TheChek News Flow

DAX:

MDAX:

SDAX:

Macro :

- ECB to Raise Rates Until Wage Growth Slows, Wunsch Tells FT

- Equities Face Challenge From Debt Ceiling and Inflation: In Play

- Citi Says Japan Investors Turn to Dollar as Ueda Cools BOJ Bets

Keep an eye on :

- AB FP : AB Science Offers Up to EU15m of Shares

- ARM LN : SoftBank-Owned Arm to Build Prototype Semiconductor, FT Says

- BFIT NA : Basic-Fit 1Q Revenue EU245M Vs. EU162M Y/y

- BOL FP : Bollore 1Q Revenue EU4.43B

- ALBPS FP : *BIOPHYTIS FILES $100M MIXED-SECURITIES SHELF

- CO FP : Casino Gets EU1.1B Capital Hike Offer From Holder Kretinsky (1)

- CSGN SW : Credit Suisse Borrowed CHF108b from SNB

- GAM SW : GAM Holding 1Q Net Outflows Investment MGMT CHF600M

- GAM SW : GAM Held Takeover Talks With Zürcher Kantonalbank, FT Says

- GKS GY : GK Software Says Minimum Threshold for Fujitsu Offer Exceeded

- GLEN LN : Klein Emerges From Credit Suisse Saga With Glencore-Teck Role

- GLEN LN : Glencore CEO’s First Big Move Is Chasing Mining’s Toughest Prize

- ICAD FP : ICADE 1Q Revenue EU286.7M Vs. EU324.5M Y/y

- INGA NA : ING Sues ICBC for Copper Deal Losses, Seeks $170 Million: FT

- ITV LN : UK Broadcaster ITV Jumps After Betaville ‘Uncooked Alert’

- KAPE LN : Unikmind Intends to Declare Kape Offer as Unconditional

- LDO IM : Leonardo Shareholder Group Nominates Four Board Candidates

- OR FP : Bettencourt-Meyers Family Firm Takes Stake in April, Echos Says

- NOVN SW : FDA Approves Novartis Facility for Production of Pluvicto in US

- NOVOB DC : Eli Lilly, Novo Nordisk, Sanofi CEOs to Speak at Senate Hearing

- PHIA NA : Philips Sees €575m in Provisions for Recall Compensation

- RTO LN : Rentokil CEO Ransom Sells £6.3m Shares to Fund Property Purchase

- SZG GY : Salzgitter Prelim 1Q Pretax Profit Beats Estimates

- STG DC : Scandinavian Tobacco Acquires XQS for about DKK150M

- SOW GY : Silver Lake to Buy Software AG for EU30/Share in Cash: Snapshot

- TWEKA NA : TKH 1Q Organic Revenue +8.1%

- VAR NO : Var Energi 1Q Ebit $1.43B Vs. $1.53B Q/Q

- DG FP : Vinci Gets €7B Contract for Three Wind-Farm Energy Converters

- VIV FP : Vivendi Reports Quarterly Sales Growth, Agreement to Sell Editis

- VPK NA : Vopak Signs Pacts for New Debt Issuance of €400M Equivalent

- VOW GY : VW to Invest €4.8 Billion Until ‘30 in Canada Battery Factory

Continuing drought conditions leave traders and analysts worried about this year’s output

A lack of rain in Spain has pushed prices for olive oil to record levels, with analysts warning that a particularly dry summer could lead to even lower crop yields later this year.

Olive oil prices have surged almost 60 per cent since June to roughly €5.4 per kilogramme, on the back of a severe drought in Europe that last year ruined olive crops across the continent.

Spain, the largest olive oil producer, was hit particularly hard. The country’s farmers typically produce half of the world’s olive oil, though annual supplies have roughly halved to about 780,000 tonnes in the past 12 months.

“In 20 years in the industry I have never seen these prices”, said Vito Martinelli, grains and oilseeds analyst at Rabobank. Last year “was a disaster” for Spain, and the crop in Italy “was also bad, along with other countries in the Mediterranean”. 

