Dow is slashing jobs and shutting down assets as it looks to make cost savings.
Photo:
Sean Proctor/Bloomberg News
Dow Inc.
DOW 0.40%
said it is laying off about 2,000 employees globally as job cuts that have so far been concentrated in the technology sector spread to other parts of the economy.
The Midland, Mich.-based chemicals company said it is targeting $1 billion in cost cuts this year as slowing economic growth and a drop-off in demand weigh on sales.
Dow said it is also shutting down certain assets and broadly looking to align spending with the macroeconomic environment. The company said it expects to book a charge of $550 million to $725 million in the first quarter for costs tied to the cost-cutting moves.
Chief Executive
Jim Fitterling
said the company is optimizing its cost structure amid macroeconomic uncertainties and “challenging energy markets, particularly in Europe.”
Shares of Dow rose less than 1% to close at $58.12 on Thursday.
Dow’s layoffs come after manufacturing conglomerate
3M Co.
said earlier this week that it was cutting 2,500 jobs globally, or about 2.6% of the company, as it confronts weakening demand.
The companies join a wave of technology companies that are cutting thousands of jobs as they recalibrate after growing rapidly at the start of the Covid-19 pandemic. On Wednesday,
International Business Machines Corp.
said it would cut 3,900 jobs, while software company
SAP SE
on Thursday said it would shed 3,000 positions.
Dow on Thursday also posted weaker-than-expected results for the fourth quarter. Revenue fell more than 17% to $11.86 billion, missing analysts’ estimates, with the company citing slowing economic growth around the world and destocking of inventory by customers.
The company’s fourth-quarter profit tumbled to 85 cents a share, down from $2.32 a share a year earlier. Adjusted earnings for the quarter missed estimates by a penny.
“While we see initial positive signs from moderating inflation in the U.S., improving outlook for energy in Europe, and reopening in China, we continue to be prudent and proactive,” Mr. Fitterling said.
Dow said it is targeting $500 million in structural improvements and another $500 million in operating cost reductions. The company said it would look to cut costs tied to purchasing raw materials, logistics and utilities.
The headline-grabbing expansion of layoffs beyond high-growth technology companies stands in contrast to historically low levels of jobless claims and news that companies such as
Chipotle Mexican Grill Inc.
and
Airbus SE
are adding jobs.
This week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces.
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Unlike
Microsoft Corp.
and Google parent
Alphabet Inc.,
which announced larger layoffs this month, these companies haven’t expanded their workforces dramatically during the pandemic. Instead, the leaders of these global giants said they were shrinking to adjust to slowing growth, or responding to weaker demand for their products.
“We are taking these actions to further optimize our cost structure,”
Jim Fitterling,
Dow’s chief executive, said in announcing the cuts, noting the company was navigating “macro uncertainties and challenging energy markets, particularly in Europe.”
The U.S. labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years. The Labor Department will release January employment data next week.
Economists from Capital Economics estimate a further slowdown to an increase of 150,000 jobs in January, which would push job growth below its 2019 monthly average, the year before pandemic began.
There is “mounting evidence of weakness below the surface,”
Andrew Hunter,
senior U.S. economist at Capital Economics wrote in a note to clients Thursday.
Last month, the unemployment rate was 3.5%, matching multidecade lows. Wage growth remained strong, but had cooled from earlier in 2022. The Federal Reserve, which has been raising interest rates to combat high inflation, is looking for signs of slower wage growth and easing demand for workers.
Many CEOs say companies are beginning to scrutinize hiring more closely.
Slower hiring has already lengthened the time it takes Americans to land a new job. In December, 826,000 unemployed workers had been out of a job for about 3½ to 6 months, up from 526,000 in April 2022, according to the Labor Department.
“Employers are hovering with their feet above the brake. They’re more cautious. They’re more precise in their hiring,” said
Jonas Prising,
chief executive of
ManpowerGroup Inc.,
a provider of temporary workers. “But they’ve not stopped hiring.”
Additional signs of a cooling economy emerged on Thursday when the Commerce Department said U.S. gross domestic product growth slowed to a 2.9% annual rate in the fourth quarter, down from a 3.2% annual rate in the third quarter.
Not all companies are in layoff mode.
Walmart Inc.,
the country’s biggest private employer, said this week it was raising its starting wages for hourly U.S. workers to $14 from $12, amid a still tight job market for front line workers. Chipotle Mexican Grill Inc. said Thursday it plans to hire 15,000 new employees to work in its restaurants, while plane maker Airbus SE said it is recruiting over 13,000 new staffers this year. Airbus said 9,000 of the new jobs would be based in Europe with the rest spread among the U.S., China and elsewhere.
General Electric Co.
, which slashed thousands of aerospace workers in 2020 and is currently laying off 2,000 workers from its wind turbine business, is hiring in other areas. “If you know any welders or machinists, send them my way,” Chief Executive
Larry Culp
said this week.
Annette Clayton,
CEO of North American operations at
Schneider Electric SE,
a Europe-headquartered energy-management and automation company, said the U.S. needs far more electricians to install electric-vehicle chargers and perform other tasks. “The shortage of electricians is very, very important for us,” she said.
Railroad CSX Corp. told investors on Wednesday that after sustained effort, it had reached its goal of about 7,000 train and engine employees around the beginning of the year, but plans to hire several hundred more people in those roles to serve as a cushion and to accommodate attrition that remains higher than the company would like.
Freeport-McMoRan Inc.
executives said Wednesday they expect U.S. labor shortages to continue to crimp production at the mining giant. The company has about 1,300 job openings in a U.S. workforce of about 10,000 to 12,000, and many of its domestic workers are new and need training and experience to match prior expertise, President
Kathleen Quirk
told analysts.
“We could have in 2022 produced more if we were fully staffed, and I believe that is the case again this year,” Ms. Quirk said.
The latest layoffs are modest relative to the size of these companies. For example, IBM’s plan to eliminate about 3,900 roles would amount to a 1.4% reduction in its head count of 280,000, according to its latest annual report.
