Asia markets declined in Thursday morning trade as investors worried about the ongoing trade tensions between the United States and China. Mainland Chinese shares slipped in early trade, as the Shanghai composite, Shenzhen component and Shenzhen composite all fell more than 1% each. The Nikkei 225 in Japan slipped 0.99% in morning trade. Shares of index heavyweight and conglomerate Softbank Group plunged more than 5% after sources told Reuters that U.S. Justice Department staff have recommended blocking a deal between T-Mobile and rival Sprint. The Topix index also shed 0.65% In South Korea, the Kospi slipped about 0.8%, ... (full story)
Huawei can no longer use Google'sAndroid operating system and services on its future smartphones now that it's been placed on the US Commerce Department's entity list.
The move could make Huawei's smartphones dramatically less appealing as the company is on the verge of two important product launches: its next flagship and its first foldable phone.
It could also threaten Huawei's ability to expand outside of China, potentially jeopardizing its position as a leader in the global smartphone market.
Just last month, Huawei made headlines as the only major smartphone maker to see its volumes grow worldwide in a market that's been on the decline for six consecutive quarters. But now, only several weeks later, Huawei's spot at the top of the global smartphone market could be in question as the company is on the verge of two important product launches: its next-generation flagship phone and its first foldable phone.
That uncertainty stems from Google significantly scaling back its business with Huawei in a move that would prevent the Chinese tech giant from putting Google's software — including its Play app store and services — on its future handsets. As such, Huawei's upcoming smartphones will not be able to run on Android, or at least the version of Android consumers are familiar with. That's because Google can no longer transfer technology to the Chinese tech firm without obtaining government permission now that Huawei has been placed on the US Commerce Department's entity list.
Without Android, the biggest smartphone platform in the world that supports millions of applications, Huawei's smartphones could become dramatically less appealing. That calls into question whether Huawei's next-generation flagship smartphone, expected to be called the Mate 30 Pro, will see the same level of success as its Mate 20 predecessor, of which Huawei shipped 10 million units between its October announcement and March 2019.
"I've got to think we're going to see a hit on sales immediately," said Frank Gillett, a vice president and principal analyst at market research firm Forrester, when asked by Business Insider how long it will take to see the ramifications of Google's scaled-back relationship with Huawei. "Anyone buying a phone has to wonder for how long Google will allow software updates and operation, because it's not clear yet."
Losing Google's support likely won't matter much in China, Huawei's biggest market, where the search giant's services are banned. But it could have an impact on other areas of the world, particularly Europe, which is a key market for Huawei. The company said in its annual report that 28.4% of its business comes from the Europe, Middle East, and Africa region, where its smartphones accounted for 23.3% of the mobile device market as of the first quarter of 2019, according to market research firm Canalys.
Huawei doesn't appear to be very worried about the impact these restrictions could have on its revenue.
"It is expected that Huawei's growth may slow, but only slightly," Huawei founder and chief executive Ren Zhengfei said in a recent interview with Nikkei Asian Review. He added that the company's annual revenue growth could come in under its previous goal of 20%.
Huawei has been granted a reprieve that will allow it to maintain and provide updates to existing customers until August 19. But that probably won't help the company when it comes to its Mate 30 Pro launch, which is expected to arrive in the fall timeframe.
Huawei's Mate 20 Pro smartphoneAntonio Villas-Boas/Business Insider
Huawei's Mate 20 Pro launched last October to rave reviews, with CNET essentially calling it a cross between Samsung's Galaxy S9 and Apple's iPhone X and The Guardian writing that Huawei has "pulled off something special" with the phone. Before that, Huawei's Mate 10 Pro debuted in October 2017, suggesting that the Mate 30 Pro may not be released until after Google's suspension of Android goes into effect.
Huawei's Mate X, the company's first foldable phone that's expected to debut in mid-2019 after generating significant buzz at Mobile World Congress earlier this year, could also face an uncertain future even if it does launch before August 19. Given the fact that Google has been tailoring its operating system specifically for foldable smartphones, Android could be especially important for the Mate X.
For example, Google said at its recent developers conference that Android Q will be designed to accommodate different screen dimensions, and the company held a session for developers to educate them on how to design apps for foldable multi-display devices. Such efforts are critical to make foldable phones like the Mate X and Samsung's Galaxy Fold successful, considering they require apps and software features that work smoothly across different screen sizes and form factors. That could give rival foldable phones that run on Google's software an important advantage over Huawei's.
Reuters
Huawei has said that it's working on its own operating system for phones to replace Android in preparation for a scenario like this in which it cannot work with Google on future hardware. But little is known about that software, leaving many lingering questions for potential customers such as whether it will be ready in time for the Mate 30 Pro and Mate X launches and how well it will support foldable form factors. Plus, convincing consumers outside of China to pay for an expensive phone like the Mate X, which will cost around $2,600, or the Mate 30 Pro without Google's expansive app store could present another challenge.
