Nvidia Corp.’s financial results had a bit of a surprise for investors, and not on the good side — product inventories doubled to a record high as the chip company gears up for a questionable holiday season.
Nvidia reported fiscal third-quarter revenue that was slightly better than analysts’ reduced expectations Wednesday, but the numbers weren’t that great. Revenue fell 17% to $5.9 billion, while earnings were cut in half thanks to a $702 million inventory charge, largely relating to slower data-center demand in China.
Gaming revenue in the quarter fell 51% to $1.57 billion. Nvidia said it is working with its retail partners to help move the currently high-channel inventories.
While the company was writing off the inventory for China, its own new product inventory was growing. Nvidia
NVDA,
-4.54%
reported that its overall product inventory nearly doubled to $4.45 billion in the fiscal third quarter, compared with $2.23 billion a year ago and $3.89 billion in the prior quarter. Executives cited its coming product launches, designed around its new Ada and Hopper architectures, when asked about the inventory gains.
In the semiconductor industry, high inventories can make investors nervous, especially after the industry had so many supply constraints in recent years that quickly swung to a glut of chips in 2022. With doubts about demand for gaming cards and consumers’ willingness to spend amid sky-high inflation this holiday season, having all that product on hand just amps up the nerves.
Full earnings coverage: Nvidia profit chopped in half, but tweaked servers to China offset earlier $400 million warning
Chief Financial Officer Colette Kress told MarketWatch in a telephone interview Wednesday that the company’s high level of inventories were commensurate with its high levels of revenue.
“I do believe….it is our highest level of inventory,” she said. “They go hand in hand.” Kress said she was confident in the success of Nvidia’s upcoming product launches.
Nvidia’s revenue reached a peak in the April 2022 quarter with $8.3 billion, and in the past two quarters revenue has slowed, with gaming demand sluggish amid a transition to a new cycle, and a decline in China data-center demand due to COVID-19 lockdowns and U.S. government restrictions.
For its data-center customers, the new architectures promise major advances in computing power and artificial-intelligence features, with Nvidia planning to ship the equivalent of a supercomputer in a box with its new products over the next year. Those types of advanced products weigh on inventory totals even more, Kress said, because of the price of the total package.
“It’s about the complexity of the system we are building, that is what drives the inventory, the pieces of that together,” Kress said.
Bernstein Research analyst Stacy Rasgon believes that products based on Hopper will begin shipping over the next several quarters, “at materially higher price points.” He said in a recent note that he believes Nvidia’s numbers were likely hitting a bottom in this quarter.
“We remain positive on the Hopper ramp into next year, and believe numbers have at this point likely reached close to bottom, with new cycles brewing and an attractive secular story even without China potential,” Rasgon said in an earnings preview note Tuesday.
Read also: Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful’
Nvidia Chief Executive Jensen Huang reminded investors on a conference call that the company’s inventories are “never zero,” and said everyone is enthusiastic about the upcoming launches. But it doesn’t take too long of a memory to conjure up a time when Nvidia went into a holiday with an inventory backlog that included new architecture and greatly disappointed investors: Four years ago, Huang had to cut his forecast for holiday earnings twice amid a “crypto hangover” with similar dynamics to the current moment
Investors need faith that this holiday season will not be the same, even as demand for some videogame products declines after a pandemic boom just as the market for cryptocurrency — some of which has been mined with Nvidia products — hits a rough patch. Huang said that Nvidia’s RTX 4080 and 4090 graphics cards based on the Ada Lovelace architecture had an “exceptional launch,” and sold out.
Nvidia shares gained more than 2% in after-hours trading Wednesday, suggesting that some are betting that this time will be different. That enthusiasm needs to translate into revenue for Nvidia so that this big gain in inventories does not end up being part of another write-down at some point in the future.
first week at Twitter Inc., he flouted much of the advice management gurus have dished out for decades.
The billionaire’s swift actions stand in contrast to those of many new leaders, who often use the first 90 days to meet with employees, listen to concerns and assess how to improve a company’s products before embarking on strategy shifts, executives and corporate advisers say.
“At a minimum, this is an untraditional approach,” said
Joel Peterson,
the former chairman of
JetBlue Airways Corp.
, who has served on dozens of corporate boards and advised chief executives across industries. “It’s iconoclastic, it’s unusual, it’s not what everybody would do—but I don’t really fault him for it.”
Sweeping layoffs at Twitter have eliminated roughly half of the company’s workforce.
Photo:
Leonardo Munoz/VIEWPress/Getty Images
Mr. Musk—who once described himself to The Wall Street Journal as a “nano manager” steeped in the smallest details—appears to be employing many of the management tactics he deployed in building his other companies,
Tesla Inc.
and Space Exploration Technologies Corp., executives and advisers say. Those include a hands-on obsession over product decisions, a distaste for corporate structures and a focus on speed. Tesla is now the world’s most-valuable car company, and SpaceX is the world’s busiest rocket-launch operation.
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Management specialists have long said that the first few months of an executive’s tenure are critical, a time when corporate chiefs can plot their agenda and begin to reset a corporate culture. Well-known books on the subject, such as “You’re in Charge—Now What?” say that new leaders should strike a balance, setting expectations internally and shaping their management team, while learning about the organization, too.
Peter Crist,
chairman of Crist Kolder Associates, an executive-search firm, said new leaders typically spend the initial months looking to understand the talent within a company, learning employees’ strengths and weaknesses before making changes to staffing.
“Normally, a CEO from the outside coming in isn’t going to wipe the slate clean on the first day,” Mr. Crist said, adding that swift personnel changes can create uncertainty for the workers that remain. “There has to be both a stabilization of the enterprise model and importantly a stabilization of the talent, and it’s got to get done relatively soon,” he said.
Mr. Musk is hardly the first corporate iconoclast. He is also more than familiar with Twitter, having more than 100 million followers.
Twitter Purchased by Elon Musk: A Timeline of How It Happened
On top of that, he is acquiring a company that for years lagged behind its rivals in attracting users and generating revenue, and the industry broadly is facing a slowdown in growth and other challenges that have slashed the valuations of companies such as
Facebook
owner Meta Platforms Inc.
Some of Mr. Musk’s early actions struck corporate veterans as routine. He spent part of his week meeting with advertisers on video calls and in other settings, aiming to reassure customers that the platform remained a safe place for brands, the Journal reported. Several large advertisers, including
General Mills Inc.
and
Pfizer Inc.,
temporarily paused their advertising. Mr. Musk tweeted on Friday that Twitter had experienced a massive drop in revenue, which he said was due to “activist groups pressuring advertisers.”
Hubert Joly,
former CEO of retailer
Best Buy Co.
, said listening tours with customers and employees can be helpful in the initial period of engineering a turnaround. When Mr. Joly took the reins of Best Buy in 2012, he spent days in retail stores observing customer behavior and holding pizza meetings with staffers. In those gatherings, he asked three questions to employees: “‘What’s working? What’s not working? What do you need?’” Mr. Joly said.
Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse
Mr. Joly said that while he wanted to act fast, he resisted the temptation to quickly close stores or cut head count, as some proposed, or to immediately impose his ideas on the organization without understanding the existing dynamics. “My job was easy: Show up, ask these questions, listen carefully, take notes, and do what I was told because they had all of the answers,” he said of employees.
Mr. Musk has solicited feedback from some Twitter users, including prominent ones. He asked the author Stephen King whether he would consider paying a price of $8 a month to have his account verified. Members of Mr. Musk’s team also polled Twitter users about a subscription feature.
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Twitter on Saturday said it has begun rolling out software updates to charge users $7.99 a month for its Twitter Blue subscription service, up from $4.99 currently. Subscribers get their accounts verified, a service that has been free and offers a blue check mark to notable accounts.
Mr. Musk has said in the past that he believes CEOs err when they allocate too much of their schedule to meetings, rather than focusing on refining a product. “Spend less time on finance, spend less time in conference rooms, less time on PowerPoint and more time just trying to make your product as amazing as possible,” he said in a Journal interview in 2020.
During an executive’s first few days at a company, though, leaders can become overwhelmed, advisers say. Some say it is important to focus on key strategic decisions, assemble a team and then delegate.
At an investment forum in New York on Friday, Mr. Musk said that after buying Twitter, he is now working 120 hours a week instead of his typical 70 or 80 hours. Still, he expected that to eventually change. “Once Twitter’s set on the right path, it’ll be much easier to manage than SpaceX or Tesla,” Mr. Musk said.
A genetically modified pig heart transplanted into a severely ill person took longer to generate a heartbeat than those of typical pig or human hearts, research showed, another potential challenge for doctors aiming to conduct clinical trials of pig-organ transplants.
Doctors took daily electrocardiograms of
David Bennett,
a 57-year-old handyman and father of two who received a gene-edited pig heart in an experimental surgery at the University of Maryland Medical Center in Baltimore in January. Mr. Bennett died in March from heart failure, but doctors still aren’t sure why the pig heart thickened and lost its pumping ability.
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What do you think is the future for non-human organ transplants? Join the conversation below.
Doctors involved in the groundbreaking surgery have been studying data from Mr. Bennett’s case, which is being closely watched in the wider transplant community. Researchers reported in May that a common pig virus was detected in the pig heart transplanted into Mr. Bennett. They said there is no evidence the virus infected Mr. Bennett, but its presence in the pig heart could have caused inflammation that contributed to the cascade of events that led to his death from heart failure.
Researchers analyzed Mr. Bennett’s EKG data as part of efforts to understand his decline after the transplant, direct future research and determine a possible path toward opening clinical trials. Widely used tests that measure electrical signals that cause the heart to beat, EKGs can help diagnose heart attacks, irregular heart rhythms and other possible abnormalities.
Researchers reported unexpected findings in two aspects of Mr. Bennett’s EKG data: the time it takes electricity to travel from the top to the bottom chamber of the heart and across the bottom chambers, which pumps blood through the heart, and the time it takes the lower chambers of the heart to go through a full electrical cycle, which is associated with a heartbeat.
The surfaces of pig cells contain a sugar molecule that triggers the human immune system to attack the organs. Scientists are using the gene editing tool Crispr to overcome this obstacle.
Here’s one approach:
…and then insert the edited DNA into a pig egg cell whose nucleus has been removed. The egg cell is then transferred to the uterus of a sow. The sow gives birth to pigs whose cells—including those in their organs— contain the edited genes.
Crispr acts like scissors cutting DNA at a specific place
scientists edit troublesome genes in pig DNA…
…and sometimes add human genes…
ORGAN OPTIONS
Researchers are trying various techniques that might allow transplantation of gene-edited pig hearts, kidneys and livers into humans. Recent studies on pig organ transplantation in baboons and people have focused mainly on hearts and kidneys.
HEART TO HEART
Pig and human hearts have similarities—but also some differences.
Pigs can be bred to have hearts of similar size as human hearts.
Pig and human hearts each have four pumping chambers—two small ones known as atria and two large ones known as ventricles.
The wall of tissue separating the ventricles is thicker in pig hearts than in human hearts.
Pig and human hearts each are attached to a large artery known as the aorta as well as to a large vein known as the vena cava.
A pig’s inferior (lower) vena cava joins a pig heart’s right atrium at an angle. The vein is longer in pigs than in humans.
EASING ORGAN REJECTION
The surfaces of pig cells contain a sugar molecule that triggers the human immune system to attack the organs. Scientists are using the gene editing tool Crispr to overcome this obstacle. Here’s one approach:
Crispr acts like scissors cutting DNA at a specific place.
Scientists edit troublesome genes in pig DNA…
…and sometimes add human genes…
…and then insert the edited DNA into a pig egg cell whose nucleus has been removed. The egg cell is then transferred to the uterus of a sow. The sow gives birth to pigs whose cells—including those in their organs—contain the edited genes.
ORGAN OPTIONS
Researchers are trying various techniques that might allow transplantation of gene-edited pig
hearts, kidneys and livers into humans. Recent studies on pig organ transplantation in baboons and people have focused mainly on hearts and kidneys.
HEART TO HEART
Pig and human hearts have similarities—but also some differences.
Pigs can be bred to have hearts of similar size as human hearts.
Pig and human hearts each have four pumping chambers—two small ones known as atria and two large ones known as ventricles.
The wall of tissue separating the ventricles is thicker in pig hearts than in human hearts.
Pig and human hearts each are attached to a large artery known as the aorta as well as to a large vein known as the vena cava.
A pig’s inferior (lower) vena cava joins a pig heart’s right atrium at an angle. The vein is longer in pigs than in humans.
EASING ORGAN REJECTION
The surfaces of pig cells contain a sugar molecule that triggers the human immune system to attack the organs. Scientists are using the gene editing tool Crispr to overcome this obstacle. Here’s one approach:
Crispr acts like scissors cutting DNA at a specific place.
Scientists edit troublesome genes in pig DNA…
…and sometimes add human genes…
…and then insert the edited DNA into a pig egg cell whose nucleus has been removed. The egg cell is then transferred to the uterus of a sow. The sow gives birth to pigs whose cells— including those in their organs—contain the edited genes.
ORGAN OPTIONS
Researchers are trying various techniques that might allow transplantation of gene-edited pig
hearts, kidneys and livers into humans. Recent studies on pig organ transplantation in baboons and people have focused mainly on hearts and kidneys.
HEART TO HEART
Pig and human hearts have similarities—but also some differences.
Pigs can be bred to have hearts of similar size as human hearts.
Pig and human hearts each have four pumping chambers—two small ones known as atria and two large ones known as ventricles.
The wall of tissue separating the ventricles is thicker in pig hearts than in human hearts.
Pig and human hearts each are attached to a large artery known as the aorta as well as to a large vein known as the vena cava.
