Microsoft Boosts Revenue Forecast, Alphabet Growth Slows

It was a tale of two tech companies and their quarterly results after the bell on Tuesday.

Microsoft reported the tech equivalent of a hat trick. For the quarter, Microsoft reported profit and revenue that topped expectations, and the company forecast double-digit revenue growth for the next fiscal year.

The key driver being demand for cloud computing services, and its shares jumped about 4%.

Microsoft forecast Intelligent Cloud revenue of $21.1 billion to $21.35 billion for its fiscal fourth quarter. That is compared with a Wall Street consensus of $20.933 billion, according to Refinitiv data. Microsoft & Google’s parent Alphabet recorded results on Tuesday

“It was a record third quarter, driven by the continued strength of the Microsoft Cloud, which surpassed $23 billion in revenue, up 32% year-over-year,” said CEO Satya Nadella, in the post-earnings call. “Going forward, digital technology will be the key input that powers the world’s economic output.”

The company reported revenue of $49.36 billion, compared with $41.7 billion a year earlier. Analysts on average had expected revenue of $49.05 billion, according to Refinitiv IBES data.

Net income rose to $16.73 billion, or $2.22 per share, in the quarter ended March 31, from $15.46 billion, or $2.03 per share, a year earlier. That topped analyst targets of $2.19.

In contrast, Google parent Alphabet Inc reported that Google Cloud’s growth rate in the first quarter fell slightly to 43.8%, from 44.6% in the 2021 fourth quarter. Alphabet’s first-quarter revenue came in below expectations.

Shares were down 4% in after-hours trading after the company posted its slowest quarterly revenue growth since 2020.

Alphabet’s revenue during the January-March period totaled $68 billion, a 23% increase from the same time last year. The figure fell about $40 million below the average estimate among analysts polled by FactSet Research.

Ticker Security Last Change Change %
MSFT MICROSOFT CORP. 270.22 -10.50 -3.74%
GOOGL ALPHABET INC. 2,373.00 -88.48 -3.59%

The first-quarter profit drooped 8% from last year to $16.4 billion, or $24.62 per share. That was also below the average analyst projection of $25.47 per share, according to FactSet.

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Google’s ad sales totaled $54.7 billion, during the first quarter, a 22% increase from the same time last year.

Source: Microsoft boosts revenue forecast, Alphabet growth slows | Fox Business

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Critics:

By: Peter Cohan

Wall Street’s favorite FAANG is mired in its worst monthly stock performance in two years and analysts are counting on earnings to pull it out of the tailspin. Google owner Alphabet Inc. is down about 13% in April, erasing $237 billion in market value as jittery investors dump growth stocks amid fears of bigger and faster rate hikes thanks to rising inflation.

Investors still love shares of companies that beat expectations and raise guidance. So it’s no wonder that Alphabet shares were up some 11% to an all-time high in pre-market trade on February 2.

The catalyst is the company’s fourth quarter revenue and earnings — which exceeded investor expectations. According to CNBC, Alphabet’s revenue increased 32% to $75.33 billion — $3.17 billion more than expected while its earnings per share of $30.69 was 12% above the Refinitiv consensus.

Alphabet has another advantage when it comes to boosting its stock price — most people in the world use its services many times a day. Those satisfied customers might be inclined to follow the dictum of Fidelity Magellan ex-honcho, Peter Lynch, and invest in what they know.

Sadly, that has been difficult in the last several years because of Alphabet’s high stock price. But that problem could be alleviated through Google’s plan for a July 15 “20-for-1 stock split in the form of a one-time special stock dividend,” according to Bloomberg.

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Russia’s Creditors May Have To Choose Between Getting Paid In Rubles Or Not Getting Paid At All

Russia’s creditors face the unappetizing prospect of accepting debt payments in rubles after the U.S. Treasury decided Monday to block the Kremlin from using its dollar reserves.

The Russian currency crashed 40% in the days after President Vladimir Putin’s unprovoked attack on Ukraine but has mostly bounced back since. A default on the $636 million debt payment and further sanctions tied to alleged Russian atrocities could trigger another nosedive in the ruble’s value.