As interest rates rise and companies tighten their belts, white-collar workers have taken the brunt of layoffs and job cuts, breaking with the usual pattern leading into a downturn. WSJ explains why many professionals are getting the pink slip first. Illustration: Adele Morgan
The planned 3,000 job cuts at SAP affect about 2.5% of the business-software maker’s global workforce. Finance chief
Luka Mucic
said the job cuts would be spread across the company’s geographic footprint, with most of them happening outside its home base in Germany. “The purpose is to further focus on strategic growth areas,” Mr. Mucic said. The company employed around 111,015 people on average last year.
Chemicals giant Dow said on Thursday it was trimming about 2,000 employees. The Midland, Mich., company said it currently employs about 37,800 people. Executives said they were targeting $1 billion in cost cuts this year and shutting down some assets to align spending with the macroeconomic environment.
Manufacturer
3M Co.
, which had about 95,000 employees at the end of 2021, cited weakening consumer demand when it announced this week plans to eliminate 2,500 manufacturing jobs. The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said it expects lower sales and profit in 2023.
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“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets,” 3M Chief Executive
Mike Roman
said during an earnings conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”
Hasbro Inc.
on Thursday said it would eliminate 15% of its workforce, or about 1,000 jobs, after the toy maker’s consumer-products business underperformed in the fourth quarter.
Some companies still hiring now say the job cuts across the economy are making it easier to find qualified candidates. “We’ve got the pick of the litter,” said
Bill McDermott,
CEO of business-software provider
ServiceNow Inc.
“We have so many applicants.”
At
Honeywell International Inc.,
CEO
Darius Adamczyk
said the job market remains competitive. With the layoffs in technology, though, Mr. Adamczyk said he anticipated that the labor market would likely soften, potentially also expanding the applicants Honeywell could attract.
“We’re probably going to be even more selective than we were before because we’re going to have a broader pool to draw from,” he said.
Across the corporate sphere, many of the layoffs happening now are still small relative to the size of the organizations, said
Denis Machuel,
CEO of global staffing firm Adecco Group AG.
“I would qualify it more as a recalibration of the workforce than deep cuts,” Mr. Machuel said. “They are adjusting, but they are not cutting the muscle.”
Write to Chip Cutter at chip.cutter@wsj.com and Theo Francis at theo.francis@wsj.com
‘s team has been exploring using as much as $3 billion in potential new fundraising to help repay some of the $13 billion in debt tacked onto Twitter Inc. for his buyout of the company, people familiar with the matter said.
In December, Mr. Musk’s representatives discussed selling up to $3 billion in new Twitter shares, people familiar with the matter said.
Mr. Musk’s team has said to people familiar with the finances of the company that an equity raise, if successful, could be used to pay down an unsecured portion of the debt that carries the highest interest rate within the $13 billion Twitter loan package, people familiar with the matter said.
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Paying off the debt would provide welcome financial relief to Twitter, which has struggled to keep advertisers on the platform. In November, Mr. Musk said Twitter had suffered “a massive drop in revenue” and was losing over $4 million a day. He also said that month that bankruptcy was a possibility for the company, although Mr. Musk later shared more upbeat prospects for the company, saying he expects Twitter to be roughly cash-flow break-even in 2023 as he has slashed some 6,000 jobs.
The state of the fundraising talks couldn’t be learned. In mid-December, Mr. Musk’s team reached out to new and existing backers about raising new equity capital at the original Twitter takeover price.
Mr. Musk’s advisers had hoped to reach a deal to raise cash at the initial takeover price by the end of 2022, according to an email sent to prospective investors at the time. However, some prospective backers said they balked at the terms, given concerns about Twitter’s financial performance. The Musk team didn’t specify a funding amount or purpose for the fundraise in the email.
Fidelity, one of the co-investors that backed Mr. Musk’s takeover of Twitter, wrote down its stake in Twitter by 56% in November, public filings show, suggesting Mr. Musk would face an uphill battle raising funds at the original valuation from outside investors. The banks holding the $13 billion in debt that backed his takeover of the company haven’t yet received any formal notice of any repayments, people familiar with the matter said.
Layoffs Across the Tech Industry
Representatives for Mr. Musk didn’t respond to requests for comment.
Twitter’s unsecured bridge loans, which total $3 billion, are the most expensive portion of the $13 billion debt package Mr. Musk incurred as part of his $44 billion acquisition of the social-media company. They carry an interest rate of 10% plus the secured overnight financing rate, a benchmark interest rate that has shot up in recent months and currently sits at 4.3%.
With every quarter that passes without Twitter refinancing the debt, the interest rate goes up by an additional 0.50 percentage point, according to regulatory filings. Twitter’s first quarterly interest payment is due at the end of the month, the filings show.
Twitter’s annual interest burden has increased by over $100 million since he announced the takeover deal last April, as the overnight rate has increased. At the time of the announcement, the overnight rate was 0.3%.
Elon Musk has said that Twitter is losing over than $4 million a day.
Photo:
Marlena Sloss/Bloomberg News
Twitter’s total interest expense has been estimated to be roughly $1.25 billion a year, according to a December analysis by
Jeffrey Davies,
a former credit analyst and founder of data provider Enersection LLC. By that estimate, Twitter is incurring roughly $3.4 million every day in interest-payment obligations.
On Dec. 13, Mr. Musk tweeted “beware of debt in turbulent macroeconomic conditions, especially when Fed keeps raising rates.”
Repaying the unsecured bridge loans would leave Twitter with a debt burden that has much more manageable interest rates. Twitter’s $6.5 billion in term loans and $3 billion in secured bridge loans carry an annual interest burden of 4.75% and 6.75%, respectively, plus the overnight rate, according to public filings.
