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Technology

Samsung’s New $1,800 Foldable Galaxy Phone Tests High-End Budgets

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NEW YORK—The entire smartphone industry is slumping except for the priciest devices.

Samsung

Electronics Co. is testing the limits of that high-end demand.

On Wednesday, Samsung unveiled its latest models of two of the world’s most-expensive phones. The Galaxy Z Fold 4, which becomes the size of a small tablet when opened, will cost about $1,800. The more compact Galaxy Z Flip 4 will go for around $1,000. The phones have prices similar to last year’s versions and become available in the U.S. later this month.

Total smartphone shipments slid 8% in the first half of this year versus the same period in 2021, largely because consumers have cut back spending on nonessential goods amid inflation and a shakier economic outlook, according to Counterpoint Research, a research firm. The declines were steepest for the lowest-priced devices, it said.

Foxconn Technology Group, the world’s biggest iPhone assembler, on Wednesday said demand for smartphones and other consumer electronics is slowing, prompting it to be cautious about the current quarter.

Shipments of “ultra-premium” phones—devices sold for $900 or more—grew by more than 20% during the same period, Counterpoint said. This category comprises mostly

Apple Inc.’s

iPhones and Samsung’s flagship devices.

WSJ’s Dalvin Brown checks out the newest foldable smartphones from Samsung to see if the kinks in early models have been ironed out and whether folding is a feature worth spending for, or just a gimmick. Illustration: Adele Morgan

The resilience of the phone industry’s upper class mirrors that of the luxury-goods business, as wealthier consumers show a willingness to keep spending on clothing, handbags and jewelry despite economic rockiness. Brands including

LVMH Moët Hennessy Louis Vuitton SE,

Ralph Lauren Corp.

and Gucci owner

Kering SA

have reported robust growth this year.

Apple, in its most recent quarter, reported a surprise rise in iPhone sales, defying analysts’ expectations for a decline. There has been no obvious macroeconomic impact on iPhone sales in recent months, Apple Chief Executive

Tim Cook

said on an earnings call last month.

Samsung, the world’s largest smartphone maker, recently said it expects the overall smartphone market to see shipments stay flat or experience minimal growth this year. But the South Korean company expressed optimism that its foldable-display devices, which are among its most expensive products, would sell well.

Demand for iPhones and Samsung’s flagship devices, boosted in recent years by the arrival of superfast 5G connectivity and pandemic-time splurging on gadgets, should remain high, said Tom Kang, a Seoul-based analyst for Counterpoint. “It’s clear that the affluent consumers are not affected by current economic headwinds,” Mr. Kang said.

Samsung has much riding on the Galaxy Z Fold 4, left, and the Galaxy Z Flip 4 becoming a success.



Photo:

SAMSUNG

The smaller of the two new devices, the Galaxy Z Flip 4, is an update of the model that accounted for most of Samsung’s foldable-phone sales last year. When fully open on its vertical axis, it has a display that measures 6.7 inches. When closed, it is half the size of most mainstream smartphones, and owners can view text messages and other alerts on a smaller, exterior screen. Compared with last year’s version, Samsung said the Galaxy Z Flip 4 takes better photos and has a slimmer hinge and larger battery.

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Would you buy one of Samsung’s new foldable phones? Why or why not? Join the conversation below.

The heftier Galaxy Z Fold 4 sports a tablet-sized display that is 7.6 inches diagonally when fully opened. It opens and closes like a book, and when shut, it has a 6.2-inch outer screen that performs most smartphone functions. The new version has a slightly thinner hinge and improved camera capabilities, Samsung said.

The Galaxy Z Fold 4 is the first device to use Android 12L, a version of the operating system created by

Alphabet Inc.’s

Google specifically for tablets and foldable phones, Samsung said.

Alongside the two foldable phones, Samsung on Wednesday also introduced two new versions of its Galaxy Watch 5, as well as a new edition of its Galaxy Buds wireless earphones, the Galaxy Buds 2 Pro.

Samsung has much riding on the Galaxy Z Fold 4 and the Galaxy Z Flip 4 becoming a success. Given their high price and fatter margins, foldable devices could represent about 60% of Samsung’s mobile-division operating profits, despite accounting for roughly one-sixth of the company’s smartphone shipments, said Sanjeev Rana, a Seoul-based analyst at brokerage CLSA.

Samsung said the Galaxy Z Fold 4 is the first device to use Android 12L, a version of the operating system created by Google specifically for tablets and foldable phones.



Photo:

SAMSUNG

Across the industry, the priciest tier of smartphones represent about 10% of annual shipments but about 70% of the industry’s profits, Counterpoint said.

Samsung was a pioneer in an industry that had gone stale when it released the first mainstream foldable smartphone more than three years ago. But the original Galaxy Fold stumbled out of the gate. Design flaws delayed its release. The pandemic closed stores, cutting off opportunities for would-be early adopters to test out the devices, Samsung executives have said. And many consumers balked at an initial price tag close to $2,000.

