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Business

These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

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This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.69%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+5.93%
and Advanced Micro Devices Inc.
AMD,
+3.77%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.60%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.13%,
Microsoft Corp.
MSFT,
+3.85%,
Amazon.com Inc.
AMZN,
+6.28%
and Alphabet Inc.
GOOG,
+4.05%

GOOGL,
+3.86%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.31%,
Danaher Corp.
DHR,
+2.60%
and Linde PLC
LIN,
+2.30%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+1.97%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.02%,
which tracks the PHLX Semiconductor Index
SOX,
+2.22%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company Ticker 2022 price change Forward P/E Forward P/E as of Dec. 31, 2021
Apple Inc. AAPL,
+3.13% 		-22% 22.2 30.2
Adobe Inc. ADBE,
+1.97% 		-49% 19.4 40.5
Amazon.com Inc. AMZN,
+6.28% 		-36% 62.1 64.9
Advanced Micro Devices Inc. AMD,
+3.77% 		-61% 14.7 43.1
ASML Holding N.V. ADR ASML,
+3.60% 		-52% 22.7 41.2
Danaher Corp. DHR,
+2.60% 		-23% 24.3 32.1
Alphabet Inc. Class C GOOG,
+4.05% 		-33% 17.5 25.3
Linde PLC LIN,
+2.30% 		-21% 22.2 29.6
Microsoft Corp. MSFT,
+3.85% 		-32% 22.5 34.0
Nvidia Corp. NVDA,
+5.93% 		-62% 28.9 58.0
UnitedHealth Group Inc. UNH,
+1.31% 		2% 21.5 23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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Business

American Executives in Limbo at Chinese Chip Companies After U.S. Ban

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SINGAPORE—American workers hold key positions throughout China’s domestic chip industry, helping manufacturers develop new chips to catch up with foreign rivals. Now, those workers are in limbo under new U.S. export control rules that prohibit U.S. citizens from supporting China’s advanced chip development.

At least 43 senior executives working with 16 publicly listed Chinese semiconductor companies are American citizens, according to an examination of company filings and official websites by The Wall Street Journal. Many of them hold C-suite titles, from chief executive to vice president and chairman.

Almost all of the executives moved to China’s chip industry after spending years working in Silicon Valley for U.S. chip makers or semiconductor equipment firms, according to the companies’ filings. Their work histories reflect the free flow of talent across companies and borders over the years. Some were drawn to China through initiatives including the country’s “Thousand Talents” program, which was introduced in 2008 by the Chinese government to boost research standards.

U.S. firms are reshoring at the fastest pace in history, in part, due to the trade war with China and rising tariffs. But that may not translate into a big win for blue-collar American workers. WSJ’s Dion Rabouin explains. Illustration: David Fang

The Commerce Department this month imposed export controls over an array of chips and chip-making technology, marking the U.S.’s biggest salvo against China’s tech industry so far.

In a rare move that caught the industry off guard, it also sought to restrict the use of American know-how by barring U.S. persons from supporting China’s advanced chip development or production without a license. The department defines U.S. persons to include U.S. citizens, permanent residents, people who live in the U.S., and American companies.

Several companies, including Beijing-based

Naura Technology Group Co.

002371 1.39%

and Dutch equipment maker ASML Holding NV, have suspended their American employees from continuing work that could now be restricted while they seek clarity on the rules, the companies have said.

Restricting Chinese companies’ access to U.S. talent delivers a direct blow to the heart of China’s attempt to move up the technology chain, said Dane Chamorro, a Washington, D.C.-based head of global risk and intelligence at business consulting firm Control Risks.

“The technology is nothing without the people there to make it work,” he said.

For many senior executives at Chinese companies, the rule will likely force them to decide between their jobs and their U.S. citizenship or permanent resident status, Mr. Chamorro said. The rules require all U.S. persons to apply for a license to continue working in Chinese advanced chip development.

Among prominent U.S. executives in China is

Gerald Yin,

founder and chairman of

Advanced Micro-Fabrication Equipment Inc.,

or AMEC, one of China’s largest chip-making equipment vendors. He and six current senior managers and core researchers at AMEC are American citizens, according to the company’s website and its latest annual report.

Mr. Yin, whose company is listed on the Shanghai Stock Exchange, spent almost 20 years working at Silicon Valley companies including

Intel Corp.

and

Applied Materials Inc.,

where he was chief technology officer of its Asian unit before he left to found AMEC.

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Should the U.S. lift the ban on Chinese chips? Why or why not? Join the conversation below.