A pig’s inferior (lower) vena cava joins a pig heart’s right atrium at an angle. The vein is longer in pigs than in humans.
The time intervals are typically shorter in pig hearts that are in pigs. But they took longer in the gene-modified pig heart inside a human. The time for the electricity to travel through the heart’s electrical system and generate a heartbeat also took longer than what is typical for human hearts, said
Timm Dickfeld,
a professor of medicine and director of electrophysiology research at the University of Maryland Medical Center, who was the leader of the EKG study.
What that might mean in the future for doctors caring for patients with gene-modified pig heart transplants is uncertain, said
Paul Wang,
director of the Stanford Cardiac Arrhythmia Service and a professor of medicine and bioengineering at Stanford University, who examined the data but wasn’t involved in the study.
“It has only been done once,” Dr. Wang said. “It needs to be done many more times for us to understand what these differences mean.”
The EKG data haven’t been published or undergone an outside vetting process. They are being presented by the Maryland team at an American Heart Association annual meeting starting Nov. 5. The Maryland team said they are studying the significance of the findings and hope to gather more data in future studies.
The fact that the electrical signals traveled through Mr. Bennett’s heart more slowly than expected “did not appear to be associated with a pathological outcome,” said
Bartley Griffith,
co-director of the cardiac xenotransplantation program at the University of Maryland School of Medicine, who performed Mr. Bennett’s transplant surgery.
Dr. Griffith added that if Mr. Bennett had survived longer and the time intervals became even slower, a pacemaker might eventually have become necessary.
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Researchers have tried for decades to develop the transplantation of organs between different species, or xenotransplantation, to address a chronic shortage of organs. More than 3,500 people are on the waiting list in the U.S. for a heart transplant, according to a 2022 update from the American Heart Association.
Megan Sykes,
director of the Columbia Center for Translational Immunology in New York, said that although pigs are similar to humans in organ size and physiology, the EKG data illustrate that there are differences that may only emerge after doing transplants into humans.
“We have reached the point where we need human studies as well as animal studies,” Dr. Sykes said.
The Maryland team and other groups have met with the Food and Drug Administration recently to discuss how to start small clinical trials of genetically modified pig organs. The FDA has requested additional data from the Maryland team in baboons, said
Muhammad Mohiuddin,
the scientific program director of cardiac xenotransplantation at the University of Maryland School of Medicine. Dr. Mohiuddin said they plan to gather additional EKG data as part of the research.
Startups are prescribing ketamine online to treat serious mental-health conditions, raising concern among psychiatrists about the safety of taking the mind-altering anesthetic without medical supervision, sometimes at high doses that raise risks of side effects.
Ketamine is approved by the Food and Drug Administration to anesthetize people and animals and has been used safely in hospitals for decades. The out-of-body, hallucinogenic sensations it produces made it popular as a party drug known as Special K. Some doctors prescribe ketamine off-label to treat patients with conditions including severe depression, suicidal thoughts and post-traumatic stress disorder.
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Is there enough support available for people taking ketamine at home because of mental-health concerns? Join the conversation below.
Generic ketamine isn’t approved for those conditions. Studies have shown it can rapidly alleviate symptoms of severe depression when other treatments have failed.
There is less data on ketamine’s effectiveness for other conditions including anxiety and PTSD, and little data on its long-term use.
The FDA has approved a chemically related version of the drug, called esketamine, from
Johnson & Johnson
for treatment-resistant depression with suicidal thoughts.
Clinics that are certified to administer J&J’s nasal spray must monitor patients for two hours afterward.
People taking generic ketamine at home aren’t subject to the same oversight.
Clinics specializing in ketamine treatment for depression and other mood disorders have popped up across the U.S. in recent years. WSJ visits a clinic to learn why some entrepreneurs are betting that demand for ketamine will continue to rise. Photo illustration: Laura Kammermann
Mindbloom Inc., Nue Life Health PBC and Wondermed LLC are among around a dozen companies now selling ketamine tablets or lozenges online, making use of relaxed restrictions on the prescription of controlled substances during the pandemic.
The companies work with clinicians who prescribe ketamine to patients based on a questionnaire and virtual evaluation. The generic ketamine pills or lozenges are mailed to patients’ homes. The companies say they instruct people to take the medication with someone nearby, among other safety measures.
Taking ketamine at home without medical supervision increases risks of patients falling and hurting themselves or taking more of the drug than prescribed, doctors said. Ketamine can be addictive, and patients might not get the help they need if they have a distressing experience while taking the drug, psychiatrists said.
“Places that are doing virtual ketamine are negotiating a compromise between accessibility and safety,” said Dr.
Benjamin Yudkoff,
medical director of the ketamine and esketamine program at Brigham and Women’s Faulkner Hospital in Boston.
Ketamine increases heart rate and blood pressure, raising the risk of rare complications including stroke or heart attack at the higher doses that some telehealth patients have been prescribed, medical experts said.
“Giving any drug like that has the potential to cause general anesthesia at home in a completely unmonitored environment,” said Dr.
Michael Champeau,
president of the American Society of Anesthesiologists.
The companies said prescribing ketamine-assisted therapy at home can help fill a need for people who don’t respond to existing medications or can’t reach or afford treatment in person. Ketamine blocks a receptor in brain cells important for brain adaptability, which researchers say might help facilitate changes in mood and mind-set.
Ketamine was prescribed for Leon New Valentine, who said it alleviated symptoms of treatment-resistant depression and PTSD.
Photo:
Tara Pixley for The Wall Street Journal
Mindbloom and Nue Life cited peer-reviewed research they published suggesting that many patients reported feeling better after taking ketamine and that few reported problems related to taking the drug.
Mindbloom, Nue Life and Wondermed said they decline to treat people who have symptoms that are too severe or histories of conditions such as substance-use disorder, psychosis or uncontrolled hypertension. Nue Life said it sometimes consults with a patient’s doctor before prescribing ketamine, and Mindbloom said it often asks for medical records. Wondermed said patients can choose to have their doctors work with the company during treatment.
“‘Places that are doing virtual ketamine are negotiating a compromise between accessibility and safety.’”
— Dr. Benjamin Yudkoff, Brigham and Women’s Faulkner Hospital
Nue Life said it starts patients at around 125 milligrams and prescribes at most 750 milligrams for a dose. Wondermed said it prescribes patients between 100 milligrams and 400 milligrams for a dose. Mindbloom said that it starts patients at around 400 milligrams and that some patients graduate to doses of around 1,000 milligrams.
Doses of around 1,000 milligrams heighten risks for severe side effects including rare seizures, hemorrhages or strokes, said
Ari Aal,
a psychiatrist in Boulder, Colo., who prescribes ketamine at lower doses to patients who take it under supervision at his clinic.
“That’s way too much of a dose to be doing at home and probably at all, and way too much without a practitioner watching you,” Dr. Aal said.
