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U.S. Memo Urges Big Push on 5G Wireless Technology

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WASHINGTON—Some White House officials view next-generation 5G wireless service as a “key area of competition,” and they say that the threat from China, in particular, justifies a “moonshot” government effort like the construction of the interstate highway system, an internal memo shows.

The memo—produced by officials at the National Security Council—urges the Trump administration to consider extraordinary efforts to clear the way for the new technology or even to help build it in order to counter the growing economic and political…



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Afghans, Reeling From Terrorism, Blame Their Government

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KABUL—After one of the deadliest attacks to hit Kabul in years, the Afghan government accused its usual nemesis, Pakistan, of supporting the Islamist militants behind the massacre. But the focus of dismay and anger for many Afghans was closer to home: the government’s U.S.-trained Afghan security forces.

Afghan officials, led by the country’s spy chief, Masoom Stanikzai, said Pakistan was directly responsible for Saturday’s attack, which killed 103 people and wounded 235 others. The officials accused Islamabad of using the…



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Canada, Mexico Reject Reworking Nafta Corporate Arbitration System

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MONTREAL—Mexico and Canada have rejected a proposal by the Trump administration to remake a corporate arbitration system that is a key part of the North American Free Trade Agreement, according to people involved in talks to update the pact.

The two countries’ resistance to the U.S. plan to change the system, known as investor-state dispute settlement, or ISDS, could lead to its removal altogether from Nafta, as neither Canada nor Mexico is interested in allowing countries to opt out of the system, as the U.S. has proposed. The U.S. made the proposal with an eye to opting out of the ISDS system, which it says erodes the sovereignty of the U.S. by allowing multinational companies to circumvent domestic courts.

Under the dispute mechanism, arbitration panels now hear complaints from corporations that their overseas investments were unfairly treated by an action by another Nafta government. The system is widely backed by multinational businesses because it allows them to avoid lengthy court battles and potentially discriminatory treatment abroad.

Officials from the U.S. Trade Representative’s office declined to comment on the proposal or the trading partners’ reaction to it, saying the negotiations are ongoing.

The future of the system, along with other dispute-resolution issues, is among the thorniest parts of Nafta negotiations, and is expected to be among the last to be resolved if negotiators are to be successful in rewriting the 24-year-old agreement. The three countries have aimed to complete the talks by the end of March, but many lobbyists and other officials watching the negotiations say they will have to accelerate their pace in order for that deadline to be met.

The sixth round of Nafta talks was scheduled to conclude Monday, after which U.S. trade representative

Robert Lighthizer

and his Mexican and Canadian counterparts were expected to issue a joint statement on the negotiations’ progress. In Montreal, negotiators were able to finalize a chapter on anticorruption issues, according to an official with one of the Nafta parties. Overall, officials and stakeholders briefed say the talks have taken a tentatively promising turn, after Canada came forth with an informal proposal to bridge the gap on U.S. demands over auto production.

“I think it was a positive week. We are moving in the right direction, but there’s a long way to go.” Canada’s chief Nafta negotiator

Steve Verheul

told reporters Saturday night. “We are still negotiating, and that’s the main thing.”

But the complicated struggle over ISDS is characteristic of the challenges the negotiators are up against. The Trump administration’s opt-out proposal would mean that the country opting out wouldn’t be subject to arbitration claims from companies from the other two.

Mexico and Canada, according to people close to the negotiations, say they won’t accept the opt-out proposal because if the U.S. were to leave the system, as would be expected, it would protect U.S. companies by allowing their complaints to go to arbitration but wouldn’t allow Mexican and Canadian companies to use the system in challenges against the U.S. government.

The possibility of dismantling the system has worried big companies, who are lobbying for its preservation by pressing U.S. lawmakers to insist that any Nafta deal contain some form of investor-state dispute settlement. Lawmakers get a vote on any major Nafta overhaul, so they can use their influence with Mr. Lighthizer to press to keep the dispute system.

The system has especially strong support from investors in long-term projects, such as energy exploration, that might be sensitive to domestic political changes.

Mexican and Canadian officials have said that they’d prefer to remove the investor-state provision from the three-way Nafta agreement and form their own bilateral investor pact rather than remain a part of a system under Nafta where different countries have different rights, according to people familiar with the talks. Under a bilateral system between Canada and Mexico, the U.S. wouldn’t be included, so Washington wouldn’t face arbitration challenges, but its companies also wouldn’t enjoy protections in the other two countries. One official said the bilateral proposal is in its very early stages but Canada and Mexico believe it is worth pursuing.

