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In late 2021, a team of Meta Platforms employees building a key chip for the second version of Meta’s Ray-Ban smart glasses was notified that the company had decided to go with an alternative chip from Qualcomm, according to two people familiar with the matter. The custom chip would power a variety of functions, such as taking high-quality photos and videos, on the glasses. But Meta’s augmented reality chief, Alex Himel, decided using it could delay the glasses’ launch, expected next year.

The decision was a setback for Meta’s in-house silicon unit known as Facebook Agile Silicon Team. Code-named Brasilia, the chip was part of a broader effort by Meta to control key technologies and reduce its reliance on off-the-shelf silicon providers like Qualcomm, which supplies chips for Meta’s Quest VR headsets, Portal smart video devices and the first version of the Ray-Ban glasses. By building its own power-efficient chips to manage its burgeoning stable of augmented and virtual reality devices, Meta would have far greater control over the features, size and battery life of its products and be better positioned to compete with rivals like Apple.

THE TAKEAWAY

• Meta is building custom silicon for future hardware devices

• It abandoned custom chip for Ray-Ban glasses in favor of Qualcomm alternative

• Silicon team is working on chip for future smart watch

The Brasilia chip design was far enough along that it was ready for trial production. Had it gone further, Brasilia would have been the first in a line of custom chip designs for a Meta-designed consumer device.

The flip-flop highlights the tension between Meta’s goal to build more of the underlying technology for its hardware devices and its desire to get products out quickly. Meta has also run into challenges on the software side. In recent months it abandoned an effort to build its own operating system, XROS, for its forthcoming AR glasses, The Information reported. The first version of the AR glasses will instead run on a customized version of Google’s Android OS.

The stakes are high. AR/VR devices are key to Meta CEO Mark Zuckerberg’s bet on the metaverse, a type of immersive internet in which people will move through digital environments wearing AR and VR devices.

Qualcomm is supplying the key chips for Meta’s forthcoming VR headset, externally code-named Cambria and internally known as Arcata, which is due to come out around September, according to a person familiar with the matter.

Apple, in contrast, is expected to use its own chip designs in its upcoming mixed reality headset, expected to launch later this year or in early 2023, The Information reported last year. Apple has led the way in designing its own chips for iPhones and MacBooks, while Google has begun putting its own chips into its Pixel line of smartphones and is also reportedly making the chip for its upcoming AR headset.

Differentiated Features

Custom-designed chips give hardware makers the ability to offer differentiated features such as translating foreign languages and smoothing out photos, particularly when they’re also building the software, as is the case with both Apple and Google. Buying off-the-shelf silicon from firms like Qualcomm and MediaTek, in contrast, makes it harder for device makers to offer distinctive services. Meta’s competitors in AR/VR devices—including Snap, HTC and ByteDance’s Pico Interactive—use the same Qualcomm chips.

The goal of the Brasilia chip was to add features like the ability to take higher-quality pictures than Meta’s current Ray-Ban Stories can capture, according to a person familiar with the matter. Meta is also developing chip technology to enable AR features, such as audio that sounds like it is coming from different directions and real-time visual filters and effects that are executed on an accompanying phone, according to a Meta spokesperson.

“The goal is to do something that a competitor can’t, which you can’t do if you just buy the same chips that your competitors buy—there’s very, very little differentiation in that scenario,” said Ben Bajarin, an analyst at Creative Studios who covers the consumer tech market. The fact that Apple builds the silicon for its products “allows them to do a whole host of things that others can’t and [to] laser-focus their architectural decisions to their ambitions in hardware,” he said.

While Meta will not use the new Brasilia chip itself in a new product, the company could reuse the technology behind it in other chips for future products, according to a person familiar with the matter. The FAST team is working on other products, including custom silicon components for Meta’s planned AR glasses, known internally as Orion, which are not expected to be released for several years, the person said. This silicon relates to display and machine perception, including motion detection and vision tracking. The FAST team is also focusing on a chip code-named Carson, intended for a future version of Meta’s planned smart watch.