Mindbloom and Wondermed said they provide blood-pressure monitors for patients to use before and during treatment. Nue Life said it instructs patients with controlled hypertension to monitor their blood pressure.
A ketamine kit provided by Mindbloom for Courtney Gable.
Photo:
Courtney Gable
Timothy Mitchell,
a 40-year-old patient advocate from Ballston Lake, N.Y., said Mindbloom started him on an 800-milligram dose last year. He said he is undergoing his third course of a six-dose regimen with Mindbloom at 1,200 milligrams a dose. The treatment helped quiet suicidal thoughts, he said.
Wondermed said it charges $399 for a month of ketamine tablets or lozenges and telemedicine treatment. Mindbloom said it charges around $1,000 for around three months of ketamine and telemedicine care. Nue Life said it charges as much as $2,999 for ketamine tablets and telemedicine treatment over four months. Health insurers usually don’t reimburse people for the off-label treatments.
Amanda Itzkoff,
a psychiatrist and chief executive of Curated Mental Health, which administers ketamine in clinics, said she declined to be on Mindbloom’s advisory board in part because she was concerned that at-home use might not include enough patient supervision.
Making a comparison with a crackdown on psychedelic-drug research decades ago, she said that if companies recklessly prescribe ketamine for home use, they could set back adoption of a valuable treatment. “We could blow it again,” Dr. Itzkoff said.
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A spokesman said that Mindbloom ended its relationship with Dr. Itzkoff and that she didn’t raise safety concerns. Mindbloom’s medical director, Dr.
Leonardo Vando,
said striking the right balance between expanding access to ketamine and safe prescribing practices is critical to Mindbloom.
Courtney Gable,
47, said her husband checked on her when she took ketamine that Mindbloom prescribed for her this year to treat chronic pain and depression. The 400-milligram dose was higher than initial doses prescribed at a clinic where she works in Philadelphia, she said.
“There’s a safety net, but the spaces between the net are a little wider,” Ms. Gable said.
Leon New Valentine,
a 32-year-old actor and videogame model in Los Angeles, was prescribed 100 milligrams of ketamine online last year by Peak Health Global Inc., and took the medication with someone nearby. Mx. Valentine, who uses they as a pronoun, said they graduated to 150-milligram doses and took that alone. Ketamine alleviated symptoms of treatment-resistant depression and PTSD, Mx. Valentine said.
“Things are joyful again even though I’m in pain,” Mx. Valentine said. Peak said it would close in November because it expects rules allowing controlled substances to be prescribed remotely to be tightened soon.
Write to Brianna Abbott at brianna.abbott@wsj.com and Daniela Hernandez at daniela.hernandez@wsj.com
Apple Inc. quietly announced upgrades to two of its iPad models Tuesday, through announcements lacking the fanfare of the company’s recent iPhone 14 debut.
Instead of hosting an event to reveal the iPad updates as it did for the iPhone, Apple
AAPL,
+0.94%
simply announced the refreshed devices in a series of press releases. The company is enhancing its iPad Pro with the inclusion of its faster M2 chip and also delivering speed upgrades in its new base-level iPad.
The M2 chip seems to be the biggest change in the new iPad Pro. Apple says the chip has a central processing unit (CPU) that’s up to 15% faster than what was on the prior-generation M1 chip, while the graphics processing unit (GPU) can bring up to 35% faster graphics performance.
Apple suggests the chip will prove helpful to power users, such as “photographers editing massive photo libraries and designers manipulating complex 3D objects.”
The iPad Pro also supports a “hover” feature for the Apple Pencil, which detects the pencil up to 12 millimeters above the display so that users can see a preview of their mark before they touch the screen to draw or write.
The 11-inch iPad Pro will begin at $799 for the Wi-Fi version and $999 for the cellular version, while the 12.9-inch iPad Pro starts at $1,099 with just Wi-Fi and $1,299 with the cellular option.
Apple also updated its base iPad model, this time moving the front-facing camera to the landscape edge of the device in what Apple says is a first for any of its iPads.
“Whether users are on a FaceTime call or recording a video for social media, they will always be looking right toward the camera,” Apple said in the release. The camera has a 12-megapixel sensor and a 122-degree field of view.
Apple is putting its A14 Bionic chip in the new base-level iPad, which the company says will bring improvements in CPU and graphics performance. Apple is also moving the Touch ID reader to the top button on the iPad.
The device will come in blue, pink, yellow, and silver color options. The Wi-Fi version starts at $449 and the cellular-connected version begins at $599.
Both refreshed models are currently up for preorder, with availability beginning Oct. 26.
The upgrades come as Apple looks to once again drive growth in the iPad category. The device proved popular during the pandemic as people sought new electronics that would help them work and study from home, but now momentum is harder to come by: Apple posted $7.22 billion in iPad revenue during its June quarter, down from $7.37 billion a year before.
The company refreshed its 4K Apple TV as well on Tuesday, giving a performance boost with the A15 Bionic chip that the company says will make gameplay faster.
RIYADH, Saudi Arabia—Days before a major oil-production cut by OPEC and its Russia-led allies, U.S. officials called their counterparts in Saudi Arabia and other big Gulf producers with an urgent appeal—delay the decision for another month, according to people familiar with the talks. The answer: a resounding no.
U.S. officials warned Saudi leaders that a cut would be viewed as a clear choice by Riyadh to side with Russia in the Ukraine war and that the move would weaken already-waning support in Washington for the kingdom, the people said.
Saudi officials dismissed the requests, which they viewed as a political gambit by the Biden administration to avoid bad news ahead of the U.S. midterm elections, on which control of Congress hangs. High gas prices and inflation have been central issues in the campaign.
Instead, the people said, the kingdom leaned on its OPEC allies to approve the cut, which is aimed at reducing production by 2 million barrels a day.
Adrienne Watson,
a National Security Council spokeswoman, rejected Saudi contentions that the Biden administration efforts were driven by political calculations. U.S. officials questioned a Saudi analysis that the price of oil was about to plunge and urged them to wait and see how the market reacted. If the price did collapse, U.S. officials told their Saudi counterparts, OPEC+ could react whenever they needed.
“It’s categorically false to connect this to U.S. elections,” Ms. Watson said. “It’s about the impact of this shortsighted decision to the global economy.”
President Biden visited Saudi Arabia in July with the goal of repairing relations with the kingdom.
Photo:
Evan Vucci/Associated Press
National Security Council spokesman
John Kirby
said Tuesday that President Biden believes that the U.S. should review the relationship with Saudi Arabia in light of the OPEC+ decision, “and take a look to see if that relationship is where it needs to be and that it is serving our national security interests.” He said the president was willing to discuss the bilateral relationship with members of Congress.
On Tuesday Prince Faisal bin Farhan, the Saudi foreign minister, said the OPEC+ decision was purely economic and had no political dimensions. The alliance seeks to stabilize energy markets and advance the interests of producers and consumers, he said in an interview with Saudi-owned Al Arabiya television.