While business groups like ISDS, labor unions and environmental groups see the system as giving companies a green light to invest abroad while cutting the risk of environmental fines or regulatory actions by foreign governments.

The Trump administration has also proposed scaling back the types of challenges that companies could bring under the system. Mr. Lighthizer has expressed public skepticism about other forms of dispute settlement that result in binding outcomes for the U.S. government. So far, the U.S. has never lost an investor arbitration case under Nafta or any other agreement.

The proposal to scale back ISDS, supported by some labor and consumer groups, would only allow investors to seek damages from foreign governments if their assets were essentially stolen through “direct expropriation,” according to advisers to Mr. Lighthizer and people following the talks. Regulatory actions that indirectly impair an asset wouldn’t be grounds for a challenge under the system.

U.S. congressional staffers who back traditional Washington trade policy point out that the legislation that allows for the Nafta negotiations requires Mr. Lighthizer to strike a deal with strong investor protections. When the U.S. was negotiating with 11 Pacific partners in 2015, many congressional Republicans and some Democrats insisted on a strong version of investor-state dispute settlement, and business groups say lawmakers are pushing back against the Trump administration’s proposals.

Write to William Mauldin at william.mauldin@wsj.com

Appeared in the January 29, 2018, print edition as ‘U.S. Nafta Proposal Fails To Move Mexico, Canada.’



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Activists to Press Avon to Explore a Sale

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A group of activist investors are joining together to call on

Avon Products
Inc.


AVP 3.40%

to seek a buyer, in a move that could set up a fight for the company’s board as a key deadline looms.

Three investors, who together own a roughly 3.5% stake in Avon, believe a yearslong effort to reshape the storied brand has run out of time and requires new ownership and leadership, according to a letter they plan to send to the board that was reviewed by The Wall Street Journal.

Shah Capital, Barington Capital Group LP and NuOrion Partners have all been investors for several years and pushed, in some cases publicly, for changes at the beauty-products seller. While Barington and NuOrion had earlier partnered, Shah has just joined their alliance.

After struggling for years, Avon is already undergoing a major transition, with Chief Executive

Sheri McCoy

expected to step down on March 31.

Ms. McCoy, who started in 2012 soon after Avon rejected an $11 billion takeover offer, said in November that a transformation of the company was poised to bear fruit, though the results would take time to show.

“Avon’s board of directors and management team are committed to delivering value for all shareholders and will continue to take actions to improve performance,” a spokesman said Sunday, pointing to the CEO search as being on schedule and saying the company values shareholder input. “We are confident that the changes we are undertaking will strengthen and grow the business.”

In December 2015, as Barington and NuOrion began their public criticism, Avon struck a deal to sell its North American operation and a 17% stake in the publicly traded international business to private-equity firm Cerberus Capital Management LP.

The company has been cutting costs, revamping its offerings and trying to improve its relationships with representatives, but results continued to slide.

The stock is down more than 50% over the past year and its market value has sunk to just over $1 billion.

The investors plan to criticize the company’s operational and stock performance, echoing complaints Barington and NuOrion made last year when they called for a CEO change. This time, they will raise concerns that the board, including the Cerberus representatives, isn’t equipped to complete the turnaround, according to the draft letter.

They also criticize the pace of the CEO search.

Such comments are often a prelude to a fight to change the board, which the investors could launch ahead of a deadline to nominate director candidates in coming weeks.

“We have lost confidence in the ability of the board to create meaningful long-term value for its public shareholders,” they write. “We believe that a better capitalized strategic buyer would do a much better job unlocking the tremendous value potential at Avon.”

The investors believe a range of buyers could be attracted to Avon’s 130-year-old brand, annual sales of more than $5.7 billion, strong positions in developing countries and tax efficiency.

Write to David Benoit at david.benoit@wsj.com

Appeared in the January 29, 2018, print edition as ‘Investors Press Avon To Find A Buyer.’



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Honduran President Inaugurated for Second Term

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TEGUCIGALPA, Honduras—The inauguration was held at 9 a.m. local time at a soccer stadium. Until the day before, no one was sure where the ceremony would take place. No heads of state were invited. Most reporters weren’t allowed in.