Tesla CEO Elon Musk is set to testify in a federal trial over tweets from 2018 in which he floated the possibility of taking the company private. WSJ’s Rebecca Elliott explains what to know about the trial. Illustration: Adele Morgan
A potential deal would also provide a degree of relief for the banks that backed Mr. Musk’s takeover of the social-media company and that intended to sell the debt to third-party investors but changed course after deteriorating market conditions sank Wall Street’s appetite for exposure to risky bonds and loans.
The $13 billion of Twitter debt on bank balance sheets, one of the biggest “hung deals” of all time, has helped contribute to a drag in the number of mergers and acquisitions as banks’ firepower to back deals is tied up.
Morgan Stanley,
the lead bank on Twitter’s debt deal, has approximately $807 million in unsecured bridge debt on its balance sheet, while
Bank of America Corp.
,
Barclays
PLC and MUFG Bank Ltd. each have approximately $623 million of exposure, according to public documents and calculations by The Wall Street Journal.
Each of the four banks have more than $2 billion in other Twitter debt commitments on their balance sheets separate from the unsecured bridge facility, including term loans and other secured debt, the documents show.
Representatives of those banks declined to comment.
—Corrie Driebusch, Alexa Corse and Laura Cooper contributed to this article.
Write to Berber Jin at berber.jin@wsj.com and Alexander Saeedy at alexander.saeedy@wsj.com
Demand for Windows operating-system software has fallen with sales of the personal computers that use it.
Photo:
STEVE MARCUS/REUTERS
Microsoft’s
MSFT -0.22%
latest results are like a blast from the past—and not in a good way.
The software titan has come a long way from the days when it depended on its ubiquitous Windows operating system. But it is still a lucrative business—enough so that a slump in personal computer sales can weigh on Microsoft’s financial results. And a slump this is; IDC reported earlier this month that PC unit sales slid 28% year over year during the December quarter—the biggest drop tracked by the market research firm’s numbers going at least back to 2015.
Not surprisingly then, Microsoft said Tuesday in its fiscal second quarter results report that Windows revenue slid 27% year over year to about $4.9 billion for the same period. That is less than 10% of the company’s revenue now, but it is a profitable contributor given that much comes from PC makers simply paying Microsoft to bundle Windows onto their machines. Hence, operating profits in Microsoft’s More Personal Computing segment that includes the Windows business slid 48% year over year. That played a big part in the company’s total operating profit for the quarter coming about 3% shy of Wall Street’s forecasts, at $20.4 billion.
Investors have largely learned to look past Windows these days in favor of Microsoft’s far more important cloud business. But as Microsoft’s last report three months ago proved, even that isn’t immune to the slumping global economy. Azure, the cloud computing service that competes squarely with
Amazon
‘s AWS, grew revenue by 31% year over year. That slightly exceeded Wall Street’s forecasts, but it was still a record-low pace for the business. Things also aren’t looking like they will get much better anytime soon. Chief Financial Officer
Amy Hood
noted that cloud growth moderated, “particularly in December,” and projected revenue growth of 14% to 15% year over year for the company’s Intelligent Cloud segment during the March quarter—a deceleration of 11 percentage points from the same period last year.
Investors were at least better-prepared for bad news this time. Microsoft’s share price slipped 1% in after-hours trading following the results and forecast compared with the 8% drop sparked by its previous quarterly report. As the first major tech player to post results for the December quarter, Microsoft also casts a large shadow. It has a highly diversified business that spans corporate and consumer software, cloud services, videogame systems and even online advertising. The company even noted that the recent spate of big tech layoffs will hurt its LinkedIn business, which is a major corporate recruiting tool in the tech sector. Those layoffs include 10,000 positions to be cut from Microsoft’s own payroll–another sign that even a cloud titan can’t keep floating above the economy.
recorded its slowest sales growth in more than six years last quarter as demand for its software and cloud services cooled on concerns about the health of the global economy.
The Redmond, Wash., company’s revenue expanded 2% in the three months through Dec. 31 from a year earlier to $52.7 billion. Its net income fell 12% to $16.4 billion. That is the company’s lowest revenue growth since the quarter that ended in June 2016.
“Organizations are exercising caution given the macroeconomic uncertainty,” Microsoft Chief Executive
Satya Nadella
said on an earnings call Tuesday.
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The software company is the first of the tech titans to announce earnings for the quarter. It and others have recently announced layoffs of thousands of people to reflect a sudden lowering of expectations about future demand. Last week Microsoft announced plans to eliminate 10,000 jobs in response to the global economic slowdown, the company’s largest layoffs in more than eight years.
Microsoft said it expects around $51 billion in revenue this quarter, a 3% increase from the same quarter last year. Its shares, which had initially risen on the results in after-hours trading, gave up their gains after the company announced its guidance.
Microsoft’s Intelligent Cloud business, which includes its Azure cloud-computing business, grew 18% to $21.51 billion. Azure grew 31%, which was slightly above some analysts’ expectations.
Microsoft is one of the top companies in cloud-computing services that have boomed during the pandemic. In the middle of the health crisis, Microsoft reported several quarters in a row of 50% or more year-over-year sales growth for its cloud-computing platform, the world’s No. 2 behind
Amazon.com Inc.’s
cloud. While Azure and Microsoft’s other cloud services remain the main engine for the company’s growth, demand isn’t what it was even a year ago as customers try to manage their cloud computing costs.
The company has been betting the next wave of demand for cloud services could come from more companies and people using artificial intelligence. It has been deepening its relationship with the AI startup OpenAI, the company behind the image generator Dall-E 2 and the technology behind ChatGPT, which can answer questions and write essays and poems.
“The age of AI is upon us and Microsoft is powering it,” Mr. Nadella said Tuesday.
Microsoft had been sheltered from much of the recent downturn because it gets most of its sales from companies rather than advertising and consumer spending. However, it isn’t immune to the end of pandemic trends that turbocharged demand, hiring and investment as well as economic headwinds such as high interest rates.
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Demand for Windows operating-system software has fallen with sales of the personal computers that use it. Households, companies and governments that bought computers during the pandemic are scaling back.
