Business

Johnson & Johnson reported fourth-quarter earnings and revenue that narrowly edged out Wall Street’s expectations.
Sales in the company’s pharmaceutical and medical devices businesses surged.
For the full year 2024, J&J is forecasting sales of $87.8 billion to $88.6 billion and adjusted earnings of $10.55 to $10.75 per share. 

The stock trading graph of Johnson & Johnson is seen on a smartphone screen.
Rafael Henrique | SOPA Images | LightRocket | Getty Images

Johnson & Johnson on Tuesday reported fourth-quarter earnings and revenue that narrowly edged out Wall Street’s expectations as sales in the company’s pharmaceutical and medical devices businesses surged.
J&J also provided full-year guidance for 2024, forecasting sales of $87.8 billion to $88.6 billion and adjusted earnings of $10.55 to $10.75 per share. 

Here’s what J&J reported for the fourth quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Earnings per share: $2.29 adjusted vs. $2.28 expected
Revenue: $21.40 billion vs. $21.01 billion expected

J&J, whose financial results are considered a bellwether for the broader health sector, booked $21.40 billion in total sales for the final three months of 2023, up 7.3% from the same quarter in 2022. 
The pharmaceutical giant reported net income of $4.13 billion, or $1.70 per share during the quarter. That compares with net income of $3.23 billion, or $1.22 per share, for the year-ago period. 
Excluding certain items, adjusted earnings per share were $2.29 for the fourth-quarter of 2023.
The results come six months after J&J completed its separation from its consumer health unit Kenvue, the company’s biggest shake-up in its nearly 140-year history. J&J is now zeroing in on its pharmaceutical and medical devices divisions to drive growth. 

Segment results

J&J’s medical devices business generated sales of $7.67 billion, up 13.3% from the fourth quarter of 2022. Wall Street was expecting revenue of $7.50 billion, according to StreetAccount.
J&J said its acquisition of Abiomed, a cardiovascular medical technology company, in December fueled the year-over-year rise.
The company said growth also came from electrophysiological products, which evaluate the heart’s electrical system and help doctors understand the cause of abnormal heart rhythms.
Wound closure products and devices for orthopedic trauma, or serious injuries of the skeletal or muscular system, contributed, along with contact lenses.
J&J is benefiting from a rebound in demand for nonurgent surgeries among older adults, who deferred those procedures during the Covid pandemic. The company expects that high demand to “follow through” in 2024, CFO Joseph Wolk said on CNBC’s “Squawk Box” Tuesday.
Meanwhile, J&J reported $13.72 billion in pharmaceutical sales, marking 4.2% year over year growth. Excluding sales of its unpopular Covid vaccine, the pharmaceutical division raked in $13.68 billion. 
It was the third quarter without any U.S. sales from J&J’s Covid vaccine, which brought in $44 million in international revenue.
Wall Street was expecting sales of $13.44 billion for the business segment, according to StreetAccount. The business, also known as “Innovative Medicine,” is focused on developing drugs across different disease areas.
J&J said growth in the division was driven by sales of Darzalex, a biologic for the treatment of multiple myeloma, along with Erleada, a prostate cancer treatment, and other oncology treatments. 
J&J’s blockbuster drug Stelara, which is used to treat several chronic and potentially disabling conditions such as Crohn’s disease, also contributed to growth. J&J began to lose patent protections on Stelara late last year, which opened up the door for cheaper biosimilar competitors to enter the market. But the company has bought itself more time: J&J has inked settlement agreements with Amgen and other drugmakers to delay the launch of some Stelara copycats to 2025. 
J&J said growth in the pharmaceutical segment was partially offset by a decline in sales of its prostate cancer drug Zytiga and blood cancer drug Imbruvica, which is co-marketed by AbbVie. Both Imbruvica and Stelara will be subject to the first round of Medicare drug price negotiations under the Inflation Reduction Act. 

Medicare negotiations

J&J will soon begin price talks with the federal Medicare program over Stelara as well as blood thinner Xarelto.
President Joe Biden’s Inflation Reduction Act, which passed in 2022, empowered Medicare to negotiate down drug prices for the first time in the program’s six-decade history. J&J signed an agreement to participate in the price talks in October, even after it sued the Biden administration to halt the process in July.
The negotiated prices for the drugs will go into effect in 2026.
The fourth-quarter results also come amid investor concern over the thousands of lawsuits claiming that J&J’s talc-based products were contaminated with the carcinogenic asbestos and caused ovarian cancer and several deaths.
Those products, including J&J’s namesake baby powder, now fall under Kenvue. But J&J will assume all talc-related liabilities that arise in the U.S. and Canada.
In 2021, J&J offloaded its talc liabilities into a new subsidiary, LTL Management, which immediately filed for Chapter 11 bankruptcy protection. But a federal bankruptcy judge in July rejected J&J’s second attempt to resolve those lawsuits in bankruptcy. J&J has said LTL Management intends to appeal the decision.
J&J will hold a conference call with investors at 8:30 a.m. ET.
This story is developing. Please check back for updates. More

The FAA grounded Boeing 737 Max 9 aircraft earlier this month after a door plug blew out during an Alaska Airlines flight.
United said it expects a quarterly loss of at least 35 cents a share due to the grounding.
The first-quarter warning from United comes after a relatively strong holiday period.

