Friday, January 15, 2016
Tech firms reel in 2016 stock market rout; BHP writes down $7.2bn of shale assets; How tech companies threaten car makers
1 Tech firms reel in stock market rout (Sam Thielman in The Guardian) As 2016 ushers in one of the worst stock market routs in years, cracks in the tech sector have suddenly widened from mild to serious – and in some cases, potentially fatal. Shares of tech giants from Apple to Alphabet to Netflix took immediate hits when the market opened, and smaller companies like GoPro – down more than 24% in one day – have not recovered.
Apple, Alphabet, Twitter and Facebook all took immediate hits when the market opened; Twitter was the only one not to quickly recover. Analysts say the embattled social network is troubled not just by user interest reaching a plateau, but by competition from services that offer more and are able to take a bite out of its business model.
“The fundamental issue is that Facebook and Snapchat are eating into the news and information business,” Rich Greenfield, analyst with BTIG, said. That remains especially true of publicly traded internet companies; shareholders need to see expansion, rather than the simple ongoing health of a solid enterprise. Or, as Greenfield put it, “Profit is very different than growth.”
Waning consumer interest in gadgets is at least part of the sector’s weakness, though the entire market is taking a beating.
Consumer electronics chain Best Buy lost more than 10% immediately at the bell on Thursday on news that weak smartphone sales over the holiday season had cut into the retailer’s most lucrative time of year; the stock had not recovered by noon. The company usually sees a hit when it announces holiday sales, even if the results are good – and this year’s were not.
2 BHP writes down $7.2bn of shale assets (BBC) BHP Billiton has written down the value of its US shale assets by $7.2bn as a result of the dive in oil prices. The impairment charge adds to BHP's recent woes following a fatal dam collapse in Brazil and tumbling commodity prices.
Plummeting iron ore, coal, copper and other commodity prices led to a slump in earnings last year. BHP's latest move means it has written down nearly two-thirds of its investment in US shale.
Oil prices have slumped by 70% since June 2014 to just above $30 a barrel, putting oil companies of all sizes and a number of oil exporting countries under significant financial pressure. "Oil and gas markets have been significantly weaker than the industry expected," BHP chief executive Andrew Mackenzie said in a statement.
The company has cut operating costs and capital spending at its US onshore operations since the collapse in oil prices, reducing the number of its shale oil rigs from 26 a year ago to five now. Oil companies large and small have been writing down the value of shale assets over the past 20 months since oil prices started crashing, and some investors expect further write-downs from BHP.
3 How tech cos threaten car makers (Gulf News) Automakers such as Ford Motor Co and Toyota Motor Corp should consider the arrival of technology companies like Google Inc in their industry as a lethal threat rather than a growth opportunity, Morgan Stanley analyst Adam Jonas said.
“You’re talking about the end of human driving, the end of private ownership, the end of the internal-combustion engine and the end of car dealerships,” Jonas said. “Other than that, it’s business as usual.”
Google may form a partnership with a company like Ford relatively soon, but mainly to get access to knowledge the automaker has gained by having millions of cars on the road worldwide, the analyst said. Ford and Alphabet Inc’s Google are discussing working together, including a joint venture to build cars using the Silicon Valley company’s technology, a person familiar with the talks said last month. “They would use Ford as a host and devour them later,” said Jonas.
“There’s all this talk about disruption,” Mark Fields, Ford’s chief executive officer, told reporters following a speech in Detroit. “We’re disrupting ourselves. And we are looking at this from a position of strength today in terms of the financial health of our business and saying, ‘How do we position the company for success in the future?’”
Not all automakers are looking to cooperate in a world of self-driving vehicles and car sharing. Carlos Ghosn, chief executive officer of Nissan Motor Co, said that the automaker will battle back against the emergence of car-sharing with more connected vehicles that drivers can personalise. He downplayed the impact ride-hailing companies Uber and Lyft will have on the economics of the car business, after General Motors Co invested $500 million in the latter company.
Jonas said that the basic problem for automakers is that they’re still selling cars and trucks instead of the miles that people travel, he said. To make things worse, most cars are actually in use only 3 per cent of the time, and sit in parking lots for the rest, Jonas said.
Meanwhile, Google and Apple Inc. are interested in a $14 trillion annual market that consists not just of selling, servicing, repairing and insuring cars, but also of the time drivers spend trapped behind their steering wheels, according to Jonas. Google wants to use that time as opportunity to pump data, entertainment and Web connectivity into a space drivers can’t escape, while Apple also wants to sell hardware and services, he said.