LDN - Business

Poor corporate report cards in U.S., Asia point to economic pain

[October 26, 2022] By Eva Mathews, Chavi Mehta and Jane Lanhee Lee

(Reuters) -U.S. companies from tech giants Alphabet and Microsoft to GE and toymaker Mattel reported big slowdowns in growth or warned things were going to get worse, fanning recession fears and driving down stocks.

The gloomy reports spilled into Asia on Wednesday, with South Korean chipmaker SK Hynix Inc saying the memory chip market is facing "unprecedented deterioration" and it plans to cut investment next year by more than 50%. Its third-quarter profit plunged 60%.

South Korean flat-screen maker LG Display Co Ltd posted a bigger-than-expected quarterly loss.

The rash of disappointing results points to a host of problems in the global economy, including soaring inflation and interest rate hikes that have battered consumer demand.

U.S. consumer confidence ebbed in October, data showed Tuesday, after two straight monthly increases, amid heightened inflation concerns and worries of a possible recession next year.

After years of turbo-charged growth, Microsoft posted its slowest rise in sales in five years and Google parent Alphabet grew just 6% last quarter, its slowest pace since September 2013 barring a small quarterly decline in 2020.

Google, which many had expected to be more resilient because of its status as the world's largest digital advertising platform by market share, shocked the market with weaker-than-estimated advertising revenue as customers in the insurance, mortgages and cryptocurrencies industries tightened their ad budgets.

"Despite being seen as one of the most insulated companies in the advertising space relative to peers, Google's poor quarter is the latest sign that worsening fundamentals and a tough macroeconomic environment are prompting advertisers to cut back on spending," said Jesse Cohen, senior analyst at Investing.com.

Google's results bode ill for Facebook parent Meta Platforms, which is especially reliant on advertising and reports results on Wednesday. Last week, its smaller rival Snap Inc forecast no revenue growth for the holiday quarter, setting off warning bells in the social media industry.

Alphabet said it plans to cut hiring by more than half.

Conglomerate GE, which is in the process of breaking up into three companies, said it will reduce global headcount by a fifth at its onshore wind unit, which has been battling higher raw material costs due to inflation and supply-chain pressures.

Shares in Alphabet slumped 7% in trading after the bell. Microsoft fell 2% and chipmaker Texas Instruments, which forecast quarterly revenue and profit below estimates, was down 5%. Shares in Spotify, which also warned on slow advertising growth, slid 4%. Meta shares fell 4%.

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The logo for Google LLC is seen at the Google Store Chelsea in Manhattan, New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly/File Photo

BRIGHT SPOTS

A lack of demand for personal computers and laptops was evident in Microsoft's past quarter as its Windows business slumped 15%, a sharp turnaround after months of pandemic-fueled sales driven by people working and studying from home.

Texas Instruments (TI) echoed the sentiment, backing up similar predictions from fellow chipmakers Samsung Electronics Co Ltd and Advanced Micro Devices Inc earlier this month.

"During the quarter we experienced expected weakness in personal electronics and expanding weakness across industrial," said TI boss Rich Templeton. The company, like other chipmakers, has to contend with gadget makers cutting orders to clear stockpiles of chips after the pandemic-led boost in demand quickly flipped to a slump in a matter of weeks.

Weak demand for consumer electronics has also been flagged by Apple iPhone assembler Foxconn as China's economy has slowed dramatically on COVID 19-related curbs.

Mattel, which is very susceptible to discretionary spending cuts, lowered its profit forecast for the year and said it would ramp up promotions heading into the busy holiday season to encourage inflation-hit shoppers to buy its Barbie dolls.

Earlier on Tuesday, post-it maker 3M Co said it expected weak consumer spending to continue into the upcoming holiday season and cut its full-year forecasts.

Still, there were bright spots in other report cards.

Tesla Inc supplier LG Energy Solution Ltd (LGES) swung to a profit in the third quarter on strong electric vehicle (EV) battery demand and favourable foreign exchange rates.

Chipotle Mexican Grill Inc reported quarterly sales and profits that topped the Street as wealthier customers chowed down on their burritos despite higher prices even as lower-income consumers ate there less often.

Coca-Cola Co, a favorite in a slowdown, joined rival PepsiCo Inc in lifting its annual forecasts, as customers bought their sugary sodas despite multiple rounds of price hikes.

(Reporting by Chavi Mehta, Tiyashi Datta, Eva Mathews, Uday Sampath Kumar, Granth Vanaik, Deborah Mary Sophia, Aditya Soni, Mehr Bedi, Kannaki Deka and Abhijith Ganapavaramin in Bengaluru, Jane Lanhee Lee in Oakland, Sheila Dang in Dallas, Hilary Russ in New York, Rajesh Kumar Singh in Chicago, Joyce Lee and Heekyong Yang in Seoul; Writing by Sayantani Ghosh and Anne Marie Roantree; Editing by Richard Pullin and Edmund Klamann)

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