Prince Faisal said relations with the U.S. are long standing and strategic and that military cooperation between the two countries has contributed to peace and stability in the region.
U.S. officials said the OPEC+ decision was unhelpful as inflation driven by high energy prices threatens global growth and represents an economic weapon against the West for Russian President Vladimir Putin. It threatens to drive up American gasoline prices ahead of the Nov. 8 midterms.
The one-month delay requested by Washington would have meant a production cut made in the days before the election, too late to have much effect on consumers’ wallets ahead of the vote.
High oil prices have been beneficial for OPEC+, an alliance of oil-producing countries that controls more than half of the world’s output. WSJ’s Shelby Holliday explains what OPEC+ countries are doing with the windfall and why they aren’t likely to distance themselves from Russia. Illustration: Adele Morgan
Since the OPEC+ decision, the White House vowed to fight OPEC’s control of the energy market. Lawmakers from across the political spectrum called on the U.S. to cut off arms sales to Saudi Arabia. And U.S. officials started looking for ways to punish Riyadh.
In one of its first responses, U.S. officials said, the Biden administration is weighing whether to withdraw from participation in Saudi Arabia’s flagship Future Investment Initiative investment forum later this month.According to people familiar with the matter, the U.S. has pulled out of a working group meeting on regional defenses next week at the Gulf Cooperation Council, based in Saudi Arabia.
Mr. Biden’s visit to Saudi Arabia in July was meant to repair relations after the president entered office with a vow to treat the kingdom as a pariah over human rights, particularly the 2018 killing of Saudi journalist Jamal Khashoggi at the hands of Saudi agents.
Images of the president’s fist bump with Crown
Prince Mohammed
bin Salman became a polarizing symbol of the trip.
But according to people inside the Saudi government, Mr. Biden’s July visit did little to change Prince Mohammed’s determination to chart a foreign policy independent of U.S. influence, in a break from almost 80 years of American-Saudi partnership.
If anything, said the people inside the Saudi government, the visit angered Prince Mohammed, who was upset that Mr. Biden went public with his private comments to the Saudi royal over Mr. Khashoggi’s death, which prompted Saudi officials to publicly contradict Mr. Biden’s characterization of their interaction.
U.S. officials said they saw no indications in their talks with Saudi leaders in recent months that Mr. Biden’s comments about Mr. Khashoggi had been damaging to ties.
Saudi Arabia’s Prince Abdulaziz bin Salman, in white at last week’s OPEC+ gathering, lobbied other oil ministers to outdo September’s production cut, delegates said.
Photo:
christian bruna/EPA/Shutterstock
Prince Mohammed—who runs the kingdom day to day for his father,
King Salman
—has tried to maximize Saudi Arabia’s economic strength. With high energy prices, the kingdom’s economic growth this year is estimated by the IMF at more than 10%—making it one of the best performers globally.
Prince Mohammed has told advisers that he isn’t willing to sacrifice much for the Biden administration, said the people inside the Saudi government, citing its critical view of the Saudi war in Yemen, bid to close a nuclear deal with Iran that Riyadh opposes and Mr. Biden’s own comments on the prince.
In August, the Saudis had planned to push OPEC+ to raise oil production by 500,000 barrels a day in an effort to please Mr. Biden, but Prince Mohammed ordered the increase lowered to a token 100,000 barrels a day after the Biden visit, the people inside the Saudi government said.
The U.S. State Department’s energy-security envoy,
Amos Hochstein,
sent the Saudi energy minister,
Prince Abdulaziz
bin Salman, an email that suggested he had broken his word promising a larger increase, people familiar with the matter said.
The email angered Prince Abdulaziz and strengthened his resolve to forge an oil policy independent of the U.S., the people said.
In September, Prince Abdulaziz engineered OPEC+’s first production cut since the pandemic, erasing the 100,000 barrels a day increase from August. Then, before the Oct. 5 OPEC+ meeting, Prince Abdulaziz called Persian Gulf oil chiefs and urged them to back a bigger cut, OPEC+ delegates said.
He cited a Western plan for an oil-price cap as a direct attack on crude producers, according to OPEC+ delegates. “It’s us against them,” he told at least two Gulf oil ministers in phone calls, according to the delegates.
U.S. officials launched an intense lobbying campaign to persuade Saudi Arabia to delay its plans, people familiar with the matter said. White House officials held multiple calls with Prince Mohammed, the people said, and Treasury Secretary
Janet Yellen
spoke to the Saudi finance minister.
The United Arab Emirates, another significant OPEC producer, opposed the production cut and advocated privately for a one-month delay, in line with U.S. requests, said people familiar with its position. In the days leading up to the Oct. 5 OPEC+ meeting in Vienna, Emirati officials communicated intensely with their Saudi and U.S. counterparts in an effort to prevent the decision, the people said.
Kuwait, Iraq and Bahrain also pushed back privately against the proposed cut, arguing it could trigger a recession that would sap oil demand, but all these countries ultimately went ahead with the decision in order to preserve unity within OPEC+, U.S. and regional officials said.
U.S. officials said they were blindsided by the size of the cut, believing OPEC+ would only cut one million barrels a day.
Russia had lobbied the Saudis to enact the production cut, OPEC+ delegates said. Kremlin spokesman Dmitry Peskov called the OPEC+ decision “balanced, thoughtful and planned work of the countries.”
The White House has said the OPEC+ decision shows that the group is clearly aligned with Russia now. U.S. officials warned that the Saudi move could imperil more than $100 million in active foreign military sales that Riyadh is seeking from the U.S.
U.S. lawmakers announced plans to reintroduce a bill to immediately suspend arms sales to Saudi Arabia. Any hopes the Saudis had of securing more precision guided missiles from the U.S. have been all but quashed, U.S. officials said.
Some U.S. lawmakers want to pull American troops out of Saudi Arabia. And Senate leaders from both parties are backing a bill that would allow the Justice Department to sue Saudi Arabia and other OPEC nations for illegal price fixing.
Among those calling on the U.S. to punish Saudi Arabia for the move was U.S. Sen.
Robert Menendez,
(D., N.J.), who vowed to use his position as chairman of the Senate Foreign Relations Committee to block any future arms sales to the kingdom.
“There simply is no room to play both sides of this conflict—either you support the rest of the free world in trying to stop a war criminal from violently wiping off an entire country off of the map, or you support him,” he said. “The Kingdom of Saudi Arabia chose the latter in a terrible decision driven by economic self-interest.”
Saudi officials said the OPEC+ production cut was necessary to protect their economy.
By early October, oil prices had fallen over 30% from a peak in June, and were threatening to fall below $80 a barrel. Saudi Arabia is likely to need $76-$78 a barrel to balance its budget next year, economists say, based on preliminary forecasts.
Brent crude traded at $94.01 on Tuesday, up 13% since hitting a low of $82.86 on Sept. 26.