The Shanghai-based company, which makes etching machines key to turning silicon wafers into semiconductors, is viewed as a rising national champion in the sector, though it still lags behind global leaders such as

Lam Research Corp.

and Applied Materials. In its latest annual report, the company said it received more than $50 million in subsidies from the Chinese government in 2021.

AMEC and Mr. Yin didn’t respond to requests for comment.

Other companies that face being affected include Chinese flash memory chip designer

GigaDevice Semiconductor Inc.,

an up-and-coming designer of flash chips used in automobiles and personal computers. GigaDevice’s deputy chairman, Shu Qingming, and a director, Cheng Taiyi, hold U.S. passports, the company’s latest annual report says.

GigaDevice didn’t respond to requests for comment.

KingSemi Co.

688037 -0.79%

, which produces the most advanced coating and development equipment in China and supplies giants including

Taiwan Semiconductor Manufacturing Co.

TSM -4.05%

, told investors that it is assessing the impact of the new directives. An executive director, Chen Xinglong, holds a U.S. green card, the company’s latest annual report says.

While the withholding of talent—along with all the other restrictions—could significantly slow the Chinese chip sector’s advancement, it won’t be enough to kill it, said Anne Hoecker, a partner at management consulting firm Bain & Co. in its semiconductor group.

“There’s one thing China has been very consistent about—their need to build up an indigenous source of semiconductors,” she said. “They will continue to put a lot of money in it, and they will continue to progress.”

Many companies, including

KLA Corp.

and Lam Research, have already suspended the work of engineers and other less-senior staffers in China while they seek clarity on the rules, or licenses to continue their work, The Wall Street Journal previously reported.

Naura Technology Group, which has a unit making semiconductor equipment, issued warnings to its American employees within mainland China to suspend work with clients that it believes fall under the new restrictions while it awaits more clarity, a spokesman said. Those employees have continued to perform other tasks at the company, he said.

For many American senior executives at Chinese companies, the Commerce Department rule will likely force them to decide between their jobs and their U.S. citizenship.



Photo:

I-Hwa Cheng/Bloomberg News

ASML, the Dutch chip equipment maker, confirmed it sent an internal email to its U.S. employees on Wednesday, asking U.S. staff—both U.S. citizens and foreign nationals living in America—to refrain from servicing, shipping or providing support to any of its customers in China until further notice.

The new rules also could affect employees of Chinese companies that have operations in the U.S. Yangtze Memory Technologies Co., China’s leading memory chip maker, maintains a Santa Clara, Calif., office, with more than a dozen employees in the U.S., according to LinkedIn. They include a director of engineering, the head of U.S. NAND design, and the head of North American sales.

—Raffaele Huang and Rachel Liang contributed to this article.

Write to Liza Lin at Liza.Lin@wsj.com and Karen Hao at karen.hao@wsj.com

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

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Business

U.S. Suppliers Halt Operations at Top Chinese Memory Chip Maker

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BEIJING–U.S. chip equipment suppliers are pulling out staff based at China’s leading memory chip maker and pausing business activities there, according to people familiar with the matter, as they rush to assess the impact of Commerce Department semiconductor export restrictions.

State-owned Yangtze Memory Technologies Co. is facing a freeze in support from key suppliers including

KLA Corp.

KLAC -1.18%

and

Lam Research Corp.

LRCX -0.35%

, the people said. The suspensions follow last week’s sweeping curbs imposed by the U.S. on China’s chip sector, ostensibly to prevent American technology from advancing China’s military power, though the impact might reach further into the industry.

The U.S. suppliers have paused support of already installed equipment at YMTC in recent days and temporarily halted installation of new tools, the people said. The suppliers are also temporarily pulling out their staff based at YMTC, the people said.

U.S. chip equipment manufacturers have dozens of employees stationed at YMTC’s factory. They play a crucial role in operating the factory and developing its manufacturing capabilities, as they bring in expertise on highly technical chip production tools, people familiar with the situation said. If the halt is extended, customers such as YMTC face being cut off from upgrades, maintenance expertise and future technology they need to develop chips.

YMTC, KLA and Lam Research didn’t respond to requests for comment.

While the moves might be temporary, they are immediate signs of business disruptions facing Chinese chip makers and U.S. technology suppliers as Washington escalates its efforts to stifle China’s emerging semiconductor industry. The U.S. export control measures, which restrict companies sending chips and chip-making equipment to China, are some of the broadest the U.S. has enacted against China’s semiconductor industry. They veer from previous actions that often targeted individual companies and a narrower subset of technology.

The new rules, announced Friday by the Commerce Department, add new license requirements for advanced semiconductors and chip-making equipment destined to a facility in China. Licenses for facilities owned by U.S. and U.S.-allied firms would be decided on a case-by-case basis, while Chinese-owned facilities would face a presumption of denial.