Outside, protesters battled with riot police, who were on hand to assure that Juan Orlando Hernández was able to take office for a second term as president of Honduras—a historic first for the country where re-election had been banned for decades.

In November, 49-year-old Mr. Hernández won an election which the Organization of American States said couldn’t be validated as it urged for a new vote. Since then, at least 30 people have died in protests related to the election.

Supporters of Mr. Hernández say he is a man on a mission to modernize the country, who has had notable success in slashing the country’s homicide rate. Critics have said his consolidation of power could turn him into another Latin American strongman.

“I think he sees himself as the leader of a Singapore, imposing discipline,” says

Moises Starkman,

who was a minister in a previous administration and is now an economics professor. “The question is whether you can do it without becoming an authoritarian.”

The unrest is a reminder that the former lawyer and congressman will have a difficult time governing this nation of 9 million, where poverty and gang violence has led hundreds of thousands to emigrate to the U.S. Honduras has also become a transportation hub for shipments of cocaine and other drugs headed to U.S. markets.

“The country will be ungovernable,” said

Salvador Nasralla,

who lost the November election to Mr. Hernández. Mr. Nasralla identifies himself on his Twitter account as the true president of Honduras.

During his inaugural speech, Mr. Hernández tried to quell fears of his staying in power indefinitely. Having worked for years to overturn a ban on re-election, he said the presidency should be limited to two terms.

“It’s a good thing to have limits on re-election,” he said. “Most countries in the world allow some kind of re-election, yes, but only once.”

Mr. Hernández also pledged to work with opposition parties to overhaul the country’s electoral system. In November’s election, the vote count was suspended for a day and a half with Mr. Nasralla in the lead. After the tally resumed, Mr. Hernández pulled out in front. He has said he was helped by votes in rural areas, where the count is done by hand.

The U.S., which is the top donor to Honduras, has recognized Mr. Hernández’s victory but also has acknowledged that there were irregularities in the election process.

Aides to Mr. Hernández, one of 17 children of a rural political boss, say he is a results-driven manager. His chief of staff,

Jorge Hernández,

who isn’t related to the president, said he is obsessed with performance, requiring government ministers to grade themselves weekly.

Critics, however, have said Mr. Hernández is an authoritarian leader who has stacked key institutions with supporters and consolidated power.

The president’s critics point to his drive to repeal the country’s constitutional ban on re-election, which was initially enacted to prevent the rise of strongmen.

In 2012, as head of the country’s congress, Mr. Hernández orchestrated the firing of four supreme court justices and replaced them with magistrates loyal to him, analysts and critics have said. Three years later, the judges ruled that the ban on re-election couldn’t prevent someone from running for office again, clearing the way for Mr. Hernández’s bid for a second term.

Mr. Hernández has denied any such aims, but has said re-election is necessary to modernize the country. “In the end, you can’t build something sustainable in four years for the medium and long range to make a change in a country like ours,” he said.

During his first term, Mr. Hernández oversaw an improvement in the country’s homicide rate, which fell to 42 for every 100,000 residents from 86 for every 100,000 residents in 2012, a rate which was then among the world’s highest. His administration boosted the security budget and retrained the national police.

Mr. Hernández cut off gangs’ criminal operations by moving their leaders to newly built maximum security prisons. Honduras, in conjunction with the U.S. Drug Enforcement Administration and other international police agencies, targeted cartels, capturing some traffickers while others surrendered.

“No one has been able to do that in any country in four years,” Mr. Hernández said in an interview last week.

His efforts to curb organized crime has led to many threats against his life, Mr. Hernández has said. The U.S. had warned the president on some of these threats, according to people familiar with the matter.

Mr. Hernández also has been dogged by allegations of corruption. In 2015, two years after Mr. Hernández’s first election, protesters demanded his resignation when it emerged millions of dollars had been diverted from the country’s social security fund. In the wake of the protests, Mr. Hernández said he would accept an OAS mission to investigate corruption.

Last week, the OAS anticorruption body said recent legislative changes would obstruct investigations into lawmakers who allegedly had embezzled government funds.

The U.S. has decided it can work with Mr. Hernández despite his faults, said

Michael Shifter,

president of the Inter-American Dialogue, a Washington-based think tank on Latin American policy.