Last year, Samsung’s Galaxy Z Fold 3 and Galaxy Z Flip 3 saw stronger sales, helped by price cuts. The company also juiced demand through aggressive promotions and trade-in discounts that made purchases more affordable.

Worldwide foldable smartphone shipments are expected to total nearly 16 million units this year, up roughly 73% from the prior year, Counterpoint said. Samsung is projected to account for roughly 80% of the foldable market this year, according to Counterpoint.

The other foldable players—selling at prices below the ultra-premium threshold—include major Chinese brands, including Huawei Technologies Co., Xiaomi Corp., as well as BBK Electronics Co.-owned Vivo and Oppo.

Lenovo Group Ltd.

’s

Motorola,

which first launched a foldable phone in 2019, is slated to introduce a new model this month.

Write to Jiyoung Sohn at jiyoung.sohn@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Roku Swings to Second-Quarter Loss on Slower Ad Spending

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Roku Inc.

ROKU -2.01%

said it expected two of its main revenue drivers—advertising and sales of streaming hardware—to come under further pressure during the second half of the year, sending the company’s shares down 25% in after-hours trading.

“We are in an economic environment defined by recessionary fears, inflationary pressures, rising interest rates, and ongoing supply chain disruptions,” the company said in a letter to investors Thursday in which it announced its second-quarter results. It forecast that ad spending would continue to be negatively affected as a result. “We also believe that consumer discretionary spend will continue to moderate, pressuring both Roku TV and Roku player sales.”

The company said it expected to make $700 million in revenue during the third quarter, below analysts’ expectations of $898.3 million. Roku also withdrew its full-year revenue growth rate estimate, citing uncertainty and volatility in the macro environment.

San Jose, Calif.-based Roku is the nation’s largest maker of streaming hardware—accounting for about 37% of the U.S. market, according to Parks Associates—but it derives most of its revenue from advertising: It sells all ads viewed on The Roku Channel, its own streaming service, and also sells some ads that appear on other streaming services viewed on Roku devices.

In the second quarter, the company swung to a loss of $112.3 million, or a loss of 82 cents a share, compared with a profit of $73.5 million, or 52 cents a share, a year earlier. Analysts polled by FactSet expected a loss of 71 cents a share.

Supply-chain issues are pushing up prices for Roku’s component parts, the company said. Roku said it was absorbing the higher costs to insulate customers from price increases, which resulted in a negative gross margin of 24% for its players.

Roku’s stock has had a rough 2022 so far. Even before Thursday’s after-hours plunge, its shares were down 63% since the start of the year.

As markets react to inflation and high interest rates, technology stocks are having their worst start to a year on record. WSJ’s Hardika Singh explains why the sector — from tech giants to small startups — is getting hit so hard. Illustration: Jacob Reynolds

Revenue rose 18% to $764.4 million. Of that, $673.2 million came from platform revenue—which includes revenue from advertisers and content publishers—while player revenue accounted for $91.2 million.

Roku Chief Executive

Anthony Wood

described the ad-market upheaval as cyclical. “We’re in an economic cycle where advertising is trending down. It’ll turn around,” he said during a call with analysts Thursday. He also said Roku was the beneficiary of some of that upheaval, because some advertisers were shifting more ad dollars away from traditional TV and toward streaming services, helping Roku grow its market share.

During the second quarter, advertisers in the automotive and consumer-packaged-goods industries reduced their spending on traditional TV, but increased their spending on Roku by a double-digit percentage, said Alison Levin, Roku’s vice president for ad sales and strategy, during a call with journalists before the earnings call.

Roku will soon face competition for streaming ad dollars from two major competitors: streaming services

Netflix

and

Disney

+ are planning to begin selling ads. Mr. Wood said he believed the new entrants to the market would complement Roku by making streaming ads an even greater draw for advertisers.

“With companies like Netflix and Disney moving into ads, it makes streaming ads even more mainstream,” he said.

Write to Patience Haggin at patience.haggin@wsj.com and Denny Jacob at denny.jacob@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

U.S. stocks struggle for direction as opening gains fizzle despite strong durables data

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U.S. stocks struggled for direction Monday afternoon, trading near unchanged, as investors weighed stronger-than-expected data on durable-goods orders against expectations for a slowing economy that could limit the magnitude of Federal Reserve rate increases.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    +0.09%
    was almost unchanged at 31,503.
  • The S&P 500
    SPX,
    +0.01%
    was down 4 points, or 0.1%, at 3,907.
  • The Nasdaq Composite
    COMP,
    -0.35%
    shed 71 points, or 0.6%, at 11,537.

Last week, the S&P 500 jumped 6% to snap a three-week losing run. The Dow Jones Industrial Average rose 5% and the tech-heavy Nasdaq Composite gained 7%.

