Mr. Doren asked Mr. Sweeney if he knew that the actions Epic took last summer would cause Apple to kick his company’s app out of the App Store. He suggested that Mr. Sweeney had hoped Apple would cave in to the pressure because of Fortnite’s popularity.

“I hoped Apple would seriously reconsider its policy then and there,” Mr. Sweeney said. Apple did not, and Epic sued.

In the coming weeks, top Apple executives, including the chief executive, Tim Cook, and executives from Microsoft and Match Group are expected to testify.

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Why Biden’s Plan to Raise Taxes for Rich Investors Isn’t Hurting Stocks

“Most Democrats seem to be on board with narrowing the differential between the tax rate on capital gains and ordinary income, but there’s opposition for treating the rates as the same,” wrote analysts with Beacon Policy Advisors, a political consultancy. “This means there’s probably a middle ground for raising the capital gains rate on top earners to, say, 28 percent.”

If stocks continued their climb, it would largely be in keeping with previous periods when capital gains taxes were raised.

In 2013, when the tax rose to the current 23.8 percent, from 15 percent, on Americans with the highest incomes, the S&P 500 climbed nearly 30 percent. It was the best year for stocks in the last two decades. And after the top rate rose to 28 percent, from 20 percent, at the end of 1986, the market continued to roar higher, by nearly 40 percent through most of 1987.

Stocks eventually suffered their worst single-day collapse ever on Black Monday in October 1987, but that crash had little to do with tax policy, and the markets ended the year slightly higher. In 1991, a small increase to 28.9 percent in the capital gains rate for those with the largest incomes coincided with a 26 percent rise in the S&P 500. The major driver for that gain had nothing to do with taxes; it was the emergence from a recession.

Similarly, investors appear to be focusing on evidence that the economy is on the brink of breakneck growth. That surge is being fueled by a river of federal government spending, rock-bottom interest rates and more Covid-19 vaccinations. In the first three months of the year, the economy grew at an annualized clip of 6.4 percent. At that pace, 2021 would be the best year for growth since 1984.

Economic growth and corporate profits tend to rise together. And signs of additional oomph in the economy are already showing up in earnings reports from publicly traded companies.

Tech giants such as Tesla, Microsoft, Amazon, Apple and Google’s parent company, Alphabet, all reported first-quarter profits that trounced analyst expectations.

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‘It’s just the beginning’: Covid push to digital boosts big tech profits

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Apple, Google owner Alphabet, Amazon, Facebook and Microsoft raked in money in first quarter

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Apple, Google owner Alphabet, Amazon, Facebook and Microsoft raked in money in first quarter

People wearing face masks walk past an Apple store in Brossard, on the south shore of Montreal, Canada

People wearing face masks walk past an Apple store in Brossard, on the south shore of Montreal, Canada. Photograph: Andre Pichette/EPA
Microsoft sold products and services worth about $2.5m (£1.8m) combined. Profits before tax for the period came in at $88bn – more than $1bn of profit for every working day.

After a year of shifting to online work and leisure across the global economy, financial results published this week by most of US tech’s biggest names were bound to be strong. But even more bullish analysts on Wall Street were surprised by how fast they raked in money in the quarter, auguring even greater profits in the years ahead.

Apple astonished investors with strong growth across its business, from iPhone buyers snapping up new models capable of using faster 5G mobile networks to the usually quieter business selling wearables such as headphones and watches.

Online advertising is booming. Facebook said demand is so high that the average price it charges for ads rose by 30% year on year – albeit compared with the start of pandemic. Alphabet revenues rose by a third year on year thanks to Google’s advertising business.

Alphabet was also helped by fast growth in cloud services, offering companies access to data centres – a business helped by the pandemic shift to working from home. Amazon’s cloud business added $1bn in profits compared with the previous year, even while profits from its core online retail business soared.

The Microsoft chief executive, Satya Nadella, said the shift to digital technology was “accelerating” as its profits jumped 31% year on year. “It’s just the beginning,” he added.

