SE agreed to revive orders for close to 75 aircraft from Qatar Airways after reaching a settlement with the Middle East airline over a long-running dispute about chipping paint on its A350 wide-body models.
A spokesman for Airbus said it would now go ahead with delivering 50 A321 narrow-bodies and 23 remaining A350 twin-aisles previously ordered by Qatar.
The orders had been scrapped as part of an escalating, multibillion-dollar legal battle over the paint issue, which the airline had claimed could pose a safety concern. Airbus repeatedly denied the claims.
Airbus and Qatar Airways earlier Wednesday said in a joint statement that they had reached an “amicable and mutually agreeable settlement” in relation to the legal dispute. The companies didn’t disclose the details of the settlement other than to say the agreement didn’t amount to an admission of liability from either party. A program to repair the degradation on Qatar’s current fleet is under way, the companies added.
Qatar Airways had previously grounded 29 of its A350 jets and refused new deliveries over the issue, reducing its capacity amid a surge in travel to Doha for the 2022 FIFA World Cup. The airline has said the peeling paint was exposing the meshed copper foil that is designed to protect the aircraft from lightning strikes.
That led Qatar Airways to initiate legal proceedings against Airbus in London, in which the carrier had sought damages partly based on the impact on its operations from not being able to use the aircraft. A possible trial had been scheduled for later this year.
While the paint issue has also affected other A350s in service at other Airbus customers, only Qatar Airways had taken the step to unilaterally ground the aircraft. Airbus and the European Union Aviation Safety Agency, which oversees the Toulouse, France-based plane maker, have insisted that the issue is only cosmetic.
The situation had led to a broad fallout between Airbus and one of its biggest customers. In August, Airbus ended all new business with Qatar Airways, canceling contracts valued at more than $13 billion according to the latest available list prices and before the hefty discounts plane makers typically give to customers.
After Airbus canceled a deal to sell Qatar Airways 50 of its A321 jets, the Gulf carrier ordered up to 50 of rival
Boeing Co.
’s 737 MAX 10 single-aisle jets within two weeks. Qatar Airways had previously canceled most of an existing MAX order in 2020 after receiving five of the planes.
Airbus lawyers alleged that Qatar Airways had exaggerated concerns about the issue in an attempt to claim compensation and refuse delivery of aircraft that it didn’t need as the pandemic hit demand for air travel. The plane maker complained in court that the airline and its regulator, the Qatar Civil Aviation Authority, had failed to provide documentation that showed the technical justifications behind grounding the aircraft.
Qatar Airways has said it provided images of the damage, which it purported showed the scale of the issue and the potential safety risk.
Qatar Airways Chief Executive
Akbar Al Baker
has long had a reputation as a tough customer, publicly lashing out at both Airbus and Boeing when he perceives delivery or quality issues.
The headline-grabbing expansion of layoffs beyond high-growth technology companies stands in contrast to historically low levels of jobless claims and news that companies such as
Chipotle Mexican Grill Inc.
and
Airbus SE
are adding jobs.
This week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces.
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Unlike
Microsoft Corp.
and Google parent
Alphabet Inc.,
which announced larger layoffs this month, these companies haven’t expanded their workforces dramatically during the pandemic. Instead, the leaders of these global giants said they were shrinking to adjust to slowing growth, or responding to weaker demand for their products.
“We are taking these actions to further optimize our cost structure,”
Jim Fitterling,
Dow’s chief executive, said in announcing the cuts, noting the company was navigating “macro uncertainties and challenging energy markets, particularly in Europe.”
The U.S. labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years. The Labor Department will release January employment data next week.
Economists from Capital Economics estimate a further slowdown to an increase of 150,000 jobs in January, which would push job growth below its 2019 monthly average, the year before pandemic began.
There is “mounting evidence of weakness below the surface,”
Andrew Hunter,
senior U.S. economist at Capital Economics wrote in a note to clients Thursday.
Last month, the unemployment rate was 3.5%, matching multidecade lows. Wage growth remained strong, but had cooled from earlier in 2022. The Federal Reserve, which has been raising interest rates to combat high inflation, is looking for signs of slower wage growth and easing demand for workers.
Many CEOs say companies are beginning to scrutinize hiring more closely.
Slower hiring has already lengthened the time it takes Americans to land a new job. In December, 826,000 unemployed workers had been out of a job for about 3½ to 6 months, up from 526,000 in April 2022, according to the Labor Department.
“Employers are hovering with their feet above the brake. They’re more cautious. They’re more precise in their hiring,” said
Jonas Prising,
chief executive of
ManpowerGroup Inc.,
a provider of temporary workers. “But they’ve not stopped hiring.”
Additional signs of a cooling economy emerged on Thursday when the Commerce Department said U.S. gross domestic product growth slowed to a 2.9% annual rate in the fourth quarter, down from a 3.2% annual rate in the third quarter.
Not all companies are in layoff mode.
Walmart Inc.,
the country’s biggest private employer, said this week it was raising its starting wages for hourly U.S. workers to $14 from $12, amid a still tight job market for front line workers. Chipotle Mexican Grill Inc. said Thursday it plans to hire 15,000 new employees to work in its restaurants, while plane maker Airbus SE said it is recruiting over 13,000 new staffers this year. Airbus said 9,000 of the new jobs would be based in Europe with the rest spread among the U.S., China and elsewhere.
General Electric Co.
, which slashed thousands of aerospace workers in 2020 and is currently laying off 2,000 workers from its wind turbine business, is hiring in other areas. “If you know any welders or machinists, send them my way,” Chief Executive
Larry Culp
said this week.
Annette Clayton,
CEO of North American operations at
Schneider Electric SE,
a Europe-headquartered energy-management and automation company, said the U.S. needs far more electricians to install electric-vehicle chargers and perform other tasks. “The shortage of electricians is very, very important for us,” she said.
Railroad CSX Corp. told investors on Wednesday that after sustained effort, it had reached its goal of about 7,000 train and engine employees around the beginning of the year, but plans to hire several hundred more people in those roles to serve as a cushion and to accommodate attrition that remains higher than the company would like.
Freeport-McMoRan Inc.
executives said Wednesday they expect U.S. labor shortages to continue to crimp production at the mining giant. The company has about 1,300 job openings in a U.S. workforce of about 10,000 to 12,000, and many of its domestic workers are new and need training and experience to match prior expertise, President
Kathleen Quirk
told analysts.
“We could have in 2022 produced more if we were fully staffed, and I believe that is the case again this year,” Ms. Quirk said.
The latest layoffs are modest relative to the size of these companies. For example, IBM’s plan to eliminate about 3,900 roles would amount to a 1.4% reduction in its head count of 280,000, according to its latest annual report.
As interest rates rise and companies tighten their belts, white-collar workers have taken the brunt of layoffs and job cuts, breaking with the usual pattern leading into a downturn. WSJ explains why many professionals are getting the pink slip first. Illustration: Adele Morgan
The planned 3,000 job cuts at SAP affect about 2.5% of the business-software maker’s global workforce. Finance chief
Luka Mucic
said the job cuts would be spread across the company’s geographic footprint, with most of them happening outside its home base in Germany. “The purpose is to further focus on strategic growth areas,” Mr. Mucic said. The company employed around 111,015 people on average last year.
