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Tinder new user growth could be cut in half, JP Morgan says

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Dating app Tinder could see new user growth cut in half by the end of June unless it gets more kindling, J.P. Morgan said Wednesday.

Shares of Tinder parent Match Group notched a closing high on Tuesday after swelling nearly 150 percent over the past 12 months, far outpacing the broader market. The company introduced a premium subscription for Tinder users last fall — called Tinder Gold — that included a number of exclusive offerings to users.

But Tinder’s red-hot performance won’t last, warned J.P. Morgan’s Doug Anmuth, who downgraded shares to neutral from overweight.

Source: Doug Anmuth, J.P. Morgan

The company has more room to increase paid subscriptions, but “we expect Tinder net adds to trend down in the first half of 2018,” Anmuth wrote in a note to clients. “Tinder’s highly successful Gold launch in late August/early Sept 2017 accelerated subscriber growth, driving more average net adds in the third and fourth quarters of 2017 than any prior quarter, with Tinder adding one million average net adds in just six months.”

“We believe Tinder’s peak Gold surge is now behind.”

Thanks to Gold’s suite of offerings, Tinder’s user growth skyrocketed during the past half year, jumping to 476,000 in the third quarter and 544,000 in the fourth. But Anmuth cautioned investors that people aren’t likely to continue to join Tinder at that rate; he now expects the app to add 350,000 users in the first quarter and 230,000 in the second, less than half of last quarter’s figure.

Anmuth did note, however, that the company expects a big Tinder product later in the year.

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Nexperia’s Newport Wafer Fab could be bought by investor group

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LONDON – A consortium is raising money from banks and private equity investors to fund a potential bid for silicon wafer manufacturer Newport Wafer Fab, according to a person familiar with the situation who asked to remain anonymous due to the nature of the discussions.

NWF is currently being acquired by Chinese-owned Nexperia but the transaction could be blocked by the U.K. government.

The sale of NWF to Nexperia was initially approved by U.K. Business Secretary Kwasi Kwarteng earlier this month. However, U.K. Prime Minister Boris Johnson ordered national security advisor Stephen Lovegrove to review it after some lawmakers in his party said the takeover raised national security concerns given the geopolitical importance of the semiconductor industry.

The consortium, which plans to submit an alternative plan to the government, includes a prominent semiconductor executive and people previously involved with NWF, according to the CNBC source.

The government is unlikely to ask Nexperia and NWF to “unravel” the deal or force Nexperia to sell 100% of the company, the source said. But it may look to see if there’s an alternative plan that’s a “win-win” for everyone, the source added.

The compromise could involve asking Nexperia to reduce its position in NWF to less than 25% so that it complies with the U.K.’s National Security and Investment Act, which was introduced in April. It could also involve asking whoever buys NWF to sign some sort of long-term contract with Nexperia so that it still gets the wafers it needs.

The consortium and its investors are watching to see what the government does. “The investors are sitting on the sidelines going: ‘Ok, we got the money. Let’s go … what’s the deal?'” said the CNBC source. “There’s plenty of investors for this kind of thing. There’s a global shortage of this stuff.”

The consortium is rushing to submit its proposal to the government before lawmakers go on their summer vacations in August, bringing Westminster to a standstill.

In the proposal, the consortium plans to argue that Nexperia will likely make it harder for outside organizations to use the manufacturing facility which is based in South Wales, U.K.

NWF is the last “open access” fab in the U.K. and it’s used by companies, start-ups, universities and the government for research and development purposes.

Nexperia, which was already a shareholder in NWF, has paid around £63 million ($87.9 million) for NWF, according to the CNBC source. If Nexperia were to sell 75% of NWF in order to comply with the National Security and Investment Act then this would work out at around £50 million.

A U.K. government spokesperson told CNBC that the situation is being closely monitored. Nexperia declined to comment.

Tony Abbott, Johnson’s senior trade advisor and the former prime minister of Australia, said Tuesday that he expects the current deal to be blocked. Abbott said Australia would not allow the takeover to go ahead if it was happening there, adding that the U.K. is now moving in a “comparable direction” now that Lovegrove is reviewing the deal.

The sale of NWF to Nexperia comes five years after the U.K.’s biggest chip company, Arm, was sold to Japan’s SoftBank for £24.3 billion. SoftBank is now in the process of trying to sell Arm to Nvidia for $40 billion, although the deal is being probed by competition regulators in the U.K., Europe, China and the U.S.

Nexperia’s links to China

Headquartered in the Netherlands, Nexperia is 100% owned by Wingtech Technologies, a Shanghai-listed manufacturing company that assembles smartphones and other consumer electronics. Wingtech is heavily backed by the Chinese Communist Party, according to analysis from Chinese investment screening specialists Datenna. Wingtech Chair Xuezheng Zhang took over as Nexperia CEO in March 2020.

Ciaran Martin, the U.K.’s former cybersecurity chief, told The Telegraph last week that the sale of NWF to Nexperia presents a bigger risk than Huawei’s involvement in the 5G network.