2022 marked the driest for Italy since 1800, said Italian data analysis firm Centro Studi Divulga.

The prolonged drought conditions in Spain are casting doubt about a production rebound this year. Last month was Spain’s second warmest March this century and the second-driest, according to the country’s meteorological agency.

April is set to be the driest on record. The Spanish weather forecaster this week said “not a single drop” of rain fell across more than half of the country in the first 17 days of April, with rainfall 23 per cent below normal since the start of the hydrological year in October.

Unusually dry weather this summer could keep prices elevated. “Sporadic rains in Andalucía and Spain in general are not thought to be anywhere near enough”, said Kyle Holland, oilseeds and vegetable oils analyst at Mintec, the commodity data firm.

Olive oil is harvested in the Mediterranean area between October and February, meaning that “if it does not rain very soon, we are going to have a poor crop again”, Holland added. “Good quality olive oil supplies are also lessening as there isn’t much around and buyers naturally want good qualities . . . At this pace, market players are saying we will be lucky to see out the rest of the season with good oils.”

Others are less vexed. “The increase in prices, especially in Spain, is good news because finally, perhaps, the race to the bottom that has damaged all European producers and depressed the whole market is over”, said David Granieri, president of the National Union of Olive Producers.

“In these conditions, we believe that the producers who in recent years have multiplied their efforts to protect biodiversity and produce high quality oils can finally be valued as they deserve”.

Company to build test chip with factory partners, stoking fears it could in future compete with its biggest customers

Arm is developing its own chip to showcase the capabilities of its designs, as the SoftBank-owned group seeks to attract new customers and fuel growth following a blockbuster IPO later this year.

The company will team up with manufacturing partners to develop the new chip, according to people briefed on the move who describe it as the most advanced chipmaking effort the Cambridge-headquartered group has ever embarked upon.

The effort comes just as SoftBank seeks to drive up Arm’s profits and attract investors to a planned listing on New York’s Nasdaq exchange.

The company traditionally sells its blueprint designs to chip manufacturers, rather than getting involved directly in the development and production of semiconductors itself. The hope is that the prototype will allow it to demonstrate the power and capabilities of its designs to the wider market.

Arm has previously built some test chips with partners including Samsung and Taiwan Semiconductor Manufacturing Co, largely aimed at enabling software developers to gain familiarity with new products.

However, multiple industry executives told the FT that its newest chip — on which it started work in the past six months — is “more advanced” than ever before. Arm has also formed a bigger team that will execute the effort and is targeting the product at chip manufacturers more than software developers, they said.

The company has built a new “solutions engineering” team that will lead the development of these prototype chips for mobile devices, laptops and other electronics, according to people briefed on the move.

The solutions engineering arm is led by chip industry veteran Kevork Kechichian, who joined Arm’s top executive team in February. He has held previous roles at chipmakers NXP Semiconductors and Qualcomm, overseeing the development of the San Diego-based company’s flagship Snapdragon chip.

The team will also expand on Arm’s existing efforts to enhance the performance and security of designs, as well as bolster developer access to its products.

Rumblings about Arm’s chipmaking moves have stoked fears in the semiconductor industry that if it makes a good enough chip, it could seek to sell it in the future and thereby become a competitor to some of its biggest customers, such as MediaTek or Qualcomm.

People close to Arm insist there are no plans to sell or license the product and that it is only working on a prototype. Arm declined to comment.

Any move to build chips for wider commercial sale would undermine Arm’s position as the “Switzerland” of the semiconductor industry, selling designs to almost all mobile device chipmakers while not directly competing with them.

Its neutral model has led to its products being found in more than 95 per cent of smartphones, with customers including Qualcomm, MediaTek and Apple.

“Working on intellectual property is one thing but really designing and working with production partners to turn those efforts into physical chips is a totally different arena. It’s more capital intensive,” a former Arm executive with knowledge of the effort told the FT. “At some point in the future [Arm] will definitely need returns to justify that massive investment.”