“If they can’t get their dollars, either because they’re blocked or Russia won’t pay them, and they are offered rubles and they can get access to them, they’d be smart to take the rubles,” said Jay Newman, a former portfolio manager for Elliott Management who spearheaded the hedge fund’s 15-year battle with the government of Argentina over bond payments. “Rubles at least are worth something.”

The U.S. Treasury froze Russian central bank assets held in the U.S. in February after the invasion of Ukraine, but made an exemption for debt payments that was set to expire on May 25. With Russia continuing its offensive for more than a month, however, and new images showing horrifying scenes of bodies of civilians on the streets of Bucha, Ukraine, the U.S. accelerated that timeline, blocking Russia from making debt payments to investors.

Until then, JPMorgan Chase and BNY Mellon, two New York-based banks, acted as go-betweens for Russian payments to creditors. Putin’s government continued to make payments on time throughout March, most recently with a $447 million coupon payment last week. Both JPMorgan and BNY Mellon declined to comment.

“On the one hand, there’s a sense that if a sanction target wants to use scarce resources to pay U.S. creditors back, why should we object?” said Robert Kahn, director of global macroeconomics at the Eurasia Group. “But if we’re making life easier for them by opening up these doorways, I do think that at moments like this, particularly in the context of the awful images we have seen in the last few days, the interest of creditors is just not given a very high priority.”

The Kremlin dismissed the notion on Wednesday that it’s at risk of not being able to make the payments during a 30-day grace period. Spokesperson Dmitry Peskov said Russia has “all necessary resources to service its debts” and insisted that payments could be paid in rubles if necessary. A U.S.

Treasury spokesperson said the move will deplete the resources Putin is using to continue the war. “Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default,” the Treasury spokesperson said.

If Russia elects not to pay, it wouldn’t be the first time — a 1987 Forbes story covered a 96-year-old woman who was still waiting to be paid for czarist bonds her husband had bought in 1919 shortly after Russia defaulted on its debt during the Bolshevik Revolution.

Anton Siluanov, Russia’s minister of finance, said on state TV in March that about $300 billion of the country’s $640 billion in gold and foreign reserves has been frozen by sanctions. If Russia still has access to about $340 billion in reserves, the country appears to have more than enough to cover its total of $40 billion owed in international bonds, but Kahn said it’s not that simple and expects defaults to begin in the coming weeks.

“Dollars in a Chinese bank or gold in Moscow may be in principle unblocked, but it’s hard for them to take those and use them to buy the things they need,” Khan said. “My sense is that the usable reserves are really far lower than what the minister said.”

Russia will still be able to use revenue from sales of commodities like wheat, palladium and oil to meet its debt obligations. The U.S. has blocked imports of Russian oil, but other importing countries haven’t followed suit.

Meanwhile, trading in dollar-denominated Russian corporate bonds has skyrocketed, with investors hunting for bargains despite the reputational risk. The average daily value of trades as of March 24 was double the same period a year before and the most in two years, according to Bloomberg.

I’m a reporter on Forbes’ money team covering the wealthiest people and most influential firms on Wall Street. I’ve reported on the world’s billionaires for Forbes’ wealth team and was

Source: Russia’s Creditors May Have To Choose Between Getting Paid In Rubles Or Not Getting Paid At All

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Russia Launches Eurobond Rouble Buyback Offer on Looming $2 bln Bond Payment

A view shows Russian rouble coins in this picture illustration taken October 26, 2018. Picture taken October 26, 2018. REUTERS/Maxim Shemetov

  • Eurobond rouble payment offer rekindles default fears
  • Moscow does not say if bondholders must take roubles
  • Russia has already demanded gas payments in roubles
  • Move may help locals facing dollar payment restrictions

LONDON, March 29 (Reuters) – Russia has offered to buy back dollar bonds maturing next week in roubles in a move seen by analysts as helping local holders of the $2 billion sovereign issue receive payment, while also easing the country’s hard-currency repayment burden.