What’s driving markets

Stocks struggled to hang on to gains after data showed U.S. durable-goods orders rose by 0.7% in May, versus forecasts for a 0.2% rise, and pending home sales rebounded last month, reversing a six-month decline. Investors were caught between recession and inflation fears.

“Stocks can’t win right now, either the economic data softens and the economy is much weaker than we thought or robust readings pave the way for the Fed to be more aggressive with their inflation fight,” said Edward Moya, senior market analyst at Oanda, in a note.

Stocks had bounced last week in a move analysts credited to expectations a slowing economy could see the Federal Reserve hike rates less aggressively than previously expected. Fed Chairman Jerome Powell warned lawmakers that achieving a so-called soft landing for the economy as the Fed tightens interest rates would be “very challenging.”

JPMorgan quantitative strategist Marko Kolanovic published a note saying the market could rise 7% this week, due to the need for portfolios to rebalance as the month, quarter and first-half closes. That effect already played out near the end of the first quarter, and near the end of May.

“The S&P 500 is nearly 8% up from its lows at the start of the month and rallied 3% on Friday,” according to analysts at ING, in a Monday note. “Helping the rally has no doubt been last week’s repricing of tightening cycles around the world where 25-50 basis points of expected tightening were removed from some money market curves in just a few days. Driving that pricing seemed to be the much broader discussion — including from Federal Reserve Chair Jerome Powell — over the risks of recession.”

Strategists at Credit Suisse say bond yields may have seen their peak, particularly for Treasury-inflation protected securities, which in turn means the dollar
DXY,
-0.34%
 is close to its summit. They say their lead indicators are consistent with 0% GDP growth, as evidenced by the collapse in housing affordability, the weakness of corporate confidence and the weakness in the employment gauge of the Institute for Supply Management manufacturing index.

Group of Seven economic powers are meeting in Germany where they expect to announce an agreement on a price cap on Russian oil.

Companies in focus
  • Frontier Airlines parent Frontier Group Holdings Inc.
    ULCC,
    -11.01%
    issued a letter to Spirit Airlines Inc.
    SAVE,
    -7.55%
    shareholders, urging them to support the air carriers’ agreed upon merger deal. In the letter, Frontier Chairman William Franke and Chief Executive Barry Biffle said the recently amended Frontier-Spirit deal offers Spirit shareholders value “well in excess” of JetBlue Airways Corp.’s
    JBLU,
    +1.86%
    “illusory proposal, which lacks any realistic likelihood of obtaining regulatory approval.” Frontier shares fell more than10%, while Spirit shares dropped 8% and JetBlue shares gained 1.3%.
Other assets
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.186%
    rose 4 basis points to 3.166%. Yields and debt prices move opposite each other.
  • The ICE U.S. Dollar Index
    DXY,
    -0.34%
    edged down 0.4%.
  • Bitcoin
    BTCUSD,
    -3.09%
    fell 3.4% to trade near $20,675.
  • Oil futures traded higher in choppy trade, with the U.S. benchmark
    CL.1,
    +2.24%
    up 1.3% near $109.04 a barrel. Gold
    GC00,
    -0.21%
    was off 0.2% below $1,827 an ounce.
  • The Stoxx Europe 600
    SXXP,
    +0.52%
    finished 0.5% higher, while London’s FTSE 100
    UKX,
    +0.69%
    gained 0.7%.
  • The Shanghai Composite
    SHCOMP,
    +0.88%
    ended 0.9% higher, while the Hang Seng Index
    HSI,
    +2.35%
    jumped 2.4% and Japan’s Nikkei 225
    NIK,
    +1.43%
    rose 1.4%.

— Steve Goldstein contributed to this article.

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Technology

The pandemic boom in videogames is expected to disappear in 2022

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While the videogame industry continued to enjoy a pandemic boost in 2021, investors and analysts expect less in 2022, as continued semiconductor shortages and game delays combine with expectations that many will turn off the PlayStation and leave the house.

Chip shortages have especially been a pain for makers of videogame consoles, such as Sony Group Corp.’s
SONY,
-0.62%

6758,
-0.55%
PlayStation, Microsoft Corp.’s
MSFT,
+0.21%
Xbox and Nintendo Co.’s
7974,
-1.73%
Switch consoles. Lewis Ward, gaming research director at IDC, expects that part of the videogame industry to be a drag on growth: IDC expects console/TV spending to decline nearly 6%, to $62.75 billion in 2022.

Overall, Ward estimates worldwide gaming revenue will rise 11% to $251.39 billion in 2021, compared with 2020’s surge of 24% to $226.84 billion. While 11% is still pretty healthy growth, Ward also expects a more “dramatic” flattening in 2022, when he forecasts revenue of $256.43 billion, or only 2% growth.

A lot of that expected flattening has to do with the assumption that the worst of COVID-19 has passed, and that even with variants like delta and omicron popping up, stay-at-home conditions will not go back to what was seen in 2020 and early 2021.