Saudi officials told their American counterparts that they believed the oil market could collapse if they didn’t act, and fall to $50 a barrel—a move they feared would imperil the kingdom’s Vision 2030 economic plan to diversify its economy, said people familiar with the matter.
To entice the Saudis to delay their decision, U.S. officials told the kingdom they would buy oil on the market to replenish Washington’s strategic stockpiles if the price of Brent, the main international benchmark, fell to $75 a barrel, according to U.S. officials and people inside the Saudi government.
Such a large American purchase of oil could have put a floor on prices. The Saudis refused the offer.
—Nancy A. Youssef, Timothy Puko and Michael Amon contributed to this article.
Write to Summer Said at summer.said@wsj.com, Benoit Faucon at benoit.faucon@wsj.com, Dion Nissenbaum at Dion.Nissenbaum@wsj.com and Stephen Kalin at stephen.kalin@wsj.com
Mr. Musk first laid out the vision for the robot, called Optimus, a little more than a year ago at Tesla’s first-ever AI day. At the time, a dancer in a costume appeared onstage. This time, Mr. Musk presented a prototype at the gathering that unfolded late Friday in Palo Alto, Calif.
The early prototype, which still had wires showing, took a few steps, waved to the crowd, and performed some basic dance moves.
Tesla’s robot is expected to cost less than a car, with a price point below $20,000, Elon Musk said.
Photo:
Tesla
Mr. Musk quipped the robot could do a lot more, but limited its activity for fear it could fall on its face. The robot’s appearance on stage marked the first time it operated without a tether, Mr. Musk said.
“Our goal is to make a useful humanoid robot as quickly as possible,” he said, with the aspiration of being able to make them at high volume and low cost. “It is expected to cost much less than a car,” he said, with a price point below $20,000. Customers should be able to receive the robot, once ordered, in three to five years, Mr. Musk said. It isn’t yet for sale.
He later showed off a nonfunctioning, sleeker model that he said was closer to the production version.
“There’s still a lot of work to be done to refine Optimus,” he said, saying that the concept could evolve over time. “It won’t be boring.”
The battery-powered robot should be able to handle difficult chores, Tesla said, including lifting a half-ton, 9-foot concert grand piano. Mr. Musk added it would have conversational capabilities and feature safeguards to prevent wrongdoing by the machine.
Elon Musk last year unveiled the idea of the robot Optimus with a dancer in a costume.
Photo:
TESLA/via REUTERS
“I’m a big believer in AI safety,” said Mr. Musk, who has previously expressed concerns about how such technology could be used. He said he thinks there should be a regulatory authority at the government level.
The Tesla boss painted a vision of Optimus as helping Tesla make cars more efficiently, starting with simple tasks and then expanded uses. He has also suggested the robot could serve broader functions and potentially alleviate labor shortages.
“It will, I think, turn the whole notion of what’s an economy on its head, at the point at which you have no shortage of labor,” Mr. Musk said Aug. 4 at Tesla’s annual shareholder meeting. On Friday, he added: “It really is a fundamental transformation of civilization as we know it.”
Elon Musk unveiled a prototype of Tesla’s humanoid robot Optimus, part of an effort to shape perception of the company as more than just a car maker. The Tesla CEO said the robot is expected to cost less than a car. Photo: Tesla
When he first unveiled the Optimus concept, Mr. Musk said such a robot could have such an impact on the labor market it could make it necessary to provide a universal basic income, or a stipend to people without strings attached.
Tesla has also encountered problems with automation. Early efforts to rely heavily on automated tools to scale up vehicle production suffered setbacks, and the company had to rely more heavily than planned on factory workers. Mr. Musk later tweeted: “Yes, excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated.”
One of the big questions around Tesla’s humanoid robot is its central purpose, said
Chris Atkeson,
a Carnegie Mellon University robotics professor. If Tesla’s main goal is to improve manufacturing, a quadruped likely would have been easier to build than a humanoid robot, in part because additional legs make it easier to balance, he said.
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Mr. Musk, who has been instrumental in popularizing electric vehicles and pioneered landing rocket boosters with his company SpaceX, also has a record of making bold predictions that don’t immediately pan out. Three years ago at an event about automation, he projected that more than a million Tesla vehicles would be able to operate without a driver by the middle of 2020, positioning the company to launch a robot taxi service. That hasn’t happened.
Mr. Musk for some time has said Tesla aimed to be more than just a car company and reiterated that message on Friday. He called the company “a series of startups.”
Mr. Musk billed the latest event, like last year’s, as one aimed at recruiting engineers in fields such as artificial intelligence, robotics and chips.
Tesla has long bet on automation to keep the company ahead of competitors. The company’s cars are outfitted with an advanced driver-assistance system, known as Autopilot, that helps drivers with tasks such as maintaining a safe distance from other vehicles on the road and staying centered in a lane.
Tesla engineers detailed some of the AI work the company is doing, including to underpin its driver-assistance technology. Mr. Musk said the company’s development of a powerful, AI-focused computer could allow Tesla to offer the number-crunching capability as a service to others, not unlike cloud-computing offerings provided by the likes of
Amazon.com Inc.
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The company is developing and selling an enhanced version of Autopilot that brings more automated driving into cities. Tesla calls the system Full Self-Driving, or FSD, although it doesn’t actually make vehicles autonomous and the company tells drivers to keep their hands on the wheel while operating the car.
Tesla said Friday that it now has 160,000 customers with the software. Mr. Musk said rollout of the technology beyond the U.S. and Canada depends on gaining regulatory approval, though it should be feasible from a technology perspective by year-end.
Tesla has steadily raised the price of FSD, which now retails for $15,000. AI has been at the heart of Tesla’s efforts to develop more advanced driver-assistance features and, eventually, fully autonomous vehicles.
Tesla said the software that is used to take on more driving functions also underpins operations of the humanoid robot.
Tesla’s pursuit of automation has increasingly come under scrutiny. The National Highway Traffic Safety Administration, which regulates auto safety, opened a probe into Autopilot last year after a series of crashes involving Teslas that struck first-responder vehicles stopped for roadway emergencies.
Two U.S. senators have also asked the Federal Trade Commission to investigate whether Tesla has been deceptive in its marketing of Autopilot and FSD.
The electric-car maker has long said that driving with Autopilot engaged is safer than doing so without it. Tesla points to internal data showing that crashes were less common when drivers were using Autopilot, though some researchers have criticized the company’s methodology.
Write to Meghan Bobrowsky at Meghan.Bobrowsky@wsj.com and Rebecca Elliott at rebecca.elliott@wsj.com
Ford Motor Co. shares dropped more than 4% in the extended session Monday after the company said inflation and parts shortages will leave it with more unfinished vehicles than it had expected, reminding Wall Street supply-chain snags are far from over for auto makers.
Ford
F,
+1.43%
said it expects to have between 40,000 and 45,000 vehicles in inventory at the end of the third quarter “lacking certain parts presently in short supply.”