Some foreign companies in ally countries are expected to get exemptions to keep their China-based facilities running, with South Korea’s

SK Hynix

the first to reveal such an approval on Wednesday.

U.S. tool makers are assessing what they need to do to comply with the new restrictions in working with Chinese clients, and the longer-term impact is still unclear, people familiar with the matter said.

American companies dominate certain areas of the global chip production equipment supply chain, with a combined share of 41%, while China’s is 5% or lower, according to a Boston Consulting Group analysis.

The Commerce Department’s measures are far reaching because they restrict the ability of “U.S. persons” to support the development or production of some of the most cutting-edge chips in China.

“U.S. persons” would include those with American passports and green-card holders as well as U.S. companies, said

Kevin Wolf,

a former Commerce Department official and a partner at Akin Gump Strauss Hauer & Feld LLP.

KLA is known for its testing equipment and Lam Research for etching machines. Another major American supplier to China’s chip industry,

Applied Materials Inc.,

produces tools including those that deposit layers of materials on wafer surfaces—all critical steps in producing chips. China, the biggest market for the three U.S. chip equipment suppliers, contributes around 30% of the companies’ revenues.

Share prices of Applied Materials, KLA and Lam Research have all dropped by more than 20% over the past month.

Applied Materials didn’t respond to a request for comment.

Beyond the broad new restrictions targeting China’s chip sector, the U.S. last week placed YMTC on a list of companies the Commerce Department is concerned about, called an unverified list. Companies on the list could be added to a more restrictive export blacklist if its concerns aren’t allayed.

Based in China’s central Hubei province, YMTC is a maker of flash memory chips used for storage and China’s largest maker of memory chips overall. It is responsible for about 6% of global memory output, according to market tracker TrendForce.

The company last year began shipping a type of advanced memory chip containing 128 layers, putting it within the scope of new U.S. restrictions. More layers allow a chip to store more data.

YMTC is controlled by the Hubei government and China’s national integrated circuit fund. Previously, it was a unit of Chinese chip conglomerate Tsinghua Unigroup Co., which in recent years has been heavily indebted and completed a yearlong asset restructuring in July.

—Asa Fitch contributed to this article.

Chip-Industry Developments, Selected by the Editors

Write to Yoko Kubota at yoko.kubota@wsj.com and Raffaele Huang at raffaele.huang@wsj.com

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

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Business

He nailed three big S&P 500 moves this year. Here’s where this strategist sees stocks headed next, with beaten down names to buy.

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A Wall Street hat trick may not be on the cards, with stocks in the red for Wednesday.

A two-day rally was never a guaranteed exit out of the bear woods anyway, as some say signs of a durable bottom are still missing.

Enter our call of the day, from the chief market technician at TheoTrade, Jeffrey Bierman, who has made a string of prescient calls on what has been a roller coaster year for the index thus far. He’s also a professor of finance at Loyola University Chicago and DePaul University.

Bierman, who uses quant and fundamental analysis to determine market direction, sees the S&P 500
SPX,
-1.62%
finishing the year between 4,000 and 4,200, maybe around 4,135. “Fourth-quarter seasonality favors bulls following a weak third quarter.  Not to mention most stocks are priced for no growth,” he told MarketWatch in a Monday interview.

In December 2021, he forecast the S&P 500 might see a 20% decline within six months, toward 3,900 — it hit 3,930 in early May. In June, he forecast a rally and recovery to 4,300 — the index hit 4,315 by mid-August.

Speaking to MarketWatch on Aug. 25, Bierman saw a retest of around 3,600 for the index, citing an often rough September for stocks. It closed out last month at a new 2022 low of 3,585.

“I think we’re going to end up for the quarter. [The market is] deeply oversold and some stocks are completely mispriced in terms of their valuation metrics,” said Bierman, who is looking squarely at retail and technology sectors.

“The valuations on half the chip stocks are trading below a multiple of seven. I’ve never seen that ever…but what that means is when the semiconductor sector comes back, the multiple expansion is gonna be like a volcanic eruption to the upside,” he said of the sector known for its boom/bust cycles.

For example, he owns Intel
INTC,
-2.53%,
which hit a five-year low on Friday. Eventually, the company that has invested $20 billion in a new U.S. plant will come roaring back alongside rivals like Advanced Micro
AMD,
-4.65%.
“People will look back on this and go ‘Oh, my God, I can’t believe Intel was at five times earnings,’ which is insanity for this stock.”