Chemicals giant Dow said on Thursday it was trimming about 2,000 employees. The Midland, Mich., company said it currently employs about 37,800 people. Executives said they were targeting $1 billion in cost cuts this year and shutting down some assets to align spending with the macroeconomic environment.
Manufacturer
3M Co.
, which had about 95,000 employees at the end of 2021, cited weakening consumer demand when it announced this week plans to eliminate 2,500 manufacturing jobs. The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said it expects lower sales and profit in 2023.
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“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets,” 3M Chief Executive
Mike Roman
said during an earnings conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”
Hasbro Inc.
on Thursday said it would eliminate 15% of its workforce, or about 1,000 jobs, after the toy maker’s consumer-products business underperformed in the fourth quarter.
Some companies still hiring now say the job cuts across the economy are making it easier to find qualified candidates. “We’ve got the pick of the litter,” said
Bill McDermott,
CEO of business-software provider
ServiceNow Inc.
“We have so many applicants.”
At
Honeywell International Inc.,
CEO
Darius Adamczyk
said the job market remains competitive. With the layoffs in technology, though, Mr. Adamczyk said he anticipated that the labor market would likely soften, potentially also expanding the applicants Honeywell could attract.
“We’re probably going to be even more selective than we were before because we’re going to have a broader pool to draw from,” he said.
Across the corporate sphere, many of the layoffs happening now are still small relative to the size of the organizations, said
Denis Machuel,
CEO of global staffing firm Adecco Group AG.
“I would qualify it more as a recalibration of the workforce than deep cuts,” Mr. Machuel said. “They are adjusting, but they are not cutting the muscle.”
Write to Chip Cutter at chip.cutter@wsj.com and Theo Francis at theo.francis@wsj.com
said it is cutting 2,500 manufacturing jobs globally as the company confronts turbulence in overseas markets and weakening consumer demand.
The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said Tuesday that it expects lower sales and profit in 2023 after demand weakened significantly in late 2022, pulling down quarterly performance.
The St. Paul, Minn., company forecast sales this year to slip from last year’s level with weak demand for consumer products and electronic items, particularly smartphones, tablets and televisions, for which 3M provides components. Fourth-quarter sales for 3M’s consumer business dropped nearly 6% from the same period a year earlier.
“Consumers sharply cut discretionary spending and retailers adjusted their inventory levels,” 3M Chief Executive
Mike Roman
said during a conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”
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3M shares were down 5.2% at $116.25 Tuesday afternoon, while major U.S. stock indexes were little changed.
The company said demand for its disposable face masks is receding, as healthcare providers spend less on Covid-19 measures, and mask demand returns to prepandemic levels. 3M said it expects mask sales to decline between $450 million and $550 million this year from 2022.
3M executives said the spread of Covid infections in China is weighing on sales there, and sporadic plant closings are interrupting industrial production. China also is reducing production of consumer electronics because of weakening consumer demand, they said, and 3M’s exit from its business in Russia last year will also contribute to lower sales this year.
The 2,500 layoffs represent roughly 2.6% of the company’s workforce, which a regulatory filing said was about 95,000 at the end of 2021. Mr. Roman declined to specify where the job cuts will take place, or whether the company might make further reductions as it reviews its supply chains and prepares to spin off its healthcare unit.
“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets and we focus on driving improvements,” he said.
The company said it would take a pretax restructuring charge in the first quarter of $75 million to $100 million.
Mr. Roman said the job cuts were unrelated to litigation facing the company. 3M is defending against allegations that the so-called forever chemicals it has produced for decades have contaminated soil and drinking water. It is also involved in litigation over foam earplugs its subsidiary Aearo Technologies LLC sold to the military. About 230,000 veterans have filed complaints in federal court alleging the earplugs failed to protect them from service-related hearing loss.
3M has said the earplugs were effective when military personnel were given sufficient training on how to use them. In litigation over firefighting foam that incorporated forms of forever chemicals, 3M is expected to argue that the products were produced to U.S. military specifications, granting the company legal protection as a government contractor.
In both cases, Mr. Roman said the company is focused on finding a way forward.
3M said the strong value of the U.S. dollar continues to erode sales from other countries when foreign currencies are converted to dollars.
The company forecast that sales for the quarter ending March 31 will be down 10% to 15% from the same period last year. For the full year, the company projects sales to fall between 6% and 2%, and expects adjusted earnings of $8.50 a share to $9 a share. The company earned $10.10 a share in 2022, excluding special charges, and analysts surveyed by FactSet were expecting the company to earn $10.22 in 2023.
For the fourth quarter, the company posted a profit of $541 million, or 98 cents a share, compared with $1.34 billion, or $2.31 a share, a year earlier.
Stripping out one-time items, including costs tied to exiting the company’s operations making forever chemicals, adjusted earnings came to $2.28 a share. Analysts were looking for adjusted earnings of $2.36 a share, according to FactSet.
Sales fell 6% to $8.08 billion for the quarter, slightly topping expectations of analysts surveyed by FactSet.
Mr. Roman said there were promising signs for some of 3M’s businesses, including in biopharma processing, home improvement and automotive electrification, the last of which he said grew 30% in 2022 to become a roughly $500 million business.
“There’s more to it than consumer electronics, but certainly the consumer-electronics dynamics are the story of the day,” he said.
Write to John Keilman at john.keilman@wsj.com and Bob Tita at robert.tita@wsj.com
has disclosed a nearly $7 billion offer to acquire
National Instruments Corp.
NATI 10.79%
, which it said it has been trying to buy for more than eight months.
Emerson, a St. Louis-based technology and engineering company, said it was offering $53 a share in cash for National Instruments, which it said represents an enterprise value of $7.6 billion. The offer represents a 32% premium over National Instruments’ closing price from last Thursday, the day before the Texas-based equipment and instrumentation company said its board was evaluating strategic alternatives and had already been approached by potential acquirers.
Emerson’s public proposal comes eight months after National Instruments rejected its offer for an acquisition at $48 a share, the company said. Emerson upped its bid to $53 a share in November, but now claims National Instruments has continued to spurn its advances.
National Instruments confirmed Tuesday that it had received Emerson’s offer but said it remains committed to the strategic review process it announced on Friday.
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By making the offer public, Emerson is hoping to win over shareholders who until now “have been unaware of this opportunity to realize an immediate cash premium,” Chief Executive
Lal Karsanbhai
said Tuesday in a conference call.
“Emerson urges NI shareholders to engage with their board to ensure this public strategic review process is not merely another delay tactic,” he said.
National Instruments’ shares jumped more than 10% to $52.04 by the close of the Tuesday market. Emerson’s shares meanwhile fell almost 7% to a low of nearly $91 in one of their steepest drops since June 2020, according to Dow Jones Market Data.
