Purchases at stores, restaurants and online, declined a seasonally adjusted 1.1% in December from the prior month, the Commerce Department said Wednesday. Sales were also revised lower in November and have fallen three of the past four months. The department seasonally adjusts monthly data to make it comparable over time. On an unadjusted basis, December is typically the peak sales month for the year.
A Federal Reserve report Wednesday found economic activity was relatively flat at the start of the year and businesses are pessimistic about growth in the months ahead. A separate Fed report showed U.S. industrial production slumped in December, led by weakness in manufacturing. A Labor Department report showed inflation was cooling.
Stocks fell Wednesday after the data releases. The S&P 500 shed 1.6%. The Dow Jones Industrial Average was down 1.8%, while the Nasdaq Composite Index lost 1.2%. The yield on the benchmark 10-year Treasury note declined 0.16 percentage point to 3.374%.
The latest data add to signs that the U.S. economy is slowing as the Fed pushes up interest rates to combat inflation. Hiring and wage growth eased in December, U.S. commerce with the rest of the world declined significantly in November, and existing-home sales have fallen for 10 straight months.
S&P Global downgraded its estimate for fourth-quarter economic growth Wednesday by a half percentage point to a 2.3% annual rate. Economists surveyed by The Wall Street Journal this month expect higher interest rates to tip the U.S. economy into a recession in the coming year.
“The lag impact of elevated inflation weighs heavily on U.S. households, it’s very clear that the median American consumer is still reeling from the loss of wages in inflation-adjusted terms,” said
Joseph Brusuelas,
chief economist at RSM US LLP. “We’re moving towards what I would expect to be a mild recession in 2023,” he added.
Federal Reserve Bank of St. Louis President
James Bullard
said Wednesday the central bank should keep on rapidly raising interest rates and supported a half-percentage-point increase at the Jan. 31-Feb. 1 meeting.
“We want to err on the tighter side to make sure we get the disinflationary process to take hold in the economy,” he said at a Wall Street Journal Live event.
Mr. Bullard’s position is at odds with several of his colleagues, who have suggested that a slower pace of rate increases would be appropriate to allow Fed officials to gauge how their aggressive pace of policy tightening has affected the economy.
Inflation, while still historically high, is showing signs of cooling as demand eases. Unlike many government reports, retail sales aren’t adjusted for inflation.
Consumer prices advanced 6.5% from a year earlier in December, the sixth straight month of deceleration. The producer-price index, which generally reflects supply conditions in the economy, fell in December from the prior month, and increased at the slowest annual pace since March 2021, the Labor Department said Wednesday.
The National Retail Federation said Wednesday holiday sales were disappointing. The trade group said November and December sales rose 5.3% compared with the same period last year to $936.3 billion. In November, the NRF said it expected holiday sales to rise between 6% and 8%. The NRF figures aren’t adjusted for inflation and exclude fuel, auto and restaurant spending.
Somewhat slower inflation at the end of the year didn’t offset weaker demand, said NRF Chief economist
Jack Kleinhenz.
Consumers are “hit with higher food prices, they are getting hit with higher service prices and they are having to make choices,” he said. Some spending was likely pulled into October as retailers kicked off deals early this year, he added. Retailers discounted heavily and early to clear excess stock from their shelves and warehouses.
Zach Carney, of Boston, said he has been cutting back on eggs and red meat because the prices are so high. “The price of eggs really jumps out at you,” the 28-year-old publicist said. Instead, he has been stocking up on value packs of chicken and buying more store-brand cereal and olive oil, which cost less than national brands.
In 2021, officials thought high inflation would be temporary. But a year later, it was still near a four-decade high. WSJ’s Jon Hilsenrath explains factors that have kept inflation up longer than expected. Illustration: Jacob Reynolds
The retail sales report showed spending declined in a number of gift-giving categories in December, including at electronics, clothing and department stores, and with online retailers, a category which includes companies such as Amazon.com Inc.
Dining out at bars and restaurants dropped 0.9% in December. Sales of furniture and vehicles, which are sensitive to higher borrowing costs, both fell sharply. The only categories to post slight growth in December were grocery, sporting goods and home improvement stores, as winter storms battered many parts of the U.S.
