The U.S. government is working to push through contracts for tens of billions of dollars in arms sales to Saudi Arabia ahead of President #Trump’s visit to the kingdom this month, Reuters reports, citing people familiar with the matter.
The U.S. has been the key supplier for the majority of Saudi Arabia’s military needs, from #F-15 jets to command and control systems, the report says.
#Lockheed Martin $LMT programs in the package include a Terminal High Altitude Area Defense missile defense system with several batteries, which costs roughly $1B, the report says, citing sources. #BAE Systems $BAESY combat vehicles, including the Bradley Fighting Vehicle and #M109 artillery vehicle, are also under consideration as part of the Saudi package, people familiar with the talks said. Both vehicles are in the Saudi inventory. British defense company BAE has 29,000 employees in the United States.
Also, more than $1 billion worth of munitions including armor-piercing Penetrator Warheads and Paveway laser-guided bombs made by #Raytheon Co. $RTN are in the package, the sources said. The Obama administration suspended the planned sale because of concerns over the Saudi-led military campaign in Yemen and civilian casualties.
#Delta Air Lines $DAL is mulling postponing delivery of 10 #Airbus $EADSY SE A350 jetliners valued at approximately $3B, even as the carrier prepares for the first arrival of the new flagship aircraft, Bloomberg reports.
Although Delta will take five A350-900s this year as planned, it wants to postpone deliveries slated for 2019 and 2020 by three years, said one of the people, who asked not to be identified since the talks are private.
The move highlights the difficulty that Airbus has faced with its marquee jet in the U.S., the largest aviation market and a #Boeing $BA stronghold. #United Continental $UAL has cooled on a larger model of the twin-engine plane, and #American Airlines $AAL said that it would put arrival of its first A350 on hold a second time, to late 2020, the report added.
The U.S. hotel sector intends to ramp up a lobbying and public relations offensive against #Expedia $EXPE and #Priceline Group $PCLN , hoping to convince consumers and Trump administration members that such companies are monopolistic, Bloomberg reports.
The American Hotel & Lodging Association, an industry group whose members include #Marriott $MAR , #Hyatt $H , and #Hilton $HLT , worked up plans for a campaign claiming that the online travel giants engage in unfair practices in their search businesses, the report says, citing board meeting documents.
The industry group plans to lobby FTC officials on the matter and attempt to ensure that new members selected by President Trump are friendly to hotels, the report says. Other companies in the hotel space include Choice Hotels $CHH , #Starwood $HOT , #InterContinental $IHG , and #Wyndham $WYN
#Baker-Hughes $BHI reports that the U.S. rig count is up 7 rigs from last week to 877, with oil rigs up 6 to 703, gas rigs up 2 to 173, and miscellaneous rigs down 1 to 1.
The U.S. Rig Count is up 462 rigs from last year’s count of 415, with oil rigs up 375, gas rigs up 87, and miscellaneous rigs unchanged.
The U.S. Offshore Rig Count is up 2 rigs from last week to 19 and down 5 rigs year over year.
The Canadian Rig Count is down 3 rigs from last week to 82, with oil rigs up 3 to 27 and gas rigs down 6 to 55. The Canadian Rig Count is up 46 rigs from last year’s count of 36, with oil rigs up 16, gas rigs up 31, and miscellaneous rigs down 1 to 0.
#Crude oil $CL1 is up 78 cents to $46.30 per barrel after bottoming at $43.77 six-month lows overnight.
Today’s solid jobs report should cement a June rate hike, unless something untoward happens between now and the June 13, 14 FOMC meeting.
The better than expected bounce in jobs in April, the decline in the unemployment, along with the rise in earnings and hours worked corroborate the Fed’s view that the weakness in March was transitory, and it supports their outlooks for moderate growth ahead and the dot-plot forecast for two more tightenings this year.
Analysts are now projecting a 25 basis point tightening in June, and another at the September meeting (both include press conferences and forecast updates).
This is also becoming the view of many #Fedwatchers.
Of more importance will be when #FOMC decides to address the balance sheet.
More data like today’s, and assuming a strong bounce in growth in Q2 and Q3 — analysts are estimating #GDP growth of 3.2% for both — could see the FOMC make a decision on normalizing the balance sheet by late this year.
With over 90% of #Apple’s $AAPL nearly $250B of cash sitting overseas, a one-time 10% repatriation tax would give the company $220B for acquisitions or buybacks, Citi analyst Jim Suva tells investors in a research note titled “Addressing the Problem of Too Much Cash.”
