FT : Daimler suffers setback over Nokia patent dispute

Daimler suffers setback over Nokia patent dispute
Carmaker must buy operating licences to use 4G technology in its vehicles, rules German court

Daimler must buy operating licences from Nokia to use patented 4G technologies in its cars, a German regional court has ruled, delivering a blow to the Mercedes-Benz owner in a long-running intellectual property dispute.

Should Nokia decide to enforce the ruling, Daimler could be forced to stop selling some of its vehicles in Germany, or strip its models of the ability to connect to the internet.

However, Nokia would need to place a €7bn deposit in order to do so, to cover any counterclaims in the event of the ruling being overturned by a higher court.

“We do not understand the decision of the Mannheim Regional Court and will appeal against it,” Daimler in a statement, adding that it did “not expect any stoppage of production or sales”.

The case is one of 10 filed by Nokia in various German courts, alleging that unlike most other major automakers, Daimler has refused to buy a licence for the use of 2G, 3G and 4G cellular technologies installed in its cars that are crucial for navigation services and semi-autonomous driving.

A similar case was dismissed by the Mannheim court earlier this year.

In its legal filings, Nokia maintains that it offered Daimler a fair price for the licences and that it is entitled to recoup the costs associated with the research and development of its technologies, which amounted to more than €4bn last year.

However, the Stuttgart-based carmaker says its suppliers, including Continental, who build the telematic control units in which connected technologies are housed, should be the licensees, rather than the car manufacturer itself.

Daimler and Continental also claim that Nokia has refused to grant the supplier a licence directly, a claim denied by the Finnish telecoms company.

Separately, a complaint has been filed by Daimler and Continental with the European Commission, alleging anti-competitive practices.

In its ruling on Tuesday, the Mannheim court said neither Daimler nor Continental “were seriously willing or prepared to conclude a licence agreement with the applicant on [fair and reasonable] terms”.

Nokia said the ruling was a “major endorsement of the long-term engineering work by innovators at Nokia and the important principle that innovators should receive a fair reward for the use of their inventions”.

“We hope that Daimler will now accept its obligations and take a licence on fair terms,” it added.

Continental said it found the Mannheim decision “incomprehensible” and that, as a result, “intervention by the European Commission seems more important than ever”.

Earlier this month, Daimler announced it would spend more than $2.2bn to settle various outstanding claims in the US over the diesel emissions of 250,000 passenger cars and vans.

FT : Norway’s oil fund fears market disconnect from real economy

Norway’s oil fund fears market disconnect from real economy
Concerns raised after $1tn sovereign wealth fund records second-best quarter

The world’s largest sovereign wealth has warned over the disconnect between the financial markets and the real economy as US stocks set a new intraday record on Tuesday.

Buoyed by record-low interest rates, equity markets have staged a fierce rebound since hitting lows in March when governments across the world imposed lockdowns to curb the spread of coronavirus.

The recovery in equities, turbocharged by central banks’ stimulus, helped Norway’s $1tn oil fund, the world’s largest sovereign wealth fund, to the second-best quarter in its history, returning 13.1 per cent in the three months to the end of June.

Trond Grande, deputy chief executive of Norges Bank Investment Management, which manages the fund, said on Tuesday: “We’ve seen an unexpectedly sharp recovery in the financial markets but maybe we haven’t seen the full effect on the real economy.”

Asked whether he was concerned about the disconnect, Mr Grande told the Financial Times: “Yes, I think it’s something to have on the radar.”

At a press conference in Oslo, Mr Grande added that the pandemic “doesn’t seem to be under control in any shape or form”.

The caution from the fund, set up almost a quarter of a century ago to help manage the income from Norway’s oil industry, came as a widely watched survey showed global investors are increasingly anxious that the sharp rally in equities, bonds and gold since the darkest days of the coronavirus crisis has left assets “overvalued”.

According to the latest Bank of America survey of investors, who collectively manage $489bn, a portfolio with equal holdings of stocks, bonds and gold is the most expensive it has been since 2008.