“In my models and discussions with folks, we’re certainly thinking that life will return to something more normal, especially in countries where the vaccination rates are over 50%, 60%, 70%, 80% in some cases,” Ward told MarketWatch in an interview.

Also read: For the videogame industry to grow, it needs to first grow up

Ward said he expects “that there will be a return to normalcy and a substantial minority of the people that were first-time gamers go back to being non-gamers, and a substantial minority of the people who became much more intensive gamers will go back to spending their time and money doing other pursuits beyond gaming, that there will be something of a slowdown inherent in that.”

Games themselves will also be a big issue, as many major releases have faced delays, with no publisher wanting to experience the same fan and media heat as CD Projekt SA
CDR,
-0.20%
did after its bug-plagued 2020 release of “Cyberpunk 2077.” Publishers are more likely to keep updating their older games with fresh downloadable content to keep making money from previously successful releases.

“I think the biggest games in 2022 are going to be the biggest games from 2021, that were the biggest games from 2020,” NPD Group analyst Mat Piscatella said, citing examples like Epic Games’ “Fortnite,” Roblox Inc.’s
RBLX,
-1.42%
platform, Activision Blizzard Inc.’s
ATVI,
+0.73%
“Call of Duty” franchise, and Mojang Studios’ “Minecraft,” which is owned by Microsoft.

“Those are the games that are going to continue to be the biggest because of that persistent content flow they have, and the big are going to stay big — now, trying to break into that tier is becoming exceptionally difficult,” Piscatella said.

Expectations for a dramatic slowdown were apparent on Wall Street in 2021. With two trading sessions left in 2021, Activision Blizzard shares were down 28% on the year, Electronic Arts Inc.
EA,
-0.25%
is down 6%, Take-Two Interactive Software Inc. 
TTWO,
+0.51%
 shares are off by 12%, Zynga Inc.’s
ZNGA,
-1.72%
stock is down 34%, and Unity Software Inc.
U,
+0.72%
shares are down 13%. In comparison, the iShares Expanded Tech-Software Sector ETF
IGV,
-0.14%
has risen 11%, and the S&P 500 index
SPX,
+0.14%
has gained 28%.

For companies that went public in 2021, things were a bit different: Shares of Roblox are up 126% from their direct listing price of $45, and AppLovin Inc.
APP,
-2.05%
shares are 17% above their $80 IPO pricing. Shares of Israeli mobile-game developer Playtika Holding Inc.
PLTK,
-3.97%,
however, are 33% off their $27 IPO pricing.

Console makers and buyers had it tough in 2021

Expectations for a shrinking console market come from product cycles and chip shortages. Ward said the current version of Nintendo’s popular Switch console was “getting long in the tooth” and that the company was pulling back shipments in anticipation of a new iteration in 2023.

Ward’s console category includes hardware-bundle spending, while PC and mobile are software/service spending only, and TV refers to micro-console game spending like Alphabet Inc.’s
GOOG,
+0.04%

GOOGL,
-0.02%
Stadia Pro and Nvidia Corp.’s
NVDA,
-1.06%
Shield Android.

Even with strong consumer demand, Sony pulled back shipments of its PlayStation consoles “by about a million units” because of production challenges, and “even though they haven’t said it,” Microsoft has run into similar challenges with the Xbox, Ward said. Microsoft showed its hand by having to resort to using developer models of the Xbox for a recent tournament because it couldn’t find enough consumer versions.

Ward said that console makers are not only contending with chip shortages, but then they have to deal with the logistics of getting the parts to the factories, and then getting finished products out of China to consumers as global supply-chain problems triggered by COVID-19 remain a problem. So, Ward said, the pullback in numbers reflects the console makers’ “own expectations of where they’ll be relative to where they’d thought they would be a few quarters ago.”

Looking at the larger chip picture, other analysts expect supply-chain problems to ease in 2022, but not by much.

“The overall supply landscape remains constrained, but we are generally seeing signs of easing,” Benchmark analyst David Williams said in a recent note. “Demand remains resilient despite inflationary pressures and well-telegraphed shortages across most end markets.”

“Although many areas of the supply chain have improved, we think the prior surge in commodity and transportation costs have not been fully worked through to end consumers, which may be a headwind to consumption in the new year,” Williams said.

Evercore ISI analyst C.J. Muse looks at it from the demand side and fundamentals in the industry, and said in a recent note “if you think the wall of worry was difficult in 2021, just wait.” Muse thinks a correction in the industry will more likely come in 2023 than 2022.

“On a secular basis, the semiconductor story is robust, with COVID accelerating the digitization of nearly every industry vertical,” Muse said. “Sprinkle in product cycles including AI/ML, data center/networking infrastructure, the Metaverse, 5G, continued broad-based recovery across automotive/industrial, and there is much to like in Semi Land with a clear vision for silicon intensity rising as a % of GDP.”

