Bundle of investment news: airlines intersect, semiconductor companies banned from China

Applied MaterialsAMAT$113.40Buy

KLA-TencorKLAC$332.02 Buy

Lam ResearchLRCX$480.99 Buy

Spirit Airlines IncSAVE20,72 $

In the US, they began to buy less unimportant goods - but it will be bad for everyone. The US government is ruining the business of semiconductor companies. Spirit Airlines chose a lower purchase offer - a wise decision.

Disclaimer: when we talk about, that something has grown, we mean a comparison with the same quarter a year earlier. Since all issuers are from the USA, then all results in dollars. When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

Spent - and that's enough: US consumer spending declines

Consulting company Morning Consult released a study of American spending in March of this year.. And here's what you can find there:

• 46% Americans have given up vacation travel due to rising prices;
• 37% reduced plans to buy furniture, and 36% - buying clothes, and all because of the prices;
• almost all categories of spending on non-essential goods and services such as entertainment showed a serious decrease.

Overall, the study shows, that Americans are increasingly cutting spending on “non-essential” things. And this is disturbing news for the widest range of issuers. Still, domestic consumption gives about 70% US GDP, and spending cuts by Americans is, certainly, a definite minus.

Overall, the March decline in US consumption shows the limits of price increases: seems to be, producers will no longer be able to pass on the increase in their costs to buyers and a decrease in the consumption of their goods puts a limit on price increases.

Probably, to this they will respond by reducing the size of the product to maintain prices, what can often be found in the Russian Federation. Or even easier: they will stop raising prices for their products and their margins will fall. And after that, their ability to pay dividends will also decrease..

Fully chipped: restrictions on the supply of semiconductor equipment to China

Last week the Semiconductor Manufacturers Association (Coalition of Semiconductor Equipment Manufacturers, CSEM) Reported, that it is negotiating with the US presidential administration to limit the supply of equipment for the production of chips in China.

Americans want to impose restrictions on the import of the most advanced equipment for the production of chips in China. So far, we are not talking about a complete ban on any supplies, a about, to stop selling the most high-tech equipment to the Chinese.

Washington is already taking the most decisive action to, to stifle high-tech manufacturing in China. In parallel, the plot develops with the investigation of the US authorities against the Chinese chip manufacturer Yangtze Memory Technologies (YMTC): according to Americans, the company supplied chips to Huawei under US sanctions.

It doesn't matter here anymore, What conclusions will investigators come to?, - the wording itself is striking: “a Chinese company dared to supply chips to another Chinese company, how dare they?" I think, that the story with YMTC should be assessed in the context of American negotiations with CSEM. And you can even count, what, probably, The very fact of such an investigation indicates that, that Washington intends to impose its agenda on the organization.

CSEM brings together the biggest players in the industry: among others there are such giants, as Applied Materials (NASDAQ: MAT), COMPLAIN (NASDAQ: KLAC), Lam Research (NASDAQ: LRCX), Tokyo Electron и ASML. For all these companies, China is the most important market., therefore, in the place of the shareholders of these companies, I would hope, that they will be able to reach agreements with Washington, which will allow them not to lose much in revenue.

But still, one should be prepared for the worst option - a strong reduction in supplies to China and, Consequently, drop in revenue.

A short-term surge in sales is also possible here.: restrictions will certainly not take effect immediately and until some time everything will work “in the same mode”. I think, that Chinese counterparties will take advantage of this and increase the volume of orders at times, to buy equipment. So that, may be, listed companies expect quarterly records. This, however, could be a problem: against the background of record sales, the inevitable subsequent drawdown will look especially unpleasant for investors.

It will also come back to haunt the publication of the financial statements of these companies in a year., when will the results of the same periods of 2022 and 2023. We could see something similar in the case of food issuers and those, that from the consumer sector, in 2021, when their quarterly results had to be compared to the record sales of the quarantine spring 2020: the contrast was clearly not in favor of "usual" indicators 2021, which led to the disappointment of investors and unpleasant fluctuations in quotes.

soul airlines: Spirit Airlines stays with former buyer

American budget airline Spirit Airlines (NYSE: SAVE) refused to be sold to another airline, JetBlue Airways, and plans to move further towards a merger with another low cost carrier, Frontier Group. I believe, that a careful analysis of this story will be very useful for investors.

Somewhat earlier, in the first half of February, Frontier offered to buy Spirit for $2.9 billion and create a new one, united company, in which Frontier will have 51,5%. In this new company, Spirit shareholders will receive 1.9126 shares and a one-time payment for each share they own. 2,13 $. In total it turns out 25,83 $ for the Spirit share - a premium of almost 19% to the stock price at the time of the news. This, basically, Not bad, but very far from the historical highs of the company's quotes - its shares have not recovered from the coronacrisis impact.

In April, JetBlue offered Spirit a more interesting deal.: sell at a price 33 $ per share, with a prize in 37% to Spirit's share price at the beginning of April. But in the end Spirit refused.

The only reason for the failure is the possible blocking of the merger of JetBlue and Spirit by regulators.. A merger with Frontier, on the other hand, has a better chance of getting government approval and, Consequently, successful completion of the transaction. The Spirit and Frontier routes overlap less than 40%, which might make regulators a bit more benevolent.

But JetBlue often becomes a target of regulators and a defendant in antitrust investigations - so they may not be allowed to buy Spirit. You can say, that Spirit preferred a tit in the hands of a crane in the courts - the deal with JetBlue was better, but the merger with Frontier is more likely to succeed, because you can sue regulators indefinitely, what Spirit can't afford: the endless pandemic is killing her business and she is operating at a loss.

If the merger between Frontier and Spirit happens, then the combined company will become the fifth in the United States in terms of the number of passengers. But that same pandemic created a demand for consolidation among airlines.. Maybe, we should look at smaller airlines: suddenly their larger competitors decide to expand.

Spirit and Frontier stats: How do their operations overlap?