The analyst identified seven potential takeover targets for the iPhone market using five filters: strategic fit, global scale, transaction size, few non-strategic assets and the likely impact on Apple’s share price.
The analyst’s potential targets for Apple are #Netflix $NFLX , #Disney $DIS , #Hulu, #Activision Blizzard $ATVI , #Electronic Arts $EA , #Take-Two Interactive $TTWO and #Tesla $TSLA .
Each of these names bring some strategic benefit to Apple, Suva argues. The analyst gave Netflix the highest likelihood of being acquired with a 40% probability.
Disney is next at 25%, with the rest at 10% or below. Suva believes a hybrid approach to the large cash position may be Apple’s best path. The iPhone maker, for example, could acquire Netflix with one-third of the cash and use the remaining two-thirds for buybacks, Suva contends.
Shares of Lumentum Holdings $LITE are sharply higher after investors put a higher premium on the consumer electronics potential ahead of its near term fiber optic woes.
3D SENSING OPPORTUNITY: On its earnings conference call held earlier today, CEO confirmed that the company has received “volume” 3D sensing production orders for delivery in the September quarter. Amid industry speculation that #Lumentum or #Finisar $FNSR or both may be chosen by #Apple $AAPL as suppliers for 3D densor devices, the CEO highlighted that “We expect 3D sensing to be a significant growth driver over the coming years.”
Apple is said to be interested in 3D technology to enhance the new iPhone version with facial recognition as well as augmented reality. Referring back to earlier 3D comments, the CEO added that the “multimillion unit orders are just the initial orders. We expect to be receiving orders on a weekly basis moving forward to cover our lead times. As I said in the prepared remarks, we have been approved to start volume production. And so, we are ramping our production to be able to achieve the volumes and our customers need in the short-term. And you can imagine that the cycle time of 3D sensing for us a few months, and so, given that we are in production today, you can determine when the production ramp starts and given a 13-week lead cycle time. So we will be ramping through the quarter. And in the December quarter, we will be at full volume production capability assuming the program goes as we expect.”
Adding to investors’ enthusiasm for the 3D sensor potential in consumer electronic, Chief Financial Officer said that 3D sensing gross margins will be “significantly north of our corporate gross margin average and it’s going to be should be over 50%.”
PRICE ACTION: $LITE is up 11% to $47.45 in afternoon trading, while rival Finisar is up nearly 2% to $23.01.
Market research firm #IDC yesterday released its estimates of Q1 #smartphone shipments in China, reporting that total shipments to the country rose just 1% to 104.1M partly due to “high inventory” from the previous quarter.
Breaking the quarter down by company-specific performance, #Huawei took the top spot with shipment growth of 25.5%, while #Apple $AAPL took fourth place on a 26.7% decline in shipments.
IDC commented, “Despite a soft first quarter in China, the second quarter should pick up sequentially given not only #JD.com’s $JD June promotions, but also activity around a number of new products like vivo with its Y53, #Xiaomi with its Mi 6, Meizu with its E2, and Gionee with its M6S Plus.
Apple has been seeing double-digit YoY declines for the fifth quarter in a row, but we believe that Chinese consumers are holding out for the launch of Apple’s 10-year anniversary iPhone at the end of the year.” Other publicly traded companies in the space include #Samsung $SSNLF .
#NYMEX #crude crashed through the $47.00 level in early Thursday N.Y. trade, with sell-stops kicking in on the break under the March low of $47.01.
The contract has printed $46.77 lows, levels last seen on November 30. A smaller than expected inventory draw reported on Wednesday set the stage for this morning’s sell-off, as did #EIA data showing gasoline demand over the past month falling 3% versus this time in 2016.
Rig count continues to climb. Another 9 oil rigs were deployed in America’s shale fields, a sign that the industry is undaunted by falling oil prices. But the ability to produce profitably at $50 per barrel suggests downward pressure on prices, as more production is slated to come online later this year.
OPEC Production: Production from Saudi Arabia remained low in April, and output fell in Nigeria and Libya, although the latter two countries are exempted from the OPEC deal. Meanwhile, Angola and the UAE actually added production, leading to a slight fall in the OPEC-wide compliance rate from 92 percent in March to just 90 percent in April.
Russia also reported incremental progress on its pledge, reducing output to 11 million barrels per day from 11.05 mb/d in March, still a bit shy of the 300,000 bpd that it promised to cut.