Emerson said that picking up National Instruments’ portfolio of electronic test and measurement offerings would bolster its automation business while also adding to its adjusted earnings within the first year. The company isn’t putting any financing conditions on the deal, saying it can fund the transaction with cash on hand and existing lines of credit.
On a call with analysts, the company detailed eight months of snubs from the National Instruments board that started in May, when Emerson said it reached out for an in-person meeting about a potential deal and was instead offered a phone call with management. Emerson sent a formal letter soon after with its all-cash $48-per-share offer, but National Instruments turned it down, the company said.
National Instruments continued to rebuff offers to negotiate privately in the months that followed, Emerson said.
Emerson also noted that National Instruments purchased more than two million of its own shares at an average weighted price of $40.25 during that time. Mr. Karsanbhai criticized the company on Tuesday for launching one of its largest-ever buybacks for a per-share price that was well below Emerson’s offer.
Emerson reached out with its improved offer on Nov. 3 to buy National Instruments for $53 a share, which marked a 45% premium to the company’s share price at market close that day. The National Instruments board responded at the time that it had formed a working group to evaluate the proposal and weigh its strategic options, but otherwise refused to engage with Emerson, Emerson said.
National Instruments said Tuesday that it welcomes Emerson’s participation in its strategic review process but also thinks that negotiating exclusively with the company “would be detrimental to shareholders.”
“NI notes Emerson’s expressed disappointment in this effort to maximize NI shareholder value,” the company said.
Only in the past two years has the U.S. fully grasped that semiconductors are now as central to modern economies as oil.
In the digitizing world, power tools commonly come with Bluetooth chips that track their locations. Appliances have added chips to manage electricity use. In 2021, the average car contained about 1,200 chips worth $600, twice as many as in 2010.
The supply-chain crunch that created a chip shortage brought the lesson home. Auto makers lost $210 billion of sales last year because of missing chips, according to consulting firm AlixPartners. Competition with China has stoked concerns that it could dominate key chip sectors, for either civilian or military uses, or even block U.S. access to components.
Now the government and companies are spending billions on a frenetic effort to build up domestic manufacturing and safeguard the supply of chips. Since 2020, semiconductor companies have proposed more than 40 projects across the country worth nearly $200 billion that would create 40,000 jobs, according to the Semiconductor Industry Association.
It’s a big bet on an industry that is defining the contours of international economic competition and determining countries’ political, technological and military advantage.
“Where the oil reserves are located has defined geopolitics for the last five decades,”
Intel Corp.
INTC -0.59%
Chief Executive
Pat Gelsinger
declared at a Wall Street Journal conference in October. “Where the chip factories are for the next five decades is more important.”
President Biden at the groundbreaking ceremony for a new Intel semiconductor manufacturing facility in Ohio in September.
Photo:
James D. DeCamp/Zuma Press
As oil became a linchpin of industrial economies in the 1900s, the U.S. became one of the world’s largest producers. Securing the semiconductor supply is more complicated. While one barrel of oil is much like another, semiconductors come in a bewildering range of types, capabilities and costs and depend on a multilayered supply chain spanning thousands of inputs and numerous countries. Given the economies of scale, the U.S. can’t produce all of these itself.
“There’s zero leading-edge production in the U.S.,” said Mike Schmidt, who heads the Department of Commerce office overseeing the implementation of the Chips and Science Act, signed into law by President Biden in August, which directs $52 billion in subsidies to semiconductor manufacturing and research. “We are talking about making the U.S. a global leader in leading-edge production and creating self-sustaining dynamics going forward. There’s no doubt it’s a very ambitious set of objectives.”
The recent shortages that hurt the most didn’t necessarily involve the most expensive chips.
Jim Farley,
Ford Motor Co.
’s chief executive, told a gathering of chip executives in San Jose, Calif., in November that factory workers, meaning workers in North America, had worked a full week only three times since the beginning of that year because of chip shortages. A lack of simple chips, including 40-cent parts needed for windshield-wiper motors in F-150 pickup trucks, left it 40,000 vehicles short of production targets.
Until 2014, machines that treat sleep apnea made by San Diego-based
ResMed Inc.
each contained just one chip, to handle air pressure and humidity. Then ResMed started putting cellular chips into the devices that beamed nightly report cards on users’ sleep patterns to their smartphones and to their doctors.
As a result, regular usage by users climbed from just over half to about 87%. Because mortality is lower for sleep-apnea sufferers who consistently use their devices, a relatively simple chip could help save lives.
An employee assembled ResMed’s sleep apnea devices in Singapore on Dec. 27.Ore Huiying for The Wall Street Journal
ResMed redesigned its machines during the chip shortage.Ore Huiying for The Wall Street Journal
ResMed’s sleep apnea devices are assembled in Singapore.Ore Huiying for The Wall Street Journal
ResMed couldn’t get enough of the cellular chips during the chip shortage when demand for its machines went up, in part because a competitor’s devices were recalled. Some suppliers reneged on supply agreements. Patients faced monthslong waits.
Chief Executive
Mick Farrell
said he implored longstanding suppliers to give priority to his equipment, though his orders were relatively small. “I asked for more, more and more, and to please prioritize us,” he said. “This is a case of life and death—we’re not just asking for something that makes you feel better.”
The company redesigned its machines, which are assembled in Singapore and Sydney, to replace the chips in short supply with others more readily available. It sought out new chip suppliers. It even rolled back the clock and released a version of a device without the cellular chip.
Though the chip shortage has abated somewhat and the company’s newest breathing devices have the cellular chip back, Mr. Farrell worries chip supply could be a bottleneck.
In May, he was one of a group of medical-technology CEOs who pleaded with Commerce Secretary Gina Raimondo on a conference call for help. Ms. Raimondo’s staff asked other federal agencies to designate medical equipment as essential and helped connect buyers directly to manufacturers to bypass distributors.
Such pleas also lent urgency to the Biden administration’s efforts, led by Ms. Raimondo, to pass the Chips and Science Act. The U.S. has long been leery of industrial policy, under which the government rather than the market steers resources to particular industries. Many economists criticize industrial policy as picking winners. But many Republican and Democratic legislators argue that semiconductors should be an exception because, like oil, they have vital civilian and military uses.
Commerce Secretary Gina Raimondo in July.
Photo:
Anna Moneymaker/Getty Images
Soon after the act passed, Intel, which had pushed Congress to pass the legislation for two years, broke ground on a $20 billion project in Ohio. The Commerce Department will announce guidelines next month for how the law’s manufacturing subsidies will be awarded.
American scientists and engineers invented and commercialized semiconductors starting in the 1940s, and today U.S. companies still dominate the most lucrative links in the semiconductor supply chain: the design of chips, software tools that translate those designs into actual semiconductors, and, with competitors in Japan and the Netherlands, the multimillion-dollar machines that etch chip designs onto wafers inside fabrication plants, or fabs.
But the actual fabrication of semiconductors has been increasingly outsourced to Asia. The U.S. share of global chip manufacturing has eroded, from 37% in 1990 to 12% in 2020, while mainland China’s share has gone from around zero to about 15%, according to Boston Consulting Group and SIA. Taiwan and South Korea each accounted for a little over 20%.