Despite the angst over valuations, the survey also found that investors remained upbeat on global markets as almost 80 per cent expect economic growth to improve.

Mr Grande said the value of the wealth fund had continued to recover over the summer and it was now flat or slightly up for the year as a whole.

He added: “That said, we often see disconnects between the two. At some stage, and in the long run, you would expect them to be equalised.”

As debate rages over valuations, the fund is currently in the midst of the biggest political storm in its history over the botched appointment of a new chief executive.

Norway’s parliament is considering whether to try to block Nicolai Tangen, a former hedge fund manager, from becoming chief executive because of alleged conflicts of interest. All the opposition leftwing parties have come out against Mr Tangen as long as he retains ownership of AKO Capital, the London-based hedge fund he founded and where he owns a 43 per cent stake.

Norway’s largest political group, the Labour party, which could win next year’s elections, has expressed its concerns about Mr Tangen in unusually strong terms. Mr Tangen declined to comment on the mounting opposition.

Mr Grande said he had not heard any concerns “directly” from business partners about the row. But he added: “Obviously it’s something you would have wanted to avoid. Hopefully we have built a reputation over more than 20 years that can withstand some turmoil.”

The fund’s deputy chief executive also applied to succeed Yngve Slyngstad, who has been chief executive of NBIM since 2008. He refused to say how he felt about missing out on the job. Asked if he was ready to become interim chief executive if Mr Tangen could not be confirmed by September 1, he said it was a “hypothetical question” and that the fund was planning for Mr Tangen to take over.

FT : Mario Draghi urges Europe to use soaring debt for productive purposes

Mario Draghi urges Europe to use soaring debt for productive purposes
Rebuilding after pandemic will be akin to post-second world war reconstruction, says ex-ECB chief

Europe will only fully recover from the economic impact of coronavirus if governments use their vastly increased debts to invest in young people, innovation and research, Mario Draghi has said in his first speech since leaving the European Central Bank last year.

Mr Draghi, who stepped down as ECB president last November, said debt levels would be high for a long time, but they would only be sustainable if “good debt” was “used for productive purposes” instead of “bad debt” being used for unproductive purposes. 

“Low interest rates are not in themselves a guarantee of sustainability; the perception of the quality of the debt incurred is just as important,” he said. “The more that perception deteriorates, the more uncertain our framework of references will become, which would jeopardise employment, investment and consumption.”

Comparing Europe’s rebuilding from the pandemic to the aftermath of the second world war, Mr Draghi said the region had to rethink many of its rules while resisting challenges from other countries to its core values of multilateralism, solidarity and the rule of law.

“We should take inspiration from those who were involved in rebuilding the world, Europe and Italy after World War II,” he said in a speech at an event in Rimini, on Italy’s eastern coast.

As ECB president, Mr Draghi repeatedly called for the EU to issue much more common debt and to establish its own budget. He said on Tuesday that the €750bn recovery fund agreed last month by EU leaders to support countries hit hardest by the pandemic “enriches the European policy arsenal”.

“Europe can emerge strengthened from this crisis,” he said. “The recognition of the role that a European budget can play in stabilising our economies, and the precedent of issuing common debt, are important and can form the basis of the design of a common Treasury ministry.”

Investors have been concerned about the impact of the pandemic on already elevated debt levels in southern European countries, particularly Italy, where debt is expected to rise above 160 per cent of gross domestic product this year.

Mr Draghi said European governments faced “a moral imperative” to invest in educating young people. “The debt created by the pandemic is unprecedented and will have to be repaid mainly by those who are young today,” he said.

“It is therefore our duty to equip them with the means to service that debt, and to do so while living in improved societies,” he said, adding: “For years, a form of collective selfishness has led governments to divert attention and resources towards initiatives that generated guaranteed and immediate political returns. This is no longer acceptable today.”

Younger workers have been disproportionately affected by the pandemic’s impact on labour markets because many of them have temporary or part-time roles that have been cut, while widespread hiring freezes at companies are hampering the career prospects of graduates.