For the S&P 500 as a whole next twelve months price/earnings is currently 16.13 times, so Intel’s would be less than half of the broader index, according to FactSet

As for retail, he’s been looking at Urban Outfitters
URBN,
-1.06%,
Macy’s
M,
-1.94%
and Nordstrom
JWN,
-0.67%,
all places where millennials don’t shop, but the middle class does, with the all-important holiday shopping period dead ahead.

“There are 100,000 people being hired to work part time at these companies, and their margins are not coming down at all,” with no markdowns and decent sales, he said, noting those companies are being priced at a multiple of 5 times forward earnings.

“It means that you don’t think that Macy’s can put together for the Christmas quarter a comparative quarter, year over year of greater than 5%? If you don’t then don’t buy it, but I do,” said Bierman. “That’s why I’m willing to stick my neck out and buy these things. I bought Abercrombie & Fitch
ANF,
-3.78%
at 10 times earnings…I’ve never seen it that low.”

For those who aren’t comfortable picking stocks, he says they can still get exposure through exchange-traded funds, such as SPDR S&P Retail
XRT,
-2.58%
or the Technology Select Sector SPDR ETF
XLK,
-1.70%.

Bierman adds that investors need to be careful not to be overly concentrated in the top stocks, given “10 stocks accounted for 45% of the Nasdaq and the fact that 25% of the S&P almost accounted for about 50% of the S&P movement.”

“Everbody’s concentrated in 10 stocks that can still fall another 30% or 40%, like Apple and Microsoft. The idea of concentration risk is that everybody owns Apple, everybody owns Amazon,” he said.

And that could force the hand of passive and active managers heavily invested in those big names, driving a 10% drop for markets that “washes away all other stocks.”

The markets

Stocks
DJIA,
-1.21%

SPX,
-1.62%

COMP,
-2.19%
are in the red, and bond yields
TMUBMUSD10Y,
3.783%

TMUBMUSD02Y,
4.199%
are up, along with the dollar
DXYN,
.
Silver
SI00,
-5.00%
is retracing some of this week’s big gains, and bitcoin
BTCUSD,
-2.62%
is also off, trading at just over $20,000. Hong Kong stocks
HSI,
+5.90%
surged 6% in a catch-up move following a holiday. New Zealand’s central bank hiked rates a half point, the fifth increase in a row.

The buzz

Oil prices
CL.1,
-0.02%

BRN00,
+0.28%
are flat as OPEC+ reportedly agreed to cut oil production by 2 million barrels a day. Some say don’t be too impressed by any output reduction.

Amazon
AMZN,
-2.34%
will reportedly freeze corporate hires in its retail business for the remainder of 2022.

Mortgage applications fell to the lowest pace in 25 years in the latest week.

The ADP private-sector payrolls report showed 208,000 jobs added in September. The trade deficit narrowed, which should be good news for third-quarter GDP. The Institute for Supply Management’s services index is due at 10 a.m. Atlanta Fed President Raphael Bostic will also speak.

Expect the spotlight to stay on Twitter
TWTR,
-2.53%
after Tesla
TSLA,
-5.16%
CEO Elon Musk committed to the $44 billion deal. But will it feel like a win once he owns it?

Plus: Elon Musk’s legal battle with Twitter may be over, but his war with the SEC continues

EU countries agreed to impose new sanctions on Russia after the illegal annexation of four Ukraine regions. Those moves will include an expected price cap on Russian oil.

South Korea’s missile fired in response to North Korea’s weapon launch over Japan, crashed and burned.

Best of the web

Russians fleeing Putin’s mobilization are finding haven in poor, remote countries.

Consumers are throwing away perfectly good food because of ‘best before’ labels.

The CEO of an election software company has been arrested on accusations of ID theft.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker Security name
TSLA,
-5.16% 		Tesla
GME,
-7.59% 		GameStop
AMC,
-9.56% 		AMC Entertainment
TWTR,
-2.53% 		Twitter
NIO,
-5.92% 		NIO
AAPL,
-1.77% 		Apple
APE,
-8.40% 		AMC Entertainment preferred shares
BBBY,
-8.52% 		Bed Bath & Beyond
AMZN,
-2.34% 		Amazon
DWAC,
-0.64% 		Digital World Acquisition Corp.
The chart

More market-bottom talk:


Twitter

Random reads

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An iPhone in a 162-year old painting? The internet is stumped.

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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

Broadcom in Talks to Pay About $60 Billion for VMware

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Broadcom Inc.

AVGO -3.10%

is in talks to pay around $60 billion for

VMware Inc.,

VMW 24.78%

people familiar with the matter said, in what would be one of the biggest takeover deals of the year.

The two technology companies are aiming to announce a cash-and-stock deal worth about $140 a share on Thursday, assuming the talks don’t fall apart, the people said. The price wasn’t yet set and could still move around, some of the people cautioned.