The most cutting-edge manufacturers of advanced logic chips, the brains of computers, smartphones and servers, are
Taiwan Semiconductor Manufacturing Co.
—a foundry that makes chips designed by others—and South Korea-based
Samsung
Electronics Co. Intel comes in third. Memory chips are primarily made in Asia by U.S.- and Asian-headquartered companies. Lower-end analog chips, which often perform just a few tasks in consumer and industrial products, are produced around the world.
Region’s Share of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage and
computer memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
U.S. semiconductor investments in the next 10 years
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
Materials/
suppliers
$9 billion
U.S. citizens
and permanent
residents
Chip-making
factories
$186.6 billion
Region’s Share of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage and
computer memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
U.S. citizens
and permanent
residents
Chip-making
factories
$186.6 billion
Region’s Share of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage and
computer memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
U.S. citizens and
permanent residents
Chip-making
factories
$186.6 billion
Region’s Share
of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage
and computer
memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
Chip-making
factories
$186.6 billion
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. citizens
and permanent
residents
Region’s Share
of activity
Circuit designs
and software
CPUs and other
digital chips
Activity’s Share of total
Data storage
and computer
memory
Equipment used
to make chips
Chip-manufacturing
materials
Chip assembly
and testing
Chip makers are spending billions on new factories that could boost the country’s share of manufacturing…
U.S. semiconductor investments in the next 10 years
Materials/
suppliers
$9 billion
Chip-making
factories
$186.6 billion
…but significant obstacles remain, including slow growth in the number of U.S. engineering students.
Citizenship of graduate students and postdoctoral appointees in U.S. engineering programs
U.S. citizens
and permanent
residents
The concentration of so much chip production in three hot spots—China, Taiwan and South Korea—unsettles U.S. military and political leaders. They worry that if China achieved dominance in leading-edge semiconductors, on its own or by invading Taiwan, it would threaten the U.S. economy and national security in a way Japan, an ally, didn’t when it briefly dominated semiconductor manufacturing in the 1980s.
Starting around 2016, U.S. officials began blocking Chinese efforts to procure front-line chip companies and technology. Many in Washington were blindsided last July when a Canadian research firm reported that China’s largest chip maker,
Semiconductor Manufacturing International Corp.
, had begun to manufacture 7-nanometer chips—a level of sophistication thought beyond its ability.
With little warning, on Oct. 7, the U.S. government installed the broadest-ever restrictions on chip-related exports to China. The U.S. had long been willing to let Chinese semiconductor capabilities advance, as long as the U.S. maintained a lead. The new controls go much further, seeking to hold China in place while the U.S. and its allies race ahead.
A ceremony marked the beginning of bulk production of 3-nanometer chips at a Taiwan Semiconductor Manufacturing Co. facility in Taiwan on Dec. 29.Lam Yik Fei/Bloomberg News
A circuit board on display at Macronix International Co. in Taiwan.Annabelle Chih/Getty Images
A ceremony marked the beginning of bulk production of 3-nanometer chips at a Taiwan Semiconductor Manufacturing Co. facility in Taiwan on Dec. 29, left. A circuit board on display at Macronix International Co. in Taiwan, right.Lam Yik Fei/Bloomberg News; Annabelle Chih/Getty Images
Meanwhile, U.S. officials hope federal subsidies will lead to factories that are sufficiently large and advanced to remain competitive and profitable long into the future. “We have got to figure out a way through every piece of leverage we have…to push these companies to go bigger,” Ms. Raimondo said in an interview. “I need Intel to think about taking that $20 billion facility in Ohio and making it a $100 billion facility. We’ve got to convince TSMC or Samsung that they can go from 20,000 wafers a month to 100,000 and be successful and profitable in the United States. That’s the whole game here.”
That ambition comes at a delicate time for chip makers, many of whom have seen a sharp drop in demand for electronics that were hot during the early days of the pandemic. Intel is paring capital spending amid the slump, and TSMC said this week that weak demand could lead it to cut capital expenditures this year.
To defray the chip companies’ investment needs, Ms. Raimondo has approached private infrastructure investors about participating in chip projects, modeled on
Brookfield Asset Management Inc.’s
co-investment in Intel’s Arizona fabs. Last November she pitched the idea to 700 money managers at an investment conference in Singapore organized by Barclays Bank.
She also approached chip customers including
Apple Inc.
about buying chips these fabs produce. “We will need big customers to give commitments to purchase [the fabs’ output], which will help de-risk deals and show there is a market for these chips,” she said.
Those efforts appeared to pay off in December when TSMC announced it would up its investment to $40 billion in leading-edge chips at a facility already being built on a vast scrubby area north of Phoenix. Formerly home to wild burros and coyotes, it now teems with construction cranes and takes delivery of some of the most advanced manufacturing equipment in the world.
At a ceremony that month attended by Mr. Biden and top administration officials, including Ms. Raimondo, Apple Chief Executive
Tim Cook
and
Advanced Micro Devices Inc.
chief
Lisa Su
pledged to buy some of the facility’s output.
Workers at TSMC’s manufacturing facility in Phoenix in December.
Still, TSMC told the Commerce Department in a public letter that despite excitement about its plans and local, state and potentially federal subsidies, costs were higher than if a similar operation were built at home.
Morris Chang,
TSMC’s founder, said in November that the differential could be 50%. TSMC said it sent more than 600 American engineers to Taiwan for training.
Outside the U.S., Europe has its own plans to double its share of global production over about 10 years, while authorities in Taiwan, China and other Asian nations are pouring money into the sector. TSMC, in addition to its Arizona project, is building a chip plant in Japan and is looking at potential investments in Europe.
The high cost and scarcity of qualified labor in the U.S. has hampered previous efforts to reshore electronics manufacturing. Mung Chiang, president of Purdue University in Indiana, said computer and engineering students are drawn to chip design or software, areas where American companies are leaders, rather than manufacturing.
“Even if they say, ‘Yes, semiconductor manufacturing sounds really good, I want to do it,’ well, where can they learn the real, live experience?”
In response, Purdue has created a dedicated semiconductor program it hopes will award more than 1,000 certificates and degrees annually by 2030 in person and online. In July,
SkyWater Technology,
a Bloomington, Minn.-based foundry, said it would build a $1.8 billion fab on Purdue’s campus, prospectively supported by Chips funding.
Developing a domestic supply of talent is only half the battle. The U.S. also depends on foreign countries for many key inputs to semiconductors.
The lasers that imprint tiny circuit blueprints on silicon wafers use purified neon gas, made from raw neon typically harvested from large air-separation units attached to steel plants. Those facilities produce the neon when they separate oxygen from the air for use in steel furnaces.
There Aren’t Enough Chips—Why Are They So Hard to Make?
Since the steel industry largely moved out of the U.S. over the past half-century, there is currently very little neon gas being produced domestically. Most has come from Ukraine, Russia and China, but Russia’s invasion of Ukraine has left China as the world’s main source.