Since leaving the ECB, where he was widely credited with saving the euro from the region’s sovereign debt crisis in 2012, Mr Draghi has been appointed to a Vatican think-tank advising Pope Francis on social and economic affairs. 

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • API -4.8%, KC -2.8%, GDS -2.6%, PEIX -2.5%, FN -2.1%, ADCT -1.3%, BHP -1.1%, WMT -0.6%, BEST -0.5%

Other news:

  • PSTX -22.8% (FDA places trial for P-PSMA-101 on clinical hold to investigate patient death)
  • CNK -4.6% (convertible notes offering)
  • PEB -3.4% (provides update on Q3 operating trends)
  • CALM -3.3% (stock offering)
  • ZI -3.3% (commences secondary offering of 12 mln shares of common stock by selling stockholders)
  • KDP -3.2% (stock offering)
  • TBIO -2.3% (stock offering)
  • SPT -2.2% (prices 6.9 mln share offering at $27.50/sh)
  • MIDD -2.1% (convertible notes offering)
  • AMH -1.8% (prices offering of 13,000,000 common shares for expected gross proceeds of approximately $364.0 mln)
  • FUTU -1.8% (stock offering)
  • LUV -0.8% (stock offering)

Analyst comments:

  • UBX -4.3% (downgraded to Neutral from Buy at Citigroup; downgraded to Equal-Weight from Overweight at Morgan Stanley)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • SE +8.1%, SE +8.1%, AAP +5.9%, LX +4.2%, GOGL +4%, AMCR +3.9%, CRMT +2.8%, ARCE +2.5%, HD +1%, SFL +0.8%

Other news:

  • TLSA +16% (receives patent for methods and use of anti-CD3 monoclonal antibodies for treatment of Crohn's disease)
  • VNDA +11.6% (reported that interim analysis showed tradipitant may accelerate clinical improvement in SARS-CoV-2 (COVID-19) pneumonia in the ODYSSEY study)
  • REDU +7.4% (extends momentum from +48% move during Monday regular session)
  • RXT +5.4% (extends momentum from +10% move during Monday regular session)
  • MCRB +5.2% (prices 12,075,000 share offering at $21.50/sh)
  • KL +3.3% (signs Strategic Alliance Agreement with NEM)
  • KRYS +3.1% (FDA has granted Orphan Drug Designation to KB407)
  • KNDI +2.4% (extends momentum from +10% move during Monday regular session)
  • CHGG +2.2% (convertible notes offering)
  • SDGR +1.6% (prices 5.75 mln share offering at $66/sh)
  • NEM +1.5% (signs Strategic Alliance Agreement with KL)
  • EPC +1.2% (S&P says 'BB' rating affirmed on Cremo acquisition)
  • RUN +1.2% (Sunrun and Vivint Solar (VSLR) announce that Coatue US 24 LLC entered into a Stock Purchase Agreement with 313 Acquisition for the purchase of 11,627,907 shares of Vivint Solar common stock in a private transaction)

Analyst comments:

  • BBDC +2.2% (upgraded to Outperform from Mkt Perform at Keefe Bruyette)
  • BBY +2% (pgraded to Outperform from Neutral at Wedbush)
  • JD +1.5% (added to Conviction Buy List at Goldman)

FT : Chip and phone supply chain shaken as Huawei faces mortal threat

Chip and phone supply chain shaken as Huawei faces mortal threat
New US sanctions bar Chinese telecom equipment maker from buying semiconductors

The global chip and smartphone industries are bracing for severe disruption after the US launched tougher sanctions against Huawei that some said could mean “death” for the company.

Washington said on Monday that no company worldwide would be allowed to sell semiconductors made using US software or equipment without a licence if Huawei was involved at any stage of the transaction.

The move closed a loophole in a May version of the rule that allowed Huawei to buy off-the-shelf chips if they were not custom-made to its designs.

