Enlarge/ T-Mobile CEO John Legere (left) and then-Sprint CEO Marcelo Claure during an interview on the floor of the New York Stock Exchange on April 30, 2018.
The Department of Justice's antitrust staff has recommended blocking T-Mobile's attempted purchase of Sprint, Reuters reported today, citing an anonymous source.
DOJ staff "fear that after the deal T-Mobile will no longer aggressively seek to cut prices and improve service to woo customers away from market leaders Verizon and AT&T," Reuters wrote. A final decision is expected to come in about a month.
To block the merger, the DOJ would have to sue in federal court and convince a judge that the merger violates antitrust law. DOJ staff recommendations can influence agency decisions on whether to file antitrust lawsuits, but they aren't automatically followed. The DOJ's decision will be made by antitrust chief Makan Delrahim, a Trump appointee.
Delrahim "is leaning against the merger," Bloomberg reported yesterday. According to Bloomberg's sources, the DOJ "is concerned the remedies don't go far enough to resolve concerns that the combination of the No. 3 and No. 4 wireless carriers would hurt competition."
T-Mobile has already gotten merger approval from Federal Communications Commission Chairman Ajit Pai, and the FCC's Republican majority will almost certainly follow Pai's lead.
Pai says that the merger's anti-competitive harms can be remedied with conditions, such as forcing Sprint to divest its reseller subsidiary, Boost, and requiring T-Mobile to give Boost wholesale access to its network. Pai also proposed requirements that the merged company raise mobile speeds and deploy 5G throughout most of the US—but both T-Mobile and Sprint were planning to do that anyway, regardless of whether they merge.
Delrahim has spoken out against using conditions to fix problems in mergers that should be blocked outright. Delrahim said in a 2017 speech that he's skeptical of "allowing illegal mergers to proceed subject to certain behavioral commitments," because "instead of protecting the competition that might be lost in an unlawful merger, a behavioral remedy supplants competition with regulation; it replaces disaggregated decision making with central planning."
"Antitrust is law enforcement, it's not regulation," Delrahim also said.
Delrahim previously sued AT&T in an attempt to block the AT&T/Time Warner merger, but he lost in court. Delrahim hasn't announced any decision on T-Mobile/Sprint yet; he said in late April that he hasn't made up his mind.
In a case brought to court in 2017 by the US Federal Trade Commission, District Court Judge Lucy Koh said Qualcomm should not receive a percentage of sales of each phone a company sells; instead, it should receive a much smaller amount based on what Qualcomm technology exists inside the phone. It also must license its patents to rival chipmakers.
Qualcomm is expected to appeal the decision. If it is upheld, that could upend the way Qualcomm does business. The tech company, based in San Diego, California, receives several dollars for each phone its technology is in, based on the total price of the phone. Judge Koh ruled that violates US antitrust law.
"Qualcomm's licensing practices have strangled competition... for years, and harmed rivals, [equipment manufacturers] and end consumers in the process," she wrote in the findings of fact. She found that its business practices are an "unreasonable restraint of trade" under the nation's antitrust law.
Qualcomm said it intends to file an expedited appeal of the decision. It will also seek a stay to stop it from taking effect.
"We strongly disagree with the judge's conclusions, her interpretation of the facts and her application of the law," said Don Rosenberg, the company's general counsel, in a statement.
The FTC, which brought the case, is an independent federal agency charged with protecting the interest of consumers. The Justice Department filed arguments in the case that seemed to undercut the FTC's position. Even if Qualcomm were found guilty of violating the antitrust law, the Justice Department argued the court should not impose any penalties or conditions without additional hearings and arguments.
But the judge rejected that argument and imposed five different conditions on Qualcomm, the first of which was that it must negotiate or renegotiate license terms with customers in good faith under conditions free from the threat of lack of cutting off access to chip supply.
Qualcomm has charged manufacturers using its patents a percentage of the sales price of the entire phone, up to $400. The ruling would limit the fees based on the $15 to $20 cost of the modem chips itself, rather than the entire cost of the phone.
"It is generally required that royalties be based not on the entire product, but instead on the smallest salable...unit," Judge Koh wrote in her findings.