Old Guard v New Guard

Formed in 2018, the silicon team has more than 1,000 employees and is led by Shahriar Rabii, who joined Meta that year from Google, where he worked on silicon engineering and development. FAST is part of Reality Labs—the division overseeing Meta’s AR/VR products—but is mainly based out of the company’s Sunnyvale, Calif., campus. That facility has more lab space for testing than Meta’s newly built Burlingame, Calif., campus, where most of Reality Labs is based.

The FAST team is run separately from a smaller Meta team that develops custom silicon for the company’s sprawling data-center infrastructure. That infrastructure team has about 150 people and has worked on chips for machine learning as well as encoding and decoding digital video, according to a person familiar with the matter.

Complicating FAST’s efforts is Zuckerberg’s desire to get new products into the market quickly, before rivals have a chance to establish themselves, and to remain agile, factors that proved decisive in putting an end to the Brasilia project for the Ray-Ban smart glasses.

AR chief Alex Himel, who has the power to make decisions about product and the market strategy for the Ray-Ban glasses, worried that using the Brasilia chip would delay the release of the second version, based on internal forecasts from his team about the project, according to two people familiar with the matter. Meta’s team already had experience working with Qualcomm’s chips, and hence viewed the decision to stick with them for another generation as lower risk, one of the people said. The decision caused frustration and disappointment among some inside Reality Labs who argued that the company should stick with Brasilia.

Qualcomm, meanwhile, has positioned itself as the leading chip provider in the XR industry. (XR is a catch-all term for VR, AR, and mixed reality.) The company recently announced a $100 million metaverse fund to invest in companies and developers building technologies for the metaverse. Qualcomm has also formed partnerships tied to VR and AR work with Microsoft, Niantic and Pico.

In an interview with The Information in March, Hugo Swart, vice president of XR at Qualcomm, said Meta and Qualcomm had a “very strong partnership,” noting that Qualcomm built its XR2 chip with many of Meta’s requirements baked in. Asked about Meta’s dual role as both a partner and a would-be competitor to Qualcomm, Swart made a comparison with mobile, an industry in which some of Qualcomm’s customers use a mixture of Qualcomm and their own chips. “I think that’s part of the business,” Swart said. “It’s part of how the industry operates.”

Qualcomm is currently developing two new chips that can be used for VR headsets, according to a person familiar with the matter.

The XR2 Pro, which it will likely unveil later this year, is based on the existing XR2, but the memory, or RAM, will be in a separate location rather than built on the main chip, making the device more powerful, the person said.

The XR2 Pro Generation 2, which Qualcomm might unveil in 2024, will be its first chip built specifically for XR. The existence of the chips has not previously been reported. Qualcomm declined to comment.

Analysts have been slashing expectations for bank deposits in recent weeks as Fed rate increases ripple through the industry

U.S. banks have a streak of increasing deposits as a group every year since at least World War II. This year could break it.

Over the past two months, bank analysts have slashed their expectations for deposit levels at the biggest banks. The 24 institutions that make up the benchmark KBW Nasdaq Bank Index are now expected to see a 6% decline in deposits this year. Those 24 banks account for nearly 60% of what was $19 trillion in deposits in December, according to the Federal Deposit Insurance Corp.

While some analysts doubt the full-year decline will happen, even the possibility would have been unthinkable a few months ago. Bank deposits have grown at unprecedented rates during the pandemic. At the end of February, analysts were forecasting a 3% increase. But analysts have cut $1 trillion from their estimates since then, according to a review of FactSet data.

A decline isn’t going to hurt the banks. The flood of deposits had become a headache as it had big banks nearing regulatory limits on their capital. Banks had already been pushing many depositors aside because they weren’t able to put the money to work as loans.

The industry has $8.5 trillion more in deposits than loans, according to Barclays analysts. While loan demand is expected to increase, and the banks need deposits to fund the lending, that is more than enough.

“These are deposits they don’t really need,” said Barclays analyst Jason Goldberg.

The force stirring the change is the Federal Reserve. Forecasts from Fed officials and economists now call for sharp increases in the Fed’s core interest rate to combat inflation. That will ripple through the banking industry in myriad somewhat unpredictable ways.