The strong results were not limited to technology’s biggest names: analysts also point to strong performances from smaller tech companies such as chip designer AMD or social networks Snap and Pinterest.

Share price gains left the big tech companies at all-time highs (barring Apple, which has the consolation of being the most valuable company in history). The gains reflected widespread investor agreement with Nadella’s thesis that the pandemic push to digital will benefit big tech.

The companies’ dominance is unprecedented in modern times. Daniel Ives, an analyst at Wedbush Securities, hailed record numbers for Apple, but argued that shares could gain another third to reach a $3tn valuation within 12 months. (Apple only reached the unprecedented $1tn mark in 2018, and $2tn in August.)

The scale of their balance sheets means they can rival countries on some metrics. Between them Alphabet, Apple and Microsoft spent $50bn on research and development in their 2018 financial years. That was equivalent to R&D spending by the whole UK economy in that year of £37.1bn, according to the most recent Office for National Statistics data.

Yet there appears to be only so much research and development that one organisation can do. One extraordinary aspect of the last week was the scale of share buybacks. Apple’s $90bn return to shareholders alone would be enough to individually buy almost all of the FTSE 100’s supposed behemoths.

Alphabet has scaled back some of its spending on famous “moonshot” programmes – such as the “Loon” effort to beam internet via high-altitude balloons – but even so it is ploughing money into technology that aims to push the boundaries of what computers can do. At the same time, it still judged that it had $50bn lying around to buy back shares.

There is more to come, argued David Donovan, a consultant at Publicis Sapient. His work upgrading technology at financial companies has convinced him that other sectors still have far to go in embracing digital technology, putting the economy “on the cusp of a major transformational period”.

Google office building in Mountain View, Silicon Valley
Google owner Alphabet has cut back some of its spending on famous ‘moonshot’ programmes. Photograph: Andrei Stanescu/Alamy Stock Photo

Donovan added that the shift to recurring revenue models by companies like Amazon and Apple will add another moat to keep rivals out. More than 200 million Amazon customers pay for the privilege of buying products via its Prime service. Apple’s services business made revenues of $16.9bn in the first quarter, with more growth expected.

It might not all go smoothly. Martin Garner, the chief operating officer at CCS Insight, a market analysis firm, highlighted the groundswell of regulatory pressure, such as the European commission’s warning on Friday that Apple Music has broken EU competition law.

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Big tech companies face another significant challenge: each other. There is large crossover in business models, whether it be advertising, cloud services or nascent targets such as in-car services. Apple’s battle with Facebook over privacy controls is the most striking cases of an open arm wrestle.

However, Alex DeGroote, an independent analyst, said that even at slower pre-pandemic growth rates there are such massive barriers to entry that it is difficult to see any way they will be dislodged. During last year’s market panic and the subsequent recovery tech stock gains have been nearly ever-present, suggesting a permanent shift is happening.

“The investment case has gone from defensive to growth in a year,” said de Groote. “The digital revolution is here to stay, and these businesses are embedded in our lives.”

© 2021 Guardian News & Media Limited or its affiliated companies. All rights reserved. (modern)

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The Googleplex of the Future Has Privacy Robots, Meeting Tents and Your Very Own Balloon Wall

MOUNTAIN VIEW, Calif. — Google’s first office was a cluttered Silicon Valley garage crammed with desks resting on sawhorses.

In 2003, five years after its founding, the company moved into a sprawling campus called the Googleplex. The airy, open offices and whimsical common spaces set a standard for what an innovative workplace was supposed to look like. Over the years, the amenities piled up. The food was free, and so were buses to and from work: Getting to the office, and staying there all day, was easy.

Now, the company that once redefined how an employer treats its workers is trying to redefine the office itself. Google is creating a post-pandemic workplace that will accommodate employees who got used to working from home over the past year and don’t want to be in the office all the time anymore.

The company will encourage — but not mandate — that employees be vaccinated when they start returning to the office, probably in September. At first, the interior of Google’s buildings may not appear all that different. But over the next year or so, Google will try out new office designs in millions of square feet of space, or about 10 percent of its global work spaces.