Some retailers have said the recently completed holiday shopping season turned out to be weaker than expected. Macy’s Inc. warned of softer sales, and Lululemon Athletica Inc. said its profit margins were squeezed as shoppers bought more items on sale.
Many retailers had benefited from surging sales earlier in the pandemic as shoppers stocked up on everything from toilet paper to home electronics and furniture, supported by government stimulus dollars. Those tailwinds have cooled, leaving retailers and product manufactures to confront slower spending in some categories and the longer term dynamics of the industry, such as a gradual shift to online spending.
Apparel retailers are especially exposed to the current pullback in discretionary spending, said Kelly Pedersen, the U.S. retail leader at PwC, a consulting firm. “Buying fashion items at department stores is discretionary,” said Mr. Pedersen. Many apparel retailers are still working to sell through excess inventory and offering deep discounts amid weak demand, he said.
Department stores, which saw a 6.6% sales drop in December, struggled to boost sales before the pandemic quickly shifted buying habits. In 2020, a string of department stores filed for bankruptcy, including Lord & Taylor, J.C. Penney Co., Neiman Marcus Group Ltd. and Stage Stores Inc.
Newsletter Sign-up
Real Time Economics
The latest economic news, analysis and data curated weekdays by WSJ’s Jeffrey Sparshott.
Party City Holdco Inc. filed for chapter 11 bankruptcy this week while noting inflationary pressures have hampered customers’ willingness to spend. Bed Bath & Beyond Inc. said this month it plans more layoffs and cost cuts amid falling sales.
The retail sales report offers a partial picture of consumer demand because it doesn’t include spending on many services such as travel, housing and utilities. The Commerce Department will release December household spending figures covering goods and services later this month.
Corporate reports out in February will add to that picture. Walmart Inc., Target Corp. and other large retailers—which sell a variety of goods such as food, clothes and décor—report quarterly earnings next month, which will include December sales.
—Suzanne Kapner and David Harrison contributed to this article.
Write to Harriet Torry at harriet.torry@wsj.com and Sarah Nassauer at Sarah.Nassauer@wsj.com
Microsoft said Tuesday that it is moving quickly to incorporate artificial-intelligence tools from OpenAI into its products and services. This includes OpenAI’s chatbot called ChatGPT, which launched just over a month ago and has skyrocketed in popularity as users have flocked to the tool, which spits out conversational answers to queries and—much to the chagrin of educators everywhere—can also pen full essays and even poems.
Newsletter Sign-up
Alert
Heard on the Street
The first word on what Wall Street is talking about, delivered to you via email notification.
Chief Executive
Satya Nadella
told a Wall Street Journal panel at the World Economic Forum in Davos, Switzerland, that “every product of Microsoft will have some of the same AI capabilities to completely transform the product.”
Microsoft already invested $1 billion in OpenAI and is reportedly looking to put even more into the startup, so its interest in making use of the technology is unsurprising. But the news was also another unwelcome development for Google, whose core search business could be threatened by the question-answering function of technologies such as ChatGPT.
The New York Times reported last month that ChatGPT’s launch Nov. 30 triggered Google’s management to declare a “code red” internally. Microsoft is Google’s largest rival in web search, though its Bing search engine still only accounts for a low single-digit percentage of the global market.
Shares of Google-parent
Alphabet
GOOG 0.92%
slipped nearly 1% on Tuesday and have fallen nearly 10% since the ChatGPT launch—the worst performance of the big techs and triple the percentage loss of the Nasdaq during that time. Microsoft’s shares rose Tuesday by a fraction while Nvidia, which specializes in artificial-intelligence chips used in data centers by both companies, jumped nearly 5%.
“We see ChatGPT’s prowess and traction with consumers as a near-term threat to Alphabet’s multiple and a boost for Microsoft and Nvidia,” UBS analysts wrote in a recent report.
ChatGPT indeed seems more than a flash in the pan. Data from Similarweb shows daily visits to the tool’s home page recently surpassed 20 million—nearly double the daily hits the site was generating two weeks after its launch.