“Is this a risk for the U.S.? Absolutely,” said Matthew Adams, an executive vice president at Electronic Fluorocarbons LLC, a Massachusetts-based company that imports, purifies and sells neon and other gases. “A prolonged ban of neon exports from China to the U.S. would shut down a significant portion of semiconductor production after inventories are exhausted.”
A handful of other raw materials used in chip making, such as tungsten, which is transformed into tungsten hexafluoride and used to build parts of transistors on chips, are similarly sourced primarily from China. To truly untie the U.S. chip industry from China would entail undoing several decades of globalization, something industry leaders say isn’t practical.
After working for years to catch up on U.S. technology, China has developed a chip that can rival Nvidia’s powerful A100. WSJ unpacks the processors’ design and capability as the two superpowers race for dominance in artificial intelligence. Illustration: Sharon Shi
Even if the U.S. doesn’t succeed in securing the entire semiconductor supply chain, it does have a chance to reverse the recent historical pattern of losing leadership in one manufacturing sector after another, including passenger cars, railroad equipment, machine tools, consumer electronics and solar panels.
“I don’t think we’ve ever done this before: Try in a conscious, targeted way to regain market share in an industry where we were once the leader, but then lost it,” said
Rob Atkinson,
president of the Information Technology and Innovation Foundation, which advocates government support of manufacturing.
—Liza Lin contributed to this article.
Write to Asa Fitch at asa.fitch@wsj.com and Greg Ip at greg.ip@wsj.com
The Biden administration is preparing to seek congressional approval for a $20 billion sale of new F-16 jet fighters to Turkey along with a separate sale of next-generation F-35 warplanes to Greece, in what would be among the largest foreign weapons sales in recent years, according to U.S. officials.
Administration officials intend the prospect of the sale to prod Turkey to sign off on Finland and Sweden’s accession to the North Atlantic Treaty Organization, which Ankara has blocked over objections to their ties to Kurdish separatist groups. Congress’s approval of the sale is contingent on Turkey’s acquiescence, administration officials said. The two countries ended decades of neutrality when they decided to join NATO last year in reaction to Russia’s invasion of Ukraine.
The sale to Turkey, which the administration has been considering for more than a year, is larger than expected. It includes 40 new aircraft and kits to overhaul 79 of Turkey’s existing F-16 fleet, according to officials familiar with the proposals.
Congressional notification of the deal will roughly coincide with a visit to Washington next week by Turkey’s Foreign Minister
Mevlut Cavusoglu.
The sale to Turkey also includes more than 900 air-to-air missiles and 800 bombs, one of the officials said.
Turkish President Recep Tayyip Erdogan has faced U.S. pressure to approve NATO expansion.
Photo:
adem altan/Agence France-Presse/Getty Images
The separate sale to Greece, which was requested by the Greek government in June 2022, includes at least 30 new F-35s. The F-35 Joint Strike Fighter is the U.S.’s most advanced jet fighter. While officials described the timing of the notifications for both Turkey and Greece as coincidental, it could quell protests from Athens over the F-16 sale if its request is also granted. Greece and Turkey are historic regional rivals and a sale to Turkey alone would likely draw swift condemnation from Athens.
The potential sale of the aircraft could have far-reaching implications for Washington’s efforts to shore up ties with a pair of NATO allies amid the Western response to Russia’s assault on Ukraine.
A State Department spokesman declined to comment on potential arms transfers as a matter of policy until and unless they are formally notified to Congress. Congress has never successfully blocked a foreign arms sale requested by the White House.
The proposed deal with Turkey comes at a moment of tension in U.S.-Turkish relations, with Washington also attempting to convince President Recep
Tayyip Erdogan
to do more to enforce sanctions on Russia and to approve the entry of Finland and Sweden into NATO.
The proposal also sets up a possible showdown with some congressional leaders who have vowed to oppose weapons sales to Turkey. Sen.
Bob Menendez,
a Democrat from New Jersey who is the chairman of the Senate Foreign Relations Committee, has said he wouldn’t approve any F-16 sale to Turkey, citing human-rights concerns.
In recent months, Mr. Erdogan has also threatened to launch a new military incursion against Kurdish militants in Syria. Last month a Turkish court also convicted the mayor of Istanbul, a popular opponent of Mr. Erdogan, of insulting public officials in what human rights groups said was part of a crackdown on the Turkish opposition. The Turkish government says its courts are independent.
Under U.S. arms-export laws, Congress will have 30 days to review the deal. If Congress wants to block the deal it must pass a joint resolution of disapproval. Congress can also pass legislation to block or modify a sale at any time until the delivery.
The Biden administration is looking to sell at least 30 new F-35 jet fighters to Greece.
Photo:
robert atanasovski/Agence France-Presse/Getty Images
U.S. officials say they are encouraging Mr. Erdogan to drop his opposition to Finland and Sweden joining NATO. One official characterized the F-16s as the “carrot on a stick” to get Turkey to agree.
This, officials said, could ease opposition to the sale among some members of Congress. Officials within the State Department have argued for months that the expansion was imperative to NATO’s collective security. However, officials expect that while the Greece package could sail through Congress, the F-16s may be delayed over some members’ reluctance to embolden Ankara with the additional firepower.
Mr. Erdogan first threatened to veto the two countries’ entrance over their ties to Kurdish militant groups in Iraq and Syria. Turkey has fought a slow-burning war with Kurdish armed groups for decades in a conflict that has left tens of thousands dead.
NATO leaders say that Finland and Sweden have addressed Turkey’s concerns, upholding an agreement signed last year that called for both countries to evaluate Turkish extradition requests and drop restrictions on arms sales to Ankara.
Turkish officials say that Sweden hasn’t done enough to uphold its obligations to Turkey, citing what they say is continuing activity by the militant Kurdistan Workers’ Party in Sweden. The Turkish government this week summoned Sweden’s ambassador over a demonstration in Stockholm in which protesters hung a puppet of Mr. Erdogan by its feet. The Turkish president’s hard line against Sweden has broad support within Turkey, including among opposition parties, who have long opposed what they see as a permissive approach to Kurdish militant groups in Europe.
The timing of a vote on NATO expansion in the Turkish parliament will also depend on Turkey’s national election this year, in which Mr. Erdogan faces a close race amid public discontent over the country’s struggling economy.
The Turkish Ministry of Foreign Affairs didn’t respond to a request for comment.
The Biden administration remains cautiously optimistic that Turkey will eventually come around on Finland and Sweden. U.S. officials said last year that there would be no quid pro quo for Turkey’s approval of the NATO expansion, and said that the timing of the F-16 sale was dependent on the administration’s own internal process to complete the deal.
The proposed sales also come amid heightened tensions between Turkey and Greece, two longtime adversaries who have traded threats over the past year in the eastern Mediterranean.
Turkey was originally a participant in the U.S.’s cutting-edge F-35 program but was expelled after Mr. Erdogan approved the purchase of Russia’s S-400 air defense system. The U.S. government said the Russian weapons system could potentially hack the F-35.
Biden administration officials have argued that selling F-16s to Turkey could help restore ties with the country, which maintains the second-largest army in NATO.