Reuters conference in December that the company was committed to making hybrid work possible, because there was an opportunity for “tremendous improvement” in productivity and the ability to pull in more people to the work force.

“No company at our scale has ever created a fully hybrid work force model,” Mr. Pichai wrote in an email a few weeks later announcing the flexible workweek. “It will be interesting to try.”

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‘A Perfect Positive Storm’: Bonkers Dollars for Big Tech

In the Great Recession more than a decade ago, big tech companies hit a rough patch just like everyone else. Now they have become unquestioned winners of the pandemic economy.

The combined yearly revenue of Amazon, Apple, Alphabet, Microsoft and Facebook is about $1.2 trillion, according to earnings reported this week, more than 25 percent higher than the figure just as the pandemic started to bite in 2020. In less than a week, those five giants make more in sales than McDonald’s does in a year.

The U.S. economy is cranking back from 2020, when it contracted for the first time since the financial crisis. But for the tech giants, the pandemic hit was barely a blip. It’s a fantastic time to be a titan of U.S. technology — as long as you ignore the screaming politicians, the daily headlines about killing free speech or dodging taxes, the gripes from competitors and workers, and the too-many-to-count legal investigations and lawsuits.

America’s technology superpowers aren’t making bonkers dollars in spite of the deadly coronavirus and its ripple effects through the global economy. They have grown even stronger because of the pandemic. It’s both logical and slightly nuts.

have more money in their pockets thanks to government stimulus checks and pandemic savings, and the tech giants are getting a significant share. Their combined revenue is equivalent to roughly 5 percent of the gross domestic product of the United States.

Big Tech’s pandemic big bucks have an understandable root cause: We needed its services.

People gravitated to Facebook’s apps to stay in touch and entertained, and businesses wanted to pay Facebook and Google, which Alphabet owns, to help them find customers who were stuck at home. People preferred to buy diapers and deck chairs from Amazon rather than risk their health shopping in stores. Companies loaded up on software from Microsoft as their businesses and work forces went virtual. Apple’s laptops and iPads become lifelines for office workers and schoolchildren.

Before the pandemic, America’s technology superpowers were already influential in how we communicated, worked, stayed entertained and shopped. Now they are practically unavoidable. Investors have scooped up Big Tech shares in a bet that these companies are nearly invincible.

“They were already on the way up and had been for the best part of a decade, and the pandemic was unique,” said Thomas Philippon, a professor of finance at New York University. “For them it was a perfect positive storm.”

Sales in the first quarter rose 44 percent from a year earlier, and Amazon’s profits before taxes — which have never been exactly robust — more than doubled to $8.9 billion. Businesses are addicted to Amazon’s cloud computer services, where sales rose 32 percent, and shoppers can’t live without Amazon’s delivery. Investors love Amazon, too. The company’s stock market value has nearly doubled since the beginning of 2020 to $1.8 trillion.

For the other tech giants, it’s as if their brief pandemic nosedive never happened. Advertising sales typically rise and fall with the economy. But as other types of ad spending shrank when the U.S. economy contracted last year, ad sales rose for Google and Facebook. The growth was even better for them in the first three months of this year.

A year ago, analysts worried that Apple would be crippled as the pandemic gripped China, which is the hub of the company’s manufacturing operations and its most important consumer market. The fears didn’t last long. In the first three months of 2021, Apple’s revenue from selling iPhones increased at the fastest rate since 2012. Sales in mainland China, Taiwan and Hong Kong nearly doubled from a year earlier.

been on a tear. So have some younger technology companies, such as Snap and Zoom, the maker of the pandemic-favorite videoconferencing app. The crisis forced all sorts of businesses to go digital fast in ways that could help them thrive. Restaurants invested in online sales and delivery, and doctors went full bore into telemedicine.