The finance ministry offer on Eurobonds maturing on April 4, Russia’s biggest debt payment this year, follows Western moves to tighten sanctions against the country over its invasion of Ukraine and to freeze Moscow out of international finance.

Moscow, which calls its actions in Ukraine a “special military operation”, says Western measures amount to “economic war”. In response, it has introduced countermeasures and has demanded foreign firms pay for Russian gas in roubles rather than dollars or euros. read more

The bonds – issued in 2012 – would be bought at a price equivalent to 100% of their nominal value, the ministry said its statement. Buying back bonds will reduce the overall size of the outstanding bond when it matures on April 4.

However, it was not immediately clear if the amount the government would buy back was limited or what would happen to holdings of creditors that would not tender their bonds.

The terms of the bond prescribe that repayment has to occur in dollars. Repaying at maturity in roubles might again raise the prospect of Russia’s first external sovereign default in a century.

Analysts and investors said the move was likely designed to help Russian holders who now face restrictions in receiving dollar payments.

“This is a tender offer and not a final decision that these bonds will be paid in roubles. Perhaps, Russian authorities want to gauge investors’ willingness to accept payment in roubles?” said Seaport Global credit analyst Himanshu Porwal.

Tim Ash of BlueBay Asset Management, which is not a bondholder, said the move was part of a fight back by Russia’s central bank and finance ministry “to fend off default and stabilise markets and the rouble”.

Ash said the United States’ Office of Foreign Assets Control (OFAC), which enforces U.S. sanctions, “should make clear” it will not extend a deadline of May 25 for U.S. individuals or entities to receive payments on Russian sovereign bonds.

Russia’s finance ministry said in its statement on Tuesday that bondholders should submit requests to sell their holdings to the National Settlement Depository between 1300 GMT on March 29 and 1400 GMT on March 30.

SECURING PAYMENT

A fund manager said the ministry’s offer might be designed to help Russian investors secure payment because Euroclear, an international settlement system, had been blocking dollar payments to the Russian clearing system.

“Everybody wants dollars right now – in and outside Russia – so I would assume that only local holders and local banks that have issues with sanctions will make use of this operation,” said Kaan Nazli, portfolio manager at Neuberger Berman, which recently reduced its exposure to Russian sovereign debt.

Nazli, who said he had not previously seen a buyback that switched the repayment currency, added that foreign investors were unlikely to be interested given the rouble “is no longer a convertible currency.”

The rouble initially crumbled after the West imposed sanctions, plunging as much as 40% in value against the dollar since the start of 2022. It has since recovered and was trading down about 10% in Moscow on Tuesday.

The finance ministry did not provide a breakdown of foreign and Russian holders of the Eurobond-2022. It did not respond to a request about how much of the outstanding $2 billion it wanted to buy back or what would happen if investors refused the offer.

The bond has a 30-day grace period and no provisions for payments in alternative currencies, JPMorgan said.

According to Refinitiv database eMAXX, which analyses public filings, major asset managers such as Brandywine, Axa, Morgan Stanley Investment Management, BlackRock were recently among the holders of the bond coming due on April 4.

The finance ministry had said earlier on Tuesday it had fully paid a $102 million coupon on Russia’s Eurobond due in 2035, its third payout since Western sanctions called into question Moscow’s ability to service its foreign currency debt.

Russian sovereign debt repayments have so far gone through, staving off a default, although sanctions have frozen a chunk of Moscow’s huge foreign reserves. Russian officials have said any problem with payment that led to a formal declaration of default would be an artificial default.

Russia’s next payment is on March 31 when a $447 million payment falls due. On April 4, it also should pay $84 million in coupon a 2042 sovereign dollar bond

By
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Critics:

Despite warnings from credit-rating agencies, the government has so far sidestepped a default and continues to service its foreign bonds after sanctions over the invasion of Ukraine severed Russia from the global financial system. Capital controls and restrictions imposed by the world’s biggest settlement systems have complicated and delayed the arrival of funds on previous payments for foreign and local investors alike.  