But investors might be getting ahead of themselves as far as the impact on Google goes. Not all web queries are created equal—especially ones that will generate revenue through advertising links. ChatGPT specializes in natural-language queries that generate humanlike answers.
Not all of those answers contain correct information, however, and tracing the source of that information is difficult. In a recent report, Bernstein analyst Mark Shmulik said there is “an ocean of difference between a general information search query and a monetizable one,” adding that ChatGPT’s shortcomings on the latter were “glaringly obvious.”
Google also has the deeply ingrained behavior of the masses to fall back on. The company has powered more than 90% of global internet searches since at least 2009, according to StatCounter. Even Microsoft’s launch of Bing in the middle of that year didn’t really dent Google’s share.
Ultimately, incorporating AI tools such as ChatGPT could be costly for both companies given the computing horsepower required.
Brian Nowak
of Morgan Stanley estimates that ChatGPT’s cost per query is about seven times as much as the cost to Google for a traditional search query.
That multiple could drop to four times if OpenAI is able to access the lowest price tiers of Microsoft’s Azure cloud service, Mr. Nowak estimates. But that is still quite a gap, and one that is reflective of the costs Microsoft might bear as it works ChatGPT and other OpenAI tools deeper into its products.
Such pressure would be untimely. Investors are placing greater focus on both companies’ profits as revenue growth is projected to slow considerably this year. Alphabet’s operating margins are expected to come in at 27% this year—down from 2022 but still about 5 percentage points above what it averaged in the three years before the pandemic. Meanwhile, Microsoft is expected to keep its own margins above the 40% line for the third consecutive year—a feat not managed since 1999.
That may explain why Microsoft finally elected to follow other major techs in reducing its headcount. The company said Wednesday morning that it plans to lay off about 10,000 employees, or less than 5% of its workforce. Many expect Google’s parent to make a similar move soon.
How to spend more when investors want to see less going out the door is a question even ChatGPT wouldn’t be able to answer.
ChatGPT, OpenAI’s new artificially intelligent chatbot, can write essays on complex topics. Joanna Stern went back to high school AP Literature for a day to see if she could pass the class using just AI. Photo illustration: Elena Scotti
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.
Newsletter Sign-up
Alert
Deals
Get email notifications about major news in the world of deals and deal-makers.
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.
Businesses and lawyers are beginning to assess what the Federal Trade Commission’s proposed ban of noncompete clauses in employment contracts could mean for worker mobility, wages and the way future compensation agreements are structured.
While a full or partial ban could expand the pool of potential hires, it also would weaken a tool that employers have come to rely on to retain talent and protect trade secrets and other proprietary information, lawyers say. More companies likely would turn to a patchwork of alternative mechanisms to keep people from leaving and taking valuable information with them, including nondisclosure agreements and employment contracts that reward longevity, they say.
“Employers have operated with an understanding that they can protect their interests through noncompetes,” said Matthew Durham, a Salt Lake City-based attorney with Dorsey & Whitney LLP who advises companies on employment matters. “What you’re seeing, reflected in the FTC proposal and elsewhere, is a growing hostility to the idea that there should be those kinds of restrictions, and it’s changing the environment that employers have been comfortable with in the last number of years.”
The FTC proposed a ban this month on nearly all noncompetes, saying that the clauses—which typically prohibit workers from moving to a new employer or starting new ventures of their own—hamper competition in the labor market, suppress wages and hold back innovation and entrepreneurship. The proposal came in response to an executive order from President Biden in 2021.
Businesses say they impose noncompete clauses on employees to protect trade secrets and other confidential information, including customer lists and financial data.
The FTC contends that noncompete clauses discourage innovation and entrepreneurship.
Photo:
Eric Lee for The Wall Street Journal
Mr. Durham and others say they believe the FTC may narrow its rule after hearing comments from the public, including employers and business organizations that have already signaled their opposition to the current proposal. The agency could, for example, allow noncompetes for highly compensated workers.
Noncompetes are common in employment contracts for senior employees like software engineers, sales representatives and top executives. Over time, they have been applied to many parts of the U.S. workforce, including some janitors, baristas, schoolteachers and entry-level workers. According to the FTC, one in five U.S. workers is currently subject to a noncompete clause.
