August 23rd (Information Wars)

Greetings all,

It is Tuesday, August 23rd, and we are live this week. Today's subject of choice is the topic of information warfare and its ubiquitous nature across borders, geographies, and communities. But first, here are the headlines from Private Equity and Venture Capital today:

Intel?Corp.?has announced a $30 billion funding partnership with?Brookfield Asset Management?Inc.?to help finance its factory-expansion ambitions, indicating that some big investors are bullish on the long-term demand for semiconductors. The agreement with the publicly-traded Canadian asset-management firm is the first of what could be a stage of such arrangements Intel pursues to execute Chief Executive Pat Gelsinger’s push to make the company a premier contract chip maker and regain its manufacturing advantage over competitors in Taiwan and South Korea. Under the deal, which company executives described as a first of its kind for the industry, Intel would supply 51% of the cost of building new chip-making facilities in Chandler, Ariz., and will have a controlling stake in the financing vehicle that would own the new factories, Intel Chief Financial Officer David Zinsner said.?Brookfield?will own the remainder of the equity and the companies will split the revenue that comes out of the factories, he added. Scott Peak, a managing partner in Brookfield’s infrastructure group, said such deals are conventional in industries including energy and telecommunications and are now including the chip business because of its growing capital requirements. Brookfield, which has more than $750 billion in AUM, sees the Intel deal as a solid addition to the company’s experience in large and complex deals, he said. The move would safeguard cash to help Intel continue paying dividends and would obfuscate the need to rely more on borrowing to fund its expansion, which could diminish the company’s creditworthiness, Bernstein Research analyst Stacy Rasgon said. Intel’s stock was up slightly in afternoon trading on Tuesday. Mr. Gelsinger and other industry officials have said they expect?annual semiconductor sales to nearly double?by the end of the decade, surpassing $1 trillion, even if short-term demand setbacks are?weighing on chip-industry earnings. Intel last year announced the construction of two new factories in Arizona, where it already makes chips,?calling it a $20 billion expansion. But Mr. Zinsner said the figure was an early estimate and inflation had since added to the cost. Intel also has said it could spend as much as $100 billion each on new plant complexes in Ohio and Germany. As chips become more advanced and their circuitry shrinks to just thousandths of the width of a human hair, manufacturing them has become more expensive.

A large, advanced chip plant today can cost more than a brand new aircraft carrier or a nuclear-power plant, according to a Boston Consulting Group analysis. Mr. Zinsner said the rising cost of making chips and Intel’s ambitions under Mr. Gelsinger to rapidly expand its manufacturing footprint propelled the firm to search for new pools of capital instead of relying on more traditional funding sources, such as bank loans or bond sales. “We have gotten behind, and that requires a fairly aggressive investment cycle over the next few years, which is not a place Intel typically finds itself,” he said. Intel’s big plans have weighed on investor sentiment. Its share price ended Monday down more than 45% since Mr. Gelsinger detailed his chip-making ambition last year, compared with only an 8% decrease in the PHLX Semiconductor Index. The company has also been decimated by manufacturing missteps and decreasing demand for personal computers its chips go into, after a surge of sales during the pandemic. Intel recorded a sharp decline in sales and?a loss for the second quarter. Mr. Zinsner said in a call with analysts Tuesday that the Arizona investment hinged on the company’s conviction that longer-term demand was strong. “The investments we make today in the Arizona facility won’t translate to volume [production] for several years,” he said. “So our thinking here is that we’ve got to have a good sense of where we think demand over the longer term is going to be for [silicon] wafers and invest in our capital accordingly.” The company is opting for flexibility when it meets that demand by building empty shells of chip factories at first, then determining when to put manufacturing machinery inside them depending on markets, customers and product readiness, said Intel’s chief global operations officer, Keyvan Esfarjani. Mr. Zinsner said one of the benefits of working with Brookfield is the off-balance-sheet nature of the financing. It also could help the company eventually deliver on its commitment to deliver FCF at 20% of revenue. Intel isn’t alone in having aggressive chip-investment plans. Last year?Taiwan Semiconductor Manufacturing?Co.?, the world’s largest contract chip maker, announced?it would invest $100 billion over three years?to boost the efficiency of its output, and South Korea’s?Samsung Electronics?Co.?, also a major chip maker,?unveiled a three-year plan?to spend more than $205 billion.