The ruling doesn't cap what Qualcomm can charge for future royalties, but it removes much of the leverage it used to get top dollar from equipment manufacturers, said Florian Mueller, an intellectual property expert who studies patent litigation.
"The conversation has to be what percentage of that chip price is justified," he said. "What the ruling makes clear is that what they have charged is outrageous."
The ruling comes five weeks after Qualcomm reached a settlement in a similar but separate antitrust case brought by Apple(AAPL). That agreement included an unspecified payment from Apple to Qualcomm, and the two companies announced a six-year license contract under which Apple will continue to buy Qualcomm chips. The deal was reached on the eve of that case going to trial.
Qualcomm's stock had soared 35% following the agreement. But Qualcomm's(QCOM) stock tumbled 10% in early trading Wednesday.
Although the case specifically applies to Qualcomm and its business practices, critics question the power of the world's tech giants. Many have called for them to be reined in or even broken up.
The Supreme Court ruled earlier this month that a group of iPhone owners could sue Apple in an antitrust case charging that its App Store is a monopoly. The European Union recently hit Google(GOOG) with a $1.7 billion fine for violating antitrust rules. Critics have accused Facebook(FB) and Amazon(AMZN) of having monopoly power.
(Reuters) - Qualcomm Inc illegally suppressed competition in the market for smartphone chips by threatening to cut off supplies and extracting excessive licensing fees, a U.S. judge ruled, a decision that could force the company to overhaul its business practices.
FILE PHOTO: A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake/File Photo
The decision issued late Tuesday night by U.S. District Judge Lucy Koh in San Jose, California, caused Qualcomm shares to plunge 11.4 percent on Wednesday.
“Qualcomm’s licensing practices have strangled competition” in parts of the chip market for years, harming rivals, smartphone makers, and consumers, Koh wrote in a 233-page decision.
She ordered the San Diego-based company to renegotiate licensing agreements at reasonable prices, without threatening to cut off supplies, and ordered that it be monitored for seven years to ensure its compliance.
Qualcomm said it will immediately ask Koh to put her decision on hold, and also seek a quick appeal to the federal appeals court in California.
“We strongly disagree with the judge’s conclusions, her interpretation of the facts and her application of the law,” general counsel Don Rosenberg said in a statement.
Koh’s decision followed a 10-day non-jury trial in January, and is a victory for the U.S. Federal Trade Commission, which has accused Qualcomm in 2017 of violating antitrust law.
The decision followed Qualcomm’s April 16 settlement of a long-running legal battle with Apple Inc, where Apple agreed once again to use Qualcomm chips in its iPhones, displacing Intel Corp.
It is unclear whether the sanctions will be challenged by the U.S. Department of Justice, which had asked Koh on May 2 to hold a hearing on that matter if Qualcomm were found liable.
“The possibility certainly exists for Qualcomm to prevail upon appeal” given the government’s “somewhat schizophrenic” approach to the case, with the FTC and Justice Department appearing at odds, Bernstein analyst Stacy Rasgon wrote.
The Justice Department was not immediately available for comment on Wednesday.
UNDERMINING RIVALS
Koh said Qualcomm engaged in “extensive” anticompetitive conduct targeting more than one dozen original equipment manufacturers including Apple, BlackBerry, Huawei, Lenovo, LG, Motorola, Samsung, and Sony, often by cutting off or threatening to cut off chip supplies or withholding technical support.
She also said Qualcomm’s monopoly power in modem chips enabled the company to sustain “unreasonably high” royalty rates not justified by its contributions to the marketplace.
“With practices that result in exclusivity and eliminate opportunities to compete for OEM business, Qualcomm undermines rivals in every facet,” she wrote.
She also found Qualcomm knew its licensing practices harmed competition “yet continued anyway” despite government investigations in China, Japan, Korea, Taiwan, the European Union and the United States.
“This evidence of Qualcomm’s intent confirms the court’s conclusion that Qualcomm’s practices cause anticompetitive harm because no monopolist monopolizes unconscious of what he is doing,” she wrote.