Huawei already has its own app store, and it's been in talks with European wireless carriers to expand the reach of its digital storefront, according to Bloomberg. Even so, it's unclear how many consumers actually use those apps. It's common for smartphone makers to preload devices with their own apps or app stores, but those devices typically include Google's Play Store as well.
To be clear, the Trump administration's decision to place Huawei on this trade blacklist doesn't mean certain doom for Huawei. The US government similarly banned American companies from selling components to Chinese phone maker ZTE in May 2018, but eventually reached an agreement with the company that resulted in those sanctions being lifted. But at the very least, the episode could make consumers wary of purchasing electronics made in China, says Gillett.
"People are going to be more conscious of whether they're comfortable buying from a Chinese smartphone maker," he said. "If the key features of your phone get turned off, that's a scary prospect."
In a case brought to court in 2017 by the US Federal Trade Commission, District Court Judge Lucy Koh said Qualcomm should not receive a percentage of sales of each phone a company sells; instead, it should receive a much smaller amount based on what Qualcomm technology exists inside the phone. It also must license its patents to rival chipmakers.
Qualcomm is expected to appeal the decision. If it is upheld, that could upend the way Qualcomm does business. The tech company, based in San Diego, California, receives several dollars for each phone its technology is in, based on the total price of the phone. Judge Koh ruled that violates US antitrust law.
"Qualcomm's licensing practices have strangled competition... for years, and harmed rivals, [equipment manufacturers] and end consumers in the process," she wrote in the findings of fact. She found that its business practices are an "unreasonable restraint of trade" under the nation's antitrust law.
Qualcomm said it intends to file an expedited appeal of the decision. It will also seek a stay to stop it from taking effect.
"We strongly disagree with the judge's conclusions, her interpretation of the facts and her application of the law," said Don Rosenberg, the company's general counsel, in a statement.
The FTC, which brought the case, is an independent federal agency charged with protecting the interest of consumers. The Justice Department filed arguments in the case that seemed to undercut the FTC's position. Even if Qualcomm were found guilty of violating the antitrust law, the Justice Department argued the court should not impose any penalties or conditions without additional hearings and arguments.
But the judge rejected that argument and imposed five different conditions on Qualcomm, the first of which was that it must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of cutting off access to chip supply.
Qualcomm has charged manufacturers using its patents a percentage of the sales price of the entire phone, up to $400. The ruling would limit the fees based on the $15 to $20 cost of the modem chips itself, rather than the entire cost of the phone.
"It is generally required that royalties be based not on the entire product, but instead on the smallest salable...unit," Judge Koh wrote in her findings.
The ruling doesn't cap what Qualcomm can charge for future royalties, but it removes much of the leverage it used to get top dollar from equipment manufacturers, said Florian Mueller, an intellectual property expert who studies patent litigation.
"The conversation has to be what percentage of that chip price is justified," he said. "What the ruling makes clear is that what they have charged is outrageous."
The ruling comes five weeks after Qualcomm reached a settlement in a similar but separate antitrust case brought by Apple(AAPL). That agreement included an unspecified payment from Apple to Qualcomm, and the two companies announced a six-year license contract under which Apple will continue to buy Qualcomm chips. The deal was reached on the eve of that case going to trial.
Qualcomm's stock had soared 35% following the agreement. But Qualcomm's(QCOM) stock tumbled 10% in early trading Wednesday.
Although the case specifically applies to Qualcomm and its business practices, critics question the power of the world's tech giants. Many have called for them to be reined in or even broken up.
The Supreme Court ruled earlier this month that a group of iPhone owners could sue Apple in an antitrust case charging that its App Store is a monopoly. The European Union recently hit Google(GOOG) with a $1.7 billion fine for violating antitrust rules. Critics have accused Facebook(FB) and Amazon(AMZN) of having monopoly power.
Lowe’s (LOW) slashed its earnings guidance for 2019 and missed Wall Street’s first-quarter bottom-line expectations amid higher cost pressures.
The home improvement retailer posted adjusted earnings of $1.22 per share on net sales of $17.74 billion for the three months ending May 3.
Consensus analysts expected the company to deliver adjusted earnings of $1.33 per share on revenue of $17.66 billion, according to Bloomberg-compiled data. In the year-ago quarter, Lowe’s posted diluted earnings of $1.19 per share and $17.4 billion in net sales.
Lowe’s now sees full-year earnings per share of between $5.54 and $5.74, down from the range of between $6.00 and $6.10 seen previously.
