Wednesday, February 1, 2023
HomeMarketMicrosoft and Texas Instruments Earnings Give Investors the Same Warning

Microsoft and Texas Instruments Earnings Give Investors the Same Warning

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Tech earnings season has arrived, potentially putting a spanner in the works of the sector’s strong start to the year.

With fourth-quarter earnings revised lower across the board, there is plenty of scope for upside surprises this season. Microsoft’s strong results were an example of that.

But the market is more interested in what lies ahead in the coming months, highlighted by the tech giant’s disappointing guidance and the stock’s sharp reversal late Wednesday.

It was a similar story for
Texas Instruments,
often seen as a tech bellwether. The chip maker beat earnings expectations but flagged a “weaker than seasonal decline” in demand for the March quarter.

Tech earnings are only just getting started but Microsoft and TI could offer clues to what’s ahead when the likes of Alphabet, AMD, and Amazon report next week.

The sector, and in particular Big Tech, has started 2023 with a bang—the technology-heavy Nasdaq Composite has climbed more than 8% already this year. But the first batch of earnings looks to be putting stocks under pressure Wednesday.

Economic data toward the end of the week, particularly Friday’s PCE inflation reading, have the potential to alleviate some of that pressure if they point toward the Federal Reserve pausing rate hikes in the not-too-distant future.

However, the deluge of tech earnings next week will have investors scrambling to digest the health of the sector. The fourth quarter may well positively surprise but beware of the guidance.

Callum Keown

*** Join MarketWatch personal finance reporter Andrew Keshner today at noon when he talks to Twila Midwood, president of Advanced Tax Centre, on what to expect from taxes and IRS customer service this filing season. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

***

Microsoft Stock Erases Late Gain After Weak Guidance

Microsoft
executives suggested during an evening conference call on Tuesday that current-quarter sales will come in at least $1 billion lower than Wall Street expected, dragging the December quarter’s sales slowdown into the new year. The outlook erased an after-hours gain in the stock.

  • Microsoft’s sales growth slowed the most in six years in the December quarter as uncertainty about the economic outlook cooled demand for personal computers and cloud services Earnings per share and cloud revenue growth beat expectations.

  • Revenue for the December quarter rose 2% to $52.7 billion, the slowest pace since the June quarter in 2016. The Azure cloud business posted revenue growth of 31%, beating expectations for 30.8%. CFO Amy Hood said Azure’s growth was slowing and was expected to continue to slow in the current quarter.

  • Microsoft’s PC business reported a more than 18% drop in revenue from the previous holiday season, and fell short of expectations. Globally, PC shipments fell 28.5% in the quarter, the worst drop since data firm Gartner started tracking PCs in the 1990s.

  • Last week, Microsoft said it was cutting 10,000 jobs and taking a $1.2 billion severance charge in the quarter. It has also invested for a third time in OpenAI, the artificial intelligence firm that created ChatGPT.

What’s Next: Microsoft is forecasting current-quarter revenue of $50.5 billion to $51.5 billion, which is below the average forecast of analysts and lower than the December quarter. Customers are trying to save money by optimizing the services they already have.

Liz Moyer

***

ASML Expects Chip Rebound This Year Despite Sector Gloom

ASML, the maker of the world’s most advanced semiconductor manufacturing equipment, has said it expects a rebound in the chip sector despite a pullback in spending among major players.

  • ASML said it expects net sales growth of more than 25% this year, beating consensus expectations, with its customers forecasting improved chip demand in the second half.

  • Chip makers are currently cutting back on spending in an industry downturn. Texas Instruments said on Tuesday that it was facing softening demand and higher cancellations for orders.

  • ASML said it had a record backlog of orders. “Considering our order lead times and the strategic nature of lithography investments, demand for our systems therefore remains strong,” CEO Peter Wennink said.

What’s Next: ASML’s update might soothe some nerves particularly around high-end chip demand. However, increasing export restrictions as the U.S. looks to cut off Chinese access to advanced semiconductor technologies are likely to shake up the market.

Adam Clark

***

Justice Department Files New Antitrust Suit Against Google

The Justice Department sued
Alphabet’s
Google, saying it illegally dominates the online advertising technology sector. The government, which wants to break up the business, said Google uses “anticompetitive, exclusionary, and unlawful means” to eliminate or severely diminish threats to its dominance.

  • The government wants to unwind Google’s $3.1 billion acquisition of DoubleClick in 2008. The lawsuit—Justice’s second against Google in about two years—said the firm disadvantages website publishers and advertisers who use competing ad tech products. Eight states joined the case.

  • Google called the lawsuit an attempt to “pick winners and losers” in the ad tech sector and said Justice is “doubling down” on an argument that would slow innovation, raise advertising fees, and make growth harder for thousands of small businesses and publishers.