Koh also said testimony from some Qualcomm witnesses “lacked credibility,” faulting Chief Executive Steve Mollenkopf and others for giving “long, fast, and practiced narratives” and saying company emails and notes contradicted his testimony.
Qualcomm argued during the trial that it achieved market dominance through technological leadership. The company began its licensing business in the 1980s and 1990s, decades before it began selling chips, and has charged broadly similar patent rates since then.
Qualcomm also argued that the FTC failed to show harm to competition, arguing that the chip industry is thriving and prices are declining.
Qualcomm’s next move will likely be to request Koh’s ruling is put on hold while the company seeks expedited review by the 9th U.S. Circuit Court of Appeals.
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“It will be difficult for an appellate court to disturb the court’s findings regarding the truthfulness of the Qualcomm witnesses and conclusions reached based on those findings,” said Barbara Sicalides, a partner at Pepper Hamilton in Philadelphia, specializing in antitrust law.
Qualcomm makes cellphone processors and modem chips, but generates most profits by licensing its technology to mobile phone makers. Rasgon, the Bernstein analyst, said Koh had indicated at trial she was leaning against Qualcomm, but some investors had hoped her views would be “softened” by the Apple settlement.
“Apparently not,” Rasgon wrote.
Reporting by Sayanti Chakraborty in Bengaluru; Additional reporting by Jan Wolfe in Washington, D.C., Stephen Nellis in San Francisco, and Vibhuti Sharma in Bengaluru; Editing by Arun Koyyur, Bernard Orr and Nick Zieminski
Lowe's shares fell 10% Wednesday as higher costs weighed on its fiscal first-quarter earnings, which fell short of analysts' estimates, and prompted the home improvement retailer to cut its forecast for the year.
Lowe's has been in a period of transition since CEO Marvin Ellison joined the retailer less than a year ago.The company is trying to improve its operations, but its investments are weighing on its profits. But the lower forecast clearly worried investors, and prompted a sell-off. Shares were recently down nearly 12%.
Here's how the company did, compared with what Wall Street was expecting, according to Refinitiv consensus estimates:
Earnings per share: $1.22 adjusted, vs. $1.33 estimated
Revenue: $17.74 billion, vs. $17.66 billion estimated
Same store sales: up 3.5%, vs. up 3.2% estimated
"Our first quarter comparable sales performance is a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction," Ellison said in a company release. "However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings."
Lowe's said net income rose to $1.05 billion, or $1.31 per share, from $988 million, or $1.19 a share, a year ago.
On an adjusted basis, Lowe's earned $1.22 per share, far below the $1.33 per share analysts were predicting, according to Refinitiv.
Ellison said profits were hurt by cost increases, which dinged its gross margins by 90 basis points, and unprecedented levels of change in its merchandising operations.
"We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year," said Ellison.
Revenue rose 2.2% to $17.74 billion, which topped analysts' estimates of $17.66 billion. Online sales rose 16% in the latest quarter, the company said.
Chuck Grom of Gordon Haskett Research Advisors applauded Lowe's for ramping its top line. Efforts to take market share in the home improvement space, while increasing productivity, explains the weaker margins, he said in a note to clients Wednesday.
For the first quarter, Lowe's same-store sales rose 3.5%, which was better than the estimate of 3.2%. Same-store sales growth in the U.S. was even higher, up 4.2%.
Chief Financial Officer David Denton said Lowe's same-store sales were down 4.1% in February, up 3.5% in March and up 7.2% in April. Domestically, Lowe's' same-store sales were down 0.9% in February, up 4% in March and up 8% in April.
"This is the first quarter in a while that Lowe's clearly out comped Home Depot," Oppenheimer's Brian Nagel told CNBC's Squawk Box on Wednesday.
Lowe's results come just a day after the leader in the space Home Depot reported better-than-expected first-quarter earnings on Tuesday. Strong results at Lowe's rival came despite the second wettest February weather in U.S. history and a deflation in lumber costs. Home Depot reaffirmed its fiscal 2019 guidance.
For fiscal 2019, Lowe's estimates total sales will rise 2%, while same-store sales are expected to increase 3%.