“Clearly the U.S. has major concerns about Hernández, his appetite for power and serious allegations of corruption,” Mr. Shifter said. “But he is seen as a factor of stability in a very turbulent and unsettled region.”

For his second term, Mr. Hernández has said he would concentrate on improving the economy. He called in consulting company McKinsey to help draft a plan to create some 600,000 jobs. He also hopes to spur bank loans to small businesses, and plans to create new free-trade zones.

Write to José de Córdoba at jose.decordoba@wsj.com



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President Trump Hints at Retaliation Against EU for Unfair Trade

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President Donald Trump extended his threats of action against America’s trading partners, this time hinting at major retaliation against the European Union for what he described as its “very unfair” trade policy toward the U.S.

Mr. Trump has repeatedly complained about global trading arrangements that he says discriminate against the U.S. and has threatened steps that have fanned anxieties around the world about U.S. protectionism and the possibility it could set off a global trade war.



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Canada's Oil Producers, in Standoff With Railways, Sit Out Oil-Price Rally

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TORONTO—Hard-nosed negotiating by railway companies is keeping Canadian oil producers from cashing in on a world-wide oil price rally.

Oil producers such as Imperial Oil Ltd., Suncor Energy Inc. and Cenovus Energy Inc. have few avenues to ship their oil to the U.S., their primary market. The pipelines that normally take the crude are almost at capacity, which leaves railroads as the only option for larger shipments.

But…



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How Amazon's Ad Business Could Threaten Google and Facebook

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How Amazon’s Ad Business Could Threaten Google and Facebook – WSJ










































































Amazon.com has valuable data its tech competitors can’t access: Its own sales

It’s easy to see how

Amazon.com
Inc.


AMZN 1.75%

threatens the world’s retailers. But analysts, brands and advertising agencies are waking up to the fact that a growing piece of Amazon’s business impinges on turf now controlled by two other tech titans, Google and

Facebook
.

Amazon’s decade-old advertising business hasn’t generated much revenue or notice until recently. One sign of the turning point was last June, at the annual meeting of advertising giant

WPP

PLC. Calling the retailer “highly disruptive in many ways,” WPP Chief Executive

Martin Sorrell

projected the firm would spend $200 million placing ads with Amazon in 2017.

Amazon doesn’t break out advertising as a separate business, but according to a new report by J.P. Morgan analyst

Doug Anmuth,

the company racked up an estimated $2.8 billion in 2017 ad revenue. That’s small compared with his estimate for Google’s ad revenue in 2017: $73 billion. Yet in 2019, he expects Amazon’s revenue to more than double to $6.6 billion.

Amazon’s advertising success is directly related to its retail business. Consumer packaged-goods companies now spend more on digital advertising than all varieties of nondigital advertising combined, according to Cadent Consulting Group. Google’s search ad business leans on the premise that a customer researching a purchase will click relevant ads that will lead to a sale. Google has incredibly rich data from our search and browsing histories, and Facebook lets advertisers combine our social graph with other data, like where we’ve been and what we’ve bought.

But Amazon has a huge set of data that Facebook and Google can’t access—namely, its own. Already, more than half of all online searches for products start on Amazon, and of those a majority end there, according to various surveys. That figure has grown every year that pollsters have tracked it.

$2 billion

Twitter

1 block = $500 million in estimated world-wide 2017 ad revenue

$2 billion

Twitter

$0.8 billion

Snap

$5.3 billion

Oath

$40 billion

Facebook

$2.8 billion

Amazon

$73 billion

Google

1 block = $500 million in estimated world-wide 2017 ad revenue

$5.3 billion

Oath

$40 billion

Facebook

$0.8 billion

Snap

$73 billion

Google

$2.8 billion

Amazon

$2 billion

Twitter

1 block = $500 million in estimated world-wide 2017 ad revenue

$40 billion

$73 billion

Google

Facebook

$0.8 billion

Snap

$5.3 billion

Oath

$2.8 billion

Amazon

$2

billion

Twitter

What happens when and if Amazon is not only the biggest online retailer in the U.S., but also one of the biggest physical retailers, with total sales greater than those of

Walmart

and all the data and technical chops of a Facebook or Google?