SoftBank’s push for growth has led Arm to seek out changes to its commercial practices. The chip designer has sought to increase prices and overhaul its business model by charging royalties to device-makers rather than some of its chipmaker customers, the FT reported last month.

Arm acknowledged in its annual report published last week that a principal risk to its business was the “significant concentration” in its customer base. Arm’s top 20 customers accounted for 86 per cent of revenues last year, so “the loss of a small number of key customers could significantly impact the group’s growth”.

That warning came with Arm currently embroiled in a bitter legal dispute with Qualcomm, one of its largest customers, after it accused the chipmaker of using some of its designs without having procured the necessary licence.

There are also widespread concerns in the industry that in-house chips developed by Apple, Arm’s largest customer, are outperforming those made by competitors such as Qualcomm and MediaTek.

“Google thought it could demonstrate the world’s best Android OS so it built the Pixel phone. Microsoft thought it was the master of Windows so it built Surface laptops. So, naturally, Arm thinks it can build best-in-class Arm-based chips, better than chip developers out there,” said Brady Wang, a semiconductor analyst with Counterpoint Research.

But making chips is even more challenging than building devices, Wang said. “It will need generation after generation of development efforts.”

One-year credit swaps hit highest level since at least 2008

The price of insuring against a US government default rose to a fresh high this week as traders began pricing in their concerns that the world’s biggest economy might not meet its financial obligations.

One-year US credit default swaps — derivatives that act like insurance and pay out if a company, or country, reneges on its borrowings in the next 12 months — are trading at 106 basis points, Bloomberg data shows.

That is its highest level since at least 2008, up from 15 basis points at the start of the year, and far in excess of 2011 levels, when a stand-off in Washington over the US debt ceiling led to the country losing its top-notch triple-A credit rating. Negotiations this year in Washington over raising the federal borrowing limit are currently deadlocked.

The rise underscores how investors are moving to protect against, or profit from, a default even though it is still viewed as unlikely.

Analysts said the market for one-year swaps was relatively small and illiquid, rendering it difficult to use as a gauge of market expectations of a US default.

Even so, CDS for the most creditworthy countries typically trade between 25 and 50 basis points, according to analysts at ING. “The US is clearly considered a much higher default risk than most [other countries],” said Antoine Bouvet, the bank’s head of European rates.

He pointed out that equivalent CDS for Italy, the UK and Greece were currently trading at 39, 14 and 46 basis points, respectively. “Genuine” near-term default candidates see spread levels in the thousands. Even so, “markets aren’t relaxed about the risk of US default”, Bouvet said.

Indeed, the price of five-year credit default swaps — the most widely traded form of debt insurance — also reached its highest level in more than a decade this month, at 50 basis points.

Lower than expected April tax revenues have only heightened those concerns, dragging forward the so-called “X-date” when the US Treasury runs out of money.

Money market funds flush with cash after the collapse of three banks last month registered $69bn of outflows in the week ending April 19 as Americans rushed to meet the deadline to send payments to the Internal Revenue Service.

The Treasury cash balance now sits at roughly $250bn, meaning that the X-date could come as soon as early June, “significantly earlier” than the previous estimate of between July and September, said analysts at Danske Bank. “A suspension of the debt ceiling until the next round of budget negotiations next winter is beginning to look increasingly likely,” the bank added.

Asked about the potential ramifications of a default, President Joe Biden did not mince his words. Reneging on the country’s national debt would be “a calamity”, exceeding “anything that’s ever happened financially in the United States”, he said in January.

Weakening demand for automotive components compounds slumping PC and smartphone sales

Semiconductor companies have signalled that the industry’s sharpest slowdown in more than a decade is lasting longer than expected, as weakening demand for automotive components compounds slumping personal computer and smartphone sales.

Taiwan Semiconductor Manufacturing Company, the world’s largest chip producer, this week pushed back its expectations for a market recovery, as the industry bellwether projected its first decline in annual revenues since 2009.

After sales of electronics boomed amid widespread component shortages during the peak of the Covid-19 pandemic, industry stockpiles of chips have been building up since last summer.