Bugs or delay? Both result in angry fans

Game development during COVID-19 has seen a rise in a common dilemma: If it’s taking longer than expected to develop a game by its announced release date, do you release it on time and risk it having bugs, or do you delay the release — sometimes repeatedly — to ensure it meets the highest quality-control standards?

Most publishers have chosen to go the latter route of late, after the “Cyberpunk 2077” debacle, which forced distributors like Sony to offer full refunds due to low quality and a lack of backwards compatibility with previous-generation consoles.

Then you have the possibility of the worst of both worlds: A delayed game that is not received well when it does hit. EA’s “Battlefield 2042″ was not only delayed by a month in its release but it became regarded as one of the worst-reviewed games in the history of online game site Steam, with gamers posting online videos showing bugs in the game.

Activision Blizzard said in November it would be delaying the release of two of its highly anticipated games, and Take-Two recently suffered a rough launch of its “Grand Theft Auto: The Trilogy – Definitive Edition.” 

While IDC’s Ward said he thinks delays and bugs are “game specific” — meaning some games are more difficult than others to develop — International Game Developers Association Executive Director Renee Gittins said COVID-19 was the biggest headwind for developers.

“Particularly with the pandemic, we’ve seen a lot of game studios struggle with the transition to remote work,” Gittins said. “When you’re used to working in an open-office environment, where you have a lot of passive communication between teams and you can really more easily collaborate by have those informal meetings in person, being forced into a remote-work environment hurts that communication a lot.”

“There’s a lot of difficulties that game developers normally face and that’s only being exacerbated by this remote-work environment that many have been forced into by the COVID-19 pandemic,” Gittens said.

Videogames to give way to the metaverse?

With new games proving harder to produce as older games continue to rake in cash, many are looking to the “metaverse” as the future of the industry. The concept — a virtual world in which users can build and offer their own experiences — is similar to what Roblox offers, and could offer the industry a way to not rely so heavily on single-game launches, Ward said.

“If the platform does well, you can monetize that for a long time, more than any single game,” he said.

A recent Goldman Sachs report put forward Roblox, Facebook parent company Meta Platforms Inc.
FB,
-0.95%,
and Snap Inc.
SNAP,
-1.36%
as key buy-rated stocks exposed to the multi-year metaverse theme.

“When you think about a traditional game developer/publisher versus companies that are in the metaverse space — and certainly Niantic is trying to go there — I would say Facebook is trying to go there, they’re a platform company,” Ward said.

“And I would say a company like Roblox may not be talking about the metaverse, but I think they’re closer to that than many other game developers and publishers in the sense that they want to be selling picks and shovels and Levis to the actual miners who will go out and make those experiences,” the IDC analyst said.

Read: Amazon videogame exec on the success of ‘New World’ and why everyone is chasing Roblox

Privately held Niantic Inc. “seems to be inching away from ‘Pokemon Go’ as the main vehicle for monetization,” Ward said, and now they’re licensing their Lightship AR development kit “to become a platform company.” Niantic recently raised $300 million and is now worth $8.7 billion, according to Crunchbase.

Expanding game franchises to multiple platforms is also a big trend to look for, Piscatella said, a trend best exemplified by “Call of Duty,” which can be played on PC, console, tablets and phones.

One of those cross-platform categories includes free-to-play games, and the industry is finding better ways to make money off those. It used to be that free-to-play games would have a word from their sponsor, or have video “commercials”: Now developers have found a tweak to make that more fun for the player and more profitable for the sponsor.

Video advertising in games can either be unrewarded — in which a player is interrupted with an ad during game play and can skip it after a few seconds, or in some cases, has no choice but to let the whole ad run — or rewarded, where a player is asked if they want to watch an ad, and they’ll be rewarded with some amount of in-game resources.

Back in August, Zynga highlighted that their “watch to earn” ads were a major revenue driver, while AppLovin, which went public in April, not only makes marketing, monetization and analytics software for developers to grow their businesses, but also owns a portfolio of more than 200 free-to-play mobile games.

When it comes to rewarded ads, “more people like them than dislike them,” IDC’s Ward said. “This ad format is something that gamers actually like versus regular video ads, which are strongly negative.”

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Business

Peloton Stock Is Tumbling. A Disappointing Report Sinks Another Pandemic Play.

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Text size

Peloton stock is down double-digits in after-hours trading after the at-home fitness company reported a big loss and cut guidance.


Courtesy Peloton


Peloton Interactive

was the latest pandemic-play stock casualty this earnings season. Shares were diving in premarket trading Friday after the at-home fitness firm reported a wider-than-expected net loss for the September quarter, and cut its full fiscal-year outlook.

Peloton reported a fiscal-first-quarter net loss of $376 million, or $1.25 a share. Total revenue grew 6% year over year to $805.2 million. Wall Street’s consensus estimate called for a net loss of $1.10 a share on revenue of $808.7 million, according to FactSet.

The company, which sells bikes and treadmills that pair with $39.99 a month subscriptions, said average monthly workouts per connected fitness subscription dropped to 16.6 from 20.7 a year ago. Investors watch that metric for signs of engagement.