StraightPath Venture Partners LLC, which sold pre-IPO shares to investors during the late stages of the bull market and now?encounters civil fraud charges, has denied that it used commingled investor cash to deliver Ponzi-like payments to backers of its funds. The firm and four individuals who started or ran it for most of its existence also denied other important elements of the Securities and Exchange Commission’s allegations involving the handling of at least $410 million committed to nine StraightPath funds from around 2,200 investors. The SEC said in May that the funds were then worth more than $200 million. StraightPath, which moved to Jupiter, Fla., from New York last year, described itself as a “boutique private-equity firm” and provided investors the opportunity to acquire privately held shares in companies such as?Airbnb?Inc.?and?SoFi Technologies?Inc.?before their IPO's. The firm and its managing directors, including Brian K. Martinsen, acquired the shares held in the funds from business partners who weren’t named. But in some cases, the SEC alleges, StraightPath “oversold” the funds, taking money from investors for shares it didn’t then have. The firm and Mr. Martinsen and the other three defendants admitted that the funds sometimes lacked enough shares to cover investor commitments, in their court response filed Friday. But they said they alerted the SEC to this scenario in March and denied that the outcomes were the result of any misconduct. The judge overseeing the SEC case placed a receiver in charge of StraightPath in June. The defendants said that Mr. Martinsen transferred $3.3 million of his personal assets into the affected funds to cover losses. Also, they said he and defendants Francine A. Lanaia and Michael A. Castillero put up?$15 million between them?to an account to balance what the SEC said in May was a $14 million deficit across the funds involving shares from seven pre-IPO companies. The SEC said that the three collectively received about $74 million from StraightPath. The defendants, who also include former Managing Director Eric D. Lachow, responded to each section of the SEC’s complaint, filed in U.S. District Court for the Southern District of New York in Manhattan, but they often said they?didn’t have enough information?to ascertain the accuracy of the SEC’s statements. In response to an allegation that Ms. Lanaia and Mr. Castillero “were effectively barred from the securities industry,” the defendants claimed that they understood previous settlements didn’t prevent them from serving as consultants to StraightPath. The SEC describes Mr. Castillero and Ms. Lanaia as StraightPath founders. Ms. Lanaia previously said she doesn’t own any stake in the firm. StraightPath was formed in 2017, when the Renaissance Capital IPO ETF that holds a portfolio of large, newly listed U.S. IPOs traded at under $30 a share. By early last year, the ETF traded at around $75. To many investors, the IPO market seemed like a sure bet, if you could gain entry. A number of companies emerged to offer entry into IPO shares, such as Forge Global Inc. and Nasdaq’s Private Market. But this year,?the IPO market decelerated dramatically.