Observers said given the dominance of US tools in certain segments of chipmaking, the new rule amounted to a blanket ban on any chip sales to Huawei, hitting its 5G equipment and handset businesses.

“We believe this step to significantly (almost completely) curtail Huawei’s ability to source any semiconductor from anyone,” Manish Nigam, head of Asian technology research at Credit Suisse, said in a research note.

The toughened US measures come as Huawei is vying for the title of the biggest handset maker on the planet and is trying to roll out its 5G networks around the world against opposition from Washington.

“Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year,” said Dan Wang, of Gavekal Research in a report on the sanctions titled: “A Death Sentence For Huawei”. 

“This now stops [US chipmakers] Nvidia, Intel, everyone, and they were not impacted before,” said an industry expert, adding that the tighter restrictions would affect billions of dollars in business across the sector.

Zhao Lijian, a spokesman for China’s foreign ministry, said on Tuesday that the new sanctions against Huawei were “undisguised bullying” and the US was “stretching the concept of national security and abusing state power”. 

Analysts said MediaTek would probably be the first victim. The Taiwanese chip design house helped spawn generations of Chinese handset makers by offering off-the-shelf chip solutions. MediaTek’s shares dropped by almost 10 per cent in early trading on Tuesday, leading an Asia-wide plunge in semiconductor stocks.

After the initial Huawei chip restrictions in May, Huawei had been planning to switch its smartphones from chips designed in-house to those from MediaTek to get around the ban.

“MediaTek will face an impact, though partially offset by its 38 per cent share into other vendors,” Randy Abrams, an analyst at Credit Suisse, said in a research note. The bank downgraded the company to Neutral.

Analysts said the news would boost rival smartphone producers to Huawei.

“If Huawei cannot buy chipsets for its handsets, its handset business will probably disappear,” wrote Edison Lee at Jefferies.

He predicted that Oppo, Vivo and Xiaomi would gain global market share. This would boost Qualcomm as the three rival Chinese brands relied more heavily on the US chip design house that competes with MediaTek.

However, some analysts said Washington’s tough move against Huawei could play out differently if Beijing hit back.

“Given such sanctions significantly impact Huawei, there could be retaliation from China,” said Sebastian Hou at CLSA. He named Apple, Huawei’s competitor in the smartphone market, and Qualcomm as potential targets.

South Korea’s computer chip manufacturers Samsung Electronics and SK Hynix, which supply memory chips to Huawei, were on Tuesday assessing the potential impact.

“Our understanding is that all chip supply, including memory chips, to Huawei will be subjected to the new US regulations,” said Sanjeev Rana, a Seoul-based tech sector analyst with CLSA. Samsung and SK Hynix declined to comment.

Analysts saw some possible upside from Huawei’s woes for Samsung’s mobile phone and 5G networks businesses. “We can expect the smartphone market to rebalance with Huawei’s market share taken up by other smartphone [companies] and hence it would be neutral to the memory chip demand,” Mr Rana added.

Shares in Samsung edged higher in Seoul on Tuesday while SK Hynix dipped slightly. 

Among Japanese companies, shares in Sony fell more than 1 per cent. Jefferies analyst Atul Goyal estimated that Huawei was Sony’s biggest customer in image sensors after Apple, accounting for about 20 per cent of its image sensor operating profits and revenue. 

“Sony has already reduced image sensor output and . . . [is] already taking into account the Huawei impact in their forecast,” Mr Goyal said.

Longer-term, analysts expect Sony to recover some of the losses from Huawei by expanding sales to other Chinese smartphone makers, such as Vivo and Xiaomi.

FT : Saudi Arabia pours $4.7bn into State Street ETFs

Saudi Arabia pours $4.7bn into State Street ETFs
Move comes after similar decision by US Federal Reserve, which has $8.7bn in ETFs

Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, poured nearly $4.7bn into three State Street Global Advisors exchange traded funds during the second quarter.

PIF has built positions of $1.6bn in the $2.3bn Real Estate Select Sector SPDR, $1.9bn in the $12bn Utilities Select Sector SPDR and $1.2bn in the $3.3bn Materials Select Sector SPDR, disclosures show. 