“Semiconductor inventory adjustment in the first half of 2023 is taking longer than our prior expectation,” CC Wei, TSMC’s chief executive, told investors on Thursday’s quarterly earnings call. “It may extend into the third quarter [of] this year before rebalancing to a healthier level.”

After growing net revenues by 43 per cent last year, TSMC now expects sales to decline in the low- to mid-single digits for 2023.

TSMC’s gloomy outlook followed figures from the Semiconductor Industry Association earlier this month, which showed global industry sales fell 20.7 per cent in February 2023 compared to the same month last year, the sixth consecutive month of declines.

“We’re looking at . . . a typical downturn situation in the semiconductor industry, which actually hasn’t happened for a large number of years, where the supply just exceeds the demand,” said Peter Wennink, chief executive of ASML, the Dutch supplier of advanced chipmaking equipment, in a call with investors this week.

However, this time around, what Wennink described as a “classical semiconductor down cycle” is playing out on a much larger stage.

“There have never been more industries where semis are crucial to their business,” said Ben Bajarin, analyst at Creative Strategies, a Silicon Valley-based consultancy. That means the chip industry’s fluctuations are much larger today than during the last recession of 2008-09.

The PC industry has been particularly hard hit by a slowdown in consumer and corporate spending, with market researchers at IDC estimating a 29 per cent drop in the first quarter of this year compared with 2022. “It’s pretty much the worst PC year on record,” Bajarin said.

Smartphones had their fifth consecutive down quarter, with researchers at Canalys estimating a 12 per cent decline year-on-year, as consumer spending is pinched by inflation.

Next month, Apple is expected to report a 5 per cent drop in quarterly revenues, as weaker iPhone demand is coupled with a projected 25 per cent drop in Mac sales, according to analysts’ consensus expectations.

Amid a glut in components for personal electronics, the automotive industry continued to suffer shortages into the first few months of this year, making it a relative bright spot for chipmakers. However, even that market is “showing signs of softening into [the] second half of 2023”, TSMC’s Wei said.

Those comments, alongside Tesla’s price cuts, sent shares in Infineon and STMicroelectronics, among the largest semiconductor companies that supply the auto sector, down about 5 per cent on Thursday.

“Some investors feel this down cycle is being built on top of a fairly long up cycle,” said Amit Harchandani, semiconductor analyst at Citi. “Because the backlogs have gone up so much, they fear the drop is likely to be equally steep. It’s a bit nervous out there.”

Some chip companies are feeling the full force of that plunge. When it releases its latest quarterly figures next week, Intel is expected to report a 39 per cent year-on-year drop in adjusted revenues, a steeper decline than it reported in the wake of the 2008 financial crisis.

Nonetheless, executives at TSMC and ASML insisted the declines would bottom out this year. “All the platforms [say] their performance, their demand will increase in the second half,” Wei said. “We believe we are passing through the bottom of the cycle of TSMC business in the second quarter.”

One challenge for the semiconductor industry is that it is unable to increase production of its most sophisticated chips fast enough to take advantage of a huge surge in demand from artificial intelligence companies. That has led to a race among Big Tech companies and start-ups alike for powerful processors such as Nvidia’s H100.

Wei said TSMC, a supplier to Nvidia, had “recently observed incremental upside in AI-related demand, which helps the ongoing inventory digestion”. He pointed to a call from a customer in the “last two days” requesting a “big increase” in capacity. “We are still evaluating that,” he said.

“Nobody saw what was coming with ChatGPT in November,” said Bajarin of Creative Strategies. “You would have needed 18 months in advance to plan for that demand once you saw it.”

Longer term, ASML’s Wennink said he expected “another year of strong growth”, as chip manufacturers were maintaining their long-term roadmaps and capital spending plans despite the short-term challenges.

“Now the big question is with what speed, at what slope is this recovery? Well, I don’t know. But what I do know is that nobody thinks about this massive recession,” he said. “We just are in this period for one or two quarters more.”