Elsewhere, Anyscale Inc., an artificial-intelligence startup founded three years ago by a group of University of California, Berkeley researchers, announced it has added $99 million to a previous $100 million Series C venture investment round,?initially announced in December. The commercial adoption of Ray, the open-source software needed to run Anyscale’s AI capabilities, is catching the eye of investors, said Robert Nishihara, the San Francisco-based company’s chief executive. By offering the underlying framework away free, Anyscale’s long-term growth depends upon converting its existing users into paying customers. Heavyweight Silicon Valley investors like Andreessen Horowitz and New Enterprise Associates are betting that it will indeed do so. The company currently has a private-market valuation of more than $1 billion. The new $99 million in funding came from existing investors Addition, Intel Capital, and Foundation Capital. “Ray itself has a lot of momentum in the market,” said Ben Horowitz, co-founder of Andreessen Horowitz, which led Anyscale’s December fundraising round. Mr. Horowitz said large companies, like?Facebook?parent?Meta Platforms?Inc.?and?Uber Technologies?Inc.,?generate a lot of data, but “need a crystal ball to decipher it.” And that is what Anyscale is providing, he said. Businesses use Anyscale’s tools to simplify the process of developing software that helps project customer demand, target online ads, make product recommendations or run fraud-detection systems, among a wide range of other functions. Ray, the company’s open-source software released six years ago, is built to synthesise the siloed computer and data technologies needed to develop and run AI applications in a distributed system, Anyscale said. As they become more complex, these apps need access to a range of different data repositories, search capabilities, data processing and training models, and an ever-growing amount of computing power. Anyscale charges for developer tools that run through Ray, designed to help corporate IT teams develop large-scale AI applications on a laptop. Thousands of businesses currently use Anyscale’s free software, including Uber,?International Business Machines?Corp.?, Meta and Instacart Inc., Anyscale said. Vendors providing similar distributed-computing capabilities include DataStax Inc., which sells cloud-based distributed database technology that sits on top of open-source software. MapR Technologies Inc., which is owned by?Hewlett Packard Enterprise?Co.?, also sells data tools that operate on open-source software. Anyscale hasn’t disclosed adoption rates or revenue, but said it does have paying customers. Han Li, a senior machine learning engineer at Instacart, said the grocery-delivery company is currently integrating Anyscale’s open-source software into its own machine-learning tools—though it isn’t a paying customer. “We want our machine-learning engineers to focus on the core algorithmic work,” Ms. Li said. “Ray enables them to run their models on very large data sets without having to get involved in the details of how to run a model on a large number of machines,” she said. Anyscale on Tuesday also unveiled a new engine with built-in security and cost-management tools, designed to help corporate technology teams build, manage, and scale AI applications.

In other news, Federal Reserve Bank of Minneapolis President Neel Kashkari says the U.S. central bank needs to continue with tighter monetary policy until it is apparent that very high levels of inflation are dropping significantly. “When inflation is 8% or 9%, we run the risk of un-anchoring inflation expectations,” Mr. Kashkari said at an appearance Tuesday, and if that happened, the Fed would be forced to pursue very aggressive rate rises to restore balance. “We definitely want to avoid allowing that situation to develop,” Mr. Kashkari said. “So with inflation this high for me, I’m in the mode of wanting to err on making sure we’re getting inflation down and only relax when we see compelling evidence that inflation is well on its way back down to 2%,” he said. The July?CPI?was up by 8.5% from the same month a year ago. Mr. Kashkari, who is not currently a voting member of the rate setting Federal Open Market Committee, didn’t disclose what he would like to happen in terms of the specifics of short-term rate adjustments. The Fed has raised rates aggressively this year to contain the highest level of inflation in 40 years. The Fed is likely to raise its target rate by half a percentage point to 0.75 percentage point at its FOMC meeting next month. Fed officials will meet later this week in Jackson Hole, Wyo., as part of an annual research conference. The event features a speech Friday from Fed chair Jerome Powell that many are looking to for signals about the rate rise outlook. Mr. Kashkari said his “biggest fear” is that inflation will be more enduring than many now anticipate.

Finally, a brief discussion on the subject of information warfare:

