over 2 years ago • 3 mins
General Motors announced on Wednesday that its profit came in below expectations last quarter, and it’s not the only carmaker getting the heebie jeebies right now.
What does this mean?
Rumor has it that if you say the words “chip shortage” five times in a Finimize newsletter, a semiconductor with a hook hand appears and drags you away. So we’d better be careful, because the chip shortage was precisely to blame for General Motors’ production issues and weaker-than-expected profit. So was the $1.3 billion earnings hit from warranty costs, mind you – most of which were tied to the Chevrolet Bolt, the electric car that’s twice been recalled in the past year due to defective batteries.
Still, GM is optimistic about its full-year prospects, and it raised its forecasted 2021 earnings by around 20%. The carmaker, after all, is seeing strong demand and soaring prices for its pickup trucks, which – given their high profit margins – are helping boost its bottom line.
Why should I care?
The bigger picture: Carmakers get a break.
The chip shortage is crippling plenty of industries, but none more-so than carmakers. They reportedly pay less than other chip-dependent companies, which sends them to the back of a very long line. The good news is that TSMC – the world’s biggest contract chipmaker – told carmakers last month to expect a sharp improvement, forecasting its production of auto chips to be 60% higher this year than it was in 2020. That should help, but it’s no silver bullet: GM still sees the chip shortage lasting into next year.
Zooming out: Kraft kuts the krap.
Kraft Heinz – of ketchup fame – reported better-than-expected sales and profits on Wednesday, thanks to strong demand for its snacks and packaged meals. That encouraged the company to reinstate its quarterly dividend to shareholders, which is certainly a lot easier to do when you don’t have a chip shortage to contend with. Wait – w... was that really five? No, no, nooooooo…
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Sony reported better-than-expected quarterly earnings on Wednesday, even if the entertainment giant’s friendly neighborhood PlayStations are still nowhere to be seen.
What does this mean?
Nature is healing: lockdowns are receding, doors are reopening, and… well, turns out people are still just kind of staying indoors. That’s fine by Sony, whose sales and operating profit – which grew 15% and 26% respectively compared to the same time last year – benefited from continued demand for its PS5s, TVs, movie and music services, and more. It was the confidence boost the company needed to raise its profit forecast for the year, but hitting that target will ultimately come down to its ability to produce enough PS5s to meet demand. And that’s not a given: Sony’s been struggling with the same supply issues that have been affecting everyone else.
Why should I care?
The bigger picture: The ghost of hardware past.
Sony wants to use the PS5 to bridge the gap between its long-standing consumer electronics business and its high-margin (and growing) content business, which it plans to do via game downloads and subscription sign-ups. So it’s no wonder that it’s trying to diversify the content it has to offer: the company recently agreed to buy Crunchyroll – AT&T’s anime business with 3 million global subscribers – and intends to spend more than $18 billion over the next three years on other content acquisitions.
Zooming out: SoftBank sneaks up on us.
Sony isn’t the only Japanese company on a spending spree: new data out on Wednesday showed SoftBank has quietly built a $5 billion stake in pharmaceutical giant Roche. That’s not a typical investment for the Japanese conglomerate, which has historically focused on tech firms or early-stage biotech companies. SoftBank, though, might argue that it’s exactly in keeping with past investments: the firm thinks Roche’s Genentech division – which uses data to develop drugs – is highly undervalued, which means there’s money to be made.
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