“For the Finance Ministry, this reduces potential amount of foreign currency payments, which is also desirable for them,” Donets said. “The absolute majority of the local holders will use this option. No one is talking about a full shift to paying in rubles for all Russia eurobonds.” Earlier on Tuesday, the Finance Ministry said it had made a $102 million coupon payment on a dollar bond maturing in 2035. 

The buyback offer comes after the ministry filed notifications on Monday for an “interest payment” and “principal repayment” on the $2 billion of dollar-denominated debt due on April 4. It also filed a notification for a coupon on bonds due in April 2042. 

The Treasury Department issued a general license on March 2 that allows U.S. persons to receive bond payments from the central bank of Russia through May 25, further draining the country’s resources as it prosecutes a war in Ukraine, according to a Treasury spokesperson. Questions about where exactly the funds were being drawn were referred to the central bank of Russia.

Foreign bondholders of Russian steelmaker Novolipetsk Steel received coupon payments due March 21 on time, while local noteholders didn’t receive them, the company said in a statement a week ago. Two days later, an overdue interest payment on a sovereign Eurobond began to show up in some overseas investors’ accounts. 

“The government wants to remove the risk of default due to technical payment issues,” said Cristian Maggio, head of portfolio strategy at Toronto Dominion Bank in London. 

Despite the uncertainties, the ruble has strengthened in 13 of the past 14 trading sessions in Moscow, paring most of the 33% decline that it incurred in onshore trading from late February through early March. The rebound is a result of central bank policies, such as capital controls, that enforce buying and limit selling the ruble, said Natalie Rivett, senior emerging-market analyst at Informa Global Markets Ltd.

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Asia Stocks Extend Losses As Ukraine War, China’s Covid Cases Hit Sentiment

Hong Kong’s Hang Seng Index remained mired in negative territory Tuesday, dropping 4% following an almost 5% selloff a day earlier. Asian stocks were in the red on Tuesday as surging COVID-19 cases in China hit the confidence of investors who are already worried about the Ukraine war and the first U.S. interest rate rise in three years that could come this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.97%, led by pronounced weakness in Chinese stocks. The index is down 8.2% so far this month. Global oil prices fell overnight as prospects of talks between Russia and Ukraine reaching some kind of resolution eased immediate concerns about energy supply disruption.

Those losses extended into the Asian session, however, the investor focus had shifted to the demand side, with China’s new wave of COVID-19 infections casting a cloud over the outlook for the world’s second-largest economy. More broadly, a lack of major progress seen in Ukraine-Russia talks on Monday added to the nervousness in equity markets while concerns are now growing about the potential for new tensions between China and United States.

Washington has warned Beijing against providing military or financial help to Moscow after its invasion of Ukraine, as sanctions on Russian political and business leaders mount. “The question we are asking is whether the markets have reached peak bearishness,” said Jack Siu, Credit Suisse’s chief investment officer for Greater China.

“We know there has been a lot of bad news, there could be worse to come, stock prices have fallen substantially and there is no clarity on any resolutions from U.S. regulators towards Chinese listed stocks there.” Hong Kong’s Hang Seng Index remained mired in negative territory Tuesday, dropping 4% following an almost 5% selloff a day earlier. Hong Kong’s main board is down 17% so far in March.

The city’s tech index has been hammered, falling nearly 30% this month as investors worry about the next regulatory crackdown from U.S. and Chinese authorities on the sector.

China’s CSI300 index was down 1.78%, pushing its losses for the month out to 11.2%. Australian shares closed down 0.73%. Shrugging off the weakness in Asia, however, stock futures for the S&P 500 rose 0.21% while Tokyo’s Nikkei Index reversed its losses and was marginally higher, up 0.22%.

Adding to the overall negative sentiment for markets are rising case numbers of COVID-19 in China, which investors fear will hurt the mainland’s economic growth in the first quarter.