“Huawei in the periphery of 5G only really mattered because the Trump administration became obsessed with it for reasons they never convincingly set out,” the former head of the National Cyber Security Centre reportedly said. “By contrast the future of semiconductor supply is a first order strategic issue. It goes to the heart of how we should be dealing with China.”

Some U.K. lawmakers are concerned that the NWF deal will see a rare U.K. advanced chip manufacturing plant handed to China, which is aiming to surpass the U.S., South Korea and Taiwan in semiconductor technology.

Tom Tugendhat, leader of the U.K. government’s China Research Group and chairman of the Foreign Affairs Select Committee, told CNBC that the government is “yet to explain why we are turning a blind eye to Britain’s largest semiconductor foundry falling into the hands of an entity from a country that has a track record of using technology to create geopolitical leverage.”

What is NWF?

The entrance to Newport Wafer Fab’s manufacturing facility in Newport, Wales.

Located on a 28-acre site in Wales, NWF employs between 400 and 450 people and produces around 8,000 low-grade wafers a week.

The wafers are thin pieces of silicon that circuit patterns are printed on to build chips. NWF’s relatively basic 200mm wafers are largely used in the automotive industry, which has been hit particularly hard by the chip shortage.

NWF was trying to raise capital earlier this year so that it could remain independent but Nexperia triggered a contractual clause that enabled it to take over the facility, the same CNBC source said, confirming what has previously been reported by The Telegraph.

“They saw the opportunity to do basically a hostile takeover and they did it,” said the source, adding that a £15 million investment was turned down by Nexperia earlier this year.

The price paid for NWF is considerably lower than what similar fabs have sold for. “A £63 million price tag for a wafer fab is minuscule,” Glenn O’Donnell, an analyst at research firm Forrester, told CNBC. “Most wafer fabs cost well over £1 billion. Even if this is older tech, this deal is ridiculously cheap.”

The fab also carries out semiconductor research for the U.K. government. It has over a dozen contracts that are largely funded by Innovate UK, the U.K. government’s innovation agency, through various grant schemes that amount to around £55 million.

One NWF defense contract involves developing chip technology with Cardiff University for a radar system that would be used in fighter jets. The £5.4 million project aims to deliver technology to defense contractor Leonardo, missile developer MBDA and aerospace chipmaker Arralis.

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The global chip shortage is starting to hit the smartphone industry

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A store window in Dublin, Ireland, with iPhones and Samsung Galaxy handsets on display.

Artur Widak | NurPhoto | NurPhoto via Getty Images

A global shortage of computer chips has impacted everything from automobiles to video game consoles. And smartphones are looking like they’re next on the list.

Semiconductors have been in short supply this year, due to a number of reasons including factory closures resulting from the Covid-19 pandemic and heightened demand for consumer electronics.

Automakers have been especially impacted by the shortage, with companies like General Motors and Ford reducing or even halting production of certain vehicles.

Video game consoles are also being affected, with gamers struggling to get their hands on the new Microsoft Xbox Series X and Sony PlayStation 5 systems.

Smartphones have so far been mostly shielded from the fallout, thanks to manufacturers like Apple and Samsung stockpiling critical components.

“The automotive industry doesn’t run at the same cadence as the smartphone business,” Ben Wood, chief analyst at CCS Insight, told CNBC. “They saw the problems more slowly than the smartphone guys.”

Carmakers rely on bigger, older chips while phone makers are using the latest processors, Wood said. Smartphones are also sold in far higher volumes than vehicles, making them a preferred customer of suppliers.

Meanwhile, “smartphone companies didn’t drop their demand for chips as the automotive sector did when they expected a drop in demand for cars” at the start of the pandemic, Syed Alam, Accenture’s global semiconductor lead, told CNBC.

“In fact, smartphone companies benefited from the extra capacity left behind by automotive businesses, which led the automotive sector to experience a chip shortage when demand for cars rose faster than they anticipated,” he added.

However, mobile manufacturers are now starting to feel the impact of the global chip shortage.

“Now that the automotive sector and others are catching up and starting to reclaim the capacity they had given up, there is a fierce competition for semiconductor supply,” Alam added. “This has created supply pressure for smartphone chips.”

Demand for smartphones waned in 2020 as the coronavirus pandemic raged, with sales declining 12.5% according to Gartner. However, that demand has been quickly recovering this year, as several countries lift their Covid lockdown restrictions. Gartner says that global smartphone sales grew 26% in the first quarter.

Apple warning

On Tuesday, Apple CEO Tim Cook warned that silicon supply constraints will affect sales of the iPhone as well as other products like the iPad.

The shortages aren’t in high-powered processors that Apple manufactures for its devices but chips for everyday functions like powering mobile displays and decoding audio, Cook said.

“Although Apple is one of the ‘big dogs’ that gets top priority from chipmakers, it is vulnerable to silicon shortages like everyone else,” Glenn O’Donnell, VP and research director at analyst firm Forrester, told CNBC.

“While everyone focuses in on CPUs (the high end of chips), every device (including an iPhone) contains a whole lot more and without these supporting chips, the phone is nearly useless.”