Noncompetes are regulated at the state level, and many states have already taken action to limit use of the clauses by, in some cases, forbidding employers from imposing them on people earning under a particular wage threshold or for certain types of workers.
“The vast majority of people in America can’t afford a lawyer to defend a noncompete case,” said Jonathan Pollard, an attorney in Florida who represents workers whose employers are trying to enforce noncompete clauses. “Just the threat of enforcement is often enough to restrain talent in the labor market.”
The Federal Trade Commission proposed a new ban on noncompete clauses, which the agency says hurts workers and competition. Companies argue they protect trade secrets. WSJ breaks down what a federal ban could mean for workers and businesses. Photo illustration: Jacob Reynolds
Some states, such as California and Oklahoma, hold that the clauses are unenforceable in all or nearly all employment contracts.
A number of studies suggest noncompetes suppress wages and innovation. A review of Oregon’s 2008 ban on noncompetes for hourly workers found that wages rose an average of 2% to 3%. Another study, examining Hawaii’s 2015 ban on noncompete agreements for high-tech workers, found an 11% increase in job moves and a 4% increase in new-hire salaries.
The clauses restrain not just pay and entrepreneurship, but also professional development, workers and some attorneys say.
Daniel Bachhuber had worked as a software consultant for years when he decided to take an in-house job in the fall of 2018. His new employer required that he sign a one-year noncompete agreement, which he said was so broad it would have prevented him from practicing his core skills if he were to leave the company or be fired.
Mr. Bachhuber balked. Earlier in his career, he had been laid off a few weeks into a new job, just after his first child was born. If that happened at the new job, he recalled thinking, he would be unable to earn a living for a year. “I’m always thinking, worst case scenario, what kind of downstream protection do I have?” the 35-year-old said. “Even if I was employed just one day, I couldn’t go back to the same clients I had.”
Daniel Bachhuber turned down a job after an employer wouldn’t change a noncompete clause.
Photo:
Mason Trinca for The Wall Street Journal
He consulted a lawyer and tried to renegotiate the contract, hoping to salvage a role that would have expanded his skills and given him a chance to work directly with the chief technology officer on special projects. The company declined to change the noncompete clause and, reluctantly, Mr. Bachhuber turned down the position.
Employers have other tools to protect information besides noncompete agreements, including nondisclosure agreements, trade secret laws and nonsolicitation agreements, which prohibit workers from poaching customers or employees of their prior firm.
But those tools generally can only be used after an employee violates the agreement, said Julie Levinson Werner, who represents employers as a partner with law firm Lowenstein Sandler LLP. “Once someone goes to another company, you’re really on the honor system. You have no way to monitor what information is being disclosed or not,” she said.
SHARE YOUR THOUGHTS
Do you think noncompetes should be banned? Why or why not? Join the conversation below.
Observers on both sides say that limitations on the clauses will compel employers to get more creative about how they retain talent, using everything from compensation to career advancement to keep workers engaged and loyal to the company. Some companies use deferred compensation—such as retention bonuses or rolling stock options that vest after, say, three years—to give people incentives to stay.
“Do you get better results with honey or vinegar?” said Ms. Werner. “If you want to motivate people and have them happy to stay, you have to look at compensation, the overall environment, how you treat them.”
The fate of the FTC’s final rule is up in the air. After a 60-day comment period, the commissioners will consider potential changes to the initial proposal and then issue a final rule. That rule will likely be challenged by business groups or individual companies, and courts will determine its trajectory, attorneys say.
is headed to court in a securities-fraud trial over tweets from 2018 in which he floated the possibility of taking
Tesla Inc.
private, with in-person jury selection poised to begin Tuesday.
The class-action case originates with an Aug. 7, 2018 tweet in which the Tesla chief executive said, “Am considering taking Tesla private at $420. Funding secured.”