China on Tuesday reported 3,602 new confirmed coronavirus cases compared with 1,437 on Monday. During the Asian session, U.S. crude slipped a further 5.2% to $97.66 a barrel. Brent crude was down 5.16% to $101.37 per barrel.

“Right now everyone is looking at the Chinese cases and realising that has to have an effect on production,” said Hong Hao, BOCOM International’s head of research.

“China’s growth in the first quarter could be closer to zero than 5.5%. There’s a ripple effect. There’s Ukraine, the risk of U.S. sanctions on China and rising Chinese domestic COVID cases – it does not look good.” Investor focus is also on the U.S Federal Reserve, which meets on Wednesday and is expected to hike interest rates for the first time in three years to offset rising inflation.

Also read:

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Wall Street experienced a mixed session, with declining technology companies prompting most indexes to close lower Monday. The yield on the benchmark 10-year Treasury notes rose to 2.1384%.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 1.865%, up from 1.849%. Gold was also weaker in Asia with the spot price at $1,932.1 per ounce.

(Reporting by Scott Murdoch in Sydney; editing by Sam Holmes)

Source: Asia stocks extend losses as Ukraine war, China’s Covid cases hit sentiment | Business Standard News

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US-China Trade Tensions Threaten Europe’s Biggest Tech Company

Plenty of places claim they are Europe’s answer to Silicon Valley: Stockholm boasts the most unicorns per capita, and London is the continent’s VC hub. But only the small Dutch town of Veldhoven—whose population numbers 45,000—is home to the closest thing Europe has to a big tech giant.

From its unassuming base near the Belgian border, ASML, a company that builds the machines that make semiconductor chips, has mushroomed to become a critical cog in the global technology industry. At the end of 2021, it was named Europe’s largest public tech company by market cap, boosted by the pandemic demand for devices and the global chip shortage.

Spun out from Dutch electronics giant Philips in 1984, ASML enables other companies to make semiconductor chips—the technological brains in phones, cars, computers, and smart homes. Experts describe ASML as a bottleneck:

The company claims it has between 80 and 85 percent share of the total market for lithography systems that make semiconductors. When it comes to the most advanced type of chipmaking lithography machine, known as extreme ultraviolet lithography (EUV), that market share surges to 100 percent.

But despite ASML’s recent momentum, there is one area of uncertainty on the horizon. As a result of trade tensions between Washington and Beijing, the company has been blocked from selling its most advanced machines to China.

Although the country currently only sells 7.6 percent of the world’s chips, according to the Semiconductor Industry Association, this number is growing fast and chips are one of seven technologies Beijing has targeted for development. Attempts to block China from the global supply chain has created concern that the country will rush to develop its own version of ASML, threatening the Dutch company’s outsized influence over the semiconductor market.

Thanks to the gamble ASML took in the 1990s to pursue the development of EUV technology, which uses tiny rays of light to carve patterns on the silicon pieces that form semiconductor chips, the company’s dominance in this area is currently unchallenged. ASML estimates its most advanced technology is so complex, it would take at least 15 years for others to replicate.

“Several of the companies that were competitive [in the 1990s] decided not to take the risk investing in EUV because it seemed like it would be so difficult, so expensive and possibly never work,” says Chris Miller, assistant professor of international history at Tufts University, who is writing a book on the geopolitical history of the computer chip.

As a result of that bet, ASML’s valuation has swollen to over $300 billion and its share price has more than doubled since the start of 2020. Speculation is mounting that it could become Europe’s first company to be valued above $1 trillion.

The shift to EUV was long and expensive. The company had to persuade its customers — including Intel, Samsung and the Taiwan Semiconductor Manufacturing Company—to buy stakes in the company so there was enough money to fund the research. By the time it was able to launch its first commercial EUV machines in 2017, the process had cost $9 billion.

But the payoff was huge. It is now the only company able to supply EUV machines, which make the most advanced type of chips found in newer phones and games consoles, to industry giants like TSMC or Intel. As of September 2021, the company had sold 125 EUV machines. That might not sound like much, but there aren’t a lot of companies that are capable of manufacturing the most advanced type of chips using these machines and ASML sells them for more than $100 million each.

