Weekly Reads - October 3, 2022
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Last Thursday China held a ceremony to certify its C919 narrow body passenger jet, officially challenging Airbus and Boeing in commercial aerospace. The certification granted to C919 on Thursday allows the C919 to be delivered to its first customer, China Eastern Airlines, who is expected to put the plane in service next year. The C919 is produced by a state-owned manufacturer called Commercial Aircraft Corp of China (COMAC) and is designed to carry up to 168 passengers. The C919 project was launched 14 years ago as the county looks to become more self-reliant amid trade tensions. The interesting thing about the C919 is despite its production in China the plane relies heavily on western components including engines and avionics from companies such as: GE, Safran, and Honeywell International. While the C919 is shaping up to be a major challenger to Airbus and Boeing in China the jet is facing some near-term headwinds. Stringent U.S export licensing rules have led to delays in sourcing parts which could elongate the production cycle of the C919 until China can develop homegrown technology that can match foreign components. The C919 also faces headwinds from its lack of foreign certification by U.S and Europe regulators limiting flights to the domestic market and countries with close ties to China. Despite this negative news, Boeing and Airbus are still expected to remain major suppliers in China in the medium term with major Chinese airlines placing an order for 300 Airbus A320neo family planes just three months ago. With trade tensions at all-time highs it will be interesting to monitor how foreign certifications for the C919 unfold and how China manages growing adoption for the C919 alongside domestic demand for service ready Airbus and Boeing planes.
The race toward the next generation of semiconductor chips is on with Samsung announcing plans to produce transistors that are just 1.4 nanometers wide by 2027. The company is looking to triple the revenue of its foundry business by 2027 through several technological leaps and building out its manufacturing footprint in the U.S. Samsung is the largest chipmaker in the world, but is the second largest foundry provider behind Taiwan Semiconductor Manufacturing Co (TSMC) who has dominant market share and top-of-the-line production capabilities. TSMC has been the leader in foundry for decades and recently beat out Samsung on a bid to produce RTX40series of graphic cards for NVIDIA. Despite this setback Samsung is diving headfirst into foundry with the company starting production of 3 nanometer chips ahead of TSMC. Samsung’s management is bullish they can compete against TSMC with plans to mass produce 3 nanometer chips in 2024, then 2 nanometer parts in 2025, and finally 1.4 nanometer products in 2027. Samsung is attempting to win over U.S customers by growing its U.S manufacturing footprint through the opening of a new plant in Taylor, Texas which is likely to use 3nanometer technology when it opens in 2024. The company has already secured more land in Texas if management decides that more plants are required to service new and existing customers. For such a historically conservative company, Samsung’s roadmap indicates that management is confident that they can scale the foundry business into a compelling alternative to TSMC.
Another day another tech company being acquired for a fraction of what it was worth last year. Today’s acquisition is Poshmark, a popular online retailer based in the U.S, by South Korean internet giant Naver. Poshmark’s business operates like a mix of Instagram and eBay allowing users to post photos of secondhand apparel in a “virtual closet” in which other users can buy from. It is one of the largest players in the resale market, which is expected to double in the next five years according to competitor ThredUp. The platform has over 80 million users and posted $326million in revenues while recording a $98 million loss as of 2021. Naver who is sometimes referred to as the “Google of South Korea” has begun expanding past internet search and into adjacent markets such as email, messaging, news, and ecommerce. Their Poshmark acquisition gives the company a sizable entry point into the U.S and increases their exposure to the growing resale market. In recent years Naver has been more aggressive in moving past the Asian market with acquisitions in North America and France. Naver acquired Poshmark for $17.90 a share, a 15% percent premium to Poshmark’s closing price of $15.57 on Monday and a stunning -57% discount to its IPO price of $42 in 2021. While management has indicated Naver’s expertise in livestreaming and AI as reasons behind the sale, it is likely that the company saw little opportunity in being able to raise their share price as investors continue to shun unprofitable riskier businesses as macro conditions worsen.