Under Mr. Erdogan, Turkey has played an important role in the Ukraine crisis, facilitating negotiations over prisoner exchanges and helping to broker an agreement that allowed Ukraine to resume its exports of grain through Black Sea ports. Mr. Erdogan’s close relationship with Russia’s President
Vladimir Putin
has also raised concerns in Washington, with scrutiny of inflows of Russian money to Turkey, including oligarch assets.
Finland and Sweden have formally applied to join NATO, but Turkey has threatened to block them from joining. WSJ’s Shelby Holliday explains why Turkish President Recep Tayyip Erdogan sees the expansion as a threat to Turkey’s national security. (Video first published in May 2022). Photo composite: Sebastian Vega
—William Mauldin contributed to this article.
Write to Jared Malsin at jared.malsin@wsj.com and Vivian Salama at vivian.salama@wsj.com
The war in Ukraine, it’s clear by now, won’t end soon. The bet in Moscow—and the fear in Kyiv—is that the West will lose stamina before Russia suffers a decisive defeat.
So far, Russia’s expectations of discord among Ukraine’s backers haven’t materialized. Europe has severed its dependence on Russian energy with limited pain and no political cataclysms. As all major Western economies grew in 2022 despite the disruptions, the consensus behind supplying weapons to Kyiv has only solidified.
Yet, with Russia announcing a mobilization of hundreds of thousands of soldiers in October and switching its economy to a war footing, time could be on Moscow’s side. So far, neither the U.S. nor Europe has made the adjustments, especially in military production, that are necessary for sustaining Ukraine in a war that could potentially drag on for several years. Neither are they immune to pain from further energy shocks.
“The idea that a major classic conventional war in Europe could last as long as one of the two world wars is not something we are yet ready for,” says
Bruno Tertrais,
deputy director of the Foundation for Strategic Research, a Paris think tank. “Even though the resilience of European societies has been remarkable, it cannot be taken for granted.”
Ukrainian troops target Russian positions with a mortar along the front line near Bakhmut.
Photo:
Evgeniy Maloletka/Associated Press
A new Congress
The same goes for the U.S. While the lame-duck Congress in December authorized $44.9 billion in funding to support the war in Ukraine, probably enough for the next nine months, new Republican control of the House means that further military and civilian aid packages for Kyiv may be more complicated to fund.
If time works to Moscow’s advantage, it’s in the West’s interest to dramatically increase support for Ukraine in coming months, abandoning the excessive caution that characterized weapons deliveries until now, says retired Air Marshal
Edward Stringer,
former head of operations at the British Defense Staff.
“By continuing to drip-feed just enough for Ukraine not to lose, what the West is doing is just prolonging the war,” Air Marshal Stringer says. “Whether we realize it or not, Russia has thrown a gauntlet to the West. And, even though our own troops aren’t fighting there, we are thoroughly invested in this conflict, and we have to provide the materiel to win it.”
Ukraine’s own once-significant defense industry has been decimated by Russian airstrikes in the 11 months of war, and the country now is almost wholly reliant on Western-provided weapons and ammunition to survive. While Russia’s economy, roughly the size of Spain’s, is a minnow compared with the combined might of the U.S. and its North Atlantic Treaty Organization allies, Western defense procurement and manufacturing—unlike Russia’s—is largely continuing to follow peacetime procedures and schedules.
“The West, in general, naturally overshadows Russia in economic potential and defense-industrial capacity, and that should make you believe that, in a protracted war, Ukraine with Western support stands a much better chance of winning the conflict,” says
Michael Kofman,
director of Russia studies at the Center for Naval Analyses, a think tank that advises the U.S. military. “But that is not a predetermined outcome. Potential is just that. It takes a great deal of will, and wars are fundamentally a contest of wills.”
Russia’s mobilization of 300,000 troops last fall alleviated a manpower problem. Here, conscripts prepare to board a train in Omsk, Russia, in November.
Photo:
ALEXEY MALGAVKO/REUTERS
Manpower math
Before the October mobilization, Russia—which began the invasion using mostly full-time contract troops—suffered from manpower shortages in Ukraine while relying on an overwhelming advantage in artillery firepower. Now that Russia has mobilized 300,000 reservists, it has solved its manpower problem just as it’s starting to run low on ammunition and materiel.
Long term, the arithmetic of manpower works to Moscow’s advantage as Russia has 3.5 times Ukraine’s population. Even if Russia loses two soldiers for every one Ukrainian service member killed, it still improves its relative strength. So far, Western officials say, Russia’s battlefield fatalities—numbering in several tens of thousands—are comparable to Ukraine’s.
The calculus on ammunition and weaponry is more complicated. Ukraine uses up Western-supplied 155 mm artillery shells at roughly twice the rate that they are being manufactured by the U.S. and allies, military analysts say. At this rate of fire, Kyiv could draw down U.S. and European reserves to critical levels at some point this summer or fall.
By then, Russia—with its single-minded focus on the war—may be able to expand its own ammunition production to keep pace with the tempo of the fighting. The U.S. and allies are also investing in new ammunition production lines, but these are unlikely to make a major difference until next year, creating a potentially dangerous gap between Ukraine’s and Russia’s firepower in the second half of 2023.
“We should not underestimate Russia. They are mobilizing more troops, they are working hard to acquire more equipment, more ammunition, and they have shown willingness to actually suffer but to continue the war,” NATO Secretary-General
Jens Stoltenberg
says. “There is no indication that President Putin has changed the overall aim of his brutal war against Ukraine. So we need to be prepared for the long haul.”
Ukrainian soldiers watch as smoke billows during fighting in Soledar, a small town near Bakhmut.
Photo:
Libkos/Associated Press
An existential fight
The mobilization has already allowed Mr. Putin to stabilize the front line, and to launch a counteroffensive around the city of Bakhmut in the eastern Donetsk region. Possibilities of a negotiated settlement are remote in the foreseeable future.
“Any notion of the peace process is out because Putin is doing everything to make clear that this is existential for him,” says
Ivo Daalder,
a former U.S. ambassador to NATO who heads the Chicago Council on Global Affairs. “He is preparing his population for a long war, and I don’t think he’s ever going to give up on his imperial ambitions for controlling Ukraine.” With no end to the conflict in sight, he says, the U.S. and allies should already start preparing to integrate the government-controlled majority of Ukraine into Western institutions, without waiting for the war’s conclusion.
Ukraine says that its war aim is to oust Russia from all territories conquered in the past year and the areas it lost to Russia in 2014, including Crimea. Ukraine regaining even part of these areas would endanger Mr. Putin’s hold on power at home.
Russia seeks, at a minimum, to conquer the Ukrainian-held parts of Ukraine’s Donetsk, Luhansk, Kherson and Zaporizhzhia regions that Mr. Putin declared to be part of Russia in October. Currently, almost the entire front line runs across what Russia considers to be its own sovereign soil.
Ukrainian officials warn that Moscow’s initial war goal, the occupation of Kyiv and the entirety of the country, hasn’t changed—and that any pause in the conflict would be used by Mr. Putin to regroup and strike again.