  • The case spotlights Google’s multiple online advertising roles: providing websites with software for ad sales, offering tools for advertisers to buy ad space, and acting as the largest ad exchange. Alphabet gets 80% of its business from advertising.

  • “Google keeps at least 30 cents—and sometimes far more—of each advertising dollar flowing from advertisers to website publishers through Google’s ad tech tools,” the lawsuit alleges. “Google’s own internal documents concede that Google would earn far less in a competitive market,” The Wall Street Journal reported.

What’s Next: Justice’s 2020 case against Google focused on its role in the online search market, including its arrangement to make Google search the go-to default within the Safari browser used by
Apple.
Google is fighting that case, and the trial is expected later this year.

Eric J. Savitz and Janet H. Cho

***

Walmart Raising Starting Pay Amid a Still-Tight Labor Market

Walmart
is raising its hourly wages across its U.S. stores, to an average of more than $17.50 an hour, as it tries to attract front-line workers amid a nationwide labor shortage. Rivals
Target
and
Amazon.com
already pay minimums of $15 an hour.

  • Starting pay for U.S. Walmart associates will range from $14 to $19 an hour, depending on location, up from $12 an hour, a company spokesperson confirmed in an email. These increases will begin with workers’ March paychecks, the company said.

  • Several states are raising their minimum wages this year. The tight labor market has forced employers to offer pay that is much higher than the legal minimum, The Wall Street Journal reported. Average hourly pay for nonsupervisory retail workers rose 4% in December from a year earlier, to $19.93.

  • Dollar Tree
    President and CEO Michael Witynski is leaving the discounter about a month before its March 1 earnings report. The move follows other high-level management changes at Dollar Tree since investor Mantle Ridge launched an activist campaign in November 2021.

  • Executive Chairman Rick Dreiling, who will become CEO on Jan. 29, is a former executive of Dollar General. He joined Dollar Tree’s board last March in a settlement with Mantle Ridge, which has a roughly 5% stake in the company, according to FactSet.

What’s Next: Employers including Walmart are seeing a still tight market for jobs such as store workers and truck drivers. About 340,000 of Walmart’s 1.6 million U.S. workers will see a raise in their March paychecks, the Journal reported, citing a spokeswoman.

Janet H. Cho

***

This Russian Oligarch Became the Whale of Legal Cannabis

Russian oligarch Roman Abramovich backed a lot of the start-up capital for the legal cannabis industry, with most of the funding coming through a British Virgin Islands company called Cetus Investments, according to newly revealed leaked documents. Cetus is Latin for whale.

  • Abramovich was sanctioned in the European Union, the U.K., and Canada after Russia’s Ukraine invasion, though he said he doesn’t merit the action. Leaked documents from a Cyprus-based firm made their way to a nonprofit journalism group that gave journalists a read of them and detailed Abramovich’s finances. The oligarch didn’t respond to Barron’s.

  • The records show billions of dollars that Abramovich invested in U.S. blue-chip stocks, films, oil and gas assets, art, venture capital, and the cannabis industry. He funded marijuana media such as Toke. TV, sales software, and the drug’s state-licensed producers.

  • One of his big bets was on Massachusetts producer
    Curaleaf Holdings.
    Records show the billionaire was one of Curaleaf’s founding shareholders, and the anchor of Curaleaf’s syndicated debt with some $186 million in loans. When the Ukraine war began, he transferred his cannabis investments to family members.

  • He also lent $84 million to Curaleaf’s largest shareholder and its chairman, stipulating it be used to buy Curaleaf stock. Curaleaf says Abramovich never had any influence or decision-making role and has cut ties. He is “no longer a creditor to, or investor in, Curaleaf,” the company said.

What’s Next: Massachusetts regulators have opened an inquiry into Abramovich’s backing of Curaleaf and its principals and whether it had been, or needed to be, disclosed, but wouldn’t comment. Curaleaf said it is unaware of the inquiry.

Bill Alpert

***

Dear Quentin,

My mother passed away three years ago and left the house to my brother, my sister and me. What little was left in her bank account was distributed among the three of us.

Our brother is still living in the family home. He pays the taxes, insurance and utilities to live there. The house was to be split three ways among us.

If he wants to continue living in the house, my feeling is he needs to get a loan on a fair appraisal for the house, and buy both my sister and me out.

At what point do I bring this up? He claims it’s his home, as he lives there, and we need to give notice when we go there to visit.

The house is in Florida, and right now the market is up. He has no plans to leave the house. What legal recourse do we have? He was the executor of the will.

Thank you in advance for your time.

—Good Grief, Get Out

Read The Moneyist’s response here.

Quentin Fottrell

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown

Credit: marketwatch.com

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