Nasdaq Leads Continued Equity Downturn

Dow: -1.75% | Nasdaq: -3.52% | S&P: -2.45%

Catch Up Quick

• While no one has seen or driven a Lucid Motors automobile, as of Wednesday’s close the company was valued at $46B → roughly the same as Ford ($F)

• GameStop shares ($GME) have soared ~143% in that last 2 days closing today at $109

• Facebook ($FB) announced plans to invest $1B to "support the news industry" over the next 3 years

• Twitter ($TWTR) shares soar +4% after company announces plan to double revenue by end of 2023

• Senate Democrats will look to pass an infrastructure package through budget reconciliation following the expected passage of a $1.9T stimulus deal

• The Federal Reserve systems that process millions of daily transactions for payroll, Social Security benefits, tax refunds, corporate and utility payments went offline because of an unidentified internal glitch

• Costco ($COST) is raising its minimum wage to $16 an hour for its U.S. store workers

• United Airlines CEO Scott Kirby says people will feel safe traveling again by this time next year

• L Brands ($LB) reportedly hired Goldman Sachs to find a buyer for retailer Victoria's Secret

• The FDA finds Johnson & Johnson coronavirus vaccine to be safe & effective

• Blue Origin delays the first launch of their next gen rocket to late 2022

• WeWork’s Adam Neumann is set to earn an extra $50M from a settlement with SoftBank

• Beyond Meat struck deals with McDonald’s and Yum Brands

Thought of the Day

• Yesterday, President Biden signed an executive order to address the global computer chip shortage that has devastated the economic flow of goods ranging from automobile parts to essential medical supplies

• The order includes a review of key products such as semiconductors and batteries, which is supposed to facilitate policy recommendations to in turn strengthen and diversify global supply chains

• This way, production won’t get bottlenecked due to global crises that specifically exacerbate manufacturing streams with excessive geographic concentration (semiconductors in East Asia)

• As a mature vertical of the technology sector, the importance of semiconductors is often overshadowed by sexier verticals such as SaaS and consumer internet

• Taking a step back, the term semiconductor is derived from the replacement of glass vacuum tubes with transistors in the evolution of computation

• In the mid 20th century, Bell Laboratory scientists invented transistors as a more reliable way to control the flow of current (as they literally semi-conduct current) on circuit boards

• This allowed logic in the context of code to physically manifest at the intersection of software and hardware, which makes computation feasible

• Today, the resulting micro-hardware drives functionality behind copious everyday items such as ceiling fans, blind-spot sensors in cars, WiFi modems, keyboards, AirPods, coffee machines, cell phones, smart watches, and more

• Due to this demand breadth, the events of 2020 induced enough tension on chip availability for the President of the United States to exhaust executive action

• On the commercial side, semiconductor manufacturers likely will raise prices heading into 2021 to make up for forgone volume with enhanced margins

  Japan's Renesas Electronics, the Netherlands' NXP Semiconductors and other chipmakers are raising prices on semiconductors that go into cars and telecom equipment as they attempt to maneuver out of a squeeze created by soaring demand and limited foundry capacity → Nikkei Asia Staff Writers, 2021

The Bottom Lines

• Price increases are nearly evident

• Potentially controversial corporate finance take → raising prices is the healthiest way to grow sales for inelastic goods (meaning price changes result in less demand impact; often the case for products with strong use-case breadth)

• Reasoning → market power implications aside, raising prices 1) doesn’t incur additional variable costs as volume expansion does, implying immediately improved margins and 2) it allows for revenue to grow without dwindling the unpenetrated portion of the total addressable market opportunity!

  Afternoon Audit Home