“They are preparing for new battles, for new offensive operations, not for talks. Nothing speaks in favor of Russia being ready to talk,” says Ukraine Foreign Minister
Dmytro Kuleba.
“I know Russia, I see what is happening in Russia. And I think it’s either them or us. There is nothing in between now anymore.”
Mr. Trofimov is the chief foreign-affairs correspondent of The Wall Street Journal. He can be reached at yaroslav.trofimov@wsj.com.
In the worst year for stocks since the Great Recession, several big names are headed for their worst year on record with just one trading day left in 2022.
The S&P 500 index
SPX,
+1.75%
and Dow Jones Industrial Average
DJIA,
+1.05%
are both headed for their worst year since 2008, with declines of 20.6% and 9.5% respectively through Thursday. But at least 19 big-name stocks — and half of another — are headed for a more ignominious title for 2022, according to Dow Jones Market Data: Worst year ever.
Tesla Inc.
TSLA,
+8.08%
is having the worst year among the group of S&P 1500 constituents with a market capitalization of $30 billion or higher headed for record annual percentage declines. Tesla shares have declined 65.4% so far this year, which would be easily the worst year on record for the popular stock, which has only had one previous negative year since going public in 2010, an 11% decline in 2016.
Tesla may not be the worst decliner on the list by the time 2023 arrives, however, as another Silicon Valley company is right on its heels. Meta Platforms Inc.
META,
+4.01%,
the parent company of Facebook, has fallen 64.2% so far this year, as Chief Executive Mark Zuckerberg has stuck to spending billions to develop the “metaverse” even as the online-advertising industry that provides the bulk of his revenue has stagnated. It would also only be the second year in Facebook’s history that the stock has declined, after a 25.7% drop in 2018, though shares did end Facebook’s IPO year of 2012 30% lower than the original IPO price.
Only one other stock could contend with Tesla and Meta’s record declines this year, and Tesla CEO Elon Musk has some familiarity with that company as well. PayPal Holdings Inc.
PYPL,
+4.46%,
where Musk first found fame during the dot-com boom, has declined 63.2% so far this year as executives have refocused the company on attracting and retaining high-value users instead of trying to get as many users as possible on the payments platform. It would be the second consecutive down year for PayPal, which had not experienced that before 2021 since spinning off from eBay Inc.
EBAY,
+4.76%
in 2015.
None of the other companies headed for their worst year yet stand to lose more than half their value this year, though Charter Communications Inc.
CHTR,
+1.99%
is close. The telecommunications company’s stock has declined 48.2% so far, as investors worry about plans to spend big in 2023 in an attempt to turn around declining internet-subscriber numbers.
In addition to the list below, Alphabet Inc.’s class C shares
GOOG,
+2.88%
are having their worst year on record with a 38.4% decline. MarketWatch is not including that on the list, however, as Alphabet’s class A shares
GOOGL,
+2.82%
fell 55.5% in 2008; the separate class of nonvoting shares was created in 2012 to allow the company — then still called Google — to continue issuing shares to employees without diluting the control of co-founders Sergey Brin and Larry Page.
Apart from that portion of Alphabet’s shares, here are the 19 large stocks headed for their worst year ever, based on Thursday’s closing prices.
Company
% decline in 2022
Tesla Inc.
TSLA,
+8.08%
65.4%
Meta Platforms Inc.
META,
+4.01%
64.2%
PayPal Holdings Inc.
PYPL,
+4.46%
62.6%
Charter Communications Inc.
48.0%
Edwards Lifesciences Corp.
EW,
+2.87%
41.9%
ServiceNow Inc.
NOW,
+3.67%
39.9%
Zoetis Inc.
ZTS,
+3.00%
39.3%
Fidelity National Information Services Inc.
FIS,
+2.03%
U.S. stocks traded lower on Thursday, erasing most of their gains from their biggest rally in three weeks after a round of upbeat economic data and a warning from hedge-fund titan David Tepper that he was “leaning short” against both stocks and bonds on expectations the Federal Reserve and other central banks will continue tightening into 2023.
Positive economic news can be a negative for stocks by underlining expectations that monetary policy makers will remain aggressive in their efforts to quash inflation.
What’s happening
The Dow Jones Industrial Average
DJIA,
-1.51%
fell 472 points, or 1.4%, to 32,903.
The S&P 500
SPX,
-1.99%
shed 71 points, or 1.8%, to 3,807.
The Nasdaq Composite
COMP,
-2.84%
fell 272 points, or 2.5%, to 10,437.
A day earlier, all three major indexes recorded their best gain in three weeks as the Dow advanced 526.74 points.
What’s driving markets
Investors saw another raft of strong economic data Thursday morning, including a revised reading on third-quarter gross domestic product which showed the U.S. economy expanded more quickly than previously believed. Growth was revised up to 3.2%, up from 2.9% from the previous revision released last month.
See: Economy grew at 3.2% rate in third quarter thanks to strong consumer spending
The number of Americans who applied for unemployment benefits in the week before Christmas rose slightly to 216,000, but new filings remained low and signaled the labor market is still quite strong. Economists polled by The Wall Street Journal had forecast new claims would total 220,000 in the seven days ending Dec 17.
“Jobless claims ticking slightly up but coming in below expectations could be a sign that the Fed’s wish of a slowing labor market will have to wait until 2023. While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, in emailed comments.
“While weekly jobless claims aren’t the best indicator of the overall labor market, they have remained in a robust range these last two months suggesting the labor market remains strong and has withstood the Fed’s tightening, at least for the time being,” he wrote. “It’s no surprise to see the market take a breather today after yesterday’s rally as investors parse through earnings data, and despite some beats this week, expectations that earnings will remain as resilient in 2023 may be overblown.”
Stocks were feeling pressure after Appaloosa Management’s Tepper shared a cautious outlook for markets based on the expectation that central bankers around the world will continue hiking interest rates.
“I would probably say I’m leaning short on the equity markets right now because the upside-downside doesn’t make sense to me when I have so many people, so many central banks, telling me what they are going to do, what they want to do, what they expect to do,” Tepper said in a CNBC interview.
Key Words: Billionaire investor David Tepper would ‘lean short’ on stock market because central banks are saying ‘what they’re going to do’
A day earlier, the Conference Board’s consumer confidence survey came in at an eight-month high, which helped stoke a rally in stocks initially spurred by strong earnings from Nike Inc. and FedEx Corp. released Tuesday evening. This optimistic outlook helped stocks clinch their best daily performance in three weeks.
Volumes are starting to dry up as the year winds down, making markets more susceptible to bigger moves. According to Dow Jones Market Data, Wednesday saw the least combined volume on major exchanges since Nov. 29.
Read: Is the stock market open on Monday after Christmas Day?
In other economic data news, the U.S. leading index fell a sharp 1% in November, suggesting that the U.S. economy is heading toward a downturn.
Many market strategists are positioned defensively as they expect stocks could tumble to fresh lows in the new year.
See: Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different?
Katie Stockton, a technical strategist at Fairlead Strategies, warned clients in a Thursday note that they should brace for more downside ahead.