An investor,
Glen Littleton,
sued Tesla, Mr. Musk and members of Tesla’s board at the time, alleging that Mr. Musk’s tweets were false and cost investors billions by spurring swings in the prices for Tesla stock, options and bonds. In court filings, Mr. Musk has said he was indeed considering taking Tesla private and believed he had the support of Saudi Arabia’s sovereign-wealth fund to do so. The deal, which would have been valued around $72 billion, never materialized.
Newsletter Sign-up
Alert
Tesla
Sign up to receive email alerts about articles related to Tesla.
U.S. District Judge
Edward Chen,
who is overseeing the San Francisco jury trial that is scheduled to run through Feb. 1, has ruled that Mr. Musk’s tweets about taking the company private weren’t true and that he acted recklessly in making them.
Questions for the jury include whether Mr. Musk’s tweets were material to investors and whether he knew they were untrue.
The case is unusual in that securities-fraud cases usually resolve before going to trial, such as through a settlement, said
Jill Fisch,
a securities-law professor at the University of Pennsylvania. The defendants in this case face “an uphill battle” in light of the judge’s pretrial decision about the veracity of Mr. Musk’s statements, she said.
Attorneys for the lead plaintiff didn’t respond to a request for comment, nor did an attorney for Tesla, Mr. Musk and the other board members.
Twitter has been in turmoil since Elon Musk took over. To get a sense of what’s going on behind the scenes, The Wall Street Journal spoke with former Tesla and SpaceX employees to better understand how Musk leads companies. Illustration: Ryan Trefes
Mr. Musk is expected to take the stand as early as Wednesday, some two months after he did so in Delaware in a trial over his pay package at Tesla. In 2021, he also appeared before Delaware’s business-law court to defend Tesla’s roughly $2.1 billion 2016 takeover of home-solar company SolarCity Corp.
Also on the list of possible witnesses are Tesla board chair
Robyn Denholm,
board members
Ira Ehrenpreis,
James Murdoch
and
Kimbal Musk
—the CEO’s brother. The head of investor relations,
Martin Viecha,
also may be called.
SHARE YOUR THOUGHTS
What do you think will be the outcome of the case over Elon Musk’s 2018 Tesla tweet? Join the conversation below.
This week’s trial comes at a busy time for Mr. Musk, who has been scrambling to turn around Twitter Inc. after buying the social-media company last fall in a deal valued at $44 billion. His rocket company SpaceX is pushing for the first orbital launch of a new rocket Mr. Musk wants to use for deep-space missions.
Tesla, meanwhile, has slashed prices across its vehicle lineup, with some of last week’s cuts in the U.S. nearing 20%, in a bid to juice demand. The company’s stock has fallen roughly 70% since its peak in November 2021, erasing around $850 billion in market value. Mr. Musk’s personal wealth has fallen more than $200 billion in that time, according to the Bloomberg Billionaires Index.
Court proceedings involving Mr. Musk can be feisty. In the SolarCity case, for example, Mr. Musk called opposing counsel a “bad human being.”
Tesla has reduced prices across its vehicle lineup in an effort to boost demand.
Photo:
Jay Janner/USA TODAY NETWORK/Reuters
In advance of this week’s trial, Mr. Musk asked the court to move the trial to Texas on the basis that potential jurors in San Francisco could be biased against him. Judge Chen rejected the request.
“It isn’t that hard it seems to me to find 15 people,” he said.
The court requires nine jurors and six alternates to proceed with the case. Roughly 190 potential jurors were asked to fill out questionnaires about their views of Mr. Musk and other issues. The court plans to bring in about 50 of them for further questioning Tuesday.
Opening arguments could start as early as Tuesday after the jury is selected.
The lead plaintiff is seeking damages for investor losses he alleges stemmed from Mr. Musk’s and Tesla’s statements. Tesla stock closed up 11% the day Mr. Musk initially tweeted about potentially taking Tesla private, later giving back all those gains and falling further as questions emerged about the deal.
The defendants have said the plaintiff won’t be able to prove to a jury that the statements were materially false. Mr. Musk was considering taking Tesla private, the defendants have said, even if some of his assertions about the deal may not have been literally accurate.
