Daily Tech Snippet: Monday, April 25

• A Marriage Gone Bad: Walgreens Struggles to Shake Off Theranos: The sprawling drugstore chain, now a part of Walgreens Boots Alliance, was Theranos’s first — and thus far only — direct-to-consumer retail partner, promising to eventually make Theranos’s “wellness centers” an integral part of its more than 8,000 stores nationwide. When it announced the deal in 2013, Walgreens hoped to drive traffic to its stores and bask in the reflected glow from one of Silicon Valley’s hottest unicorns and its youthful founder and glamorous chief executive, Elizabeth Holmes. For unproved Theranos, the Walgreens endorsement was akin to the Good Housekeeping seal of approval. Theranos’s valuation vaulted to $9 billion and put Ms. Holmes on the Forbes list of billionaires. Nearly three years later, with Theranos under siege on multiple regulatory fronts and its reputation in tatters, it’s clear that the relationship has been a disaster for Walgreens. The company has been trying to distance itself, halting expansion of Theranos testing in its stores and, in January, threatening to end the partnership if Theranos did not meet regulatory standards within 30 days. But that deadline has come and gone. With this week’s news that Theranos is under criminal investigation for, among other things, possibly defrauding Walgreens and other investors, the question is: What will it take for Walgreens to end its troubled relationship? Theranos’s lawyers have taken a hard line, insisting that Walgreens is contractually bound by their agreement. So far, the approach has worked. Walgreens appears to have taken a cautious approach toward terminating the relationship, perhaps preferring to wait until federal regulators impose penalties or the criminal investigation yields formal charges, either of which would strengthen Walgreens’s hand. But that could take years. Theranos can appeal any penalties, and a grand jury investigation could be a protracted process. And Theranos is likely to sue Walgreens in any event if it terminates their agreement. In the meantime, Walgreens risks being dragged into nearly every negative story about Theranos.

• Inside One of the World’s Most Secretive iPhone Factories: A few minutes past 9 a.m. at Pegatron Corp.’s vast factory on Shanghai’s outskirts, thousands of workers dressed in pink jackets are getting ready to make iPhones. The men and women stare into face scanners and swipe badges at security turnstiles to clock in. The strict ID checks are there to make sure they don’t work excessive overtime. The process takes less than two seconds. This is the realm in which the world’s most profitable smartphones are made, part of Apple Inc.’s closely guarded supply chain. After years of accusations that employees in China were forced to work long, grueling hours, Pegatron and Apple adopted new procedures to keep iPhone assemblers from amassing excessive overtime. They’re eager to show how the system works, and for the first time are granting a western journalist access into the inner sanctum.The factory at the corner of Xiu Yan and Shen Jiang roads is one of the most secretive facilities at the heart of iPhone production and covers an area equal to almost 90 football fields. In the center is a plaza with a firehouse, police station and post office. There are shuttle buses, mega-cafeterias, landscaped lawns and koi ponds. The grey and brown-hued concrete buildings are meant to evoke traditional Chinese architecture. The brand-new Shanghai Disneyland, which opens its doors in June, is a 20-minute drive away.Inside, the factory still hides a secret, according to China Labor Watch. Base pay remains so low that workers need overtime simply to make ends meet, the advocacy group said. It said 1,261 pay stubs from Pegatron’s Shanghai facility from September and October 2015 show evidence of excessive overtime. Pegatron, an Asustek spinoff, is the world’s biggest contract electronics manufacturer after Foxconn, according to Bloomberg Intelligence.Pegatron countered by saying the group miscounted because that period straddled state holidays, when pay was three times’ normal. Apple and Pegatron say they were never contacted by China Labor Watch, which said it approached Apple but didn’t get a response. Since March, the group said it’s collected an additional 441 pay stubs that point to continued excessive overtime. Back in the cafeteria, a group of women rush to finish lunch before their 50-minute break is over. They hail from across China, from Sichuan in the west to Shandong in the northeast. None has been there for more than a few months. “This is relaxed compared to other factories,” said Xu Na, 30, who followed her younger brother to work at the factory. “We never work more than 60 hours.”

• Flipkart is in the middle of a crisis of its own making—stalled growth compounded by management churn and the imminent possibility that it will cede the top slot to Amazon. But it’s not too late to change its strategy. Flipkart is in the middle of a storm of its own making: It is faced with a significant management churn at the top. For a company that pioneered e-commerce in the country, growth has virtually stalled since the middle of last year and the leadership team hasn’t figured out a way to kick-start sales. Its innovation engine isn’t firing. In e-commerce lingo, the gross merchandise volume (GMV) sold over a given period of time has not grown substantially. In the offline world, it is the equivalent of saying, the sales or revenue numbers aren’t growing. And this, for the e-commerce pioneer that until now grew its GMV by over 200% per annum for the past three years. The very culture that made Flipkart a runaway success in the first phase of its existence is now hindering its progress. The battle won’t be easy. Amazon will unleash Amazon Prime, Amazon Fresh and may even partner with offline retailers to consolidate its position as the default destination for online shopping. Amazon has rapidly scaled up its seller ecosystem and outstrips Flipkart today in several product categories. It has a chance to win India—and that is being handed over on a platter thanks to the internal confusion at Flipkart. Amazon is here to play a 20 year game—and any fumbles will cost competitors heavily. Now imagine the Flipkart investors’ dilemma. They’ve poured in over $3 billion and own over 80% of the company. They are neck deep in a business that is burning $50-70 million a month and has to get ready for the next phase of battle in the market. If the cost-cutting moves misfire and market share starts to shrink, the founders could very well put a request for another $500 million for the fight against Amazon. What will the investors do? A new investor is unlikely to step in. Even though the Chinese e-commerce players like Alibaba are waiting in the wings to swoop down on prized assets in India, there's a chance that they could choose to wait out this stage of the company’s evolution—why buy and restructure, when you can wait and buy a cleaned-up asset? Hence, one of the current investors will have to lead the round and it will put serious pressure on the team to show results. Flipkart has a last chance to redeem itself and take control of its destiny, else it will become another victim of early success. It is too big to fail and the market opportunity is too large to ignore. India will have more than one large e-commerce player—just the sheer potential of the market will keep it from consolidating for many years—and so, Flipkart’s existence is not in question. But the next few months will determine the destiny of the company. The A-team cannot afford to flounder so early in their journey.