“We expect the major indices to remain firm next week, helped by oversold conditions, but would brace for more downside in January given the recent downturn,” Stockton said.
Others said the latest data and comments from Tepper have simply refocused investors on the fact that the Fed, European Central Bank and now the Bank of Japan are preparing to continue tightening monetary policy.
“Yesterday was the short covering rally, but the bottom line is the trend is still short and we’re still fighting the Fed,” said Eric Diton, president and managing director of the Wealth Alliance.
Single-stock movers
AMC Entertainment Holdings
AMC,
-14.91%
was down sharply after the movie theater operator announced a $110 million equity capital raise.
Tesla Inc.
TSLA,
-8.18%
shares continued to tumble as the company has been one of the worst performers on the S&P 500 this year.
Shares of Verizon Communications Inc.
VZ,
-0.53%
were down again on Thursday as the company heads for its worst year on record.
Shares of CarMax Inc.
KMX,
-6.60%
tumbled after the used vehicle seller reported fiscal third-quarter profit and sales that dropped well below expectations.
Chipmakers and suppliers of equipment and materials, including Nvidia Corp.
NVDA,
-8.60%, Advanced Micro Devices
AMD,
-7.17%
and Applied Materials Inc.
AMAT,
-8.54%,
were lower on Thursday.
SpaceX is gearing up for a key test of its immense rocket that is designed for commercial launches, as well as the Mars mission
Elon Musk
has long sought.
Near a beach east of Brownsville, Texas, employees at Mr. Musk’s space company are preparing for the inaugural orbital flight of Starship, the towering rocket system the company has been developing for years to one day launch into deep space. The initial test mission would last around 90 minutes, beginning with a fiery blast of the ship’s booster over the Gulf of Mexico, SpaceX has said in a regulatory filing.
It isn’t clear when SpaceX will attempt the first flight, after dates Mr. Musk has discussed came and went. Some officials at the National Aeronautics and Space Administration, a customer for a version of Starship, previously said they thought the mission could occur in early December.
A SpaceX Falcon 9 rocket lifted off this month with a payload of 40 satellites for OneWeb’s broadband-satellite network.
Photo:
John Raoux/Associated Press
Mr. Musk, who acquired Twitter Inc. and recently delivered Tesla Inc.’s first all-electric semitrailer trucks, has described getting Starship into orbit as one of his main goals. At SpaceX, which Mr. Musk founded in 2002 and still leads, he has said the rocket system is consuming significant resources and faces formidable technical hurdles.
The company is using new engines it developed on Starship and wants to be able to quickly and rapidly reuse the vehicle, akin to how airlines operate planes. Starship is also really big: Fully stacked, it stands taller than the rocket NASA recently used on its first Artemis moon mission.
“There’s a lot of risks associated with this first launch, so I would not say that it is likely to be successful, but I think we’ll make a lot of progress,” Mr. Musk said last year, during an appearance before a National Academies of Sciences, Engineering, and Medicine panel.
A spokesman for Space Exploration Technologies Corp., as the company is formally called, didn’t respond to requests for comment.
SpaceX’s Starship program has encountered setbacks on shorter-altitude flights, and it isn’t clear how much it would cost if something similar happened on an orbital mission.
Japanese billionaire Yusaku Maezawa plans a journey around the moon on Starship.
Photo:
philip fong/Agence France-Presse/Getty Images
The company’s strategy of accepting potential failures, and learning from them, has helped it develop spacecraft like Falcon 9, the workhorse rocket the company used on almost 60 launches this year through mid-December, former employees said.
“It’s better to lose them now than to lose them because you left data on the table, because you were too scared to have a failure in public during the development phase,” said Abhi Tripathi, who worked in several director roles at SpaceX and currently serves as mission operations director at the University of California-Berkeley Space Sciences Laboratory.
At SpaceX, “risk taking, as long as it is safe to personnel and to property, is highly encouraged,” Mr. Tripathi said.
Jeff Bezos
‘ space company Blue Origin LLC is also working on its own large rocket, as is United Launch Alliance, the launch company jointly owned by
Boeing Co.
BA 0.53%
and
Lockheed Martin Corp.
SpaceX’s Starbase launch site in Texas.
Photo:
ADREES LATIF/REUTERS
If it works, SpaceX’s vehicle would lower the cost to get to orbit and give the company a sophisticated new rocket system, Mr. Musk said earlier this year. If it doesn’t, the program could threaten to become a money pit for a company that already has two proven rockets—Falcon 9 and Falcon Heavy—that are partially reusable, according to space-industry analysts and executives.
NASA is a major backer for Starship, providing deals valued at more than $4 billion to use a moon-lander version of the vehicle for Artemis exploration missions. Senior agency officials have said the company has been meeting milestones under its contract.
Technology entrepreneur Jared Isaacman and the Japanese billionaire
Yusaku Maezawa
have both said they purchased flights using the vehicle. A Japanese satellite operator said in August that it would use Starship to deploy a company satellite.
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Starship is made up of a 230-foot-tall booster called Super Heavy that would power a 164-foot-tall spacecraft, also called Starship, into orbit, according to SpaceX. The latter ship is designed to carry cargo or crew, with a user’s guide touting room for up to 100 people. The spacecraft is designed to be refueled in orbit, enabling longer-distance flights, according to company and NASA presentations.
SpaceX is spending heavily on the Starship program, according to space industry analysts. The privately held company has raised significant funds lately, selling at least $6.1 billion in stock over the past three years, according to securities filings. SpaceX recently began marketing employee shares for sale at a price that would value the company at around $140 billion.
Mr. Musk has warned that SpaceX could face bankruptcy if a severe global recession made capital and liquidity difficult to obtain while the company was investing in Starship and Starlink, its satellite-internet business.
Technical challenges with new rockets are common. In July, the company had to deal with a fiery blast underneath one of the Super Heavy boosters, though last month SpaceX said it completed a significant engine test. SpaceX also has lost Starship prototypes. Two years ago, a Starship spacecraft flew a short-altitude test flight without a booster, but smashed into the ground when trying to land.
In May 2021, the company landed a Starship spacecraft for the first time after another short flight.
For the first orbital test, SpaceX expects to bring the booster down in the Gulf of Mexico and land the Starship spacecraft in the Pacific Ocean, near a Hawaiian island, according to a company filing with the Federal Communications Commission.
Jeff Thornburg, a former SpaceX propulsion executive, said the company’s biggest challenge is ensuring the Starship spacecraft can safely return to Earth. The vehicle will endure enormous stress and heat as it re-enters the atmosphere from orbit, he said, but is designed to be used quickly and repeatedly.
“Reusability brings a lot of complicated engineering, because it can’t just survive once. It’s got to survive 10, 20, 100 plus times,” he said.
After months of delays, the FAA released its long-awaited environmental assessment of SpaceX’s South Texas Starbase launch site. WSJ’s Micah Maidenberg explains what the decision means for SpaceX and the company’s Starship program going forward. Photo Illustration: Alexander Hotz/WSJ
Write to Micah Maidenberg at micah.maidenberg@wsj.com
