More Chip Trade Restrictions, Arm’s Quarterly Results, and Reddit’s 1st Post-IPO Earnings Report
Editor’s Note: Friday is here again at last!
Commerce Dept. Revokes Licenses for Exports for Some Chipmakers
In the Biden administration’s latest effort to curb China’s technological prowess, the U.S. has reportedly revoked the licenses for certain semiconductor chip exports to China’s Huawei.
Among other things, Huawei is the biggest threat to Apple’s (NSDQ: AAPL) iPhone sales in China. Despite previous U.S. chip sanctions, the tech company has released high-end 5G phones that have outsold the iPhone.
This has led to a significant decrease in Apple’s Chinese market share. A recent report from Counterpoint Research showed that Apple’s smartphone sales in China dropped by more than 19% year over year, while Huawei experienced a roughly 70% sales boost.
In addition, Huwaei has experienced a 144.5% increase in net profit year over year — thanks largely to smartphone sales.
“We continuously assess how our controls can best protect our national security and foreign policy interests, taking into consideration a constantly changing threat environment and technological landscape,” a Commerce Department spokesperson said in a statement.
“As part of this process, as we have done in the past, we sometimes revoke export licenses.” The spokesperson didn’t say which specific export licenses are in question.
Back in 2019, the U.S. put Huawei on a trade blacklist, making it illegal for U.S. firms to sell certain technology components to the company, citing national security issues.
In 2020, the restrictions were updated to require American chipmakers to obtain a license from the Commerce Department before selling semiconductor chips to Huawei.
But that didn’t prevent Huawei from developing the Mate 60 Pro, which featured an advanced 5G chip made by China’s Semiconductor Manufacturing Intl. Corp. (SIMC).
American chipmakers Intel (NSDQ: INTC) and Qualcomm (NSDQ: QCOM) regularly supply chips to Huawei.
However, in a recent filing with the U.S. Securities and Exchange Commission (SEC), Qualcomm reported that it expects its bottom line to be impacted by the fact the Huawei is developing its own chips.
“While we have continued to sell integrated circuit products to Huawei under our licenses, we do not expect to receive product revenues from Huawei beyond the current calendar year,” the Qualcomm filing said.
“Additionally, to the extent that Huawei’s 5G devices take share from Chinese original equipment manufacturers [OEMs] that utilize our 5G products or from non-Chinese OEMs that utilize our 5G products in devices they sell into China, our revenues, results of operations, and cash flows could be further impacted.”
Arm Shares Fall on Disappointing Guidance
Nvidia (NSDQ: NVDA) may be a Wall Street darling — its stock has gained more than 87% year to date — but not all chip companies are created equal in investors’ eyes.
Shares of many chipmakers have plunged in recent weeks. The chip stock correction can likely be attributed to a forecast posted by Taiwan Semiconductor Mfg. Co. (NYSE: TSM) — better known as TSMC — that predicted limited growth for the global logic semiconductor industry. The forecast said that the company expects the market to grow by 10% tops, rather than more than 10%.
Now, most of the gains we have seen in chip stocks in recent years have been due to optimism about artificial intelligence (AI) applications. However, perhaps the market got too overzealous about this technology.
“Chip stocks have been in the spotlight because of generative artificial intelligence, so even a little concern over their outlook triggered a major sell-off,” IwaiCosmo Securities’ Kazuyoshi Saito recently told Nikkei Asia.
That has included a more than 37% decline in the stock of the U.S.’s largest chipmaker, Intel (NSDQ: INTC).
Yesterday, shares of U.K.-based chip company Arm (NSDQ: ARM) hit the skids after the company provided its own lackluster guidance.
For the next fiscal year (2025), Arm reported that it expects revenue in a range of between $3.8 billion and $4.1 billion. Analysts had been expecting the company to report revenue of $3.99 billion.
That was enough to send shares of the chipmaker down by nearly 10% in premarket trading.
Still, Arm reported positive quarterly results. For its fiscal fourth quarter, the company announced revenue of $928 million — a year-over-year increase of roughly 47%. The revenue boost was due largely to its chip licensing business, which saw a 60% boost in revenue to $414 million.
At the same time, revenues from royalties rose 37% year over year, to $514 million. Arm attributed this increase to its new Armv9 chips, which have higher profit margins.
Arm is what is known as a “fabless” chip company. That is, the company designs chips that other companies — including Qualcomm (NSDQ: QCOM) and Nvidia — make and sell. Arm receives royalties from these sales.
For the current quarter — Arm’s fiscal 2025 first quarter — the company expects sales to reach $875 million to $925 million. Wall Street had estimated sales of just $857.5 million.
Arm held its Nasdaq IPO (initial public offering) back in September 2023, when chip stocks — especially ones with relevance to the AI market — were all the rage. Since then, shares of Arm have gained more than 70%.
Reddit Reports 1st Quarterly Earnings Since IPO
Shares of social media company Reddit (NYSE: RDDT) surged in premarket trading yesterday.
The reason?
On Tuesday, Reddit released its first quarterly earnings report for the first time since holding an initial public offering (IPO ) in March.
The company reported a 48% year-over-year boost in revenue, to $243 million. According to LSEG, analysts had expected $212.8 million in revenue. Reddit also reported a 39% year-over-year increase in ad revenue, to $222.7 million.
That’s pretty impressive, especially considering that in the same quarter, rival social media company Meta (NSDQ: META) — owner of Facebook, Instagram, and others — saw 27% ad revenue growth, while Google parent Alphabet (NSDQ: GOOGL) recorded 13% ad revenue growth.
However, Reddit hasn’t turned a profit yet, reporting a net loss of $575.1 million.
For the second quarter, Reddit has forecast revenue in a range of between $240 million and $255 million. That’s better than the $224 million forecast that Wall Street has issued, according to LSEG.
If revenue hits the midpoint of Reddit’s guidance, the company will enjoy 32% revenue growth on a year-over-year basis. In the year-ago quarter, Reddit took in $183 million in revenue.
“We see this as the beginning of a new chapter as we work toward building the next generation of Reddit,” CEO Steve Huffman said.
Although Reddit is new to the stock market, it’s hardly a young social media platform. The Reddit site was founded in 2005.
In the first quarter, Reddit had 82.7 million daily active users. That’s significantly better than the 76.6 million daily active users that StreetAccount expected the company to report.
On a year-over-year basis, avenue revenue per user rose 8%, to $2.94.
This infographic from Statista shows how Reddit’s post-IPO quarter stacks up against those of other social media companies:
<a href=”https://www.statista.com/chart/32220/comparison-of-first-post-ipo-quarterly-results-of-selected-social-media-companies/” title=”Infographic: Reddit Increases User Base and Revenue Year Over Year in First Quarter After Going Public | Statista”><img src=”https://cdn.statcdn.com/Infographic/images/normal/32220.jpeg” alt=”Infographic: Reddit Increases User Base and Revenue Year Over Year in First Quarter After Going Public | Statista” width=”100%” height=”auto” style=”width: 100%; height: auto !important; max-width:960px;-ms-interpolation-mode: bicubic;”/></a> <em>You will find more infographics at <a href=”https://www.statista.com/chartoftheday/“>Statista</a></em>
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