Peloton stock dropped 33.5% to $57.27 early Friday. The stock set a 52-week intraday high of $171.09 in January. The company joins


Roku

(ROKU) and


Chegg

(CHGG) as popular pandemic plays that are now disappointing investors with reports this week.

Peloton now expects the 2022 fiscal year to end in June with 3.35 million to 3.45 million connected fitness subscribers, down from a prior forecast of 3.63 million. Its outlook for fiscal-year revenue ranges from $4.4 billion to $4.8 billion, down from a prior forecast of $5.4 billion.

For the fiscal second quarter, which includes the all-important holiday season, the company expects to hit connected fitness subscribers of between 2.8 million to 2.85 million. It expects revenue in the range from $1.1 billion to $1.2 billion for the quarter, below Wall Street’s consensus estimate of $1.49 billion, according to FactSet. The company said that so far, the fiscal second quarter has been softer than expected.

“With the benefit of adequate inventories and order-to-delivery windows that are now back to pre-pandemic levels, we expect a healthy holiday selling season,” the company added in a prepared statement. “Our forecast assumes unit sales modestly ahead of last year’s Q2 levels, driven by growing consumer interest in the Connected Fitness category and a resumption of our marketing and promotional activity.”

Write to Connor Smith at connor.smith@barrons.com

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Technology

Apple Studying Potential of AirPods as Health Device

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Apple Inc.

AAPL -0.91%

is studying ways to make AirPods into a health device, including for enhancing hearing, reading body temperature and monitoring posture, according to documents reviewed by The Wall Street Journal and people familiar with the plans.

The plans further demonstrate Apple’s ambition to add health and wellness features to devices beyond the Apple Watch, where most of the company’s health functions exist today. Apple is also working on technology that aims to use iPhones to help diagnose depression and cognitive decline, the Journal reported last month.

It isn’t clear if Apple is developing specific new hearing-aid features for AirPods or wants to market the earbuds’ existing hearing-improvement features as hearing aids. AirPods Pro, Apple’s higher-end earbuds, already offer features to improve hearing, including “conversation boost,” launched last week, that increases the volume and clarity of people in front of the wearer.

The proposed AirPods features aren’t expected by next year and might never be rolled out to consumers or the timing could change, cautioned people familiar with the company’s plans.

An Apple spokeswoman declined to comment.

SHARE YOUR THOUGHTS

Would you consider wearing AirPods as a health device? Join the conversation below.

Apple is already developing prototypes for AirPods to take wearers’ core body temperature from inside their ear, according to the documents reviewed by the Journal. The thermometer would be the second that Apple could add to its devices, including a new wrist temperature-sensor Apple may include in next year’s version of the Apple Watch, the Journal previously reported.

As for ergonomics, the AirPods would lean on the motion sensors in the earbuds and alert wearers of slouching and to improve their posture, according to the documents and a person familiar with the idea.

Offering AirPods as hearing aids could significantly expand their reach. Millions of people suffer from hearing loss, including many whose impairment is less severe and choose not to treat it, experts say.

New regulations, expected to be completed by the U.S. Food and Drug Administration next year, would permit the sale of a new class of cheaper hearing aids direct to consumers to treat mild to moderate hearing loss.

About 28 million Americans suffer from mild hearing loss, yet only 5% use a hearing aid, estimates the Cochlear Center for Hearing and Public Health at Johns Hopkins. Another 12 million suffer from moderate hearing loss, though only 37% of this group use a hearing aid.

Dr. Nicholas Reed,

an audiologist at Johns Hopkins, said the prospect of Apple offering future AirPods as an over-the-counter hearing aid would be a potential game-changer. He said that Apple’s ubiquitous earbuds can break the old-age stigma associated with traditional hearing aids, which often prevents people from wearing them, and would cost far less than traditional hearing aids.

AirPods may not be suited for some sufferers of hearing loss because they don’t yet have all-day battery life. Also, Apple has been beaten to the hearing-aid market by consumer electronics rival Bose, which sells an FDA-cleared hearing aid that consumers can customize themselves.

AirPods dominate the global Bluetooth headset market, generating $12.8 billion in revenue in 2020, estimates research firm Strategy Analytics—five times the figure of No. 2 player Bose.

The array of sensors in the devices, including microphones, an amplifier and a sophisticated processor, means AirPods Pro already contain much of the technology necessary to help sufferers of mild or moderate hearing loss, experts say.

The market for hearing aids is dominated by a handful of companies, and hearing aids can cost thousands of dollars. Cheaper “personal sound amplification products” are available in stores, but their quality is inconsistent, experts say.

AirPods can’t be marketed as hearing aids today because of federal regulations that date back decades to when many hearing aids were unsafe or ineffective. Those restrictions require the devices to be sold through licensed hearing specialists who tune the hearing aids to the wearer.

