Wednesday 07/07/21

1. In TECH NEWS, Didi craters, Microsoft gets a slap from the Pentagon, Samsung basks in chip glory but shortages will affect TV and smartphone OLED displays
2. In CAR NEWS, Toyota’s smug about chips, JLR halves sales expectations and Stellantis commits to Ellesmere Port with EVs
3. In FINANCIALS NEWS, Covid causes insurance difficulties and Lloyds Bank launches a rental business
4. In SUPERMARKETS NEWS, US supermarkets stock up and Sainsbury’s raises profit guidance
5. AND FINALLY, I bring you a ninja training opportunity…

So Didi has a ‘mare, the Pentagon drops Microsoft, Samsung aims high on chips but shortages will hit TV and smartphone OLED displays…

Following on from what I was saying yesterday, Didi shares fall 20% as China tightens overseas listings rules (Financial Times, Yuan Yang and Hudson Lockett) highlights Didi’s horrendous share price performance after the Chinese regulators (the Cyberspace Administration of China, aka CAC) announced an investigation into the ride-hailing app regarding privacy and data security. The US market was closed on Monday, so yesterday was the first time that investors could react to the news. CAC said that it had recommended a delay of Didi’s IPO a few weeks ago but Didi says that it had “no knowledge” that the regulators would start ratting their sabres until after the IPO. Didi caught as China and US battle over data (Financial Times) goes into a bit more detail about the events leading up to the investigation and contends that this is all part of an ongoing tit-for-tat battle between the US and China in terms of disclosure and data security, with Didi getting caught in the crossfire. If you add into this the Chinese annoyance at the number of its companies choosing to list stateside, you have a tricky mix. * SO WHAT? * I would have thought that this will choke off any potential pipeline of Chinese tech companies listing in New York for the short term at least, until the dust settles. If CAC decides to make an example of Didi, though, that pipeline could just evaporate. Even if the companies manage to list, investors will be super-twitchy about the potential for unseen intervention. IPOs of Chinese companies have been very lucrative for the bankers involved, but then again at least these companies aren’t the only ones in town at the moment, so I would still expect a decent amount of IPO action to continue. Just without the Chinese for now…

Pentagon scraps JEDI in win for Amazon at Microsoft’s expense (Wall Street Journal, John D.McKinnon) highlights a victory of sorts for Amazon as Pentagon officials yesterday terminated the humungous JEDI cloud-computing contract (nothing to do with people who can feel the Force, more the Joint Enterprise Defense Infrastructure scheme 😜) they had with Microsoft. * SO WHAT? * Amazon has been contending that former

President Donald Trump put “improper pressure” on the Pentagon to stop the contract from going to Amazon because Trump didn’t like Bezos (the Amazon chief owns the Washington Post, which was seen as being anti-Trump). The JEDI project was meant to help the Pentagon consolidate all of its data systems to make things more efficient and was thought to have been worth up to $10bn over 10 years, so you can see why Amazon and Microsoft were slugging it out. Whatever they do going forward, it looks likely that the Pentagon will move forward on a project with multiple vendors rather than just one, which will reduce litigation risk from companies that were left out in the cold. A new cloud project, called Joint Warefighter Cloud Capability (sadly, no Star Wars reference), will be open to all qualified bidders. Appropriate parties will be identified by October with a view to the contract being awarded in spring 2022, running for no more than five years.

Meanwhile, Samsung projects quarterly profit to hit three-year high on chip rush (Financial Times, Song Jung-a) shows that the world’s #1 producer of memory chips, smartphones and electronic displays is estimating that its Q2 operating profit shot up by 53% to its highest level in three years due to rising chip prices. Given current momentum and rising demand, you would have thought that Q3 is going to be pretty good as well! Chip shortage to hit TV and smartphone OLED displays (Financial Times, June Yoon) is well worth a read if you can access it as it goes into more detail as to how chips work and what the differences are whilst at the same time identifying them as an area of ongoing weakness given that margins on these chips continues to narrow because chip makers are minded to prioritise large orders of expensive chips – and display makers don’t do this. * SO WHAT? * It really does sound like this chip shortage is going to continue for quite some time yet and the repercussions will continue to bite. This is particularly unfortunate given that the automotive industry in particular could do with taking advantage of strong demand with increasing sales – so they could well do without this shortage. You do wonder whether this is going to lead to product launch delays…

Toyota noses ahead of GM, JLR cuts forecasts and Stellantis gives Ellesmere an EV boost…

Talking of chip shortages, Toyota’s chip supply helps it beat General Motors for the first time (Wall Street Journal, Sean McLain) shows that the Japanese car maker is feeling rather smug with itself following its decision to stockpile chips, helping it to overtake General Motors in US sales for the first time. Mind-you, Toyota is not taking this for granted as it acknowledges that this was a one-off event for this quarter. * SO WHAT? * It is interesting to note that Toyota has, since the 2011 earthquake, eased back from its reliance on the just-in-time production ethos and put more into stockpiling certain components. Clearly it’s paid off for now, but if the shortage continues, it’ll be in the same position as all the other carmakers as their stockpile has limits!