To help pay for the deal, Broadcom plans to tap a handful of banks for a roughly $40 billion debt package, one of the people said.

The VMware discussions, together with Elon Musk’s agreement late last month to buy Twitter Inc. for $44 billion, show that despite market volatility, major deals are still doable. That’s in part because market declines have made acquisition targets more affordable and because sellers in some cases are more willing to accept stock as currency, in the hopes that they will benefit when it rebounds. Private-equity firms, meanwhile, remain flush with cash.

Still, the volume of mergers and acquisitions is down from the brisk pace of last year. Companies in the U.S. have struck $789.5 billion of mergers so far this year, down 31% from the same period in 2021, as market swings and broader economic uncertainty give many deal makers pause. IPO activity, meanwhile, has come to a virtual standstill as would-be public companies wait for calmer waters.

Microsoft Corp.’s pending acquisition of videogame heavyweight Activision Blizzard Inc. for roughly $75 billion currently registers as the biggest takeover of this year.

VMware’s shares closed up nearly 25% at $119.49 on Monday on news of the talks. The shares got a late boost when The Wall Street Journal reported the expected price, giving the company a market value of over $50 billion. Shares of Broadcom, a semiconductor-software conglomerate, closed down roughly 3%, giving it a market value of around $215 billion.

A price of $140 a share would represent a premium of nearly 50% to where VMware closed Friday, but is still well below the high of more than $200 the stock reached in the spring of 2019.

The deal discussions, which picked up pace in recent days, come roughly six months after computing pioneer Dell Technologies Inc. spun off its 81% equity stake in VMware. The software company has a strong position in the market for “hybrid” cloud, where large companies mix public cloud services like those of

Amazon.com Inc.

and Microsoft with their own private networks.

Dell founder

Michael Dell

remains chairman of VMware. He and private-equity firm Silver Lake, which helped take Dell private in 2013, together control a more-than-50% stake in VMware. That gives them significant influence over the VMware’s decisions and potentially puts them at odds with other shareholders, the company has warned in its securities filings.

Broadcom, a semiconductor powerhouse built largely through acquisitions, has been on the hunt for a deal to beef up its presence in the corporate-software market. It came close to buying software company SAS Institute Inc. last year before the closely held company’s founders had a change of heart. Its first big foray into software was its roughly $19 billion acquisition of CA Technologies in 2018.

The demand for cloud computing, which enables customers to rent computing horsepower rather than invest in their own, has exploded in recent years. Startups and other businesses that couldn’t support in-house IT departments were among the earliest cloud adopters, but now companies across nearly every industry rely on it.

VMware is roughly a year into a new regime after company veteran

Raghu Raghuram

took over the role of chief executive when

Pat Gelsinger

departed to run

Intel Corp.

VMware is set to report earnings Thursday, while Broadcom reports next week.

Write to Cara Lombardo at cara.lombardo@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

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Business

Why is the stock market falling? Dow drops nearly 900 points as investors weigh Fed’s policy path, earnings

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U.S. stocks fell sharply Friday, as investors continued to weigh hawkish comments on interest rates by Federal Reserve Chairman Jerome Powell a day earlier, as well as a fresh batch of corporate earnings that largely disappointed.

How are stocks trading?
  • The Dow Jones Industrial Average
    DJIA,
    -2.18%
    was down 879 points, or 2.5%, at 33,914.
  • The S&P 500
    SPX,
    -2.18%
    fell 107 points, or 2.4%, to 4,286, and was on track for a third straight weekly fall.
  • The Nasdaq Composite
    COMP,
    -2.03%
    shed 298 points, or 2.3%, to trade at 12,875.

On Thursday, the Dow shed 368.03 points, or 1.1%, reversing a gain of as much as 331.43 points in intraday trading. The more-than 700-point intraday swing was its biggest since March 8, according to Dow Jones Market Data. The S&P 500 fell 1.5%, while the Nasdaq Composite slumped 2.1%.

What’s driving the market?

Stock-market weakness picked up Friday where Thursday’s selloff left off, when equities tumbled into the afternoon after Powell added his support for moving faster on raising interest rates to cool inflation, measures that would include a possible 50 basis point interest rate hike in May.

“It would seem investors have been too complacent about the upcoming [Fed] meeting, which will need to change,” said Michael Kramer, founder of Mott Capital, in a note.

The Cboe Volatility Index
VIX,
+20.55%,
an options-based measure of expected volatility over the next 30 days, had been too low heading into the May 3-4 Federal Open Market Committee, or FOMC, meeting, Kramer said. It rose Thursday and was up another 19.5% at 27.1- on Friday, moving above its long-term average just below 20.