Defendants, in a trial brief, said Mr. Musk believed he had secured backing to take the car maker private from Saudi Arabia’s sovereign-wealth fund, the Public Investment Fund. A lawyer for the defendants said Friday that his team had chosen not to enforce subpoenas calling on fund representatives to testify. The sovereign-wealth fund didn’t respond to a request for comment.
Mr. Musk and Tesla each agreed in 2018 to pay $20 million to settle civil charges brought by the Securities and Exchange Commission over the same tweets. Mr. Musk also agreed to step down as chairman of the company, while remaining CEO. He later said in legal filings that he felt pressured to settle with the SEC. Last year, a federal judge denied Mr. Musk’s request to scrap his settlement.
Write to Rebecca Elliott at rebecca.elliott@wsj.com and Meghan Bobrowsky at meghan.bobrowsky@wsj.com
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
said a big chunk of its consumer lending business has lost about $3 billion since 2020, revealing for the first time the costly toll of the Wall Street giant’s Main Street push.
Ahead of fourth-quarter earnings next week, Goldman released financial information that reflects its new reporting structure. The bank in October announced a sweeping reorganization that combined its flagship investment-banking and trading businesses into one unit, while merging asset and wealth management into another.
Marcus, Goldman’s consumer-banking arm, launched in 2016 to a strong start.
Rivals
JPMorgan Chase
& Co. and
Bank of America Corp.
were posting big profits on the back of strong consumer businesses that carried them through rocky stretches in their Wall Street operations. Goldman, long reliant on its gold-plated investment banking and trading arms, wanted in on the action.
The bank rolled out savings accounts, personal loans and credit cards. Its 2019 credit-card partnership with
Apple Inc.
signaled its ambitions to be a big player in the business.
Goldman invested billions of dollars in Marcus. But it struggled to bulk up the credit-card business following an early win with the Apple Card. A long-awaited checking account never materialized.
Economists and financial analysts look at bank earnings to get a sense of the economy’s health. WSJ’s Telis Demos explains how inflation as well as recession concerns can be reflected in their results. Illustration: Lorie Hirose
The consumer unit was never profitable. In October, Goldman formally scaled back its plan to bank the masses.
The reshuffling parceled out the consumer business to different parts of the bank.
Before the shift, it was under the same umbrella as Goldman’s wealth-management division.
Much of Marcus will be folded into Goldman’s new asset and wealth management unit. Some pieces, including its credit-card partnerships with Apple and
General Motors Co.
, as well as specialty lender GreenSky, are moving into a new unit called Platform Solutions.
Goldman on Friday disclosed that its Platform Solutions unit lost $1.2 billion on a pretax basis in the nine months that ended in September 2022. It lost slightly more than $1 billion in 2021 and $783 million in 2020, after accounting for operating expenses and money set aside to cover possible losses on loans. The unit also includes transaction banking, with services such as enabling banks to send payments to each other, vendors and elsewhere.
Goldman shares closed up about 1% Friday at $374.
The bank said it set aside $942 million during the first nine months of 2022 for credit losses in Platform Solutions, up 35% from full-year 2021. Operating expenses for the division increased 27% during this period. After hovering around record lows for much of the pandemic, consumer delinquencies are rising across the industry.
Net revenue for Platform Solutions’ consumer platforms segment, which reflects credit cards and GreenSky, totaled $743 million during the first nine months of 2022, up 75% from all of 2021 and up 295% from 2020. Goldman completed its acquisition of GreenSky last year.
The disclosure didn’t reveal financial details for Goldman’s consumer deposit accounts, personal loans and other parts of Marcus. Those business lines are included in the firm’s asset and wealth management division, which is profitable, and aren’t material to the firm’s overall profits, according to people familiar with the matter.
Goldman is in the process of winding down personal loans, according to people familiar with the matter. It will be ending its checking account pilot for employees, one of the people said, while it considers other ways to offer the product. One possible option is pitching the checking account to workplace and personal-wealth clients.
As recently as the summer, Goldman executives were saying the checking account would unlock new business opportunities for the bank.