Meanwhile, Jaguar Land Rover halves sales expectations as chip shortage bites (Financial Times, Sarah Provan and Peter Campbell) shows another side of the chip shortage story as JLR feels that it is clearly being held back. The company now expects a recovery between September this year and March 2022. On the plus side, JLR’s sales shot up by 72.6% versus the previous year but given its supply chain issues, it is unlikely to fully be able to capitalise on current demand.

Vauxhall owner to invest £100m to build electric vehicles at Ellesmere Port (The Guardian, Jasper Jolly) heralds some good news for UK automotive manufacturing as Vauxhall’s parent company, Stellantis, has announced that it’ll be allocating money to its Ellesmere Port facility to make electric cars and vans, making it the first major plant in the UK to just build electric vehicles. * SO WHAT? * This will be great news for the workers, who have faced a great deal of uncertainty for a number of years, especially given the uncertainties of Brexit. This is really good to see, but it would have been even better if the company had invested in making batteries here as well! Current plans are to assemble battery packs with cells sourced from the EU.

Covid causes insurance headaches and Lloyds Bank diversifies…

Covid risks making face-to-face sectors harder to insure (Financial Times, Ian Smith and Martin Arnold) highlights a very tricky problem – that in future, businesses that rely on face-to-face contact (e.g. shops, restaurants, events etc.) are going to find it much more difficult to get insurance cover. Trade credit insurance covers businesses against non-payment from suppliers but the European Insurance and Occupational Pensions Authority highlighted in its latest financial stability report that “some industries are inherently vulnerable”. * SO WHAT? * This is clearly a tricky area but then again I think that businesses will probably be more minded to pay insurance given what happened last year – although they will probably be even more likely to read the small print to make sure that they are covered! No doubt this cover, if provided, will come at a much greater cost given the risks.

First we saw John Lewis diversify, now Lloyds Bank launches home rental business (Financial Times, Nicholas Megaw and George Hammond) shows that the bank has now announced that it will be moving into the private rental market with a view to buying over 1,000 rental properties by the end of next year! It is doing this to diversify its revenue streams against a backdrop of super-low interest rates. The new business will be branded “Citra Living”. * SO WHAT? * This sounds like a decent enough idea and I think it makes more sense than John Lewis’ move into real estate! Mind you, it will give it even more exposure to the real estate market (in addition to mortgages), which is fine as long as everything is going well. It might not be so good in a downturn, though. For now, though, this could help to underpin property prices if the market knows there is such a big buyer out there.

US supermarkets stock up while Sainsbury’s lifts profit guidance…

In the US, Supermarkets are stockpiling inventory as food costs rise (Wall Street Journal, Jaewon Kang) shows that some supermarkets are buying up supplies of sugar and frozen meat in anticipation of further food price rises. This is resulting in a shortage of some staples as retailers try to keep a lid on costs and maintain margins. General Mills, Campbell Soup and J.M.Smucker are among the food producers hiking up their prices in order to mitigate higher input costs. * SO WHAT? * Ultimately, these costs are going to be passed on to the end consumer, adding further inflationary pressure, and you would have thought that the same thing is going to be happening around the world right now as economies open and consumers increase spending.

Meanwhile, in the UK, Sainsbury’s raises profit guidance after sales jump during lockdown (Financial Times, Patricia Nilsson) highlights good news for the UK’s #2 supermarket as it lifted its profit forecast after a decent quarterly performance. * SO WHAT? * Sainsbury’s share price is also being buoyed at the moment by bid speculation because private equity interest in Morrisons is sparking talk about other potential targets – including Sainsbury’s.

…in other news…

Just in case you were wondering how on earth you might become a ninja (and, let’s face it, many of us have been there at some point or other), here’s something for you: Ninja dojo opens in Tokyo’s Asakusa, offers courses in shuriken, stealth, and sensory perception (SoraNews24, Casey Baseel). Definitely something to put on the CV…