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  • Global Chipmaking Kingpin Gets Dragged into U.S.-China Trade War

    Global Chipmaking Kingpin Gets Dragged into U.S.-China Trade War(Bloomberg) — Since its founding more than three decades ago, Taiwan Semiconductor Manufacturing Co. has built its business by working behind the scenes to make customers like Apple Inc. and Qualcomm Inc. shine. Now the low-profile chipmaker has landed squarely in the middle of the U.S.-China trade war, an incalculably valuable asset that both sides are vying to control.The Trump administration opened up a new front in the conflict on Friday by barring any chipmaker using American equipment from supplying China’s Huawei Technologies Co. without U.S. government approval. That means TSMC and rivals will have to cut off Huawei unless they get waivers from the U.S. Commerce Dept.That would be a financial blow for TSMC, which gets an estimated 14% of its revenue from Huawei, but more importantly it risks provoking retribution from the Chinese government, which already views Taiwan as a breakaway province that belongs to the mainland. The Communist Party has vowed to protect Huawei, a company it regards as a national champion for its success in becoming the world’s top producer of telecommunications equipment — and a dominant force in the rollout of fifth-generation or 5G networks.“China likely will retaliate, and investors should brace themselves for a possible trade war escalation,” Sanford C. Bernstein & Co. analysts led by Mark Li wrote in a research note on Friday.Read more: U.S. Tightens Rules to Crack Down on Huawei’s Chip Supply The latest restrictions inject fresh turmoil into a complex international ecosystem that produces computer parts, while escalating a campaign to contain Huawei’s and China’s technological ascent by cutting it off from vital gear. The U.S. already blacklisted Huawei last year, preventing American companies from supplying the Chinese company unless they got a license. The latest move tightens those restrictions to prevent chipmakers — American or foreign — from working with Huawei and its secretive chip-design unit HiSilicon on the cutting-edge semiconductors they need to make smartphones and communications equipment. The Trump administration sees Huawei as a dire security threat, an allegation the company denies.“We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests,” Commerce Secretary Wilbur Ross said in a tweet.The U.S. decision is likely to hurt not just Huawei and TSMC, but also a clutch of American players including gear-makers Applied Materials Inc., KLA and Lam Research Corp. themselves, Morgan Stanley analysts wrote. Disruptions to Huawei’s production will also hurt U.S. Customers from Micron Technology Inc. and Qorvo Inc. to Texas Instruments Inc., they said. But “it bears repeating that any escalation of trade tensions is negative for the stocks overall,” they wrote in a research report.It would have been impossible to imagine TSMC becoming such a coveted chit between the world’s great powers when it was founded in 1987. Morris Chang, born in China and trained in the U.S., started the company as a so-called foundry, manufacturing semiconductors for any customer that didn’t want to construct its own fabrication facility, or fab.At the time, the business wasn’t nearly as glamorous as making chips yourself. Dominating the industry at the time were companies like Intel Corp. and Advanced Micro Devices Inc., which made processors for personal computers. “Real men have fabs,” AMD co-founder Jerry Sanders would say, making clear that was an insult.But in the intervening years, the foundry industry has become far more strategic for the technology industry. Customers from Apple and Huawei to Qualcomm and Nvidia Corp. have found they can innovate more quickly if they focus on chip designs and then turn to foundries like TSMC to produce them. Innovators in emerging technologies like artificial intelligence or the internet of things also depend on foundries to crack open new markets.Today, many of the chips for mobile phones, autonomous vehicles, artificial intelligence and any other key technology are made at foundries. TSMC has become the leading foundry in the world by investing heavily in ever more advanced fabs, with annual capital spending of about $16 billion this year.It can now manufacture at 5 nanometers, about twice the width of human DNA, while China’s top foundry, Semiconductor Manufacturing International Corp., or SMIC, is at 14 nanometers. That makes TSMC’s chips far more powerful and energy efficient.Huawei and HiSilicon will have few good options if they are cut off from TSMC. One possibility is to procure off-the-shelf chips from Taiwan’s MediaTek Inc. and South Korea’s Samsung Electronics Co., an option Huawei’s rotating Chairman Eric Xu mentioned in late March. But even that may no longer be viable under the new Commerce restrictions.SMIC itself is keen on moving up the technology ladder, eyeing a secondary share listing that could raise more than $3 billion on top of a large capital infusion from the state.Read more: China Injects $2.2 Billion Into Local Chip Firm Amid U.S. CurbsBut that’s a longer-term endeavor and Huawei’s products meanwhile are likely to suffer, putting them at risk of falling behind those of rivals like Apple or Xiaomi Corp.For TSMC, it’s growing ever more difficult to remain neutral amid the growing tensions between the U.S. and China. The company brands itself “everybody’s foundry,” effectively the Switzerland of the tech industry. It supplies Chinese customers like Huawei and the American military, while relying on U.S. producers of semiconductor-making equipment like Applied Materials and Lam Research.TSMC did take one step closer to the U.S. last week, saying it would build a $12 billion chip plant in Arizona. The Department of Defense has expressed concern that overseas fabs may be vulnerable to cyberattacks and domestic manufacturing would assure a more reliable supply of chips.The proposal appears to be carefully calculated to address such security issues without too much damage to profits or its political balancing act. Suppliers to the military, such as Xilinx Inc., would be able to use the U.S. fab, but the facility would likely account for less than 5% of revenue so margins won’t be compromised.It’s not clear if the plans for a U.S. plant will win TSMC leniency in supplying Huawei, however.“TSMC will not be granted or granted a license based on their intent to build a 5 nanometer fab here in the United States. That’s not part of it at all,” Keith Krach, undersecretary for economic growth, energy and the environment at the State Department, told reporters on a call. “There’s no assurance on that and we don’t anticipate that.”Meanwhile, China appears to be preparing to retaliate for the new restrictions on Huawei. On Friday, the Global Times — a Chinese tabloid run by the flagship newspaper of the Communist Party — reported Beijing was ready to initiate countermeasures, including imposing restrictions on Apple, suspending the purchase of Boeing airplanes and putting U.S. companies on an ‘unreliable entity list.’The list will cover “foreign entities that cause actual or potential damage to Chinese companies and industries,” the newspaper said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • Meet the ASX 200 company that just posted a 90% surge in profit