Marcus has been a divisive topic at Goldman. Some partners, senior executives and investors were against continuing to pour billions of dollars into the effort, in particular for checking accounts and other products that Goldman would be developing on its own.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Charley Grant at charles.grant@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
is laying off more than 200 employees as part of a broader reorganization, the first major staff reductions to hit Google’s parent following a wave of layoffs at other technology companies.
The cuts will affect about 15% of roles at Verily, which will discontinue work on a medical software program called Verily Value Suite and several early-stage products, CEO Stephen Gillett said in an email to employees Wednesday. Verily has more than 1,600 employees.
Verily oversees a portfolio of healthcare projects largely focused on applying data and technology to patient treatments, including a virtual diabetes clinic and an online program for connecting research participants to clinical studies.
Newsletter Sign-up
Technology
A weekly digest of tech reviews, headlines, columns and your questions answered by WSJ’s Personal Tech gurus.
“We are making changes that refine our strategy, prioritize our product portfolio and simplify our operating model,” Mr. Gillett wrote in the email. “We will advance fewer initiatives with greater resources.”
Originally known as Google Life Sciences, Verily is one of the largest businesses other than Google under the Alphabet umbrella, part of a group of companies known as “Other Bets.” Alphabet had 186,779 employees at the end of September last year, according to company filings.
The robotics software company Intrinsic, another unit in Alphabet’s Other Bets, also said on Wednesday it would let go of 40 employees. A spokesman said the “decision was made in light of shifts in prioritization and our longer-term strategic direction.”
Verily has recently looked to pare back a once-sprawling collection of projects spanning insurance to mosquito breeding. Last year, the company hired McKinsey & Co. and Innosight to do consulting work, The Wall Street Journal reported.
After a period of aggressive hiring to meet heightened demand for online services during the pandemic, tech companies are now laying off many of those workers. And tech bosses are saying “mea culpa” for the miscalculation. WSJ reporter Dana Mattioli joins host Zoe Thomas to talk through the shift and what it all means for the tech sector going forward.
The reorganization is a sign of the continued difficulties facing big tech companies trying to crack the healthcare industry.
David Feinberg,
the head of an ambitious health-focused group at Google, left the company in 2021 to become CEO of the healthcare technology company Cerner Corp.
In the email to employees, Mr. Gillett said Verily would largely focus on products related to research and care, while concentrating more decisions in a central leadership team rather than individual groups.
Mr. Gillett took over as Verily CEO this month, succeeding the well-known geneticist
Andy Conrad,
who moved to executive chairman.
“As we move into Verily’s next chapter, we are doubling down on our purpose, with the goal to ultimatelybe operating in all areas of precision health,” Mr. Gillett wrote to employees on Wednesday. “We will do this by building the data and evidence backbone that closes the gap between research and care.”
Google’s peers have cut jobs recently in response to worsening economic conditions and a decline in online advertising. Last week,
Amazon.com Inc.
announced layoffs that will affect more than 18,000 employees, the most of any tech company in the past year.
Tech Layoffs Across the Industry: Amazon, Salesforce and More Cut Staff
At a companywide meeting in December, Google CEO
Sundar Pichai
said he couldn’t make any forward looking commitments in response to questions about layoffs. Google has tried to “rationalize where we can so that we are set up to better weather the storm regardless of what’s ahead,” he added.
Activist investor TCI Fund Management called on Alphabet in November to reduce losses in Other Bets such as Verily, writing in a letter to Mr. Pichai that the company had too many employees.
Alphabet’s Other Bets recorded $1.6 billion in operating losses from $209 million in revenue during the third quarter last year, mostly from the sale of health technology and internet services.
Verily said in September it received $1 billion in funding from Alphabet and other investors, without naming the backers. The private-equity firm Silver Lake, Singaporean fund Temasek Holdings and Ontario Teachers’ Pension Plan previously invested in the company.
including the vice president overseeing body engineering and its head of supply chain, have left the EV startup in recent months, as the company exits a year in which it fell short of its production targets.
The departures, confirmed by a Rivian spokeswoman, are the latest developments in what has been a challenging period for Rivian, which has been rolling out its first all-electric models but last year missed a critical milestone of manufacturing 25,000 vehicles. The company said it was off its goal by about 700 vehicles in part because of difficulty getting parts.