Still, Apple “has proved remarkably resilient so far throughout the pandemic,” CCS Insight’s Wood said. “that’s testament to its tremendous focus on supply chain.”

It is smaller manufacturers like China’s Lenovo and TCL, and Finland’s HMD Global, that are likely struggling with supply, Wood added.

HMD, which is launching some new Nokia smartphones this summer, warned the semiconductor shortage could prove challenging for smaller device makers.

“We see there is definitely overall tightness” in the supply chain, Florian Seiche, HMD’s CEO, told CNBC. “We might see a certain imbalance across the market,” he said, adding that demand for low-end models is quite high.

Like Apple, Samsung benefits from its size and bargaining power. However, analysts say the company is not out of the woods yet.

“Samsung seems the one under greater impact” in the first half of 2021, Dale Gai, semiconductor analyst at Counterpoint Research, told CNBC.

The South Korean electronics giant was hit with a month-long shutdown of its semiconductor fabrication plant in Austin, Texas, earlier this year after a snowstorm led to power outages. Meanwhile, Samsung’s Vietnam factories suspended operations after detecting cases of coronavirus.

In March, the company said there was a serious imbalance in supply and demand of chips in the IT sector, and that it may skip the launch of its next Galaxy Note handset.

On Thursday, Samsung said it saw a 54% jump in profit in the second quarter as chip prices soared. The company forecast a recovery in the mobile market to pre-pandemic levels, but warned a shortage of non-memory chips posed a risk to its forecasts.

Higher prices

In terms of the overall impact on smartphones, Gai said he expected the shortage to shave 10% off of device makers’ production forecasts.

“I don’t believe the shortage will have a severe impact, but it will have an impact,” said Forrester’s O’Donnell.

So what does this all mean for you, the consumer?

“The likely outcome here is higher prices for phones and deeper shortages for certain models,” according to O’Donnell.

“In Apple’s case, you might be able to get the high end iPhone 12, but not the lower-end iPhone XS,” he said. “Other smartphone makers like Samsung, LG, and the Chinese makes like Xiaomi and Huawei will all feel the pinch.”

– CNBC’s Sam Shead and Kif Leswing contributed to this report.

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Fitch, S&P downgrade China Evergrande amid concerns over Asian junk bonds

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Major credit ratings agencies this week downgraded China’s most indebted property developer Evergrande, as concerns over Asia’s junk bond sector rise. 

Fitch Ratings on Wednesday downgraded China Evergrande one notch from B to CCC, saying that the negative developments surrounding Evergrande may weaken investor confidence, further pressuring its liquidity. 

A rating of CCC means there’s a “real possibility” of a default, from the previous B rating — which means there is material default risk, but a limited margin of safety remains.

S&P Global Ratings on Monday took the property developer down two notches, from B+ to B-, citing its inability to reduce debt “in an orderly manner.” It added that the firm’s credit rating was dragged down by what S&P believed to be a “severe” decline in profitability at the firm.

China Evergrande has been struggling with liquidity issues since last year. However, last week’s news of an asset freeze refocused attention on the company’s debt troubles. That brought its share price down to a four-year low. Year-to-date, Evergrande’s share price has tumbled more than 60%.

Tech is a smaller part of the credit markets in Asia. One of the key sectors that has gotten impacted in the credit markets is actually real estate.

Neeraj Seth

head of Asian credit, BlackRock

While China’s technology crackdown has triggered shockwaves through stock markets this week, it’s actually real estate that’s sparking concerns in Asia’s credit markets, BlackRock told CNBC on Thursday.

“Tech is a smaller part of the credit markets in Asia,” Neeraj Seth, head of Asian credit at BlackRock told CNBC’s “Squawk Box Asia.” “One of the key sectors that has gotten impacted in the credit markets is actually real estate.”

Asian bond markets have underperformed in the last few months, compared to those markets in the U.S. and Europe, he said. 

In fact, Asian high-yield credit markets — also known as junk bonds — are in the middle of a correction, Seth pointed out.

How investors can position themselves

China’s property developers are among the biggest junk bond issuers in Asia. Junk bonds are non-investment grade debt that carry a high default risk, and therefore, usually come with higher interest rates to compensate for that risk.

Chinese authorities in recent months have attempted to cool the country’s hot property market with new restrictions, particularly lending to real estate businesses.

Read more about China from CNBC Pro

“I think interestingly, we are in the middle of a correction,” Seth said, referring to Asian high-yield bond markets. “So that obviously warrants some level of caution — at this point we’re in the summer months with lower liquidity, so expect a bit more noise in front of us.”

“It’s very unnerving when you are in the midst of (a correction). But if you are able to actually systematically look through the noise and pick the names you like — have a diversified portfolio, build resilience in the portfolio,” Seth said.

He said investors have been rewarded by taking those positions in volatile times. “I think we are in one more of those volatile periods where it will pay investors to actually be patient here and build some positions.”

— CNBC’s Evelyn Cheng contributed to this report.

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