Manufacturing

America… say hello to the semiconductor

Semiconductors power almost every essential technology we use today, and the US wants to become its own supplier. Two years ago, Congress passed the CHIPS and Science Act, which aimed to heighten domestic manufacturing of a product that’s essential to national security: semiconductors.

Today, over half of the CHIPS Act’s $39 billion has been allocated toward production, and the plan is doing better than Drake and Kendrick’s streaming revenue. If you aren’t chronically online… that means its going well.

Making progress

One of the chip companies, Micron, received $6.1 billion in federal grants and plans to invest $100 billion into a manufacturing facility in New York. Sen. Majority Leader Chuck Schumer said it would be the largest private investment in the state’s history.

According to the Financial Times, proposed semiconductor factories like the one Micron is building could reshape the economies of several states, not to mention the drastic effect they would have on the semiconductor market:

• Commerce Secretary Gina Raimondo said by 2030, the US will likely produce around 20% of the world’s most advanced chips. As of today, it’s making none.

• Chip companies and their suppliers have announced US investments of $327 billion over the next decade, according to the Semiconductor Industry Association.

• Government data shows construction of manufacturing facilities for computing and electronics devices has skyrocketed over 1,500%.

Why invest in semiconductors?

During the pandemic, supply chain issues brought the US’s dependence on foreign nations to power its modern electronics to the top of its concerns. American officials immediately began to see how such an issue related to national security:

• Semiconductors are an essential piece of the puzzle for a plethora of different products used in everyday life, take cars, for example.

  • During the chip shortage of 2021, global auto production shot down 26%, according to JPMorgan.

• However, the key technological components are also used in more sensitive sectors: the military, data centers, and telecommunications all rely on semiconductors to function.

  • This fact, more than anything, is what propelled Congress to ensure the US can make the product domestically, and ideally, maintain its technical edge over China, its primary geopolitical rival.

On the flip side: In general, economists look down upon governments heavily subsidizing particular domestic industries, since it could artificially boost the country’s own manufacturing at the cost of free trade. Some of the most known CHIPS Act projects in the US (like TSMC’s in Arizona) have seen a shortage of workers and thus been delayed.

However, TSMC recently said its first factory in Arizona has made “significant progress,” and could start producing semiconductor chips as soon as next year.

Business

Weight loss drugs are doing better than ever

Obesity affects nearly half of all adults, and more and more are turning to over-the-counter alternatives. Novo Nordisk, the maker of Ozempic and Wegovy (now some of the most prescribed drugs in the world), reported its sales of Wegovy more than doubled last quarter, showing the ever-growing demand for weight loss drugs.

Step on the scale

Apparently, everyone is shedding pounds… that is, except for Novo Nordisk, which is now the most valuable company in Europe due to its success.

• The Danish drugmaker stated at least 25,000 people are taking Wegovy in the US per week. It also posted a $3.65 billion net profit and increased its sales outlook for 2024.

• According to the Pew Research Center, Ozempic (and its offshoots, like Wegovy) has become one of the most popular prescription drugs in the US, ranking 90th overall in 2021.

  • The same year, around 8.2 million prescriptions for it were written in the US alone, more than four times what they were two years prior.

And they’re only getting more popular both in the US and abroad… but not all that glitters is gold.

Weight and see

While the surge in demand Novo Nordisk is seeing for its weight loss drugs is nothing to scoff at, the company’s stock fell 7% last week.

But why? Mainly because its rival, Eli Lilly, is doing extremely well.

• Novo Nordisk plans to cut prices in response, which led to lower-than-expected revenue.

• Although Novo Nordisk dominates the global obesity treatment market right now, some analysts think Lilly’s continued growth and investment in manufacturing will even the playing field.

This might be a trend going forward: Novo Nordisk’s CFO said “Pricing is expected to fall further as volumes and competition increase.”

In addition, the US Senate has launched a probe into “outrageously high” prices for Ozempic and Wegovy, and Denmark recently cut subsidies for Ozempic as the drugs surging popularity resulted in high costs for consumers.

Amid soaring demand and steep costs, a recent study found Ozempic can be manufactured for only $5 a month, while some in the US are paying over $1000.

The world’s biggest coffee chain is reversing its growth

While coffee’s popularity is always increasing, one massive chain isn’t reaping the benefits like they usually do. Starbucks reported pretty meager earnings late last week, sending its stock down 17% since the news broke (as of writing).

For the first time in four years, its stores that have been open at least a year saw a decline in sales, falling 3%. The company also reported a 7% decrease in foot traffic. At the same time, sales fell 11% in Starbucks’ second-biggest market, China, revenue also fell 1.8% to $8.56 billion. On top of all of that, Starbucks lowered its sales outlook for the year.