The stakes were assembled between the end of March and the end of June, and mean the Saudi fund has joined other government investors such as the US Federal Reserve in deciding to pump assets into ETFs.

PIF’s portfolio declaration to the Securities and Exchange Commission does not appear to include holdings in any other ETFs. The SSGA positions rank as the fund’s biggest, behind its $2.3bn stake in Uber.

PIF is thought to have been among investors that bought PNC’s $14bn stake in BlackRock during PNC’s divestment sale in May.

The Fed’s Covid-19 investment facility has meanwhile boosted its ETF investments to $8.7bn as of July 31, according to the central bank’s disclosures. That’s up from less than $8bn a month earlier.

iShares remains the biggest beneficiary of the Fed’s investing. Its ETFs account for $4.3bn, or 49.3 per cent, of the Fed’s total. That proportion is essentially unchanged from a month earlier.

State Street’s ETFs have garnered about $1.4bn of the Fed’s ETF investments.

FT : Huawei/US: incision time

Huawei/US: incision time
Sanctions leave America better placed to catch up on 5G market

Death by a thousand cuts is the sentence the US has pronounced on Huawei. Its latest sanctions against the Chinese telecoms equipment group, which it accuses of spying, include blacklisting 38 affiliates in 21 countries. Without vital supplies of foreign chips, Huawei appears doomed. It is not suffering alone.

Shares of suppliers including Taiwan’s MediaTek and Novatek and China’s Sunny Optical fell as much as 10 per cent on Tuesday. Of them, MediaTek stands to lose most. The chipmaker came to Huawei’s rescue after Taiwan Semiconductor Manufacturing Company cut off shipments.

MediaTek, which gets most of its sales in China, had expected Huawei orders to increase more than fourfold this year. Gross margins improved to 43 per cent in the second quarter. Shares were at historic highs of 37 times trailing earnings. The stock of Sunny Optical, which supplies cameras for Huawei smartphones, were trading at 36 times. A sharp reversal has already started for both companies.

The latest measures from Washington would severely limit Huawei’s production of smartphones and next-generation 5G network equipment. Together these produce 90 per cent of revenues.

Huawei had about Rmb160bn ($23bn) of inventory at the end of last year, equivalent to just a few months’ supply of some components. The most essential, specialised chips for its 5G telecom equipment, will run out as early next year.

With Huawei’s survival in doubt, many countries face losing access to equipment needed for installing new 5G networks and servicing legacy systems. Huawei is the cheapest option among rivals that include Nokia, Ericsson and Samsung. Critics say low prices helped the private business disseminate technology useful to spies.

Conspiracy theories cut both ways. China was on track to dominate the global 5G market. Not any more. The sanctions leave the US better placed to catch up.

The Trump administration is doing a ham-fisted job of dissecting Huawei out of the tech supply chain. When the surprise surgery hurts so many businesses and investors outside mainland China, it is a bad advertisement for the technological dominance the US seeks.

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • TLSA +21.5%, CDXC +13.6%, RXT +9.2%, DBX +5.7%, REDU +5.7%, CRMT +4.9%, LX +4.7%, AAP +4.3%, GOGL +4%, KNDI +3.9%, SE +3.6%, SDGR +3.2%, PEIX +3.1%, KRYS +2.9%, HD +2.7%, KL +2.5%, ARCE +2.5%, NEM +2%, AMCR +1.7%, KC +1.6%, LLY +1.3%, BIG +1.2%, EPC +1.2%, MCRB +1.1%, CCL +1%, AZN +1%, FN +1%
  • Gapping down:
    • PSTX -30.8%, API -5.1%, TBIO -3.8%, PEB -3.4%, CNK -3%, KDP -3%, ZI -2.8%, CALM -2.7%, AMH -2.5%, SPT -2.2%, MIDD -2.1%, FUTU -0.9%, BHP -0.7%, LUV -0.6%