Every action we take leaves a trail of information that could, in actuality, be recorded and stored for future examination. For instance, one might use the older forms of information technologies of pen and paper and maintain a detailed diary listing all the things one did and thought during the day. It might be a daunting task to write all this information this way but there are a growing list of technologies and software applications that can help us accumulate all manner of data, which in principle and in practice, can be aggregated for use in building a data profile about you, a digital diary with millions of micro-entries. Some examples of which might be: a detailed listing of all of your economic transactions; a GPS generated plot of where you traveled; a list of all the web addresses you visited and the details of each search you initiated online; a listing of all your vital signs such as blood pressure and heart rate; all of your dietary intakes for the day; and any other kind of data that can be measured. As you go through this thought experiment you begin to see the complex trail of data that you generate each and every day and how that same data might be efficiently collected and stored though the use of information technologies. It is here we can begin to see how information technology can impact moral values. As this data gathering becomes more automated and ever-present, we must ask who is in control of collecting this data and what is done with it once it has been collected and stored? Which bits of information should be made public, which held private, and which should be allowed to become the property of third parties like corporations? Questions of the production, access, and control of information will be at the heart of moral challenges surrounding the use of information technology. One might argue that the situation just described is no different from the moral issues revolving around the production, access, and control of any basic necessity of life. If one party has the privilege of the exclusive production, access, and/or control of some natural resource, then that by necessity prohibits others from using this resource without the consent of the exclusive owner. This is not necessarily so with digital information. Digital information is non-exclusory, meaning we can all, at least theoretically, possess the same digital information without excluding its use from others. This is because copying digital information from one source to another does not require eliminating the previous copy. Unlike a physical object, theoretically, we can all possess the same digital object as it can be copied indefinitely with no loss of fidelity. Since making these copies is often so cheap that it is almost without cost, there is no technical obstacle to the spread of all information as long as there are people willing to copy it and distribute it. Only appeals to morality, or economic justice might prevent the distribution of certain forms of information. For example, digital entertainment media, such as songs or video, has been a recurring battleground as users and producers of the digital media fight to either curtail or extend the free distribution of this material. Therefore, understanding the role of moral values in information technology is indispensable to the design and use of these technologies. The primary moral challenge of informational warfare is determining how and in what manner to use weaponized information technologies that honors our commitment to just and legal warfare. Since warfare is already a morally questionable enterprise it would be preferable if information technologies could be leveraged to mitigate violent combat. For instance, one might argue that the Stuxnet virus used undetected from 2005 to 2010 did damage to Iranian nuclear weapons programs that in generations before might have only been executed by an air raid or other kinetic military action that would have involved significant civilian casualties, and that so far there have been no reported human casualties resulting from Stuxnet. Thus malware might significantly limit the amount of civilian casualties in conflict. The malware known as “Flame” is an interesting case of malware that evidence suggests was designed to aid in espionage. One might argue that more accurate information given to decision makers during wartime should help them make better decisions on the battlefield. On the other hand, these new informational warfare capabilities might allow states to engage in continual low level conflict eschewing efforts for peacemaking which might require political compromise.

Early in the twentieth century the American philosopher John Dewey proposed a theory of inquiry based on the instrumental applications of technology. Dewey had an expansive definition of technology which included not only common tools and machines but information systems such as logic, laws, and even language as well. Dewey argued that we are in a distinctively ‘transactional’ relationship with all of these technologies within which we explore and construct our world. This is a helpful view to take as it permits us to posit the claim that an information technology of morality and ethics is indeed possible. While Dewey could only vaguely foresee the coming revolutions in information technologies, his theory is useful to us to this day because he suggested that ethics was not only a theory but a practice, and that said practice ought be oriented towards solving the most pressing problems of our day. If he is right, then an interesting possibility arises, namely the possibility that ethics and morality are intelligible problems and therefore it should be possible to develop an information technology that can instantiate moral systems of thought.

In 1974 the philosopher Mario Bunge proposed that we adopt the notion of ‘technoethics’; contending that moral philosophers should emulate the way engineers attack a problem. Engineers do not argue in terms of reasoning by categorical imperatives but instead they use:

… the forms If?A?produces?B, and you value?B, chose to do?A, and If?A?produces?B?and?C?produces?D, and you prefer?B?to?D, choose?A?rather than?C. In short, the rules he comes up with are based on fact and value, I submit that this is the way moral rules ought to be fashioned, namely as rules of conduct deriving from scientific statements and value judgments. In short ethics could be conceived as a branch of technology. (Bunge 1977, 103)

Taking this view seriously suggests that the very act of developing information technologies is also the act of creating specific moral systems within which human and artificial agents will, at least occasionally, transact through moral exchanges. Information technologists may therefore be in the business of developing moral systems whether they know it or not and whether or not they seek out that responsibility. That concludes our discussion for the evening, I sincerely hope this article was enriching and edifying for you all!

With gratitude,

Will