“This is in no way traditional Fed tightening—and there are no models that can even remotely give us the answers,” JPMorgan Chase & Co. Chief Executive Jamie Dimon wrote in his annual shareholder letter last week.

Bank stocks have dropped along with changing Fed views. The KBW Index started the year heading higher as the S&P 500 fell. But it has lost nearly 20% since the middle of January and is now down 9.4% for the year, while the S&P 500 has lost 5.8%.

Banks were supposed to be the big beneficiaries of a slow and methodical increase in interest rates. That would allow them to charge more on loans and keep near zero the amount they are paying depositors. Banks, after all, won’t pay more for funding they don’t need. That combination would boost what had been record-low profit margins.

The last time the Fed increased rates, deposit growth slowed but was still positive, so bankers were expecting the same.

But what happened the past two years to set the stage for this year has no precedent. During the pandemic, consumers stashed away stimulus checks and businesses stockpiled cash to deal with shutdowns and supply-chain issues. Total deposits increased $5 trillion, or 35%, over the past two years, according to FDIC data.

Analysts and bankers think those aren’t likely to stay around. Citigroup estimated banks have $500 billion to $700 billion in excess noninterest paying deposits that could move quickly.

The most likely beneficiaries are money-market funds, short-term investments that often capture overflowing deposits from banks.

The money-market funds started parking the overflow at a newer program at the New York Fed for short-term storage. That program, known as the reverse repo, has about $1.7 trillion in it now after being mostly ignored since its 2013 creation.

Because it is so new, and suddenly so big, bankers and analysts have been unsure what will happen with those funds as the Fed started moving rates. For months, many viewed them as excess funds that would follow the general idea of “last in, first out.”

Now, some analysts are reversing that theory. They expect money-market funds to march their rates higher along with the Fed, which would keep them more attractive than bank deposits, especially if the Fed raises its benchmark rate a half percentage point next month, as expected.

The average rate on savings accounts stood at roughly 0.06% on March 21, according to the FDIC, compared with 0.08% for money-market accounts. Savings accounts interest rates aren’t expected to move much until loan demand and deposit levels come back into balance.

Demand for the New York Fed program has increased in recent weeks as expectations for bigger Fed hikes have emerged, said Isfar Munir, U.S. economist at Citigroup.

“We’ve had to revise our estimates entirely,” Mr. Munir said.

Russian ally Serbia took the delivery of a sophisticated Chinese anti-aircraft system in a veiled operation this weekend, amid Western concerns that an arms build-up in the Balkans at the time of the war in Ukraine could threaten the fragile peace in the region.

Media and military experts said on Sunday that six Chinese Air Force Y-20 transport planes landed at Belgrade’s civilian airport early on Saturday, reportedly carrying HQ-22 surface-to-air missile systems for the Serbian military.

The Chinese cargo planes with military markings were pictured at Belgrade’s Nikola Tesla airport. Serbia’s defence ministry did not immediately respond to a request from Associated Press for comment.

The arms delivery over the territory of at least two Nato member states, Turkey and Bulgaria, was seen by experts as a demonstration of China’s growing global reach.

“The Y-20s’ appearance raised eyebrows because they flew en masse as opposed to a series of single-aircraft flights,” wrote The Warzone online magazine. “The Y-20′s presence in Europe in any numbers is also still a fairly new development.”

“The Chinese carried out their demonstration of force,” said Serbian military analyst Aleksandar Radic.

Serbian President Aleksandar Vucic all but confirmed the delivery of the medium-range system that was agreed in 2019, saying on Saturday that he will present “the newest pride” of the Serbian military on Tuesday or Wednesday.

He had earlier complained that Nato countries, which represent most of Serbia’s neighbours, are refusing to allow the system’s delivery flights over their territories amid tensions over Russia’s aggression on Ukraine.

Although Serbia has voted in favour of UN resolutions that condemn the Russian attacks in Ukraine, it has refused to join international sanctions against its allies in Moscow or outright criticise the apparent atrocities committed by the Russian troops there.

Back in 2020, US officials warned Belgrade against the purchase of HQ-22 anti-aircraft systems, whose export version is known as FK-3. They said that if Serbia really wants to join the European Union and other Western alliances, it must align its military equipment with Western standards.