Shares of Lowe’s declined 9.95% to $100.05 each as of 6:42 a.m. ET ahead of the opening bell.
Closely watched comparable same-store sales grew 3.5% in the first quarter, ahead of the 3.2% expected. U.S. home improvement comparable sales grew 4.2%, also ahead of estimates. The metric serves as a gauge of efficiency for retail companies.
“Our first quarter comparable sales performance is a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction,” CEO Marvin Ellison said in a statement. “However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings.”
The company is “taking the necessary actions to more systematically analyze and implement retail price changes to mitigate cost pressure,” Ellison added.
One such strategy has involved improving Lowe’s retail pricing through technology. On Tuesday, Lowe’s announced it was acquiring a retail analytics platform from Boomerang Commerce, providing the company with software to help digitize its pricing system.
“We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year,” Ellison said. Lowe’s said it expects its operating margin – or operating income as a percentage of sales – to increase by between 310 and 340 basis points in 2019.
Analysts were bracing for poor weather at the start of the year weather effects to impact results for Lowe’s after Home Depot (HD) reported mixed first-quarter results Tuesday. The no. 1 home improvement company said same-store sales for the first three months of the year were hampered by wetter weather in February and deflation in lumber prices. However, Home Depot still exceeded consensus expectations on the bottom-line and reaffirmed its full-year guidance.
Shares of Lowe’s rose 20.3% for the year-to-date through Tuesday’s close.
Lowe's shares fell 10% Wednesday as higher costs weighed on its fiscal first-quarter earnings, which fell short of analysts' estimates, and prompted the home improvement retailer to cut its forecast for the year.
Lowe's has been in a period of transition since CEO Marvin Ellison joined the retailer less than a year ago.The company is trying to improve its operations, but its investments are weighing on its profits. But the lower forecast clearly worried investors, and prompted a sell-off. Shares were recently down nearly 12%.
Here's how the company did, compared with what Wall Street was expecting, according to Refinitiv consensus estimates:
Earnings per share: $1.22 adjusted, vs. $1.33 estimated
Revenue: $17.74 billion, vs. $17.66 billion estimated
Same store sales: up 3.5%, vs. up 3.2% estimated
"Our first quarter comparable sales performance is a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction," Ellison said in a company release. "However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings."
Lowe's said net income rose to $1.05 billion, or $1.31 per share, from $988 million, or $1.19 a share, a year ago.
On an adjusted basis, Lowe's earned $1.22 per share, far below the $1.33 per share analysts were predicting, according to Refinitiv.
Ellison said profits were hurt by cost increases, which dinged its gross margins by 90 basis points, and unprecedented levels of change in its merchandising operations.
"We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year," said Ellison.
Revenue rose 2.2% to $17.74 billion, which topped analysts' estimates of $17.66 billion. Online sales rose 16% in the latest quarter, the company said.
Chuck Grom of Gordon Haskett Research Advisors applauded Lowe's for ramping its top line. Efforts to take market share in the home improvement space, while increasing productivity, explains the weaker margins, he said in a note to clients Wednesday.
For the first quarter, Lowe's same-store sales rose 3.5%, which was better than the estimate of 3.2%. Same-store sales growth in the U.S. was even higher, up 4.2%.
Chief Financial Officer David Denton said Lowe's same-store sales were down 4.1% in February, up 3.5% in March and up 7.2% in April. Domestically, Lowe's' same-store sales were down 0.9% in February, up 4% in March and up 8% in April.
"This is the first quarter in a while that Lowe's clearly out comped Home Depot," Oppenheimer's Brian Nagel told CNBC's Squawk Box on Wednesday.
Lowe's results come just a day after the leader in the space Home Depot reported better-than-expected first-quarter earnings on Tuesday. Strong results at Lowe's rival came despite the second wettest February weather in U.S. history and a deflation in lumber costs. Home Depot reaffirmed its fiscal 2019 guidance.
For fiscal 2019, Lowe's estimates total sales will rise 2%, while same-store sales are expected to increase 3%.
Lowe's expects net income for fiscal 2019 will be in the range of $5.54 to $5.74 per share. On an adjusted basis, it will earn between $5.45 and $5.65 per share.
Last quarter, Lowe's said it expected to earn between $6 and $6.10 per share on revenue growth of about 2%. It predicted, at the time, that same-store sales would rise about 3% in fiscal 2019.
Despite the lower forecast and earnings miss, Nagel was upbeat about the results.
"I think when the dust clears on this it's going to be a positive. The market's going to say Lowe's has been under-managed for a very long period of time, they figured out what they need to do, they're starting to see the results in better sales, there just extra investment that needs to be made here in the near term," he said.