Lowe's expects net income for fiscal 2019 will be in the range of $5.54 to $5.74 per share. On an adjusted basis, it will earn between $5.45 and $5.65 per share.
Last quarter, Lowe's said it expected to earn between $6 and $6.10 per share on revenue growth of about 2%. It predicted, at the time, that same-store sales would rise about 3% in fiscal 2019.
Despite the lower forecast and earnings miss, Nagel was upbeat about the results.
"I think when the dust clears on this it's going to be a positive. The market's going to say Lowe's has been under-managed for a very long period of time, they figured out what they need to do, they're starting to see the results in better sales, there just extra investment that needs to be made here in the near term," he said.
As of Tuesday's market close, Lowe's market value was $88.4 billion, with shares are up more than 20% since the start of the year. Home Depot, with a market cap of about $211.1 billion's shares are up more than 11% year to date.
Correction: The CEO of Lowe's is Marvin Ellison. A previous version misstated his name.
LONDON (Reuters) - British Steel, the country’s second largest steel producer, has collapsed and put 25,000 jobs at risk after failing to secure emergency government funding, Britain’s Official Receiver said on Wednesday.
FILE PHOTO: A general view shows the British Steel works in Scunthorpe, Britain, May 21, 2019. REUTERS/Scott Heppell
The High Court ordered the compulsory liquidation of the company, although staff will remain employed for now as the liquidator oversees the operation of the main site in Scunthorpe, northern England.
Business Minister Greg Clark said British Steel was open to new buyers, while the opposition Labour Party called on the government to bring it back into public ownership.
Owned by investment firm Greybull Capital, British Steel employs around 5,000 people, mostly in Scunthorpe, while 20,000 more depend on its supply chain.
Greybull Capital, which specializes in trying to turn around distressed businesses, said it had tried to keep British Steel alive but the challenges of Britain’s looming exit from the European Union proved insurmountable.
Greybull paid former owners Tata Steel a nominal one pound for the company three years ago.
After being renamed as British Steel, the company made a profit in 2017 but cut around 400 jobs last year, blaming factors such as the weak pound and uncertainties surrounding Brexit, which it said hammered its order book.
TARNISHED STEEL
EU steel company shares are currently trading at their lowest in nearly three years, driven down by weak demand, high raw materials costs and cheap imports that can no longer reach the United States due to trade tariffs.
Turning a profit in steel is particularly difficult in Britain, where steelmakers pay some of the highest green taxes and energy costs in the world, as well as facing high labor costs and business rates.
Jeff Kabel, chairman emeritus of the International Steel Trade Association (ISTA), said the government is paralyzed by Brexit and unable to address the steel sector’s challenges.
The collapse of British Steel comes after Germany’s Thyssenkrupp and India’s Tata Steel ditched a plan this month to merge their European steel assets to create the EU’s second largest steelmaker after ArcelorMittal.
That failed merger left the wider EU steel sector fragmented and vulnerable to economic downturns. It also called into question the fate of Britain’s largest steelworks in Port Talbot, Wales, owned by Tata Steel.
Ratings agency Moody’s lowered its outlook on the European steel sector to negative on Wednesday, adding operating conditions would likely worsen in the next 12-18 months. The outlook had been stable since April 2017.
(For a graphic on 'UK steel production since 1970' click tmsnrt.rs/2LX989V)
SEEKING CASH
Signs of the ripple effect of British Steel’s collapse are already beginning to emerge.
Hargreaves Services, a materials services company based in Durham, northern England, said earlier if the steelmaker ceases to trade, this could reduce its profit before tax in the next full year by about 1.3 million.
Accountants UHY Hacker Young said the three worst UK areas for increasing personal insolvencies over the last five years were all steel towns, raising concerns over the impact of the British Steel collapse on local economies.
British Steel had asked the government for a 75 million pound loan, later reducing its demand to 30 million pounds after Greybull agreed to put up more money, according to a source close to the negotiations.
It had already secured a government loan of around 120 million pounds ($154 million) this month for its liabilities under the EU’s Emissions Trading System rules which taxes carbon emissions.
Law firm Mayer Brown said the fact that the Official Receiver has taken control of the British Steel liquidation suggests administration was not an option due to a lack of secure funding.
