/SIPHIWE SIBEKO

(Reuters) – Samsung Electronics Co Ltd, the world’s biggest smartphone maker, said on Friday it planned to lower its mobile marketing spend this year relative to revenue, after big promotional spending hit fourth-quarter profit.

“We’ll actively leverage global sports events such as the Sochi (Winter) Olympics and ourretail channels… but we will try to raise the efficiency of our marketing spend and lower our overall mobile marketing budget to revenue this year compared with last year,” Senior Vice President Kim Hyunjoon told analysts after the company released its earnings.