The Chinese missile system has been widely compared to the American Patriot and the Russian S-300 surface-to-air missile systems although it has a shorter range than more advanced S-300s. Serbia will be the first operator of the Chinese missiles in Europe.

Serbia was at war with its neighbours in the 1990s. The country, which is formally seeking EU membership, has already been boosting its armed forces with Russian and Chinese arms, including warplanes, battle tanks and other equipment.

In 2020, it took delivery of Chengdu Pterodactyl-1 drones, known in China as Wing Loong. The combat drones are able to strike targets with bombs and missiles and can be used for reconnaissance tasks.

There are fears in the West that the arming of Serbia by Russia and China could encourage the Balkan country toward another war, especially against its former province of Kosovo that proclaimed independence in 2008. Serbia, Russia and China don’t recognise Kosovo’s statehood, while the United States and most Western countries do

The holistic concept, due to open in mid-July, includes products, services, a gym and a restaurant.

PARIS — Galeries Lafayette is poised to launch an immense wellness department this summer.

The space — home to products, services, a gym and a restaurant — will be situated on the minus-one floor of the department store’s main building on Boulevard Haussmann and open in mid-July.

Galeries Lafayette has been carrying out widespread renovations over the past 18 months, throughout the coronavirus pandemic.

“We continued to improve customer journeys with the creation of a third set of escalators,” said Alexandre Liot, general manager of Galeries Lafayette Haussmann. “We renovated our historic cupola, which had not been redone since its creation.”

Other initiatives included opening (Re)Store, devoted to circular and second-hand fashion in the womenswear department.

“And then, we took the time to see what the consumer trends were and — above all — their expectations,” said Liot. “We realized our customers didn’t just want to buy goods, but they also wanted to do good for themselves. That’s what guided us on this project.

“The [post-COVID-19] department store strikes back, with everything — innovation, expectation, exclusivity — under the same roof, which is its historic strength,” he continued.

“In looking at the market’s evolution — notably in the United States, which is still very much in advance in terms of well-being, and also Japan — we said to ourselves ‘the beauty of tomorrow’ is no longer just about selling products, but also about doing yourself good,” he said.

Further, consumers today are expecting differentiation and innovation from physical stores.

Galeries Lafayette’s minus-one floor, among the most frequented, was formerly the shoe department, which was relocated to the fourth floor. That meant 32,290 square feet of space became available.

“We really wanted to create and be the reference for well-being and wellness in Paris — and even in Europe,” said Liot, who maintains nothing of this kind exists anywhere else there. “We chose the best in their areas of expertise present on [French] territory, or totally exclusive concepts not yet in France.

“We balanced the two,” he teased, without naming names of the specific brands chosen. “We will have all of the products that correspond to well-being — dietary supplements, creams, hair products. It will really be the temple of wellbeing.”

Treatment rooms are to offer the likes of massage and alternative medicine. The gym, hosting fitness classes, will be open before and after store hours.

Athleisure is to be sold on this floor, too, and there will be a restaurant serving food conceived with well-being in mind. (Also on the culinary front, Galeries Lafayette, in its Maison et Gourmet building, will add a supplementary floor dedicated to restaurants in September.)

“For this space there are codes totally different from those of the department store, from what one is used to seeing on the other floors,” the executive said of the well-being department.

The wellness market has enormous potential, having doubled in size globally over the past four years, according to the Global Wellness Report. Yet the category remains highly segmented and accessible to only a small number of people in France.

“The spirit of Galeries Lafayette is it’s everyone’s department store, and we really want this universe to be accessible to everyone,” said Liot, adding massages and other treatments will be available for 45 euros to 400 euros. “So it really democratizes access to well-being.

“We always try to be one step ahead of our environment and also of our competitors,” he said. “It is also important for us to continue putting into practice our philosophy — namely, that customers and visitors need experiences, and constantly renewed experiences. It’s a leitmotif we’ve had for a very long time.”

Liot cited the department store’s historic slogan: “Something is always happening at Galeries Lafayette.”

“We continue to live that today, with this project,” he said.