The FDA is working to complete safety and effectiveness rules as required by a 2017 law for a new category of over-the-counter hearing aids that consumers can tune themselves. The rules are expected to permit companies like Apple, Bose and

Samsung

to market cheaper hearing aids.

Write to Rolfe Winkler at rolfe.winkler@wsj.com

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Business

Blackstone to Buy Chamberlain Group

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Blackstone Group Inc. has agreed to buy the Chamberlain Group LLC in a deal that values the family-owned maker of LiftMaster garage-door openers at about $5 billion including debt, officials from the companies said.

The private-equity giant is doing the deal through its core private-equity fund, which aims to buy high-quality companies and hold them for longer than the typical buyout fund. Blackstone will purchase Chamberlain from Duchossois Group Inc., a family-owned entity comprising operating companies and an investment firm. Duchossois will retain two board seats and a significant minority stake in the business following the close of the deal.

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Business

Some People Shy Away From Restaurants as Delta Variant Spreads

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Some consumers are rethinking their return to dining out, according to executives and industry data, a shift that threatens the U.S. restaurant sector’s rebound.

Restaurants that survived waves of closures last year had headed into the summer with rising optimism as most of the country ended dine-in occupancy restrictions. Bigger delivery and online ordering business boosted sit-down chains in recent months, including Ruth’s Hospitality Group Inc. and Outback Steakhouse owner Bloomin’ Brands Inc.

However, individual operators and recent industry data now point to a more mixed picture, particularly in U.S. markets hit hard by Covid-19 outbreaks and renewed coronavirus-related advisories. Recent consumer surveys show the Delta variant prompted Americans who say they are the most restricted in their activities to start pulling back their activities again late last month.

Chris Downs, a 32-year-old mechanical engineer from St. Louis County, Mo., had returned to dining out at restaurants in May after getting vaccinated, allowing him to celebrate his dad’s birthday and see friends again. Now, with Delta, he’s stopped dining out for fear of getting the virus.

“I am back to mostly cooking all meals at home,” Mr. Downs said.

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Business

Toyota, Honda Shut U.S. Factories as Perfect Storm Disrupts Supply Chains

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Toyota Motor Corp. , Honda Motor Corp. and Samsung Electronics Co. said supply-chain problems were complicating their businesses, as freak weather, port blockages and the continued impact of Covid-19 combine to disrupt global supply chains.

Toyota and Honda said Wednesday that they would halt production at plants in North America because of a squeeze in crucial supplies, including plastic components, petrochemicals and semiconductors. Honda also blamed port backlogs and severe winter weather that has frozen plants and pipes across the central U.S. for the disruption.

Separately, Samsung, the world’s largest maker of smartphones, said a severe global shortage in chips would hurt its business into the next quarter. The South Korean company also said it might withhold launching a new model of one of its most popular handsets, though it said the move was aimed at keeping it from competing with an existing handset.

The disruptions underscore how a number of forces are coming together to squeeze the world’s supply chains: from the pandemic-driven rise in consumer demand for tech goods to a backlog of imports at clogged California ports and U.S. factory outages caused by severe weather. The timing is particularly concerning for manufacturers because the U.S. and some other economies are beginning to reopen thanks to vaccination campaigns.

“Automotive companies initially had to bear the brunt of these shortages, but now it has spread to pretty much all parts of the consumer-electronics sector,” said Sanjeev Rana, senior analyst at investment bank CLSA in Seoul.

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Business

Cathie Wood’s ARK Investment Faces Reckoning as Tech Trade Stalls

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ARK Investment Management LLC’s winning bets on disruptive technology companies cemented

Cathie Wood’s

status as Wall Street’s hottest fund manager since Peter Lynch or Bill Gross.

Now, those gambits threaten to make ARK a high-profile casualty of the recent shift in investor sentiment away from tech stocks and toward cyclical shares tied to an economic upswing.

ARK runs five exchange-traded funds that actively invest in companies Ms. Wood and her team of portfolio managers believe will change the world through what they call “disruptive innovation.” Among the ETFs’ biggest holdings are electric car maker

Tesla Inc.,

payments company

Square Inc.

and streaming media firm

Roku Inc.

The stock prices of those three companies have surged at least 195% in the year since the Covid-19 pandemic upended the investing landscape—helping ARK’s funds more than double over the same period. But the stocks dropped more than 12% last week amid a broader selloff in fast-growing tech stocks, a slump many attribute to a sharp rise in government bond yields.

They have badly underperformed the tech-heavy Nasdaq Composite Index, which dropped 4.9% last week.

Worries about a rising interest-rate environment have posed a test for ARK, exposing the vulnerabilities of its investment approach. Higher yields generally make growth stocks, including shares of big tech companies, less attractive. Plus, some of ARK’s positions are in small, illiquid stocks that have the potential to swing dramatically.