That was reflected in Microsoft’s personal computing segment revenue, which fell 19% to $14.24 billion. Sales related to its Windows operating system declined 39% and sales of devices like its Surface tablets fell 39%.
Worldwide PC shipments were down 29% in the fourth quarter last year compared with the previous year, according to preliminary data from the research firm Gartner Inc. Financial analysts don’t expect that trend to improve until 2024.
Photos: Tech Layoffs Across the Industry
Microsoft said its videogaming revenue fell 12% during the quarter. Videogames and Microsoft’s Xbox videogame consoles are increasingly important businesses for the company. The videogaming industry is going through a slowdown as pandemic-related restrictions ease and people spend less time at home.
The company made a huge bet on the sector a year ago with its $75 billion plan to acquire videogame giant
Activision Blizzard Inc.
Last month the Federal Trade Commission sued to block the acquisition, saying the deal would give Microsoft the ability to control how consumers beyond users of its own Xbox consoles and subscription services access Activision’s games. Microsoft then filed a rebuttal saying the deal won’t hurt competition in the videogaming industry. It could take months before it is decided in the U.S. and elsewhere whether the deal can go through.
After the close of regular stock trading on Tuesday, Microsoft shares had slipped around 18% over the previous year, broadly in line with the tech-heavy Nasdaq Composite Index.
The Justice Department is seeking the breakup of Google’s business brokering digital advertising across much of the internet, a major expansion of the legal challenges the company faces to its business in the U.S. and abroad.
A lawsuit filed Tuesday, the Justice Department’s second against the
Alphabet Inc.
GOOG -1.98%
unit following one filed in 2020, alleges that Google abuses its role as one of the largest brokers, suppliers and online auctioneers of ads placed on websites and mobile applications. The filing promises a protracted court battle with wide-ranging implications for the digital-advertising industry.
Filed in federal court in Virginia, the case alleges that Google abuses monopoly power in the ad-tech industry, hurting web publishers and advertisers that try to use competing products. Eight states, including California and New York, joined the Justice Department’s lawsuit.
The lawsuit asks the court to unwind Google’s “anticompetitive acquisitions,” such as its 2008 purchase of ad-serving company DoubleClick, and calls for the divestiture of its ad exchange.
“For 15 years Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics, insulate itself from competition, and forced advertisers and publishers to use its tools,” Attorney General
Merrick Garland
said at a press conference Tuesday. “Google has engaged in exclusionary conduct that has severely weakened if not destroyed competition in the ad-tech industry.”
Attorney General Merrick Garland said Tuesday that the digital-advertising industry was harmed by Google’s allegedly monopolistic conduct.
Photo:
Al Drago/Bloomberg News
A Google spokesman said the lawsuit “attempts to pick winners and losers in the highly competitive advertising technology sector.”
“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” the spokesman said.
By calling for specific divestitures from Google’s ad-tech business, the Justice Department lawsuit went further in seeking a breakup than some antitrust experts had expected. Shares of Alphabet fell by about 2% in trading on Tuesday.
Though largely invisible to internet users, the ad-tech tools controlled by Google facilitate much of the buying and selling of digital ads that helps fund online publishers. Google’s business includes a tool publishers can use to offer ad space, a product for advertisers to buy those slots and an exchange that automatically links bidders with webpages as they are being loaded for individual users.
Big tech companies such as Google are under a barrage from lawmakers and regulators across multiple continents who have targeted the companies’ dominance in online markets. Justice Department officials also are investigating
Apple Inc.
The Federal Trade Commission has sued
Meta Platforms Inc.’s
Facebook unit over antitrust allegations and
Microsoft Corp.
to block its planned $75 billion acquisition of
Activision Blizzard Inc.
President Biden recently urged lawmakers from both parties to unite behind legislation seeking to rein in tech giants. The European Union also has opened cases looking at alleged anticompetitive conduct by Google, Meta and other companies.
The Justice Department’s 2020 lawsuit against Google targeted its position in online search markets, including an agreement to make Google search the default in Apple’s Safari web browser. Google is fighting the case, which is expected to go to trial this year.
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Alphabet gets about 80% of its business from advertising. The Justice Department’s new suit targets the subset of that ad business that brokers the buying and selling of ads on other websites and apps. Google reported $31.7 billion in revenue in 2021 from that ad-brokering activity, or about 12% of Alphabet’s total revenue. Google distributes about 70% of that revenue to web publishers and developers.
Last year, Google offered to split off parts of its ad-tech business into a separate company under the Alphabet umbrella to fend off the most recent Justice Department investigation. DOJ officials rejected the offer and decided to pursue the lawsuit instead.
For years, Google has faced allegations from advertising- and media-industry executives, lawmakers and regulators that its presence at multiple points of the online ad-buying process harms publishers and gives it an unfair advantage over rivals. Google also operates the most popular search engine and the largest online video-streaming site, YouTube, giving rise to allegations it has tilted the market in its own favor.
Rivals say that Google’s power in digital advertising stems from a series of acquisitions Google used to build its ad-tech business, beginning with the company’s $3.1 billion purchase of DoubleClick. The FTC approved the merger in a controversial decision. Google went on to purchase a host of other startups including the mobile-advertising company AdMob.
“Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” the complaint read.
Google has said it has no plans to sell or exit the ad-tech business. It has also strongly contested claims in a lawsuit filed by state attorneys general, led by Texas, containing allegations similar to the Justice Department complaint. A federal judge denied the bulk of Google’s motion to dismiss the case last year, allowing it to proceed to the discovery stage and ultimately toward trial.
Google’s Android operating system is the most popular in the world—you can find Android code on everything from Peloton bikes to kitchen appliances and even NASA satellites. WSJ’s Dalvin Brown explains why it is the world’s most-used OS. Illustration: Rami Abukalam
Any divestiture of parts of Google’s ad-tech business would cause big ripple effects across the online advertising industry, which has recently shown signs of weakness as consumers dial back purchases in response to worsening economic conditions.