Rivian’s stock has also tumbled since its blockbuster initial public offering in November 2021, down roughly 79% through Tuesday’s close.
The executives who have left were some of Rivian’s longer-tenured employees. Among them is Randy Frank, vice president of body and interior engineering, and Steve Gawronski, the vice president in charge of parts purchasing. Both had departed around the beginning of this year.
Mr. Frank joined Rivian in 2019 from
Ford Motor Co.
Mr. Gawronski joined in 2018 from the autonomous vehicle startup Zoox.
Newsletter Sign-up
What’s News
Catch up on the headlines, understand the news and make better decisions, free in your inbox every day.
Another early employee, Patrick Hunt, a senior director in the strategy team, left the company late last year. Mr. Hunt joined Rivian in 2015.
Rivian’s general counsel, Neil Sitron, departed in September after 4½ years with the company, which was founded in 2009.
The Rivian spokeswoman said the company wants to ensure the startup has the talent and staff it needs to ramp up production. The company declined to comment on the individual circumstances of the departures. Efforts to reach the former employees weren’t immediately successful.
“We continue to attract world class talent to our company as our business needs change,” she said.
The departures mark the latest shake-up at the top of Rivian, which has brought in new executives to oversee the company’s manufacturing operations. The company’s first full year of factory production was marred by supply-chain troubles and difficulties getting the assembly line to run at full speed.
Tim Fallon, former head of
Nissan Motor Co.
’s factory in Canton, Miss., was hired in early 2022 to run Rivian’s sole factory in Normal, Ill.
In June, Rivian hired Frank Klein as chief operating officer, from contract manufacturer
Magna Steyr.
In a November email to employees reviewed by the Journal, Mr. Klein wrote that with Mr. Gawronski’s exit, the company was taking the opportunity to make some organizational changes to ensure it can support the increased complexity that the group will handle in coming years.
Mr. Klein added Rivian was reorganizing its supply-chain management, putting one vice president in charge of the supply chain and logistics, and another in charge of parts procurement.
He also announced that Rivian had hired Andreas Reutter from tool maker
Stanley Black & Decker Inc.
to oversee Rivian’s supply-chain logistics.
The changes at the top of Rivian come as it attempts to transform from an upstart looking to raise capital to a mass manufacturer with ambitions to become one of the world’s largest auto makers.
Rivian is under pressure to prove it can build its electric trucks at scale without having ramped up production before, as competition heats up from legacy auto makers. WSJ toured Rivian’s and Ford’s EV factories to see how they are pushing to meet demand. Illustration: Adam Falk/The Wall Street Journal
Its first all-electric models, the R1T pickup truck and R1S sport-utility vehicle, are relatively new. The company has only been building cars at its Illinois factory since late 2021. Before then, it had never built or sold a single vehicle for retail.
As part of its expansion, Rivian went on a hiring spree, growing rapidly from about 1,200 workers in 2019 to around 14,000 employees by the summer of last year and has only recently begun creating positions that exist at many companies.
In April, Anisa Kamadoli Costa was hired as chief sustainability officer from jewelry maker Tiffany Inc. In October, Rivian hired a former Capital One Financial Corp. executive, Diane Lye, as its first chief information officer.
As Rivian has struggled to increase factory output, it has come under pressure to trim spending. Last summer, the company laid off around 6% of its workforce and cut spending on many of its programs.
The company became focused on bringing production of its current set of vehicles up to speed. It also makes an electric delivery van that it sells to Amazon.com Inc.
In an example of the young car maker’s shifting priorities, Rivian suspended negotiations with Mercedes-Benz AG over a proposed van partnership in Europe, which had been an expansion target for Chief Executive RJ Scaringe. Rivian said the decision came after re-evaluating its opportunities for growth.
The company reported a net loss of $5 billion for the first nine months of 2022, and its cash pile fell to $13.8 billion at the end of September, down from $15.46 billion in June. Rivian is scheduled to report its full-year results on Feb. 28.
Write to Sean McLain at sean.mclain@wsj.com and Nora Eckert at nora.eckert@wsj.com