But the dictionary doesn’t have enough superlatives to describe what’s happening to the five biggest technology companies. It’s all a bit awkward, really. It’s rocket fuel for critics, including some regulators and lawmakers in Europe and the United States, who say the tech giants crowd out newcomers and leave everyone worse off.

peculiarities of the pandemic economy. Some people and sectors are doing awesome, while other families are lining up at food banks and while companies like airlines are begging for cash. Unlike the stock market clobbering in the Great Recession, stock indexes in the United States have reached new highs.

The tech superstars have also capitalized on this moment. Alphabet and Facebook have used the pandemic to cut back in places that matter less, such as promotional costs and travel and entertainment budgets. And the tech giants have generally increased spending in areas that extend their advantages.

Alphabet is now spending more on big-ticket projects, like building computer complexes, than Exxon Mobil spends to dig oil and gas out of the ground. Amazon’s work force has expanded by more than 470,000 people since the end of 2019. That deepens the moat separating the tech superstars from everyone else.

Big Tech is emerging from the pandemic lean, mean and ready for a U.S. economy expected to roar back to life in 2021. Meanwhile, there are still long lines at food banks. Some American workers who lost their jobs last year may never get them back. Housing advocates are worried that millions of people will be evicted from their homes. And being Big Tech is an invitation for everyone to hate you — but you do have towering piles of money.

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The Federal Reserve’s Patient Approach Could Be Tested Soon: Live Updates

spread of new variant

The policy-setting Federal Open Market Committee has said it wants to see “substantial” progress toward its goals of full employment and stable inflation before slowing down the monthly bond purchases. The hurdle for rate increases is even higher: A return to maximum employment and inflation that exceeds 2 percent and is expected to slightly overshoot that for some time.

At their meeting in March, the central bank’s officials signaled that interest rates were likely to remain near-zero through 2023 if the economy shapes up as they expect. But investors will be keenly focused on hints about the path ahead when Mr. Powell gives a post-meeting news conference around 2:30 p.m., after the committee’s 2 p.m. statement release.

“By the time of the June meeting well over half of all Americans should be partially vaccinated, and the level of employment could be a few million greater than it is now, allowing the F.O.M.C. to discuss some tangibly improving outcomes,” Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in a research note. “For now, however, we think the message from the committee will be little changed from the one delivered six weeks ago.”

Still, the Fed’s commitment to patience — an approach that focuses on real-world outcomes, not just expected ones — is in for its first big challenge. As unemployment drops and inflation picks up, two trends that are expected to play out in the coming months, monetary policymakers are likely to face growing calls to dial back their support to prevent conditions from getting out of hand.

But Mr. Powell and his colleagues have played down concerns about overheating and inflationary warnings that hark back to the 1970s and 1980s, arguing that the world has changed in recent decades.

“We had 3.5 percent unemployment, which is a 50-year low, for much of the last two years before the pandemic,” Mr. Powell said in a recent “60 Minutes” interview. “And inflation didn’t really react much. That’s not the economy we had 30 years ago.”

An Allbirds store in Manhattan.
Credit…Jeenah Moon for The New York Times

Silicon Valley’s favorite shoe brand is headed to Wall Street. Allbirds is interviewing banks over the next few weeks to help it make a market debut, people familiar with the matter told the DealBook newsletter, requesting anonymity because the process is confidential. The direct-to-consumer company was last valued at around $1.7 billion.

The talks come as consumer brands that were founded with a heavy (if not exclusive) internet presence, including Honest Company and Warby Parker, are taking advantage of a pandemic-driven boom in online shopping to see if investor enthusiasm for tech offerings extends to them as well. Many of those companies, including Allbirds, have since opened some retail stores, which has proved an easier transition than the legacy retailers trying to build digital operations after making their names in the offline world.

Allbirds was founded by the New Zealand soccer star Tim Brown and Joey Zwillinger, a renewables expert. Its mantra is to “create better things in a better way,” and the company advertises that the merino wool in its shoes uses 60 percent less energy than typical synthetic materials.