Breaking off parts of Google’s ad-tech business from the rest of the company could take years of litigation to resolve. Depending on the outcome of the case, ad-tech executives have said the results could range from a higher share of ad dollars flowing to publishers to lower overall spending because digital ads would be less efficient without Google brokering them.
The 149-page complaint makes detailed allegations about the internal workings of Google’s ad-tech operations. The suit alleges, for instance, that Google used anticompetitive tactics to build up the market share of its own ad server, which issues requests for advertisements on behalf of websites, and then used that market power to effectively push publishers into sending their ad inventory only to Google’s in-house ad exchange, AdX.
The Justice Department argues, in part, that this conduct locked out rival ad-tech providers, increasing prices for advertisers and costs of publishers.
“Google keeps at least thirty 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 lawsuit also alleges that Google executives worked to kill a rival online-bidding technology called “header bidding,” which the lawsuit says the company referred to internally as an “existential threat.” As part of a plan dubbed Project Poirot, the company allegedly changed its own ad-buying tools to underbid on behalf of advertisers when they turned to outside ad exchanges that used header bidding, so those rivals would lose more auctions and “dry out,” the complaint says.
At one point, Google also approached
Amazon.com Inc.,
to ask “what it would take for Amazon to stop investing in its header bidding product,” the complaint alleges, adding that Amazon rebuffed those requests.
“Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves,” the complaint read.
The Justice Department case overlaps in some ways with the late 2020 lawsuit from the group of U.S. states led by Texas.
In Tuesday’s complaint, the Justice Department quotes some of the same internal communications as the Texas-led lawsuit, including how one Google executive compared the company’s control over ad-tech to the financial sector: “The analogy would be if Goldman or Citibank owned the NYSE,” referring to the New York Stock Exchange.
The case also shares similarities with an investigation that the EU’s top antitrust enforcer, the European Commission, opened in 2021, as well as one by the U.K.’s Competition and Markets Authority. Those probes are exploring allegations that Google favors its own ad-buying tools in the advertising auctions it runs, but also look at other elements of Google’s ad-tech business. The EU, for instance, is also looking at Google’s alleged exclusion of competitors from brokering ad-buys on its video site YouTube.
Mr. Garland said Tuesday that the Justice Department filed its own lawsuit because the federal government was harmed by Google’s allegedly monopolistic conduct. Federal agencies have since 2019 spent over $100 million on display ads, the complaint says. The government paid inflated fees and was harmed by manipulated advertising prices because of Google’s anticompetitive conduct, the lawsuit alleges.
Microsoft is deepening its partnership with OpenAI, the company behind ChatGPT and Dall-E. That has investors and analysts speculating whether Microsoft could challenge Google’s dominance in search. WSJ Heard on the Street columnist Dan Gallagher joins host Zoe Thomas to discuss how AI could affect search and at what cost.
Jonathan Kanter,
the assistant attorney general for antitrust, said while there are similarities with other lawsuits against Google, the Justice Department’s complaint is based on its own investigation that yielded “meticulous detail” about Google’s ad-tech business.
“We detail many facts, many episodes that in the individual and in the aggregate have maintained numerous monopolies,” Mr. Kanter said.
Google has attempted to settle the claims against its ad-tech business. In addition to offering to split off parts of its ad-tech business to avoid the Justice Department suit, the company last year discussed with the EU an offer to allow competitors to broker the sale of ads directly on the video service.
In 2021, the company agreed to give U.K. antitrust regulators effective veto power over elements of its plans to remove a technology called third-party cookies from its Chrome browser to settle an investigation there into the plan.
In France, Google agreed to pay a fine of 220 million euros, equivalent to about $239 million, and to improve data access to competing ad-tech companies, to not use its data in ways rivals couldn’t reproduce to settle a similar antitrust investigation in the country.
—Keach Hagey contributed to this article.
Write to Miles Kruppa at miles.kruppa@wsj.com and Sam Schechner at Sam.Schechner@wsj.com
said it is cutting 2,500 manufacturing jobs globally as the company confronts turbulence in overseas markets and weakening consumer demand.
The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said Tuesday that it expects lower sales and profit in 2023 after demand weakened significantly in late 2022, pulling down quarterly performance.
The St. Paul, Minn., company forecast sales this year to slip from last year’s level with weak demand for consumer products and electronic items, particularly smartphones, tablets and televisions, for which 3M provides components. Fourth-quarter sales for 3M’s consumer business dropped nearly 6% from the same period a year earlier.
“Consumers sharply cut discretionary spending and retailers adjusted their inventory levels,” 3M Chief Executive
Mike Roman
said during a conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”
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3M shares were down 5.2% at $116.25 Tuesday afternoon, while major U.S. stock indexes were little changed.
The company said demand for its disposable face masks is receding, as healthcare providers spend less on Covid-19 measures, and mask demand returns to prepandemic levels. 3M said it expects mask sales to decline between $450 million and $550 million this year from 2022.
3M executives said the spread of Covid infections in China is weighing on sales there, and sporadic plant closings are interrupting industrial production. China also is reducing production of consumer electronics because of weakening consumer demand, they said, and 3M’s exit from its business in Russia last year will also contribute to lower sales this year.
The 2,500 layoffs represent roughly 2.6% of the company’s workforce, which a regulatory filing said was about 95,000 at the end of 2021. Mr. Roman declined to specify where the job cuts will take place, or whether the company might make further reductions as it reviews its supply chains and prepares to spin off its healthcare unit.
“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets and we focus on driving improvements,” he said.
The company said it would take a pretax restructuring charge in the first quarter of $75 million to $100 million.
Mr. Roman said the job cuts were unrelated to litigation facing the company. 3M is defending against allegations that the so-called forever chemicals it has produced for decades have contaminated soil and drinking water. It is also involved in litigation over foam earplugs its subsidiary Aearo Technologies LLC sold to the military. About 230,000 veterans have filed complaints in federal court alleging the earplugs failed to protect them from service-related hearing loss.