But a political maelstrom could hit ASML’s growth plans. The company’s breakthrough in EUVs coincided with another event: Donald Trump’s arrival in the White House. In 2018, when ASML received an order for an EUV machine from a Chinese customer, reported to be the Semiconductor Manufacturing International Corporation or SMIC, the Trump administration lobbied the Dutch government to block ASML from fulfilling it.

According to The Wall Street Journal, Charles Kupperman, Trump’s national security advisor at the time, told Dutch diplomats in 2019 that ASML machines wouldn’t work without American components and the White House had the authority to restrict those parts being exported to the Netherlands. ASML’s EUV machines contain lasers made by San Diego based Cymer.

The Biden administration has shown no sign of changing tack and the Dutch government has yet to grant ASML the licence to sell its machinery to China. “Because we don’t have that permit, we’re not able to ship EUVs into China,” says ASML chief finance officer Roger Dassen, who says the company strongly supports a “global chip making ecosystem”.

The company declined to comment on the potential value of the market in China if it was allowed to sell EUV machines there. However the country is still a major market for ASML’s older products and Dassen said at the Morgan Stanley TMT conference in November that it expects around €2 billion ($2.6 billion) in sales to China in both 2021 and 2022.

Whether restrictions on ASML’s exports to China will be expanded to cover more of the company’s products remains uncertain, says Paul Triolo, managing director for global technology policy at consultancy Eurasia Group.

He believes the US is concerned that advanced chips could end up in Chinese military technology but he says there has never been an open discussion about the national security gain versus the impacts on the semiconductor industry. “The industry is frustrated,” he adds. “[They] want the justification to be clearly articulated so they understand what their obligations are.”

In April 2021, a report by the semiconductor industry association and Boston Consulting Group warned that export rules have encouraged China to develop its own alternative chip machinery manufacturers. Shanghai Micro Electronics Equipment is one company being positioned as Beijing’s alternative to ASML.

This is a concern for ASML, according to CEO Peter Wenninck, who in an interview with Politico said that “in 15 years’ time they’ll be able to do it all by themselves — and their market [for European suppliers] will be gone.” But Dassen claims that if the company is locked out of one part of the world, the other part of the world would still need chips. “At ASML, we don’t really care what chips are being made as long as they are being made,” he says.

The main concern is the risk of being dethroned—whether that’s by a Chinese competitor or one from elsewhere. In the case of ASML, it’s “whether they really have focused on the right technology and if there might be some disruptive technologies which they haven’t foreseen,” says Henk Volberda, professor of strategy and innovation at the University of Amsterdam’s business school, who believes a potential disruptor for the company could be photonics.

“With this technology it is possible to produce chips that work on light (photonics) instead of electricity (electrons),” he says. To guard against future competitors, ASML says it is heavily investing in innovation. In 2021, the company said it spent 13.7 percent of sales on research and development, with that number expected to go up to 14 percent in 2022.

But the critical nature of R&D in the industry is exactly what makes the US-China trade tensions such a threat, according to Triolo. “If the US tries to expand controls and target companies that are potential customers of ASML to a broader degree, that could really cut off the China market more seriously,” he says.

ASML can’t sell its most advanced machines to China, but it can sell its other technology there. Around 30 percent of ASML’s sales came from China in 2020. An escalation of trade tensions could therefore hit revenues and undermine the company’s ability to carry out R&D in an industry where it is incredibly costly to play catch up, Triolo says.

“Is there enough of a market in other countries for them to continue to compete and derive that R&D benefit from the revenue?” he asks. “The jury’s still out on that.”

By:

Morgan Meaker is a senior writer at WIRED covering European business. Before that, she was a technology reporter at The Telegraph and also worked for Dutch magazine De Correspondent. In 2019 she won Technology Journalist of the Year at the Words by Women Awards. She was born in Scotland, lives in London, and is a graduate of City University’s International Journalism MA program.

Source: US-China Trade Tensions Threaten Europe’s Biggest Tech Company | WIRED

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