Why are they having so much trouble?

Starbucks CEO Laxman Narasimhan cited inflation, wary customers, and other intangibles like poor weather as the reasons for the chains poor Q1 performance. The coffee giants decline abroad, however, was chalked up to an increase in competition as well as boycotts in the Middle East.

It’s own success, or incompetence (depending how you look at it), may have played a part as Starbucks reported vast numbers of customers cancelling their app orders before paying in the morning due to long wait times and out-of-stock products.

China is also a problem

While the decline in US sales obviously isn’t ideal, it’s the decrease in China that has the company’s investors putting pressure on the company. Former Starbucks CEO Howard Schultz said China was the chain’s most important market in 2022, and the corporation has a large investment in the market bearing fruit for them.

While the chain has over 7,000 locations, its post-pandemic recovery has been choppy at best and beating the competition is anything but a cakewalk:

• Chinese chains Luckin Coffee and Cotti Coffee claim to have twice as many stores as Starbucks in the country.

• Other international chains, including KFC, McDonald’s, and Tim Horton’s, beat Starbucks' prices, taking some of the coffee giants consumers from them.

So, what do they do? Investors needn’t worry, Starbucks has a foolproof plan for recovery named the “Triple Shot Reinvention with Two Pumps,” no, I’m not kidding.

It includes a new pilot program to serve customers from 5pm to 5am and in-app promotions along with upgrades to cut down on wait times. If it’s anything better than the name, then I’m betting they have a shot (no pun intended).

Grab Bag

These license plates are hurting luxury car sales

You would think license plates that make you stand out would do the opposite, but where we are. The South Korean government recently required corporate cars priced over 80 million won (or $58,000) to be adorned with green license plates, in an attempt to put hurdles in way of tax evasion.

Koreans aren’t a fan of rentals

To stop businesses from dodging taxes, of course. The practice of renting luxury vehicles for personal arrangements and writing them off as a business expense is nothing new, but given the “prevalent negative image on rental and lease cars” in the country, it might just do exactly what it was designed for.

Automakers are exhausted

Much like showing up to prom in your uncle’s old Porsche, the new requirement has hurt the reputation (and sales) of luxury car brands that capitalized on the demand from corporations wanting to flex to potential clients.

• Compared to Q1 of last year, Bentley’s sales dropped an astounding 77%, Porsche’s sales fell 23% (sorry uncle), and Rolls-Royce’s went down 35% in the same period this year.

• In total, imported luxury car registrations for business use dropped nearly 30% since rental plates turned green in January, according to the Financial Times.

The green plate regulation comes at a time where Korea’s economy is struggling to pick up pace, and some auto dealers told the Korea Times that this makes it even more difficult for supercar makers to rev up sales.

How many grocery stores have you been to this year?

As inflation has gone up and down and it has people visiting more supermarkets than usual. According to the WSJ, inflation has American shoppers going to more stores on an average grocery run.

Why the hopping?

The average American’s household budgets have been on a tight leash, as grocery prices have gone up 21% in the past three years, which has consumers going from store to store to get the best deals.

• According to Numerator, Americans have shopped at 20.7 grocery stores in the past year, compared to 16.8 in 2019 and 2020.

• Around 66% of shoppers recently surveyed by Advantage Solutions said they rely on coupons, up from 33% in 2021. Maybe Extreme Couponers can make a comeback.

Experts told the WSJ the new store hopping trend has led grocers to invest more on store brand items and lean into more niche categories of products.

One chain did come out on top: Aldi (love them). The German grocery chain is beloved by many due to its low prices that typically outshines even Walmart. They do this by emphasizing volume over variety and by investing most of its money in production, rather than other business expenses which results in low costs. The chain’s foot traffic increased 26% in March compared to last year, per Placer.ai.

Fast Facts

Monkey Medicine: A new study revealed that a wild orangutan chewed up medicinal leaves and applied the juice to a cut on its face, showcasing that humans aren’t the only species that knows how to treat a wound with medicine.

Panda Premier: Have a look at the new pandas coming to the San Diego zoo.

Type-A Airport: Japan’s Kansai Airport, which will host the World Expo in 2025, has not lost a piece of luggage since it opened in 1994, Nikkei Asia reported.

Buy Bitcoin: A legal pad with the words “Buy Bitcoin” written on it sold for $1 million (or 16 BTC) at auction.

Baby Bust: Last year, around 3.6 million babies were born in the US, which is the smallest number of births since 1979.