3M has said the earplugs were effective when military personnel were given sufficient training on how to use them. In litigation over firefighting foam that incorporated forms of forever chemicals, 3M is expected to argue that the products were produced to U.S. military specifications, granting the company legal protection as a government contractor.
In both cases, Mr. Roman said the company is focused on finding a way forward.
3M said the strong value of the U.S. dollar continues to erode sales from other countries when foreign currencies are converted to dollars.
The company forecast that sales for the quarter ending March 31 will be down 10% to 15% from the same period last year. For the full year, the company projects sales to fall between 6% and 2%, and expects adjusted earnings of $8.50 a share to $9 a share. The company earned $10.10 a share in 2022, excluding special charges, and analysts surveyed by FactSet were expecting the company to earn $10.22 in 2023.
For the fourth quarter, the company posted a profit of $541 million, or 98 cents a share, compared with $1.34 billion, or $2.31 a share, a year earlier.
Stripping out one-time items, including costs tied to exiting the company’s operations making forever chemicals, adjusted earnings came to $2.28 a share. Analysts were looking for adjusted earnings of $2.36 a share, according to FactSet.
Sales fell 6% to $8.08 billion for the quarter, slightly topping expectations of analysts surveyed by FactSet.
Mr. Roman said there were promising signs for some of 3M’s businesses, including in biopharma processing, home improvement and automotive electrification, the last of which he said grew 30% in 2022 to become a roughly $500 million business.
“There’s more to it than consumer electronics, but certainly the consumer-electronics dynamics are the story of the day,” he said.
Write to John Keilman at john.keilman@wsj.com and Bob Tita at robert.tita@wsj.com
said Monday it is making a multiyear, multibillion-dollar investment in OpenAI, substantially bolstering its relationship with the startup behind the viral ChatGPT chatbot as the software giant looks to expand the use of artificial intelligence in its products.
Microsoft said the latest partnership builds upon the company’s 2019 and 2021 investments in OpenAI.
The companies didn’t disclose the financial terms of the partnership. Microsoft had been discussing investing as much as $10 billion in OpenAI, according to people familiar with the matter. A representative for Microsoft declined to comment on the final number.
OpenAI was in talks this month to sell existing shares in a tender offer that would value the company at roughly $29 billion, The Wall Street Journal reported, making it one of the most valuable U.S. startups on paper despite generating little revenue.
The investment shows the tremendous resources Microsoft is devoting toward incorporating artificial-intelligence software into its suite of products, ranging from its design app Microsoft Designer to search app Bing. It also will help bankroll the computing power OpenAI needs to run its various products on Microsoft’s Azure cloud platform.
At a WSJ panel during the 2023 World Economic Forum, Microsoft CEO Satya Nadella discussed the company expanding access to OpenAI tools and the growing capabilities of ChatGPT.
The strengthening relationship with OpenAI has bolstered Microsoft’s standing in a race with other big tech companies that also have been pouring resources into artificial intelligence to enhance existing products and develop new uses for businesses and consumers.
Alphabet Inc.’s
Google, in particular, has invested heavily in AI and infused the technology into its operations in various ways, from improving navigation recommendations in its maps tools to enhancing image recognition for photos to enabling wording suggestions in Gmail.
Google has its own sophisticated chatbot technology, known as LaMDA, which gained notice last year when one of the company’s engineers claimed the bot was sentient, a claim Google and outside experts dismissed. Google, though, hasn’t made that technology widely available like OpenAI did with ChatGPT, whose ability to churn out human-like, sophisticated responses to all manner of linguistic prompts has captured public attention.
Microsoft Chief Executive
Satya Nadella
said last week his company plans to incorporate artificial-intelligence tools into all of its products and make them available as platforms for other businesses to build on. Mr. Nadella said last week at a Wall Street Journal panel at the World Economic Forum’s annual event in Davos, Switzerland. Mr. Nadella said that his company would move quickly to commercialize tools from OpenAI.
Analysts have said that OpenAI’s technology could one day threaten Google’s stranglehold on internet search, by providing quick, direct responses to queries rather than lists of links. Others have pointed out that the chatbot technology still suffers from inaccuracies and isn’t well-suited to certain types of queries.
“The viral launch of ChatGPT has caused some investors to question whether this poses a new disruption threat to Google Search,” Morgan Stanley analysts wrote in a note last month. “While we believe the near-term risk is limited—we believe the use case of search (and paid search) is different than AI-driven content creation—we are not dismissive of threats from new, unique consumer offerings.”
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OpenAI, led by technology investor
Sam Altman,
began as a nonprofit in 2015 with $1 billion in pledges from
Tesla Inc.
CEO
Elon Musk,
LinkedIn co-founder
Reid Hoffman
and other backers. Its goal has long been to develop technology that can achieve what has been a holy grail for AI researchers: artificial general intelligence, where machines are able to learn and understand anything humans can.
Microsoft first invested in OpenAI in 2019, giving the company $1 billion to enhance its Azure cloud-computing platform. That gave OpenAI the computing resources it needed to train and improve its artificial-intelligence algorithms and led to a series of breakthroughs.
OpenAI has released a new suite of products in recent months that industry observers say represent a significant step toward that goal and could pave the way for a host of new AI-driven consumer applications.
In the fall, it launched Dall-E 2, a project that allowed users to generate art from strings of text, and then made ChatGPT public on Nov. 30. ChatGPT has become something of a sensation among the tech community given its ability to deliver immediate answers to questions ranging from “Who was George Washington Carver?” to “Write a movie script of a taco fighting a hot dog on the beach.”
Mr. Altman said the company’s tools could transform technology similar to the invention of the smartphone and tackle broader scientific challenges.
“They are incredibly embryonic right now, but as they develop, the creativity boost and new superpowers we get—none of us will want to go back,” Mr. Altman said in an interview in December.