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    The Elders Ltd (ASX: ELD) share price surged to a 10-year high this morning after the group posted a big rise in profits.

    The rural products and services group jumped 5.1% to $9.89 in morning trade when the S&P/ASX 200 Index (Index:^AXJO) lifted 1.2%.

    Favourable weather and soft commodity prices pushed the group’s first half statutory net profit up 90% to $52 million, while the underlying number improved by 68% to $47.6 million.

    It’s raining profits

    Underlying earnings is the figure more investors watch as it’s a better reflection of operating performance. The positive result was credited to a solid performance from Rural Products with gross margin boosted by recent winter crop confidence.

    High prices for both cattle and sheep and steady earnings in Real Estate and Financial Services also helped.

    The good earnings news comes even as the group was hit by the COVID-19 pandemic and devastating bushfires over the Christmas and New Year break.

    Rain drowns COVID-19 fears

    But these headwinds weren’t enough to dampen the impact of much needed rain. While we can’t say the drought that gripped many parts of the country is breaking, there are early signs that the worst is over.

    “Successive rainfall events across major cropping areas on the East Coast have had a positive impact on operational performance within the last period, lifting farmer confidence and driving strong demand for crop inputs,” said Elders’ chief executive Mark Allison.

    “This has contributed to a significant uplift in Rural Products, given the 66% decline in summer cropping.

    “The growth in Rural Products margin has been lifted with the addition of AIRR to our Wholesale Network.”

    The turn in the weather is also giving other agri-related stocks a boost. This includes the Graincorp Ltd (ASX: GNC) share price, Nufarm Limited (ASX: NUF) share price and Costa Group Holdings Ltd (ASX: CGC) share price.

    Clearer skies ahead?

    The outlook provided by Elders gives investors another reason to celebrate. While it admitted that it couldn’t reasonably estimate the financial impact from the coronavirus fallout, it believes it can deliver a full year result that’s in line with consensus estimates.

    Management is tipping earnings before interest and tax (EBIT) to range between $96.5 million and $112.9 million. Net profit is expected to be $85.8million to $102.9 million.

    Chinese wildcard

    However, escalating tension between China and Australia could pour cold water on the group even though it isn’t yet a feature on group results.

    In fact, management said wool export to China “is operationally sound” while demand from Europe and the US have been impacted by the looming recession.

    But if China extends tariffs and other trade restrictions on our exports to punish Australia for calling for an independent investigation on the coronavirus origins, things can turn sour for the sector.

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    Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. Connect with me on Twitter @brenlau.

    The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended Elders Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

    The post Meet the ASX 200 company that just posted a 90% surge in profit appeared first on Motley Fool Australia.

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  • These 5 ASX shares were last week’s biggest gainers

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    The S&P/ASX 200 Index (ASX: XJO) edged higher last week as coronavirus restrictions began to ease. The market was led by the miners which offset falls in other sectors, leading the ASX 200 up 0.25% higher over the week. 

    It’s now been 8 weeks since the market bottomed in March. Since then, the ASX 200 has risen 18% but remains 24% down from its February high (at the time of writing). Tension between a potential quick recovery and uncertain outlook for corporate earnings means the ASX 200 has remained relatively unchanged over the past month. 

    Both the GFC and dotcom crash saw multiple bear market rallies. The coronavirus crisis has only provoked one bounce so far, despite being a more significant economic shock. Higher commodity prices saw miners lead last week’s gains, with iron ore prices seeing a sustained rise since the start of the month as Chinese production resumes. 