Powell’s remarks appeared to make a half percentage point rate hike the base case, with the central bank also likely to announce the beginning of the unwinding of its balance sheet, Kramer said.

Meanwhile, traders of fed funds futures have priced in a 94% chance that the Federal Reserve will deliver a 75 basis point rate hike in June, up from 70% on Thursday and 28% a week ago, according to the CME FedWatch Tool. 

The benchmark 10-year Treasury yield 
TMUBMUSD10Y,
2.895%,
meanwhile, pulled back slightly to around 2.89% after climbing about 8.1 basis points to 2.917% on Thursday, the highest since Dec. 4, 2018.

Read: How to invest as inflation, higher interest rates and war roil markets

And some are warning that the Nasdaq is looking particularly vulnerable. The week has delivered some big earnings news for the technology sector, with investors cheering Thursday’s results from Tesla
TSLA,
-0.12%,
on the heels of deeply disappointing Netflix
NFLX,
-0.91%
results.

The Fed’s hawkish shift and the relentless rise in Treasury yields may be sapping the previous appeal of equities, which had previously been seen as the only viable avenue for many return-seeking investors.

“Investors appear to be moving away from the TINA (There is no Alternative) narrative as of late when it comes to equities,” said Brian Price, head of investment management at Commonwealth Financial Network, in a note. “This is the second straight week of significant outflows from equity mutual funds and days like today are unlikely to change the sentiment moving forward. The one positive takeaway may be that sentiment has become too bearish and we could see a countertrend rally at some point in the coming weeks.”

In One Chart: Investors just pulled a massive $17.5 billion out of global equities. They’re just getting started, says Bank of America.

All 11 major S&P 500 sectors fell Friday, with healthcare stocks dropping the most after a downbeat profit forecast from HCA Healthcare Inc.
HCA,
-20.47%
sent its shares tumbling. Other hospital operators, including Tenet Healthcare Corp.
THC,
-13.49%,
Community Health Systems Inc.
CYH,
-17.36%
and Universal Health Services
UHS,
-12.70%
also fell between 10.4% and 13.2%.

However, of the 99 companies in the S&P 500 that have reported earnings for the first quarter, 77.8% of them have beat market expectations. Typically, 66% of companies beat estimates, according to Refinitiv data.

Next week will mark another big week for earnings, with 558 companies reporting, Saxo noted. “It is the big test of companies’ ability to pass on costs to their customers,” they said.

Investors may also be skittish ahead of the final round of France’s presidential election on Sunday. An upset victory by far-right candidate Marine Le Pen over incumbent Francois Macron would likely spark market volatility, analysts said.

See: Here’s how markets are positioned for Sunday’s presidential election in France between Macron and Le Pen

What companies are in focus?
  • HCA shares were down 19.6%, on pace for their largest percentage decrease since March 16, 2020, when they fell 19.02%, according to Dow Jones Market Data.
  • Gap Inc.
    GPS,
    -18.51%
    stock tumbled nearly 19%, following a bigger-than-expected drop in sales and as the retailer announced the depature of Old Navy CEO Nancy Green.
  • Shares of Qualtrics International Inc.
    XM,
    -9.41%
    fell 9.5% after the experience-management software company reported fiscal first-quarter forecast-beating revenue.
  • Snap Inc.
    SNAP,
    -0.27%
    shares lost 0.7% after the social media group reported quarterly revenue that fell short of Wall Street’s expectations.
  • Shares of American Express Co.
    AXP,
    -1.87%
    fell 1.4% after topping earnings expectations Friday amid a continued rebound in travel and strong spending trends among younger consumers.
  • Verizon Communications Inc.
    VZ,
    -5.30%
    fell after its earnings report showed a net loss of postpaid phone subscribers in its latest quarter, calling out “competitive dynamics within the industry,” though it said it had its best quarter of broadband net additions in more than a decade.
How are other assets trading?
  • The ICE U.S. Dollar Index 
    DXY,
    +0.56%
     rose 0.7% to trade at its highest since March 2020.
  • Bitcoin 
    BTCUSD,
    -2.51%
    fell 2.4% to trade near $39,500.
  • The U.S. oil benchmark
    CL.1,
    -1.90%
     fell $1.72, or 1.7%, to settle at $102.07 a barrel on the New York Mercantile Exchange, falling 4.1% for the week.
  • Gold
    GC00,
    -0.60%
    fell $13.90, or 0.7%, to settle at $1,934.30 an ounce, leaving a 2.1% weekly fall.
  • The Stoxx Europe 600
    SXXP,
    -1.79%
    dropped 1.5% while London’s FTSE 100 
    UKX,
    -1.39%
    fell 1.4%.
  • The Shanghai Composite 
    SHCOMP,
    +0.23%
     rose 0.2%, while the Hang Seng Index 
    HSI,
    -0.21%
    slipped 0.2% in Hong Kong and Japan’s Nikkei 225 
    NIK,
    -1.63%
    fell 1%.