As of Tuesday's market close, Lowe's market value was $88.4 billion, with shares are up more than 20% since the start of the year. Home Depot, with a market cap of about $211.1 billion's shares are up more than 11% year to date.
Correction: The CEO of Lowe's is Marvin Ellison. A previous version misstated his name.
LONDON (Reuters) - British Steel, the country’s second largest steel producer, has collapsed and put 25,000 jobs at risk after failing to secure emergency government funding, Britain’s Official Receiver said on Wednesday.
FILE PHOTO: A general view shows the British Steel works in Scunthorpe, Britain, May 21, 2019. REUTERS/Scott Heppell
The High Court ordered the compulsory liquidation of the company, although staff will remain employed for now as the liquidator oversees the operation of the main site in Scunthorpe, northern England.
Business Minister Greg Clark said British Steel was open to new buyers, while the opposition Labour Party called on the government to bring it back into public ownership.
Owned by investment firm Greybull Capital, British Steel employs around 5,000 people, mostly in Scunthorpe, while 20,000 more depend on its supply chain.
Greybull Capital, which specializes in trying to turn around distressed businesses, said it had tried to keep British Steel alive but the challenges of Britain’s looming exit from the European Union proved insurmountable.
Greybull paid former owners Tata Steel a nominal one pound for the company three years ago.
After being renamed as British Steel, the company made a profit in 2017 but cut around 400 jobs last year, blaming factors such as the weak pound and uncertainties surrounding Brexit, which it said hammered its order book.
TARNISHED STEEL
EU steel company shares are currently trading at their lowest in nearly three years, driven down by weak demand, high raw materials costs and cheap imports that can no longer reach the United States due to trade tariffs.
Turning a profit in steel is particularly difficult in Britain, where steelmakers pay some of the highest green taxes and energy costs in the world, as well as facing high labor costs and business rates.
Jeff Kabel, chairman emeritus of the International Steel Trade Association (ISTA), said the government is paralyzed by Brexit and unable to address the steel sector’s challenges.
The collapse of British Steel comes after Germany’s Thyssenkrupp and India’s Tata Steel ditched a plan this month to merge their European steel assets to create the EU’s second largest steelmaker after ArcelorMittal.
That failed merger left the wider EU steel sector fragmented and vulnerable to economic downturns. It also called into question the fate of Britain’s largest steelworks in Port Talbot, Wales, owned by Tata Steel.
Ratings agency Moody’s lowered its outlook on the European steel sector to negative on Wednesday, adding operating conditions would likely worsen in the next 12-18 months. The outlook had been stable since April 2017.
(For a graphic on 'UK steel production since 1970' click tmsnrt.rs/2LX989V)
SEEKING CASH
Signs of the ripple effect of British Steel’s collapse are already beginning to emerge.
Hargreaves Services, a materials services company based in Durham, northern England, said earlier if the steelmaker ceases to trade, this could reduce its profit before tax in the next full year by about 1.3 million.
Accountants UHY Hacker Young said the three worst UK areas for increasing personal insolvencies over the last five years were all steel towns, raising concerns over the impact of the British Steel collapse on local economies.
British Steel had asked the government for a 75 million pound loan, later reducing its demand to 30 million pounds after Greybull agreed to put up more money, according to a source close to the negotiations.
It had already secured a government loan of around 120 million pounds ($154 million) this month for its liabilities under the EU’s Emissions Trading System rules which taxes carbon emissions.
Law firm Mayer Brown said the fact that the Official Receiver has taken control of the British Steel liquidation suggests administration was not an option due to a lack of secure funding.
Britain’s business minister said it would have been unlawful to provide a loan to British Steel on the terms the company or any other party had made.
The European Commission said it had not been formally notified of any concrete plans by the UK authorities to provide additional public finance to the company.
British Steel also operates a business in France producing rail, and a wire and processing unit in the Netherlands.
Greybull had been negotiating with the government for the loan, a source said, adding the government wanted Greybull out of the picture before putting more money into the business for fear those funds would eventually end up in Greybull’s hands should the steelmaker collapse.
Slideshow (2 Images)
Greybull are British Steel’s only creditor at the holding company level and have secured their loans against its assets.
The UK government has a chequered history with Greybull, after the collapse of the firm’s airline Monarch in 2017 forced the government to repatriate more than 100,000 stranded tourists at a cost of about 60 million pounds.
“In light of events over the past few weeks, it is clear Greybull needs to do the right thing by getting out of the road and let those who are committed to our industry work to save the business,” the union Community said in a statement.
Reporting by Costas Pitas, Guy Faulconbridge, Maytaal Angel, Lawrence White and Kate Holton. Additional reporting by Barbara Lewis; Graphic by Andy Bruce; Editing by Michael Holden/Keith Weir
