Q2 Earnings, Semiconductor Chips, and More!
Editor’s Note: What a roller coaster of a week this has been! And we’re only halfway through!
Let’s get to it!
GM’s Q2 Earnings Beat
General Motors (NYSE: GM) reported earnings that far beat Wall Street’s expectations yesterday. In addition, the legacy automaker upped its guidance for the full year.
Based on second-quarter results, GM now expects full-year adjusted earnings before interest and taxes (EBIT) of between $13 billion and $15 billion, or $.50 and $10.50 per share.
Earlier, the Detroit-based company provided guidance of EBIT of between $12.5 billion and $14.5 billion, or $9 and $10 per share.
For the second quarter, General Motors announced adjusted earnings per share (EPS) of $3.06, versus Wall Street’s forecast of $2.75.
Unadjusted, the company’s net income hit $2.88 billion, a nearly 15% increase from the year-ago quarter.
In addition, second-quarter revenue reached $47.97 billion — again blowing away analyst estimates of $45.46 billion.
“It was truly a great first half and second quarter, and we’re positioned to have a very strong year,” GM Chief Financial Officer Paul Jacobson said during a media briefing.
However, Jacobson warned that the automaker will see some challenges in the remaining quarters of 2024.
“We expect to see some seasonally higher commodity costs, as well as some pricing headwinds that we’ve assumed in the second half of the year.”
GM’s Wall Street-beating results came thanks largely to truck sales in North America. According to Jacobson, the automaker has been able to sell vehicles at slightly higher prices than many of its competitors.
During the second quarter, GM’s average transaction price was roughly $49,900 — about a thousand dollars higher than the American auto industry’s quarterly new car price average.
In addition, GM has offered incentives lower than other carmakers.
GM’s North America unit saw a nearly 40% increase in adjusted earnings, to $4.43 billion. In addition, the unit’s profit margin — at 10.9% — reflected a more than 2% uptick from the year-ago quarter.
However, in the second quarter, General Motors still struggled to realize profits in its China business.
GM’s China unit reported a second-quarter equity loss of $104 million. That marked the second quarterly loss in a row.
“In China, we’ve been taking steps to reduce our inventories, align production to demand, and reduce our fixed costs, but it’s not clear that the steps that we’ve taken, while significant, have not been enough,” Jacobson said.
“We’re working closely with our [joint venture] partner to restructure the business, to make it profitable and sustainable while ensuring that it doesn’t require incremental capital.”
General Motors’ JV partner in China is SAIC, a state-owned automaker and retailer. The two companies have formed SAIC General Motors Sales Co. to make and market Buick, Cadillac, and Chevrolet branded vehicles in Mainland China.
Despite slower-than-expected demand for electric vehicles, General Motors’s EV unit is till holding up.
This week, GM reported that it’s still expecting to produce 20,0000 to 250,000 units in North America this year. In fact, the number of EV deliveries made during the second quarter rose by 40% on a year-over-year basis.
According to Jacobson, once the company produces its 200,000th EV this year, the unit will turn profitable.
“EVs are going to be an earning headwind as we scale until we reach variable profits positive during the fourth quarter, then they should start to become a tailwind for EBIT,” he noted.
Still, it’s worth noting that GM CEO Mary Barra recently remarked that the company may not meet its ambitious target of producing 1 million EVs by the end of next year.
“We won’t get to a million just because the market is not developing, but it will get there,” Barra said at a virtual event last week.
“We’re going to be guided by the customer.”
Year to day, General Motors shares are up by more than 50%.
Coke: Earnings Beat Wall Street Estimates
Coca-Cola (NYSE: KO) also reported positive earnings this week that led to a boost to the company’s full-year outlook.
According to the beverage giant, it now expects to enjoy organic revenue growth of between 9% and 10% — versus an earlier forecast of between 8% and 9%.
Coke also upped its outlook for comp earnings. Rather than a range of between 4% and 5%, the company is expecting earnings to reach a range of between 5% and 6%.
For the second quarter, Coke posted adjusted EPS of 84 cents. The Wall Street consensus had been expecting 81 cents. The company also reported revenue of $12.36 billion — again, higher than the $11.76 billion analysts had been expecting.
Net sales rose 3% on a year-over-year basis to $12.36 billion. The company’s organic revenue — which doesn’t include forex, divestitures, and acquisitions — rose 15% in the quarter.
Coke’s overall unit case volume grew 2% in the second quarter. However, North American volume slipped by 1%. According to Coke, consumers pulled back on spending money on sodas, bottled water, and sports drinks while spending more on juice and plant-based drinks.
Still, thanks to strong sales in the company’s Latin America and Asia Pacific divisions, Coke’s soda volume rose by 3%.
Despite some consumer-driven headwinds, Coke has largely enjoyed increased earnings in recent quarters, driving its stock up by more than a whopping 70% in the last 12 months.
Nvidia to Create Chips for China
Yesterday, Reuters reported that Nvidia (NSDQ: NVDA) is preparing a new version of its flagship artificial intelligence (AI) chip specifically for the China market. The new chip will fully comply with current U.S. chip export regulations, according to sources familiar with the plan.
The new China-aimed chips will be part of Nvidia’s Blackwell series of chips. These chips, which are expected to begin mass production by the end of 2024, are up to 30 times faster than Nvidia’s previous generation of chips.
According to the report, Nvidia will work with its distribution partner Inspur to launch the new “B20” chip in China. Reuters has reported that shipments of the chip will begin in the spring of 2025.
The Biden administration began more strictly regulating semiconductor exports to China in 2023, arguing that the country’s access to American-designed chips would aid its military and pose a threat to U.S. national security.
So far, Nvidia has created three chips for the China market that skirt these tougher regulations.
China accounts for a significant portion of Nvidia’s revenue — nearly 18%, or $10.4 billion last year. However, the amount of money Nvidia makes off the Red Dragon has fallen due to export curbs. In 2022, Nvidia derived nearly one-quarter of its revenue from China sales.
The restrictions have led China’s homegrown chip startups to gain a competitive edge, pushing down Nvidia’s revenue from the Asian economic powerhouse.
Still, analysis indicates that Nvidia is expected to sell as much as $12 billion worth of its most advanced China chip, the H20, this year.
Last week, shares of Nvidia and other chipmakers with exposure to the China market fell after reports broke that the White House was considering even tougher restrictions on American chip exports to China.
This week, the news of the new China-based chips was enough to send Nvidia’s stock higher in Monday morning trading, recouping some of last week’s losses.
TSMC Dominates the Chip Market
Speaking of chips…
Many consumers are surprised to find out that Nvidia isn’t literally a chip maker. Sure, the firm designs chips, but it doesn’t actually produce them.
That job goes to semiconductor foundries such as the Taiwan Semiconductor Manufacturing Co. (NYSE: TSM) — better known as “TSMC.”
Although there are multiple foundries — with most based in Asia — TSMC is by far the largest.
According to data from Counterpoint Research, in the first quarter of 2024, TSMC accounted for roughly 62% of all semiconductor foundry revenue.
Take a look:
You will find more infographics at Statista
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