How it works

Thousands of brands large and small, selling through Amazon’s Marketplace seller program, are now what drives Amazon’s rapid growth in ad revenue. Jijamas, founded in 2013, wouldn’t exist without Amazon, says Gustavo Sanchez, the brand’s co-founder and chief executive. Jijamas sells one thing: Supersoft, high-end women’s pajamas.

Starting at about $70 a set, they rarely turn up near the top of search results for “pajamas” on Amazon, says Mr. Sanchez, since the site’s algorithm favors cheaper, higher-volume goods. Even its high customer ratings only help Jijamas get so far.

The company’s revenue growth is dependent on Amazon advertising, Mr. Sanchez says.

Advertising on Amazon is much like advertising on Google’s AdWords platform, says Daniel Knijnik, chief executive of Quartile, a small ad agency started last August that focuses solely on Amazon. Most ads appear atop search results for various keywords.

Advertising plays an important role in Amazon’s lucrative direct-to-consumer marketplace, where Amazon, at added cost, provides warehousing and shipping to third-party sellers. Because advertising allows brands to connect better with Amazon’s shoppers, Mr. Knijnik says, even manufacturers who previously sold wholesale to Amazon are now opening their own “stores” on the site.

For sellers like Mr. Sanchez, advertising on Amazon is a mixed bag. A “sponsored” listing is essential for getting products to the top of search results, which is the only surefire way to sell anything on a site that offers millions of different products. But sponsored lists are also another way Amazon skims off his profits.

On top of the 15% of an item’s selling price that Mr. Sanchez pays just to list Jijamas on Amazon’s marketplace, and the 5% to 6% he pays to have Amazon warehouse and ship his products, there is now up to 12% going to advertising for every item sold through an ad. This April, Amazon will start charging an additional 2% to list apparel (it hasn’t disclosed why). The net result is that Amazon will take about 35% of the price of each pair of Jijamas sold through its sponsored listings.

If Amazon decides to change its search result ranking algorithms or hike its ad fees, “there’s nothing I can do about it,” Mr. Sanchez says. Amazon represents 65% of his total sales, he adds; the remainder comes from his own website.

Where it can grow

Amazon is continually building and buying new sources of data on our tastes and consumer behavior, from its acquisition of Whole Foods and the build-out of its cashierless Amazon Go stores to the invasion of its low-cost, voice-powered speakers and the rapid increase in its library of streaming video.

Every time Amazon racks up another percentage point of the $5 trillion U.S. retail pie, another $50 billion in the kind of data that Google and Facebook relied on disappears from their systems. Plus, Amazon understands shoppers in a way Google and Facebook might not.

“Amazon doesn’t just know what you buy, they also know about how you shop,” says Diana Gordon, director of Shop+, the ecommerce-focused arm of WPP-owned ad firm Mindshare. “They know your browsing behavior, the cadence with which you restock certain types of consumables,” she adds.

Amazon is building out not only its self-service ad business but also the sales team devoted to getting brands on board.

All of this could give Amazon an edge over Google and Facebook, but for it to scale that business, it will have to look beyond ads targeted at consumers who are already shopping on its sites.

For that, Amazon has a web-spanning advertising network just like Google’s and Facebook’s—which is the reason a vacuum cleaner you once almost bought can haunt you for weeks on random websites. The Amazon Advertising Platform lets advertisers manage ad buys across multiple advertising exchanges, and it has quietly become as familiar to marketers as its equivalent from Google-owned DoubleClick.

Amazon also needs to expand the number of places it can sell advertisements, which is one reason the company bought videogame-streaming behemoth Twitch and is investing so heavily in its own streaming-video offerings.

The company has been creative about where it places ads—ever notice a movie ad on the side of an Amazon box shipped to your house? Perhaps, in the future, there could be an audio ad exchange for podcasts and skills delivered through Alexa. Maybe, some day, delivery drones will just shout the latest deals to a terrified populace?

Write to Christopher Mims at christopher.mims@wsj.com



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Intel Told Chinese Firms of Chip Flaws Before U.S. Government

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In initial disclosures about critical security flaws discovered in its processors,

Intel
Corp.


INTC 10.55%

notified a small group of customers, including Chinese technology companies, but left out the U.S. government, according to people familiar with the matter and some of the companies involved.

The decision raises concerns, security researchers said, as it potentially could have allowed information about the chip flaws, dubbed Spectre and Meltdown, to fall into the hands of the Chinese government before being publicly divulged. There is no evidence any information was misused, the researchers said.