“One of the worst offenders of the environment from a consumer product standpoint is shoes,” Mr. Zwillinger told The New York Times in 2017. “It’s not the making; it’s the materials.”

The brand’s flashy-but-logo-free shoes are popular among techies, celebrities (Leonardo DiCaprio is an investor) and former President Barack Obama. The company has raised more than $200 million since 2016.

Allbirds is a B Corp, a certification earned by focusing on social good as well as profit. (Mr. Zwillinger joined a DealBook Debrief call last year to talk about the purpose of business.) Wall Street hasn’t always taken kindly to such companies: Etsy had to drop the status after taking a beating from the public markets following its I.P.O. Allbirds, though, said the $100 million funding round it announced last September was “indication of investors’ continued enthusiasm for its stakeholder-centric business model.”

“Allbirds has always been focused on building a great company, and as a B Corp and Public Benefit Corporation, doing what is best for our stakeholders (planet, people, investors) at the right time and in a way that helps the business grow in a sustainable fashion,” a company spokeswoman said in a statement.

Deutsche Bank’s best quarter in seven years was a vindication for Christian Sewing, the chief executive who took over in 2018.
Credit…Ralph Orlowski/Reuters

Deutsche Bank reported its best quarterly profit in seven years Wednesday as it benefited from lively financial markets and avoided losses from the investment firm Archegos Capital that has battered rivals.

The first-quarter profit of 900 million euros, or $1.1 billion, was better than expected and suggested that Deutsche Bank may be emerging from a decade of scandals and disasters that earned it a reputation as Europe’s most troubled lender.

James von Moltke, the chief financial officer of Deutsche Bank, said in response to a question about Archegos during an interview with Bloomberg News that the bank had been able to exit its involvement without a loss.

That is in contrast to rivals like Credit Suisse, which lost $4.7 billion it had lent to Archegos after the firm collapsed in March. Swiss bank UBS disclosed Tuesday that it lost $774 million from its involvement with Archegos.

Deutsche Bank, like most big corporations, is assessing how the pandemic may have permanently changed the way employees do their jobs. Mr. von Moltke said the bank was working on a plan that would allow employees to work from home two or three days a week.

Like many of its peers, Deutsche Bank has benefited from frenetic activity on financial markets, earning fees as it helped governments issue debt to finance stimulus programs or sell shares in blank-check investment vehicles known as SPACs.

The bank said it had also benefited from a European Central Bank stimulus program that effectively pays commercial lenders to provide credit to businesses and consumers in the eurozone. In addition, Deutsche Bank slashed the amount of money it set aside for bad loans.

The financial results are a vindication for Christian Sewing, the bank’s chief executive, who has been trying to show large shareholders like the private equity firm Cerberus Capital Management that he can generate consistent profits. Deutsche Bank shares rose 9 percent in Frankfurt trading Wednesday and are up more than 20 percent since the end of January.

“Our first quarter is further evidence that Deutsche Bank is on the right path,” Mr. Sewing said in a statement.

Federal Reserve Chair Jerome Powell.
Credit…Pool photo by Susan Walsh

When Jerome H. Powell, the Federal Reserve chair, speaks to reporters in a webcast news conference on Wednesday afternoon, he’s likely to face questions about a simmering topic: inflation.

Prices are expected to pop in the coming months, both as inflation indexes lap very weak 2020 readings and as supply chains experience short-term reopening bottlenecks. The unknowns facing the Fed, and the investment world, are how big the jump will be and how long it will last.

Most forecasters and the Fed itself expect the increases to be only temporary. But some economists have warned that they could be significant enough to become a problem as businesses reopen, consumers start to spend their savings and the government pumps stimulus money into the economy.

If the increases are big enough and sustained, the Fed could find itself in a tough spot, forced to choose between letting prices rise or raising interest rates before the labor market is fully recovered.

Inflation also worries stock investors: If the Fed lifts interest rates to cool off the economy, it could make investing in bonds more attractive and corporate borrowing more expensive, both bad news for equities.