    Pilbara Minerals Ltd (ASX: PLS)

    Pilbara Minerals led the gainers last week with a 19.5% share price rise. Shares in the lithium miner closed last week at 24.5 cents. Lithium prices plummeted last year, which saw shares in Pilbara Minerals decline throughout the year from a high of $1.18 in 2018. 

    Lithium is an integral component of batteries for electric vehicles. As electric vehicle purchases have risen, so has the demand for batteries, fuelling lithium demand. New mines and increased production brought a glut of lithium to the market hammering prices last year. Supply is expected to grow threefold by 2025. 

    Despite this, some predict that as momentum builds demand could outstrip supply. According to some forecasts for electric vehicle penetration, lithium demand is set to increase 10-fold over the next decade. Pilbara Minerals has a multi-stage expansion program planned to unlock deposits at its Pilgangoora Project.

    The company is currently moderating production in response to soft market conditions. Resumption of economic activity in China and an extension of China’s electric vehicle subsidy program are expected to boost the lithium-ion battery sector and improve market conditions in the medium to long term. 

    Southern Cross Media Group Ltd (ASX: SXL) 

    Shares in Southern Cross Media Group gained 18.5% last week to finish the week at 16 cents. While Southern Cross Media shares were among the best performers last week, they have been among the worst over the past year – Southern Cross shares are currently down 80% on a year ago. The broadcaster has suffered over the past year as advertising markets took a turn for the worse. 

    Southern Cross Media reported a 10% decline in advertising revenue for the 9 months to 31 March. Q4 FY20 and Q1FY21 advertising revenues are expected to be materially impacted by COVID-19 and be down 30% or more on prior corresponding periods. But with the major fall in the share price some are speculating Southern Cross Media is undervalued, arguing it will be well-placed to benefit when advertising markets recover.

    The broadcaster recently undertook a $169 million equity raising using proceeds to pay down debt. Net debt was $161.8 million at 4 May including all proceeds of the equity raising. Southern Cross has estimated that bad and doubtful debt provisions for H2FY20 could reach $5 million. 

    Positive earnings were recorded in April with revenue declines partially offset by operating cost reductions. The broadcaster is eligible for the JobKeeper Allowance for approximately 1,750 employees – this subsidy has been included in operating cost reductions for April. As a result, the broadcaster broke even in April on an earnings before interest, tax, depreciation and amortisation (EBITDA) less capex basis. 

    Resolute Mining Limited (ASX: RSG)

    Resolute Mining Group Limited shares closed last week up 14.2% at $1.085. The safe haven gold miner benefitted from an increase in the gold price last week which moved above $2,700 an ounce. Resolute operates mines in Mali and Senegal. 

    In 2020, Resolute has provided production guidance of 430,000 ounces of gold at an all-in sustaining cost (AISC) of US$980 an ounce. In the March quarter 100,763 ounces of gold were poured at an AISC of US$1,007 an ounce. 

    In March, Resolute announced the sale of its Ravenswood mine in Queensland. The company received $100 million upfront for the sale consisting of $50 million in cash and $50 million in promissory notes which earn a 6% coupon. There is potential for up to $200 million in additional payments, which depend on the average gold price and investment outcomes of Ravenswood. 

    In the announcement, CEO John Welborn said the sale maximises value for shareholders and “enables us to focus our attention and energy on our African portfolio and the abundant opportunities for further growth and value creation.” 

    Saracen Minerals Holding Limited (ASX: SAR)

    Shares in Saracen Minerals Holdings gained 13.2% over the course of last week to finish the week at $5.05. Saracen was another gold miner that benefitted from the rising gold price and move to safe haven assets. 

    In the March quarter, Saracen produced 158,133 ounces of gold at an AISC of $1,133 an ounce. Coronavirus had a minimal impact on March quarter production. Although it is unclear whether there will be an impacts in the June quarter, Saracen has maintained its FY20 guidance of 500,000 ounces of gold. 

    In the 9 months to 31 March 2020 Saracen produced 374,684 ounces of gold at an AISC of $1,081 an ounce. The company has large ore stockpiles exceeding 1.7Moz, which will help insulate the business should mining be restricted by COVID-19 impacts. 

    St Barbara Ltd (ASX: SBM)

    St Barbara shares gained 11.9% last week to close the week at $2.92. Another gold miner on the list, St Barbara has assets in Western Australia, Papua New Guinea, and Canada. 

    In the March quarter, St Barbara produced 92,000 ounces of gold at an AISC of $1,405 an ounce. The miner sold 99,000 ounces of gold at a realised gold price of $2,123 an ounce. 

    In the financial year to date, St Barbara has produced 273,000 ounces of gold at an AISC of $1,396 an ounce, and sold 277,000 ounces of gold at a realised gold price of $2,015 an ounce. 

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    Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

    The post These 5 ASX shares were last week’s biggest gainers appeared first on Motley Fool Australia.

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