Hedge funds Turn Bearish. Investors are losing confidence in oil prices – hedge funds and other money managers slashed their net-long positions once again, according to the latest data. For the week ending on April 25, the reduction was the largest weekly decline on record. Investor sentiment, according to the makeup for their long and short positions, now looks more bearish than it did at the start of the year.
The Federal Reserve said in today’s statement, “Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed. Job gains were solid, on average, in recent months, and the unemployment rate declined. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid. Business fixed investment firmed.
Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective. Excluding energy and food, consumer prices declined in March and inflation continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”
#FOMC #Inflation #Rates #Trade
Investors have been skittish on the prospects for #optical communication companies since late last year, mostly centered on a slowdown in #China spending.
IHS Markit pointed out in a report from December 2016 that the pace of China’s spending on optical network equipment slowed in Q3 of 2016. Sales in China dropped more than 19% sequentially, according to the report. Operators in the country still spent 14% more than in Q3 of 2015, thanks to deployments of 100G infrastructure led by China Mobile.
A recent report from MKM Partners on #Oclaro $OCLR peer #Finisar $FNSR noted concerns on a number of fronts, “including China, for all products and 10G Datacom and Fibre Channel/SAN in the U.S. and Europe.” The analyst saw Q4 demand in China weak due in part to lower demand from Huawei with weakness in product demand across the board, including WSS,10G Datacom and Telecom, and CFP2.
According to the note, FiberHome and ZTE are also sluggish for Finisar. Oclaro CEO Greg Dougherty expanded on China during the company’s earnings call on Tuesday night. “In April, we were informed by both of our major Chinese customers that demand would be even slower than previously anticipated for Q4. While both customers have signaled a slowdown for demand in the China market, the majority of the projected Q4 impact is coming from one customer. This customer cited both the reduction in demand for the Chinese market as well as in inventory correction,” the CEO said.
On a positive note, #Dougherty sees the fundamental demand drivers in China still intact, and believes growth will return later this year from metro and provincial networks deployment.
ANALYSTS WEIGH IN: In a report out Wednesday morning, Jefferies analyst James Kisner said he believes the post-earnings selloff in shares of Oclaro brings a compelling entry point. The analyst was pleased with the gross margin performance and thinks the outlook suggests “healthy industry dynamics and product differentiation.” He lowered his price target for the shares to $12 from $14 and reiterated a Buy rating on the name. In a separate note out Wednesday, Needham analyst Alex Henderson pointed out that a C-Suite mandate to improve cash flow at Huawei is causing a more dramatic inventory correction than expected and that there was a “modest” amount of inventory to mop up at #ZTE.
OPTICALS DOWN: Shares of other companies in the space are also lower, including Finisar (FNSR), #Lumentum $LITE , #NeoPhotonics $NPTN , #Acacia Communications $ACIA , #Viavi $VIAV , and Applied Optoelectronics $AAOI .
#JPMorgan tell investors #Apple $AAPL will integrate #Broadcom’s $BRCM wireless charging chip into its upcoming iPhone launch in the second half of 2017.
In February, the bank was unclear whether or not Apple would be integrating wireless charging into this year’s iPhone launch. The February report sent shares of #Energous $WATT lower.
Since that report, Broadcom is getting set to commence manufacturing production of the wireless charging chip with its foundry partners in May.
The broker believes Apple will also use Broadcom’s next generation WiFi/Bluetooth combo chip and maybe two ASIC chips instead of one. There is at least a $2-$3 step-up in dollar content per phone from the new wireless charging chip, new touch controller chips and upgraded wireless connectivity content in the upcoming iPhones, which is “significantly” higher than what the market is anticipating.
#JPMorgan reiterates an Overweight rating on Broadcom with a $260 price target.
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#Boeing $BA is planning to deliver initial planes in a $16.6B 80-jetliner sale to Iran Air starting next year, #Bloomberg reports. “That remains on track,” CEO Dennis Muilenburg told reporters, according to Bloomberg. “It’s really important that at every step of the process, we’re working on this hand-in-hand with the U.S. government.”
The company also has a separate $3B agreement with #Iran #Aseman Airlines. #Airbus $EADSY has already delivered initial planes in a $19B sale after international restrictions on trade were lifted following a nuclear accord.
“The prospect of renewed aircraft deliveries to the Islamic republic continues to rankle conservatives, who say the jetliners will be used for military purposes or to support terrorist groups,” according to Bloomberg.