This week, everyone will be talking about LVMH’s latest results, the return of Coachella and an important US inflation gauge.

Inflated Expectations

LVMH has a problem most companies would gladly take on: the luxury giant has grown so quickly for so long that an otherwise excellent quarter might look so-so by recent standards. LVMH’s sales grew 44 percent last year, an unusual figure for a company of its size (though sales were also up an impressive 20 percent from 2019). The conglomerate is unlikely to maintain that pace.

That doesn’t mean Louis Vuitton or Dior are showing any signs of slowing momentum, though future growth will depend partially on Celine following through on LVMH’s plans to make it the next anointed megabrand. One test is whether Sephora and the conglomerate’s travel retail empire are ready to take off. DFS continues to lose money for its parent, and while the sector is innovating around the pandemic disruptions, including new online services and a big investment by DFS in Hainan, there’s little else to be done but wait until tourists return to airports in their pre-pandemic numbers. Sephora is more clearly on a path to recovery, though LVMH said in January sales had yet to reach 2019 levels.

The Bottom Line: One of the perks of being a category-spanning colossus is that there’s always some new growth lever to pull.

- Ukraine is already ready for big battles, Ukraine must win these battles, including in the Donbas, after which Ukraine will receive a more substantial negotiating position, from which it can dictate certain conditions; After that, the presidents will meet

The S&P 500 has rebounded 7.6% from its 2022 low in March, cutting its losses for the year to about 6%

Investors are confronting one of the most uncertain periods of their lifetimes. Stocks are rallying anyway.

The S&P 500 has rebounded 7.6% from its 2022 low on March 8, cutting its losses for the year to about 6%—roughly half of what they were weeks ago. In many ways, investors say, the rebound has been as broad as it has been impressive, lifting everything from travel stocks to utilities to unprofitable technology companies.

A month ago, Russia’s war in Ukraine was intensifying, sending oil prices surging to $130 a barrel and stocks sharply lower. Covid-19 cases began surging again in China. Inflation data showed that pricing pressures weren’t abating. And in the midst of all of it, the Federal Reserve kicked off a rate-hiking cycle for the first time since 2018.

Not much has changed, except stocks are now back on the upswing. Many investors are trying to discern whether the rebound is the start of a sustainable rally or merely a temporary respite. The broad stock market index pulled back 1.3% last week, snapping a three-week winning streak that marked its best performance since November 2020.

The anticipation of the Fed’s March rate increase stirred volatility for months as investors braced for the unwinding of stimulus that helped turbocharge stocks. But history shows that stocks typically rise after the central bank starts raising interest rates.

In the five rate-hiking cycles since 1990, the S&P 500 tumbled a month after the first rate increase but typically recouped those gains to rally six months later. After one year, the S&P 500 and Nasdaq Composite were up 80% of the time, according to Dow Jones Market Data.

“The early stages of Fed tightening should not be seen as a negative for stocks, as equities tended to make new highs after the initial volatility,” a team of JPMorgan Chase & Co. strategists led by Marko Kolanovic wrote in a note to clients Monday.

Still, recession fears are growing. Deutsche Bank’s chief U.S. economist warned about a recession this year, fueled by aggressive tightening from the Fed. Jeremy Grantham, co-founder of Boston money manager GMO LLC, said Wednesday that oil price spikes like the one this year “have always preceded or triggered recession.”

Yet some investors aren’t willing to cash out of the market to time a downturn.

“The market can go up a lot before you get to the recession,” said Mark Stoeckle, chief executive of investment firm Adams Funds. “That’s a lot of risk that you’re taking on if you’re going to begin to reposition your portfolio for an impending recession.”

Mr. Stoeckle said that, so far, the economic data he has seen doesn’t point to a recession in the near future.

To be sure, rate-hiking cycles don’t always end well for stocks. According to Deutsche Bank analysts, eight of the 11 cycles over the past seven decades have resulted in recessions.

Take, for example, when the Fed began raising rates in the 1970s and the late 1990s. In both cases, major U.S. indexes largely finished the cycles with losses and, soon after, the economy tipped into a recession.