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Business

Nvidia stock stumbles after Baird voices concern about graphics business

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Shares of Nvidia Corp. shares were slipping Monday after an analyst took a more cautious outlook on the company’s gaming business.

Baird’s Tristan Gerra downgraded Nvidia’s stock
NVDA,
-5.20%
to neutral from outperform, writing of his concerns about excess inventory for consumer graphics processing units (GPUs). The shares were off 5.1% in afternoon trading.

“We believe order cancellations recently started in consumer GPUs, driven by excess inventories, a slowdown in consumer demand (reflected by an ongoing reduction in graphic cards pricing), slowdown in PC demand, and the Russia embargo,” he wrote in a note to clients.

Gerra thinks that the consensus view might be underestimating the percentage of Nvidia’s consumer GPU business that’s linked to Russia. Additionally, he believes that demand has dampened in China, which he said represents an estimated 25% to 30% of the market for consumer GPUs.

Further, he worries about the upcoming Ethereum fork, which is expected to drive reselling of GPUs no longer needed for Ethereum mining. That dynamic could put additional pressure on prices, Gerra wrote.

Read: Ethereum’s major upgrade is coming. Should you be more bullish on it than bitcoin?

He now projects that Nvidia’s gaming revenue could be flat to slightly up on a sequential basis in the fiscal second quarter, as well as down by a mid-single-digit rate in the fiscal third quarter.

Gerra said that the forecast for Nvidia’s data-center revenue is still “very strong,” though he has questions about “whether new expected delays in the ramp of Sapphire Rapids could impact mainstream server refreshes in C2H and affect shipments later this year.”

He lowered his price target on Nvidia’s stock to $225 from $360. The shares have lost 21.2% over the past three months, as the S&P 500
SPX,
-1.69%
has dropped 6.0%.

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Business

Cisco Made $20 Billion-Plus Takeover Offer for Splunk

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Cisco Systems Inc.

CSCO -1.77%

has made a takeover offer worth more than $20 billion for software maker

Splunk Inc.,

SPLK -2.76%

according to people familiar with the matter.

The offer was made recently and the companies aren’t currently in active talks, some of the people said.

Should there be a deal, it would be Cisco’s biggest ever, eclipsing the roughly $7 billion acquisition of Scientific Atlanta in 2005. Its most recent deal of size was its nearly $5 billion purchase of Acacia Communications Inc. in 2021.

Splunk is currently searching for a chief executive after

Doug Merritt

stepped down from the role in November after roughly six years following a series of disappointing earnings reports. The company named Chairman

Graham Smith

as interim CEO, a position he still holds.

Splunk shares rose sharply early in the pandemic as did those of a number of other technology companies with strong growth potential, but have almost fallen in half since then.

It isn’t clear whether other potential suitors are circling Splunk.

Splunk, founded in 2003, makes software used by companies’ information-technology and security operations to monitor and analyze data.

San Jose, Calif.-based Cisco sells routers, switches and security services as well as software products such as its Webex meeting application.

Cisco’s interest shows that the networking giant—a serial acquirer, but usually of smaller companies—has an appetite for big deals.

And it has the wherewithal, with a market value of around $235 billion and more than $20 billion in cash and short-term investments.

Software has been a hot corner of the M&A market lately, with a number of companies in the sector being snapped up by private-equity firms or other industry players. In one of the latest examples,

Citrix Systems Inc.

agreed to be taken private by a pair of private-equity firms in an acquisition valued at $16.5 billion, including debt.

Splunk said in June that technology-focused private-equity firm Silver Lake was making a $1 billion investment in the company to help support the transformation of the business. Splunk has been shifting from a traditional software-licensing arrangement to a cloud-based subscription model. An increase in the shares on news of that investment had evaporated by the close of trading Friday.

Cisco is set to report its fiscal second-quarter earnings Feb. 16, while Splunk reports March 2.

Write to Dana Cimilluca at dana.cimilluca@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

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Business

SoftBank Pitches IPO for Arm After Deal With Nvidia Falls Through

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TOKYO—After a deal that could have been worth $80 billion to his company fell apart,

SoftBank Group Corp.

9984 5.85%

Chief Executive

Masayoshi Son

is playing salesman for Plan B—an initial public offering of chip designer Arm.