Mr. Altman’s decision to create a for-profit arm of OpenAI garnered criticism from some in the artificial-intelligence community who said it represented a move away from OpenAI’s roots as a research lab that sought to benefit humanity over shareholders. OpenAI said it would cap profit at the company, diverting the remainder to the nonprofit group.
—Will Feuer contributed to this article.
Write to Berber Jin at berber.jin@wsj.com and Miles Kruppa at miles.kruppa@wsj.com
Corrections & Amplifications The design app Microsoft Designer was misidentified as Microsoft Design in an earlier version of this article. (Corrected on Jan. 23)
That’s the takeaway from a major study published this month in JAMA Internal Medicine. Scientists led by a team from the Harvard T.H. Chan School of Public Health found that people who most closely adhered to at least one of four healthy eating patterns were less likely to die from cardiovascular disease, cancer or respiratory disease compared with people who did not adhere as closely to these diets. They were also less likely to die of any cause.
“These findings support the recommendations of Dietary Guidelines for Americans that multiple healthy eating patterns can be adapted to individual food traditions and preferences,” the researchers concluded, adding that the results were consistent across different racial and ethnic groups. The eating habits and mortality rates of more than 75,000 women from 1984 to 2020 over 44,000 men from 1986 to 2020 were included in the study.
The four diets studied were the Healthy Eating Index, the Alternate Mediterranean Diet, the Healthful Plant-Based Diet Index and the Alternate Healthy Eating Index. All four share some components, including whole grains, fruits, vegetables, nuts and legumes. But there are also differences: For instance, the Alternate Mediterranean Diet encourages fish consumption, and the Healthful Plant-Based Diet Index discourages eating meat.
The Alternate Mediterranean Diet is adapted from the original Mediterranean Diet, which includes olive oil (which is rich in omega-3 fatty acids), fruits, nuts, cereals, vegetables, legumes and fish. It allows for moderate consumption of alcohol and dairy products but low consumption of sweets and only the occasional serving of red meat. The alternate version, meanwhile, cuts out dairy entirely, only includes whole grains and uses the same alcohol-intake guideline for men and women, JAMA says.
The world’s ‘best diets’ overlap with study results
The Mediterranean Diet consistently ranks No. 1 in the U.S. News and World Report’s Best Diets ranking, which looks at seven criteria: short-term weight loss, long-term weight loss, effectiveness in preventing cardiovascular disease, effectiveness in preventing diabetes, ease of compliance, nutritional completeness and health risks. The 2023 list ranks the top three diets as the Mediterranean Diet, the DASH Diet and the Flexitarian Diet.
The DASH (Dietary Approaches to Stop Hypertension) Diet recommends fruits, vegetables, nuts, whole grains, poultry, fish and low-fat dairy products and restricts salt, red meat, sweets and sugar-sweetened beverages. The Flexitarian Diet is similar to the other diets in that it’s mainly vegetarian, but it allows the occasional serving of meat or fish. All three diets are associated with improved metabolic health, lower blood pressure and reduced risk of Type 2 diabetes.
Frank Hu, a professor of nutrition and epidemiology at the Harvard School of Public Health and co-author of the latest study, said it’s critical to examine the associations between the U.S. government’s Dietary Guidelines for Americans and long-term health. “Our findings will be valuable for the 2025-2030 Dietary Guidelines Advisory Committee, which is being formed to evaluate current evidence surrounding different eating patterns and health outcomes,” he said.
Reducing salt intake is a good place to start. In 2021, the Food and Drug Administration issued new guidance for restaurants and food manufacturers to, over a two-and-a-half-year period, voluntarily reduce the amount of sodium in their food to help consumers stay under a limit of 3,000 milligrams per day — still higher than the recommended daily allowance. Americans consume around 3,400 milligrams of sodium per day, on average, but the Centers for Disease Control and Prevention recommends that people consume less than 2,300 milligrams each day.
Related: Eating 400 calories a day from these foods could raise your dementia risk by over 20%
Bonds and stocks may be getting back to their usual relationship, a plus for investors with a traditional mix of assets in their portfolios amid fears that the U.S. faces a recession this year.
“The bottom line is the correlation now has shifted back to a more traditional one, where stocks and bonds do not necessarily move together,” said Kathy Jones, chief fixed-income strategist at Charles Schwab, in a phone interview. “It is good for the 60-40 portfolio because the point of that is to have diversification.”
That classic portfolio, consisting of 60% stocks and 40% bonds, was hammered in 2022. It’s unusual for both stocks and bonds to tank so precipitously, but they did last year as the Federal Reserve rapidly raised interest rates in an effort to tame surging inflation in the U.S.
While inflation remains high, it has shown signs of easing, raising investors’ hopes that the Fed could slow its aggressive pace of monetary tightening. And with the bulk of interest rate hikes potentially over, bonds seem to be returning to their role as safe havens for investors fearing gloom.
“Slower growth, less inflation, that’s good for bonds,” said Jones, pointing to economic data released in the past week that reflected those trends.
The Commerce Department said Jan. 18 that retail sales in the U.S. slid a sharp 1.1% in December, while the Federal Reserve released data that same day showing U.S. industrial production fell more than expected in December. Also on Jan. 18, the U.S. Bureau of Labor Statistics said the producer-price index, a gauge of wholesale inflation, dropped last month.
Stock prices fell sharply that day amid fears of a slowing economy, but Treasury bonds rallied as investors sought safe-haven assets.
“That negative correlation between the returns from Treasuries and U.S. equities stands in stark contrast to the strong positive correlation that prevailed over most of 2022,” said Oliver Allen, a senior markets economist at Capital Economics, in a Jan. 19 note. The “shift in the U.S. stock-bond correlation might be here to stay.”
A chart in his note illustrates that monthly returns from U.S. stocks and 10-year Treasury bonds were often negatively correlated over the past two decades, with 2022’s strong positive correlation being relatively unusual over that time frame.