The auto maker also said that based on its recent negotiations, payments to suppliers will run about $1 billion higher than expected for the quarter, thanks to inflation. The company reaffirmed its outlook for the year, however.
Ford’s warning “is evidence that auto parts shortages and supply-chain issues are still ongoing,” CFRA analyst Garrett Nelson told MarketWatch.
Many investors had started to believe “these problems were in the rearview mirror with inventories starting to recover from the record lows of the last year or so,” Nelson said.
The unfinished vehicles include high-demand, high-margin models of popular trucks and SUVs, Ford said. That will cause some shipments and revenue to shift to the fourth quarter.
“Ironically, Ford may have become a victim of its own success in that its recent U.S. sales growth has outperformed peers by a wide margin,” Nelson said. Its third-quarter production “apparently wasn’t able to keep pace with demand.”
Ford reiterated expectations of full-year 2022 adjusted earnings before interest and taxes of between $11.5 billion and $12.5 billion, despite the shortages and the higher payments to suppliers, it said.
Ford called for third-quarter adjusted EBIT of between $1.4 billion and $1.7 billion.
Shares of Ford ended the regular trading day up 1.4%. The company has embarked on a reorganization to pivot to electric vehicles, and last month confirmed layoffs in connection with its new structure.
Ford is slated to report third-quarter financial results on Oct. 26, when it said it expects to “provide more dimension about expectations for full-year performance.”
Analysts polled by FactSet expect the auto maker to report adjusted earnings of 51 cents a share, which would match the third-quarter 2021 adjusted EPS, on revenue of $38.8 billion.
The quarterly sales would compare with $35.7 billion in revenue in the year-ago period.
Shares of Ford slid 4.4% after hours, and have lost 28% so far this year, compared with losses of 18% for the S&P 500 index
SPX,
+0.69%.
The news comes a week after FedEx Corp.
FDX,
+1.17%
roiled markets and raised fears of an economic slowdown by withdrawing its outlook for the year and warning that the year was likely to become worse for the business.
is considering the launch of a new giant startup fund after ill-timed bets and massive losses weighed down two earlier attempts to dominate startup investing, according to people familiar with discussions at the company.
The Tokyo-based tech conglomerate, by far the world’s largest startup investor in recent years, would likely use its own cash for what would be the third SoftBank Vision Fund if it moves ahead with the plan, some of the people said.
The company is also considering putting additional money into Vision Fund 2, its main investment fund for the past few years, instead of starting a new fund, one of the people said. Vision Fund 2 is currently worth less than the investment that went into it. Those losses significantly reduce the pay for SoftBank staff working on the fund—a factor in its decision making. The company expects to make a decision in the coming months, the people said.
SoftBank, led by Chief Executive Officer
Masayoshi Son,
has been hit particularly hard by the rout in tech valuations that began last fall, posting a record $23 billion loss in the three months ended in June.
Much of that red ink is a product of its first two Vision Funds, the startup investment unit that Mr. Son formed in 2017 in a bid to dominate the venture sector. The $100 billion initial Vision Fund, which raised $60 billion from Saudi and Emirati wealth funds, was beset by giant soured bets on companies including WeWork Inc. and
Didi Global Inc.,
leading to meager gains over five years.
The successor Vision Fund 2, funded by SoftBank and intended to be more cautious, is now worth 19% less than the $49 billion it invested, after accelerating its spending just as valuations peaked on companies including fintech Klarna Holdings AB.
Chief Executive Officer Masayoshi Son has been hit particularly hard by the rout in tech valuations.
Photo:
Neil Hall/REUTERS
Mr. Son told investors in August he was “quite embarrassed and remorseful” after having gotten caught up in the frenzy, and he has substantially cut back spending on startups. Still, he has said he is committed to the startup and tech sector long term and eventually plans to increase spending again.
Mr. Son and SoftBank have tried to chart a new path forward after the market turned against unprofitable tech investments. He has also faced a string of departures of top staff. In July, the company said
Rajeev Misra,
who led the Vision Fund since it was created in 2017, would step back from his role overseeing new investments as he starts his own fund.
Despite the misses, SoftBank expects to have more cash coming in over the next year, from a public listing of its chip maker Arm. Its Japanese telecom holdings also generate cash.
Still, analysts and investors say the company’s options are more limited than in the past. Mr. Son has been selling down SoftBank’s stake in Alibaba Group Holding Ltd. and its telecom holdings, and funding a large stock-buyback program. The result has been an increasingly concentrated bet on startups, where results have been disappointing.
Among those pushing for a new fund are some employees of the Vision Fund. A new fund would be a way to reset their compensation, which is partly based on profits at the fund and its investments, one of the people familiar with discussions said. The current fund would require making back large losses before employees could get those bonuses. A new fund would put profits closer in reach. The company is also considering restructuring staff incentives for Vision Fund 2.
The size of the new fund couldn’t be determined.
Mr. Son personally takes a hit with Vision Fund 2 in the red because of a $2.6 billion personal commitment he made. Based on the terms of the investment, Mr. Son didn’t put up the money himself but owes SoftBank if the fund ends up performing poorly.
The unusual investment has been criticized by some investors and analysts who say it could skew Mr. Son’s motivations given a structure that could make him more focused on Vision Fund 2 than on other investments. Mr. Son, who owns over one-fourth of SoftBank, has said the structure better aligns him with the investment fund.
SoftBank structured its arrangement in a way that allows the company to get repaid on most of its investment before Mr. Son. About $33 billion of its commitment to Vision Fund 2 is in preferred equity.
While that structure would have led to outsize profits for Mr. Son if Vision Fund 2 did well, today it means particularly large losses because the fund is underwater. Mr. Son currently owes $2.1 billion on the investment, SoftBank disclosures show. He is charged a 3% annual interest rate on his unpaid balance to SoftBank.
From the Archives: SoftBank’s longtime strategy of dumping mountains of cash on promising young companies to create big winners failed dramatically at WeWork and is inviting scrutiny into the fund’s other investments. Here’s a look at Vision Fund’s structure, and how its fast-paced investment strategy could make it risky.
Write to Eliot Brown at Eliot.Brown@wsj.com and Julie Steinberg at julie.steinberg@wsj.com
Russia indefinitely suspended natural gas flows to Europe via a key pipeline hours after the Group of Seven agreed to an oil price cap for Russian crude—two opposing blows exchanged between Moscow and the West in an economic war running parallel to the military conflict in Ukraine.
Kremlin-controlled energy company Gazprom PJSC said late Friday it would suspend supplies of gas to Germany via the Nord Stream natural-gas pipeline until further notice, raising the pressure on Europe as governments race to avoid energy shortages this winter.
Gazprom said it had found a technical fault during maintenance of the pipeline, which connects Russia with Germany under the Baltic Sea. The company said the pipeline will remain shut down until the issue is fixed, without giving any timeline.