The Fed wants inflation to average 2 percent annually over time, and it defines that goal using the Commerce Department’s headline personal consumption expenditure index. But officials look at a variety of indicators to gauge conditions. Here’s where a handful of critical inflation measures stand and, when it’s relevant, where economists surveyed by Bloomberg expect them to go in the coming months:

Fed officials regularly point out that inflation has been too tepid in recent years, not too high, and they don’t expect that to change quickly. To raise rates, they say, they would need to see that inflation was going to remain higher sustainably — for instance, if it came alongside heftier wage increases.

Part of the Fed’s comfort with a period of faster price gains is that consumer and business expectations have remained relatively low, despite some recent increases. If people aren’t anticipating higher prices, it’s likely to put a lid on how much more companies can charge.

Google’s logo on a building in Zurich, Switzerland. Alphabet, Google’s parent company, reported a strong increase in revenue last quarter.
Credit…Arnd Wiegmann/Reuters

Government bond yields jumped higher on Wednesday ahead of the latest Federal Reserve policy meeting.

Economists expect Fed officials to keep interest rates near zero and continue their bond-buying program, but central bank watchers will be looking for clues for how much longer the support will last as the U.S. economy improves. Higher yields on government bonds may reflect expectations that the Fed is inching closer signaling that it will change its policy, including raising its benchmark rate, even if that’s still years in the future.

Jerome H. Powell, the Fed chair, will speak to reporters Wednesday afternoon. Fed officials have said they would telegraph any changes well in advance and expected the current rise in inflation to be temporary, which would diminish the need for a monetary policy reaction.

The yield on 10-year Treasury notes rose two basis points to 1.65 percent on Wednesday after rising six basis points the previous day. Yields on 10-year British government bonds rose six basis points to 0.83 percent and German bond yields climbed four basis points to negative 0.21 percent.

“We think risks around this meeting are firmly skewed towards higher rates,” analysts at ING said of bond yields. “This is particularly true if the Fed breaks with its cautious tone of late, or simply decides to hedge its bets by saying it will react as appropriate if the economy overheats.”

Credit…Hiroko Masuike/The New York Times

California is expecting a roughly $15 billion budget surplus next fiscal year, which runs from July through June, according to its most recent forecast. The state is so flush that it is now running its own stimulus program, writing one-time checks of $600 or $1,200 to poorer households and spending some $2 billion on aid for small businesses.

Less than a year ago, the state was facing a $54 billion shortfall, Matt Phillips reports for The New York Times. Here’s how the state’s fortunes were turned around:

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California Is Awash in Cash, Thanks to a Booming Market

In the early days of the pandemic, no one would have looked to the stock market for salvation. From February to late March last year, the S&P 500 suffered one of its sharpest crashes ever, falling nearly 34 percent. But once the federal government began pumping money into the markets and the economy through bond-buying programs and stimulus, the market began rebounding.

And professional money managers kept buying stocks. Amateur investors, stuck at home, piled into the market and drove up stock prices further. After hitting a bottom in March 2020, the S&P 500 is up nearly 90 percent, creating close to $17 trillion in paper gains.

Much of that value was created by California companies. The market value of Apple, based in Cupertino, Calif., has risen by over $1 trillion in the past year. The gains for Alphabet and Facebook, combined, have created another $1 trillion in value. Tesla, based in Palo Alto, Calif., added over $500 billion.

The surge in market value created a significant amount of wealth for executives and workers, including in the technology sector. Executives at major companies typically have pre-established stock sale programs that are constantly converting some of their shares into cash. As they’ve sold into a rising market over the last year, those gains have been especially large; in August, Apple’s chief executive, Tim Cook, sold more than $130 million worth of his stock.

“When the stock market does well, they do very well,” said David Hitchcock, the primary analyst on California for the bond-rating firm S&P Global, of the state’s wealthy residents. “And in fact, it’s not just the stock market but initial public offerings. Because with Silicon Valley, when entrepreneurs get stock grants that they exercise, or stock options, California makes out very well.”

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