Mr. Son sounded as if he were on a roadshow for investors at a news conference in Tokyo on Tuesday. He said Arm is entering a “golden period” of high demand for the chips it helps create in smartphones, electric vehicles and computer-server farms operated by the likes of

Amazon.com Inc.

The pitch came hours after the Japanese investment and technology conglomerate said it was abandoning plans to sell Arm to Nvidia Corp.—in what would have been the largest semiconductor deal on record—because antitrust concerns stood in the way.

Mr. Son said he was surprised to see the backlash not only from U.S. regulators who sued to block the deal in December but also big tech companies that rely on Arm’s chip designs.

“We saw strong opposition because Arm is one of the most important and essential companies that most companies in the IT industry or in Silicon Valley rely on, either directly or indirectly,” he said.

SoftBank paid $32 billion when it acquired the U.K.-based chip business in 2016. Mr. Son said the sale to Nvidia, under which SoftBank would have received both cash and Nvidia shares, could have been worth $80 billion because of a rise in Nvidia’s share price.

SoftBank now plans to pursue a public listing of Arm by March 2023. Arm shares will most likely be listed on the tech-heavy

Nasdaq Stock Market

in the U.S. because many of Arm’s clients are based in Silicon Valley, Mr. Son said.

He said SoftBank didn’t intend to keep Arm for itself because he wanted outside investors in the SoftBank-led Vision Fund, which owns a quarter of Arm, to be able to cash in through an IPO and because he wanted to give stock options as incentives to Arm employees.

Uncertainties linger around an Arm IPO, including whether the volatile semiconductor business will stay hot through this year.

Chinese tech stocks popular among U.S. investors have tumbled amid the country’s regulatory crackdown on technology firms. WSJ explains some of the new risks investors face when buying shares of companies like Didi or Tencent. Photo Composite: Michelle Inez Simon

Tech shares have fallen recently because of tightening by the Federal Reserve. Fumio Matsumoto, chief strategist at

Okasan Securities,

said that made the timing for a big IPO less than ideal, and he also observed that a strategic buyer in the chip industry might pay more for Arm because of the potential synergy effects.

Still, Mr. Matsumoto said the downturn in Silicon Valley also offered opportunities for Mr. Son, and it made sense to raise cash for his war chest from an Arm IPO. “Because technology share prices have gone through a sharp correction over the past year, we are seeing a good cycle to consider preparing” for new investments, Mr. Matsumoto said.

After a rough patch a few years ago, Arm is on track for $2.5 billion in revenue this fiscal year, which ends in March, up from $1.98 billion the previous year, SoftBank said. Arm’s operating profit, according to one type of calculation used by SoftBank, more than doubled over the past two years to a projected $900 million this fiscal year.

An array of consumer electronics companies as well as semiconductor companies, including

Apple Inc.,

Samsung Electronics Co.

and

Qualcomm Inc.,

use Arm’s designs in at least some of their chips. The designs are known for their low power consumption, making them nearly ubiquitous in mobile devices.

The collapse of the Arm deal is just one of the challenges Mr. Son is tackling in his globe-spanning investment portfolio. He said “we are in pain” over China’s crackdown on its big tech companies, which hit SoftBank investments including its most valuable one, e-commerce giant Alibaba Group Holding Ltd.

The past two years have seen some of the wildest swings in the four decades since Mr. Son started SoftBank. The pandemic, initially seen as a blow, soon emerged as a boon for many technology businesses including those in which SoftBank has invested. SoftBank shares surged, only to fall by half from their recent peak when the China troubles hit and the Arm deal ran aground.

SoftBank’s net asset value, Mr. Son’s preferred measure of the company’s finances, fell by ¥1.6 trillion, equivalent to about $14 billion, in the October-December quarter to ¥19.3 trillion. That is a fall of 30% from the peak in September 2020 and the lowest level since 2017.

Mr. Son blamed the sharp fall in Alibaba shares. The Chinese company, which once made up the majority of SoftBank’s net assets, now accounts for less than a quarter of the total.

SoftBank said it unloaded a small number of Alibaba shares to settle contracts with its lenders, but Mr. Son said SoftBank’s stake in the Chinese company remained close to a quarter.

Mr. Son, who turns 65 this year, has lost a number of top lieutenants in recent years, including Chief Operating Officer

Marcelo Claure,

who stepped down in January after a pay dispute. Mr. Son said that while he was grooming successors, he didn’t intend to step down soon.

“If I stop, I’d become an old grandpa very quickly,” he said. He boasted that when he went bowling recently, he topped 200 points in two different rounds—a fine score for an amateur. “I thought, ‘Hey, I’m still pretty young,’ ” he said.

—Sam Schechner in Paris contributed to this article.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com and Peter Landers at peter.landers@wsj.com

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