Weeks after word of the flaws first surfaced, Intel’s choices about whom would receive advance warning continue to ripple through the security and tech industries.

The flaws were first identified in June by a member of Google’s Project Zero security team. Intel had planned to make the discovery public on Jan. 9—people working to protect systems from hacks often hold off on announcements while fixes are devised—but sped up its timetable when the news became widely known on Jan. 3, a day after U.K. website the Register wrote about the flaws.

Because the flaws can be leveraged to sneak sensitive data out of the cloud, information about them would be of great interest to any intelligence-gathering agency, said

Jake Williams,

president of the security company Rendition Infosec LLC and a former National Security Agency employee. In the past, Chinese state-linked hackers have exploited software vulnerabilities to get leverage on their targets or expand surveillance.

It is a “near certainty” Beijing was aware of the conversations between Intel and its Chinese tech partners, because authorities there routinely monitor all such communications, Mr. Williams said.

Representatives from China’s ministry in charge of information technology didn’t respond to requests for comment. The country’s foreign ministry has in the past said it is “resolutely opposed” to cyberhacking in any form.

An Intel spokesman declined to identify the companies it briefed before the scheduled Jan. 9 announcement. The company wasn’t able to tell everyone it had planned to, including the U.S. government, because the news was made public earlier than expected, he said.

Intel’s tricky path—inform enough big customers to head off significant damage while keeping the information as contained as possible to limit potential leaks—continues to weigh on smaller companies that weren’t given an early nod.

Joyent Inc., a U.S.-based cloud-services provider owned by

Samsung Electronics
Co.

, is still playing catch-up, said Bryan Cantrill, the company’s chief technology officer.

“Other folks had a six-month head start,” he said. “We’re scrambling.”

In the months before the flaws were publicly disclosed, Intel worked on fixes with

Alphabet
Inc.’s

Google unit as well as “key” computer makers and cloud-computing companies, Intel said in an emailed statement to The Wall Street Journal.

An official at the Department of Homeland Security said staffers learned of the chip flaws from the Jan. 3 news reports. The department is often informed of bug discoveries in advance of the public, and it acts as an authoritative source for information on how to address them.

“We certainly would have liked to have been notified of this,” the official said.

The NSA was similarly in the dark, according to

Rob Joyce,

the White House’s top cybersecurity official. In a message posted Jan. 13 to Twitter, he said the NSA “did not know about these flaws.” A White House spokesman declined to comment further, referring instead to the tweet.

Chinese computer maker

Lenovo Group
Ltd.


LNVGY -1.20%

was among the large tech companies, including

Microsoft
Corp.

,

Amazon.com
Inc.

and ARM Holdings in the U.K., that were notified of the flaws beforehand.

Lenovo was able to issue a statement Jan. 3 advising customers on the flaws because of “the work we’d done ahead of that date with industry processor and operating system partners,” a spokeswoman said in an email.

Alibaba Group Holding
Ltd.


BABA 3.47%

, China’s top seller of cloud-computing services, also was notified ahead of time, according to a person familiar with the company.

A spokeswoman for Alibaba’s cloud unit declined to comment on when the company was informed. She said any idea that the company might have shared information with Chinese authorities was “speculative and baseless.”

A Lenovo spokeswoman said Intel’s information was protected by a nondisclosure agreement.

Despite the security concerns, an early heads up to a select number of large global companies made sense, said

Dave Aitel,

chief executive of Immunity Inc., a company that sells security services. “They’re going to tell as few people as possible” to contain possible leaks, he said.

Because they had early warning, Microsoft, Google and Amazon were able to release statements soon after news of the flaws leaked out saying their cloud-computing customers were largely protected.

Smaller competitors, though, continue to struggle. DigitalOcean Inc., a cloud-services seller, said Jan. 19 it was still testing a fix for its customers. Rackspace Inc. said last Wednesday it has several teams working on a fix. The cloud company earlier in January told customers it understood the situation “can be frustrating.”

The DHS also stumbled with its initial guidance. The agency’s Computer Emergency Response Team first linked to an advisory stating the only way to “fully remove” the flaws was by replacing the chip. CERT now advises users instead to patch their systems.

The DHS should have been looped in early on to help coordinate the flaws’ disclosure, Joyent’s Mr. Cantrill said. “I don’t understand why CERT would not be your first stop,” he said.

