Apple escapes wave of layoffs, Lula x BC and what matters in the market

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Why did Apple escape layoffs?

Amazon, Meta, Microsoft, Alphabet, Twitter, Salesforce, Tesla, Dell… The list of large technology companies that promoted mass layoffs in the current scenario of high interest rates does not stop growing.

Among them, however, does not appear the largest in market value: Apple.

What does it explain?

• Hiring: unlike its rivals, the apple company did not expand its workforce by tens of thousands of employees during the digitalization boom forced by the pandemic.

• Resilient demand: even with high inflation, demand for Apple products remained strong, which made the company beat analysts’ revenue estimates and fall less on the Stock Exchange. The company owns 20% of sales of smartphones, but concentrates 80% of the sector’s profits.

• Focus on services: the company also focused its efforts on developing its own tools, such as Apple Pay and Apple Music, attracting new revenue.

Yes but… The company has two issues ahead that can turn into a huge headache:

• The recent production problems in China, where the largest iPhone factory in the world is located, accelerated the strategy of diversifying its production to India. But the transition will take time and could find itself in the middle of a diplomatic spat between the US and China.

More on tech layoffs

• This Tuesday, the Zoom videoconferencing platform, one of the fastest growing during the pandemic, announced the layoff of 1,300 employees, or 15% of the workforce.

Light’s shares plummet

Shares in energy distributor Light plunged 13.55% this Tuesday, in a new round of losses that mark the distrust of investors in relation to the future of the concession.

• In the year, they have already dropped 38%. Since 2020, the accumulated drop is 88%.

Which explains: Light’s problems are old, but the fall in shares in recent days is a reaction to the company’s announcement that it had hired Laplace, known for restructuring companies with financial problems, including Oi.

• There were numerous rumors, including the one that the company would file for judicial recovery, something that the law prohibits for distributors.

Particular crisis: Light faces a series of challenges, ranging from public safety problems in Rio de Janeiro to a contagion from the Americanas crisis.

• One of the problems is the concession period. The company meets 4.5 million of users in Rio de Janeiro, whose contract expires in June 2026.

• Because of this limit, the company has difficulty rolling over its debt (which was BRL 8.7 billion in Q3) with banks beyond 2026.

• Unlike other large distributors, Light has only this concession, another risk factor analyzed by the banks when rolling over the debt.

• There are also losses in operating in areas controlled by the militia. With the high cost of energy theft and default, the company burns cash. are about BRL 800 million per annum.

Squid x BC

Days come and go and the exchanges of messages between the Central Bank and President Luiz Inácio Lula da Silva (PT) continue.

• This Tuesday (7), while the monetary authority and the Minister of Finance, Fernando Haddad, signaled a truce, the president returned to the attack.

On one side… Lula said that he does not want to create confusion with the Central Bank, but demanded vigilance from Haddad, Simone Tebet (Planning) and senators.

• Together with Roberto Campos Neto, the two ministers make up the CMN (National Monetary Council), a body that can submit a request for the removal of the president of the BC to the head of the Executive. The exchange must pass the approval of the Senate.

From the other… Campos Neto said that the more independent the BC, the less the country pays the cost of interest.

• In the minutes of the last meeting, the BC cited “special concern” with the worsening of inflation projections and reaffirmed its commitment to “reanchor market expectations” – see more below.

Gesture: in what was considered a nod from the BC to the government, the document says that the execution of Haddad’s package that promises to reduce the shortfall of R$ 242.7 billion could reduce the pressure on inflation. The minister said that the minutes came “more friendly”.

Understand here what the autonomy of the Central Bank is, why the measure is the target of criticism from the government and how the exchange of barbs between Lula and the monetary authority affects the country’s economy.

What are “inflation expectations” and why do they matter? When market agents believe that the Central Bank will do its part at any cost to place inflation in the coming years on target, analysts’ projections are “anchored” to these targets.

• The problem is that these calculations expecting higher inflation –whether due to fiscal risk or possible government interference in monetary policy– end up generating more inflation, putting pressure on future interest rates and forcing the Central Bank to keep interest rates high for longer.

Opinion:

• With BC autonomy, people and companies come to expect lower inflation, and thus it becomes easier to contain price increases, writes columnist Bernardo Guimarães.

Itaú also accounts for loss with Americanas

Itaú Unibanco was yet another bank to anticipate possible losses for being a creditor of Americanas in its balance sheet last year, before the accounting gap surfaced.

• Santander had also done this on Thursday (2), when it set aside BRL 1.1 billion (about 30% of its exposure) in expenses with provisions (a bank reserve to cover defaults).

In numbers: Itaú increased its expense with provision in BRL 1.7 billion in the last quarter of 2022.

More numbers: Itaú’s recurring profit was BRL 7.668 billion in the fourth quarter of 2022, an increase of 7.1% compared to 2021, but below the average forecast of analysts, of BRL 8.24 billion.

More about Americanas’ judicial recovery