Britain’s business minister said it would have been unlawful to provide a loan to British Steel on the terms the company or any other party had made.
The European Commission said it had not been formally notified of any concrete plans by the UK authorities to provide additional public finance to the company.
British Steel also operates a business in France producing rail, and a wire and processing unit in the Netherlands.
Greybull had been negotiating with the government for the loan, a source said, adding the government wanted Greybull out of the picture before putting more money into the business for fear those funds would eventually end up in Greybull’s hands should the steelmaker collapse.
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Greybull are British Steel’s only creditor at the holding company level and have secured their loans against its assets.
The UK government has a chequered history with Greybull, after the collapse of the firm’s airline Monarch in 2017 forced the government to repatriate more than 100,000 stranded tourists at a cost of about 60 million pounds.
“In light of events over the past few weeks, it is clear Greybull needs to do the right thing by getting out of the road and let those who are committed to our industry work to save the business,” the union Community said in a statement.
Reporting by Costas Pitas, Guy Faulconbridge, Maytaal Angel, Lawrence White and Kate Holton. Additional reporting by Barbara Lewis; Graphic by Andy Bruce; Editing by Michael Holden/Keith Weir
U.S. stock index futures fell on Wednesday as trade worries increase while declines in Qualcomm and retailer shares dragged down market sentiment.
At around 8:30 a.m. ET, Dow Jones Industrial Average futures were down 123 points, indicating a decline of 119 points at the open. Futures on the S&P 500 and Nasdaq 100 were also lower.
The ongoing trade war — as well as restrictions on Chinese telecom giant Huawei — have led China to rethink its entire economic relationship with the U.S., according to a report from The South China Morning Post.
The report said China is still open to restarting trade talks, but added that government advisors are highlighting the risks of sourcing supplies from the U.S. as the trade war drags on.
President Donald Trump followed through with his threat to increase tariffs on $200 billion in Chinese goods from 10% to 25% earlier this month. China immediately responded by upping the tariffs on $60 billion of U.S. goods to as high as 25%. Treasury Secretary Steven Mnuchin told CNBC's Ylan Mui on Wednesday that U.S. officials had yet to schedule talks in Beijing.
Meanwhile, Qualcomm shares fell 11% in the premarket after a U.S. judge ruled the chipmaker violated antitrust law by unlawfully suppressing competition in the cellphone chip space. The news dragged down the VanEck Vectors Semiconductor ETF (SMH) down by 1.9%.
Shares of Qualcomm have been under pressure all month, falling 9% in May.
The U.S. recently added Chinese telecoms giant Huawei to a trade blacklist, which puts curbs on its ability to do business in America. However, some of those restrictions were eased on Monday. Relief over Washington's relaxation of curbs against Huawei helped boost U.S. stocks in the previous session.
"This will weaken the Huawei ban by US in our opinion and gives leverage to China in chip battle heading into G-20 talks," Dan Ives, analyst at Wedbush Securities, said in an email referring to the ruling. "Qualcomm is dealt a blow with this FTC ruling as the main US 5G arms dealer, Huawei leverage is strengthened on 5G."
Retailers were also under pressure after the release of quarterly results from companies in the sector. Lowe's fell more than 8% on weaker-than-expected earnings. Nordstrom, meanwhile, dropped nearly 11% as its quarterly earnings and revenue missed expectations.
Target was the bright spot among retailers. The company's stock rose more than 7% as its earnings and revenue topped analyst expectations. Same-store sales, a key metric for retailers, also surpassed estimates.
Meanwhile, investors are likely to closely monitor the release of the U.S. central bank's meeting minutes. The Federal Reserve is expected to provide insights into the May 1 meeting, when policymakers left interest rates unchanged and signaled little appetite to adjust them any time soon.
Ahead of the minutes' release, St. Louis Fed President James Bullard, a voting member of the central bank's policymaking committee, said the Fed may have raised rates too much last year. "Rates are at a good place in the U.S. right now, if anything we are a little restrictive I would say," he told Bloomberg News. "I am concerned we may have slightly overdone it with our December rate hike but I was pleased that the committee pivoted."