CAPITAL ECONOMICS NOTE DATED JAN. 19, 2023
“The retreat in inflation has much further to run,” while the U.S. economy may be “taking a turn for the worse,” Allen said. “That informs our view that Treasuries will eke out further gains over the coming months even as U.S. equities struggle.”
The iShares 20+ Year Treasury Bond ETF
TLT,
-1.62%
has climbed 6.7% this year through Friday, compared with a gain of 3.5% for the S&P 500
SPX,
+1.89%,
according to FactSet data. The iShares 10-20 Year Treasury Bond ETF
TLH,
-1.40%
rose 5.7% over the same period.
Charles Schwab has “a pretty positive view of the fixed-income markets now,” even after the bond market’s recent rally, according to Jones. “You can lock in an attractive yield for a number of years with very low risk,” she said. “That’s something that has been missing for a decade.”
Jones said she likes U.S. Treasurys, investment-grade corporate bonds, and investment-grade municipal bonds for people in high tax brackets.
Read: Vanguard expects municipal bond ‘renaissance’ as investors should ‘salivate’ at higher yields
Keith Lerner, co-chief investment officer at Truist Advisory Services, is overweight fixed income relative to stocks as recession risks are elevated.
“Keep it simple, stick to high-quality” assets such as U.S. government securities, he said in a phone interview. Investors start “gravitating” toward longer-term Treasurys when they have concerns about the health of the economy, he said.
The bond market has signaled concerns for months about a potential economic contraction, with the inversion of the U.S. Treasury market’s yield curve. That’s when short-term rates are above longer-term yields, which historically has been viewed as a warning sign that the U.S. may be heading for a recession.
But more recently, two-year Treasury yields
TMUBMUSD02Y,
4.193%
caught the attention of Charles Schwab’s Jones, as they moved below the Federal Reserve’s benchmark interest rate. Typically, “you only see the two-year yield go under the fed funds rate when you’re going into a recession,” she said.
The yield on the two-year Treasury note fell 5.7 basis points over the past week to 4.181% on Friday, in a third straight weekly decline, according to Dow Jones Market Data. That compares with an effective federal funds rate of 4.33%, in the Fed’s targeted range of 4.25% to 4.5%.
Two-year Treasury yields peaked more than two months ago, at around 4.7% in November, “and have been trending down since,” said Nicholas Colas, co-founder of DataTrek Research, in a note emailed Jan. 19. “This further confirms that markets strongly believe the Fed will be done raising rates very shortly.”
As for longer-term rates, the yield on the 10-year Treasury note
TMUBMUSD10Y,
3.479%
ended Friday at 3.483%, also falling for three straight weeks, according to Dow Jones Market data. Bond yields and prices move in opposite directions.
‘Bad sign for stocks’
Meanwhile, long-dated Treasuries maturing in more than 20 years have “just rallied by more than 2 standard deviations over the last 50 days,” Colas said in the DataTrek note. “The last time this happened was early 2020, going into the Pandemic Recession.”
Long-term Treasurys are at “a critical point right now, and markets know that,” he wrote. “Their recent rally is bumping up against the statistical limit between general recession fears and pointed recession prediction.”
A further rally in the iShares 20+ Year Treasury Bond ETF would be “a bad sign for stocks,” according to DataTrek.
“An investor can rightly question the bond market’s recession-tilting call, but knowing it’s out there is better than being unaware of this important signal,” said Colas.
The U.S. stock market ended sharply higher Friday, but the Dow Jones Industrial Average
DJIA,
+1.00%
and S&P 500 each booked weekly losses to snap a two-week win streak. The technology-heavy Nasdaq Composite erased its weekly losses on Friday to finish with a third straight week of gains.
In the coming week, investors will weigh a wide range of fresh economic data, including manufacturing and services activity, jobless claims and consumer spending. They’ll also get a reading from the personal-consumption-expenditures-price index, the Fed’s preferred inflation gauge.
‘Backside of the storm’
The fixed-income market is in “the backside of the storm,” according to Vanguard Group’s first-quarter report on the asset class.
“The upper-right quadrant of a hurricane is called the ‘dirty side’ by meteorologists because it is the most dangerous. It can bring high winds, storm surges, and spin-off tornadoes that cause massive destruction as a hurricane makes landfall,” Vanguard said in the report.
“Similarly, last year’s fixed income market was hit by the brunt of a storm,” the firm said. “Low initial rates, surprisingly high inflation, and a rate-hike campaign by the Federal Reserve led to historic bond market losses.”
Now, rates might not move “much higher,” but concerns about the economy persist, according to Vanguard. “A recession looms, credit spreads remain uncomfortably narrow, inflation is still high, and several important countries face fiscal challenges,” the asset manager said.
Read: Fed’s Williams says ‘far too high’ inflation remains his No. 1 concern
‘Defensive’
Given expectations for the U.S. economy to weaken this year, corporate bonds will probably underperform government fixed income, said Chris Alwine, Vanguard’s global head of credit, in a phone interview. And when it comes to corporate debt, “we are defensive in our positioning.”
That means Vanguard has lower exposure to corporate bonds than it would typically, while looking to “upgrade the credit quality of our portfolios” with more investment-grade than high-yield, or so-called junk, debt, he said. Plus, Vanguard is favoring non-cyclical sectors such as pharmaceuticals or healthcare, said Alwine.
There are risks to Vanguard’s outlook on rates.
“While this is not our base case, we could see a Fed, faced with continued wage inflation, forced to raising a fed funds rate closer to 6%,” Vanguard warned in its report. The climb in bond yields already seen in the market would “help temper the pain,” the firm said, but “the market has not yet begun to price such a possibility.”
Alwine said he expects the Fed will lift its benchmark rate to as high as 5% to 5.25%, then leave it at around that level for possibly two quarters before it begins easing its monetary policy.
“Last year, bonds were not a good diversifier of stocks because the Fed was raising rates aggressively to address the inflation concerns,” said Alwine. “We believe the more typical correlations are coming back.”