Write to Robert McMillan at Robert.Mcmillan@wsj.com and Liza Lin at Liza.Lin@wsj.com



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Sam Adams Beer Isn't Rushing the Search for Its Next CEO

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CEO searches generally last three to six months, but the maker of Sam Adams beer has been seeking its next leader for almost a year.

Jim Koch,

who started

Boston Beer
Co.


SAM 1.96%

in 1984 using a family lager recipe and remains closely involved in its operations as chairman, said in a Jan. 18 interview that finding a replacement for the current chief executive,

Martin Roper,

has been a challenge.

A few things make this CEO search particularly tricky: The company’s next leader will need hard-hitting corporate experience to turn around an established brewery with slumping sales. The next CEO also will need to work alongside Mr. Koch, 68, a larger-than-life founder who likely will continue to be a force within Boston Beer.

Mr. Roper, 54, who has held the top post since taking over for Mr. Koch in 2001, said in early 2017 that he’d like to retire by the end of February this year. Mr. Koch said at the time that the board had been discussing Mr. Roper’s plan since a year earlier.

Mr. Roper “remains fully engaged and committed to leading the business as CEO until a successor is found and a seamless transition is completed,” a spokeswoman said. The company is using executive search firm

Korn/Ferry International
.

Boston Beer’s U.S. sales volume declined 8% in 2016, the largest drop in the company’s history, and an estimated 5% in 2017, according to trade publication Beer Marketer’s Insights. Though sales of the company’s non-beer alcoholic drinks such as Twisted Tea and Truly Spiked & Sparkling seltzer are growing, the rapid proliferation of craft breweries has squeezed its beer business and weakened the Sam Adams brand.

“You’re dealing with two things: A guy who doesn’t want to give up any control and the fear that you’re buying into a business that’s not growing. I don’t know what the bigger hurdle is,” said Macquarie analyst

Caroline Levy.

Boston Beer finds itself in a no man’s land as a mammoth craft brewery that remains dwarfed by giants such as Anheuser-Busch InBev NV and

Molson Coors Brewing
Co.

It is too big to be considered a hometown craft brewery but it isn’t big enough to fully reap the benefits of scale. Mr. Koch said the brewery is banking on the recent launch of an easy-to-drink lager-and-ale combination called Sam ‘76 to jump-start sales.

“Our unique capability is that we’re big enough to do just about anything we want, and we’re small and crafty enough to want,” Mr. Koch said.

Stifel analyst

Mark Swartzberg

said he hopes the company’s next CEO will cut costs by pruning the Sam Adams beer line.

“Their single largest brand is Twisted Tea,” Mr. Swartzberg said. “That underscores that you’re good at innovating but you’re not good at killing off what’s not working.”

The company has focused its CEO search on outsiders with strong backgrounds in consumer products, according to Mr. Koch. He said he is aware of the acute challenges outside CEOs face and is nervous because their tenures tend to be shorter than leaders promoted from within.

He said he’d like the next chief executive to be sales-and-marketing oriented, to balance out his focus on the beer. But he also said he is concerned that corporate “climbers” won’t fit in with the company’s lighthearted culture or mesh well with him.

Mr. Koch’s expected continued involvement in Boston Beer has hurt its recruiting efforts, according to a person familiar with the situation. Where there’s “the long shadow of a dominant figure in a business, not every outside [CEO] candidate will take a look at it,’’ this person said.

Uber Technologies Inc., for example, struggled with this issue while searching last year for someone to replace ousted CEO

Travis Kalanick.

The co-founder of the ride-hailing giant still owns a sizable stake and holds a board seat. Uber recruited an outsider to replace him.

Mr. Koch controls around a 25% stake in Boston Beer and five of eight board seats, one of which is occupied by his wife, entrepreneur

Cynthia Fisher.

The two are close with Mr. Roper, whom Mr. Koch said he brought to the company after Mr. Roper and Ms. Fisher had been classmates at Harvard Business School.

Though the search is taking a while, Mr. Koch said he remains hopeful. He compared the experience to going on a string of dates lacking chemistry, then finally hitting it off with someone.

“You go from nothing to done relatively quickly,” he said.

Write to Cara Lombardo at cara.lombardo@wsj.com and Joann S. Lublin at joann.lublin@wsj.com



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