Consumers have been sending mixed signals on how they feel about the economy. Economic data suggest things aren’t as bad as many fear.

U.S. job growth remains strong, with the March report showing employers added 431,000 jobs, the 11th straight month with an increase of more than 400,000. That marked the longest streak in records dating back to 1939.

Investors point to other encouraging signs: Wages continue to grow. In March, average hourly earnings for employees on private nonfarm payrolls rose 5.6% from a year before, Labor Department data show.

Meanwhile, American finances look healthy, which could help buoy the economy as inflation flares. Brian Rose, senior U.S. economist at UBS Global Wealth Management, estimates that consumers accumulated excess savings of about $2.5 trillion during the pandemic.

Still, some cracks are starting to emerge: U.S. consumer spending in February slowed sharply from the month before, as inflation—which jumped to an annual 7.9% rate in February—weighed on households and chipped away at wage gains.

Many investors say stocks are still being lifted by one closely watched bond-market metric: real yields.

Real yields are what investors receive on U.S. government bonds after accounting for inflation. Despite the sharp rise in Treasury yields this year, so-called real interest rates are still quite low. For now, investors say, that is providing support for the economy and an incentive for investors to seek returns in riskier assets.

The yield on five-year Treasury inflation-protected securities—a benchmark gauge of real interest rates over the next half-decade—stood Friday at about minus 0.6%, according to Tradeweb. That was up from about minus 1.6% at the end of last year but still well below the 1% level it reached in 2018.

Individual investors have helped drive the recent surge in meme stocks and shares of unprofitable technology companies, data from Vanda Research show.

Last month, individual investors piled into shares of the ARK Innovation exchange-traded fund, purchasing a net $132 million in shares, the second-highest monthly total on record and nearly three times the monthly 2021 average, according to Vanda data. The fund, which is run by Cathie Wood and trades under the ticker ARKK, is heavily invested in buzzy companies, some of which struggle to turn a profit.

Meanwhile, demand for bullish call options that are “out-of-the-money,” or far from currently paying out, recently hit the highest level since early 2021, Vanda estimates. Bets on meme stocks and tech shares such as Nvidia Corp. , Twitter Inc., Tesla Inc. and Advanced Micro Devices Inc. are particularly popular.

Goldman analysts said in a note to clients in late March that a bump in retail-trading activity helps explain the gains in stocks like nonprofitable technology companies that are typically sensitive to interest-rate increases.

“Sentiment from the most speculative part of the retail community is becoming increasingly optimistic,” Vanda analysts wrote in an April research note.

The activity is in contrast to much of the quarter, when trading by the group subsided. Estimates from Bloomberg Intelligence show that individual investors accounted for about 17% of U.S. stock-trading activity in the first quarter, the lowest level since 2019, before the pandemic triggered a rush of activity.

First-quarter earnings season will kick off in earnest this week, and many investors expect another period of strong results.

Earnings among companies in the S&P 500 are expected to have increased 4.5% from the year before. Although that result would pale in comparison with the blockbuster growth of recent periods, it is generally in line with the median growth rate since the first quarter of 2012.

Analysts point to one particular bright spot: Many think U.S. companies will be able to navigate soaring inflation by raising prices. The estimated net profit margin for S&P 500 companies is 12.1% for the first quarter, higher than the five-year average of 11.2%, FactSet data show.

“At the moment, there is this relative sweet spot for equities, whereby they feel comfortable with rising inflation—they think that U.S. companies retain pricing power and that it won’t result in margin compression,” said Huw Roberts, head of analytics at Quant Insight.

There are technical factors driving the rebound, too. Many institutional investors appear to have aggressively dumped stocks to start the year, traders and analysts said.

“During the invasion…it felt like [the selloff] was all driven by de-risking,” said Glenn Koh, head of global equities trading at Bank of America.

For example, Bank of America analysts estimate that bearish stock positions among commodity trading advisers, computer-driven funds that try to make money betting on market trends and patterns, surged in March before pulling back on those bets. Recently, Mr. Koh said, some investors might have had to unwind bearish positions, helping drive a rally.

“It felt like it was more short covering,” Mr. Koh said.