The pipeline was due to resume work early Saturday after three-day maintenance. Before the maintenance, the pipeline was operating at 20% of its capacity.
Russia first began throttling supplies via Nord Stream in June, saying that needed maintenance was being prevented by Western sanctions imposed following Russia’s invasion of Ukraine. The notion was dismissed by European officials as an excuse for Russian President
Vladimir Putin’s
regime to use its gas exports to punish Europe for its support of Ukraine.
Western leaders are preparing for the possibility that Russian natural gas flows through the key Nord Stream pipeline may never return to full levels. WSJ’s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world. Illustration: David Fang
A complete shutdown of Nord Stream will compel European governments to accelerate their push to become independent of Russian gas ahead of the winter months and could force them to ration energy—a move that would hurt industrial companies and tip the continent’s already fragile economy into a recession.
“By further reducing gas deliveries, Russia is tightening the screws on the EU,” said Janis Kluge, an expert on Russia at the German Institute for International and Security Affairs. “Europe will now have to take its efforts up a notch to conserve more gas.”
At the same time, the move deprives Moscow of its most potent economic leverage on the continent and could remove any remaining misgivings in European capitals about raising sanctions on Moscow for fear of retribution.
“Until it is repaired, gas transport via Nord Stream is completely stopped,” Gazprom said Friday.
Moscow and the West have been engaged in an economic war since Russia invaded Ukraine in February. Western democracies have inflicted economic and financial sanctions on Russia, and Moscow has tried to choke unfriendly countries’ access to its natural gas, which Europe uses for heating and electricity production.
ArcelorMittal SA,
one of the world’s largest steelmakers, was the latest industrial giant to say it is reducing European production capacity amid the energy crisis. The company said Friday it will close two of its plants in Germany amid soaring electricity costs.
Steelmaking is particularly energy intensive, alongside other industries like fertilizer and chemical production and glass making.
G-7 countries said on Friday they would impose a cap on the price of Russian oil. The mechanism would force buyers seeking to insure their shipment via insurers located in a G-7 or European Union country to observe the price limit on their purchases. The cap, whose level will be set at a future meeting, originated in a U.S. initiative and has been under discussion for months.
Russia has said countries imposing a cap wouldn’t receive any Russian oil. Sales of oil make up a far bigger share of Russian state revenues than sales of natural gas.
Inspectors from the United Nations’ nuclear agency visited the Russian-occupied Zaporizhzhia nuclear-power plant, despite shelling near the facility for which Ukraine and Russia exchanged blame. On Friday, Ukraine accused Russia of hindering access to the plant. Photo: Yuri Kochetkov/Shutterstock
Hours before Gazprom’s Nord Stream announcement, German Finance Minister
Christian Lindner
praised the G-7 decision, saying “Russia is generating big profits from the export of commodities such as oil, which is something we must push back on vigorously.”
The cap, he added, would help combat inflation in the EU.
Russia would have enough capacity via other gas pipelines to Europe to compensate for the Nord Stream shortfall. However, flows via these other routes declined following the start of the war in Ukraine.
Ukraine halted one gas-transit route in May, blaming interference by Russian forces. Deliveries through another, called Yamal, which traditionally transported gas from Russia to Europe, have stopped this year due to sanctions imposed by Russia on the Polish part-owner.
Germany’s economy minister,
Robert Habeck,
said this week that the country can’t count on Nord Stream during the winter.
In reaction to the Nord Stream closure, a spokeswoman for the ministry said on Friday that Germany was far better prepared than a few months ago.
“We have already seen Russia’s unreliability in the past few weeks, and accordingly we have unwaveringly and consistently pursued our measures to strengthen our independence from Russian energy imports,” the spokeswoman said.
Klaus Müller, head of Germany’s energy regulator, said the country would need to boost gas imports from other suppliers, continue to fill up gas stores and cut gas consumption.
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European officials had expected that the Kremlin would use gas flows to keep markets and governments on edge and erode support for Ukraine among Western voters.
Gazprom’s shutting down of Nord Stream “under fallacious pretenses is another confirmation of its unreliability as a supplier,” European Commission spokesman Eric Mamer wrote on Twitter.
A senior manager of a German gas company formerly controlled by Gazprom said Friday that he expects local importers of gas channeled via Nord Stream to stop paying for their contractual obligations with Gazprom.
Natural-gas prices have broken records in recent weeks amid the energy crunch, though they have also dropped sharply in the past days, with some analysts crediting the speed at which Europeans have been filling up their gas storage facilities through the summer.
Goldman Sachs analysts said that the Nord Stream outage would cause prices to surge again. The Gazprom decision “will reignite market uncertainty regarding the region’s ability to manage storage through winter, driving a significant rally,” the bank said in a note to clients.
Gazprom began throttling gas flows in June, citing technical problems with the turbines. The company insists that a key turbine couldn’t be sent to Russia after it was maintained in Canada because of international sanctions on Moscow. But Germany, where the turbine was located, said that there are no obstacles, and that Moscow was in fact blocking the turbine’s return to Russia.
On Friday, Gazprom said that it found an oil leak in a turbine at the compressor station of the pipeline. Gazprom said that similar issues had been found with other turbines this summer that have led to the reduction of the gas flows.
Gazprom said it had notified German company
Siemens Energy AG
, which maintains the turbines, of the new leak. Gazprom said that the necessary repairs could only be done in a specialized repair facility. Previously, some turbines for the pipeline had been repaired by Siemens Energy in Canada.
Siemens Energy said that Gazprom’s announcement wasn’t a technical reason for stopping operation. “Such leakages do not usually affect the operation of a turbine and can be sealed on site. It is a routine procedure during maintenance work,” the company said. It said it wasn’t currently contracted for maintenance work but is ready to assist.
Europe has been preparing for a possible Russian gas cutoff, with EU gas- storage facilities filling up faster than expected this summer, to over 80%.
Still, if Nord Stream remains shut, Europe’s gas stores would end the winter at 26% of their capacity, which would complicate Europe’s situation next winter, Massimo Di Odoardo, vice president for gas and liquefied natural gas research at energy consulting firm Wood Mackenzie, wrote this week.
Germany, which received more than half of its gas from Russia before the war in Ukraine, has been racing to diversify its supply of gas and to install floating liquefied natural gas terminals to ship in gas from the U.S. and elsewhere. In recent months, Germany’s gas imports from Norway, Belgium and the Netherlands have far outweighed the reduced Russian flows.
The country is close to hitting its 85% gas storage target, initially set for Oct. 1. German officials, however, have warned that reaching the next milestone of 95% by Nov. 1 would be challenging unless companies and households cut consumption.
The 760-mile-long Nord Stream pipeline first opened in 2011. Russia and a consortium of European energy companies built a second pipeline, Nord Stream 2, running alongside the original one, that would have doubled capacity. But the German government froze the project in February over the war in Ukraine.
—Bojan Pancevski contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Andrew Duehren at andrew.duehren@wsj.com