The ETFs suffered double-digit percentage decreases last week, their biggest routs since the stock market’s plunge last March, according to FactSet. Further declines among growth stocks on Tuesday and Wednesday drove even deeper drops among ARK’s funds, bringing the declines for its flagship ARK Innovation ETF to 14% over the past month.

The cascade of red has proved hard for many investors to stomach. ARK’s funds collectively lost more than $1.8 billion between Feb. 24 and Monday, their biggest stretch of outflows ever, according to FactSet. Together, they managed roughly $51 billion at the end of February, making ARK the ninth-largest ETF operator. That’s after attracting $36.5 billion in assets over the past year, more than

Invesco Ltd.

,

Charles Schwab Corp.

and First Trust—the fourth, fifth and sixth biggest ETF issuers in the U.S., according to Morningstar Direct.

But the recent outflows triggered sales across ARK’s funds to meet redemptions, while the firm also opted to dump shares of its easier-to-trade holdings, including

Apple Inc.

and

Snap Inc.,

to load up on favorites like Tesla.

With tech stocks continuing to fall, ETF analysts and traders worry that a combination of broad market declines and additional outflows could create a snowball effect across ARK’s portfolio. That could potentially cause some of its more illiquid, small-cap holdings to trade sharply lower.

Tom Staudt, ARK’s chief operating officer, dismissed concerns of any liquidity problems and said ARK’s ETFs have continued to perform as any other ETF would during the tumult.

Still, it has been a rough patch for ARK and its star stock picker, Ms. Wood.

“What a crazy week or two we’ve had here,” Ms. Wood said in a YouTube video posted Friday that was viewed by nearly 600,000 people.

Ms. Wood founded ARK in 2014 and now serves as its chief executive and chief investment officer following a 12-year stint at AllianceBernstein. Her funds’ eye-catching performance, coupled with her willingness to engage investors through social media, podcasts and videos, has earned her a variety of endearing monikers from individual investors and Reddit’s day traders, including “Mamma Cathie,” “Aunt Cathie” and, in South Korea, “Money Tree.”

“ARK’s funds fit 2020’s narrative of secular growth, but we’re now seeing a shift in that,” said Steven DeSanctis, an equities analyst at Jefferies. “It probably won’t be the last time in the near term she sees outflows,” Mr. DeSanctis added, referring to Ms. Wood.

Outside of last week’s pullback, ARK’s returns have been the envy of the asset-management industry, reviving some investors’ belief in stock pickers after more than a decade of dominance by index-tracking funds. The ARK Innovation ETF has logged an average annual return of 36% since it started trading in 2014. That compares with the S&P 500’s average return of 11% over the past 10 years.

“There’s been lots of calls with clients over the last six months as the funds gained assets, and the primary conversation has been about what happens when the funds are no longer a hot topic,” said William Kartholl, director and head of ETF trading at Cowen.

Mr. Staudt said ARK has a soft limit of about 10% on any one stock within its funds. Tesla’s stock sits at that level in ARK’s innovation and autonomous funds, as does Square in ARK’s fintech innovation pool. As for ARK’s exposure to smaller stocks, Mr. Staudt said those worries are overblown and pointed to the fact that about 15% of ARK’s innovation fund is invested in stocks with market caps below $5 billion.

If anything, the volatility has created “attractive buying opportunities” for ARK, Mr. Staudt added.

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Do you think ARK’s funds will remain susceptible to further losses and outflows? Why or why not? Join the conversation below.

ARK loaded up on more shares of Tesla,

Teladoc Health Inc.

and Square during last week’s selloff, according to ARK’s daily trading logs. It also added more shares of

Zoom Video Communications Inc.

to one of its funds earlier this week.

Amid the redemptions across ARK’s funds, the firm also sold shares in some of its more widely traded liquid stocks. The firm cut its positions in Apple and Snap last week and sold all its remaining shares in

Salesforce.com Inc.,

he added. ARK also sold shares of

Facebook Inc.,

Bristol-Myers Squibb Co. and

Roche Holding AG

this week.

“It’s almost like having dry powder in the portfolio,” said Mr. Staudt, referring to how the funds basically build up a cash-like reserve to buy other stocks.

Not all investors are fazed by ARK’s bigfooted approach to investing. Flows into ARK’s innovation fund turned positive Tuesday, pulling in $464.3 million, according to FactSet.

But ARK’s most recent stumble continued to shake out others.

Paolo Campisi, a 31-year-old entrepreneur in Toronto, bought shares of ARK’s innovation fund in early February but sold his stake last week after shares dropped more than 10%. He decided to take a riskier bet on an eventual rebound by buying out-of-the money call options that expire at the end of the month. But he sold those options as well Wednesday when ARK’s flagship fund fell an additional 6.3%.

“I think everyone’s going to be challenged moving forward,” Mr. Campisi said, adding that he is unsure at what level he’d consider buying back into the fund again. “And the level of scrutiny on someone like Cathie [Wood] is going to be high.”

What You Need to Know About Investing

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

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