A United Airlines Boeing 737 Max 9 aircraft lands at San Francisco International Airport on March 13, 2019.
Justin Sullivan | Getty Images

United Airlines on Monday forecast a first-quarter loss due to the Federal Aviation Administration’s grounding of Boeing 737 Max 9 planes this month after a part blew out during an Alaska Airlines flight operated with that type of aircraft.
United expects to post an adjusted loss of between 35 cents and 85 cents a share for the first three months of the year, it said in a filing. The forecast is the first indication for investors of the financial damage caused by the FAA’s grounding of the planes, issued a day after the incident on Alaska Airlines Flight 1282 on Jan. 5.

United has 79 of the aircraft in its fleet, more than any other carrier, followed by Alaska. United said Monday it expects the planes to remain grounded through Jan. 26, though its forecast assumes it won’t be able to fly the planes at all this month.
Both airlines have canceled hundreds of flights this month while the planes remain grounded for inspection. The more common Boeing 737 Max 8, which is in fleets at United, American and Southwest, isn’t affected by the grounding order.
United said it expects unit costs, excluding fuel, to be up mid-single-digit percentage points in the first quarter from last year, three points of that impact coming from the Max grounding. It forecast flat unit revenues for the first three months of the year.
The first-quarter warning from United comes after a relatively strong holiday period, though airlines have faced several winter storms in the first few weeks of January.
United shares were up more than 6% in after-hours trading.

For the last three months of 2023, United posted net income of $600 million, down nearly 29% from a year ago. Revenue came in at $13.63 billion, which was up almost 10% from a year earlier and ahead of analysts’ estimates. Adjusting for one-time items, United’s fourth-quarter earnings of $2 a share fell from $2.46 a year earlier.
Here’s what United reported in the fourth quarter compared to what Wall Street expected, based on average estimates compiled by LSEG, formerly known as Refinitiv:

Adjusted earnings per share: $2.00 vs. an expected $1.69
Total revenue: $13.63 billion vs. an expected $13.54 billion

United hit its full-year adjusted earnings target of between $10 and $12 a share, posting $10.05 for the full-year 2023.
“Despite unpredictable headwinds, we delivered on our ambitious EPS target that few thought possible — and set new operational records for our customers,” said United Airlines CEO Scott Kirby in an earnings release.
The airline touted strong travel demand late last year and solid bookings so far this year. For the full-year 2024, United forecast adjusted earnings of between $9 and $11 a share, within analysts’ estimates.
United executives are holding an earnings call at 10:30 a.m. ET on Tuesday when they are likely to face questions about compensation from Boeing for the grounding. Alaska reports before the market opens on Thursday, and Boeing is scheduled to report results Jan. 31.Don’t miss these stories from CNBC PRO: More

Oatly and Carvel will partner to add oat milk-based items at the chain’s ice cream stores nationwide.
The partnership is a boon for Oatly, which has seen its share price crumble since its 2021 initial public offering.
The oat milk-based products will be available at nearly 300 Carvel stores located in 18 states.

Containers of Oatly frozen desserts are displayed on a shelf at a Whole Foods store in San Rafael, California, on Nov. 15, 2021.
Justin Sullivan | Getty Images

Oatly and Carvel said on Monday that they will partner to add oat milk-based items at the chain’s ice cream stores nationwide.
The agreement is a boon for Oatly, which has struggled to recapture the enthusiasm investors had for the plant-based milk company when it made its stock market debut in 2021. Its shares jumped about 7% in Monday trading.

Oatly, a Swedish company with a roughly $657 million market cap, saw its stock trade around $1.12 a share Monday. The company’s financial performance has repeatedly disappointed Wall Street since its initial public offering, erasing its share value since the day it opened trading at $22.12 per share in 2021.
Carvel, a chain known for its soft serve, will add five new plant-based desserts to its menu as part of the partnership. The Oatly flavors will be available at nearly 300 of Carvel’s stores in 18 states.
The Oatly products will include strawberry soft serve and scooped cookies and cream and chocolate peanut butter flavors, along with cakes.
Oatly said the partnership will help the ice cream shop chain serve people with dairy allergies or dietary restrictions. More consumers have embraced plant-based milk in recent years, and oat milk has started to make up a larger share of that segment.
Jim Salerno, chief brand officer at Carvel, added in a statement that “Oatly is the latest way we are breaking through to bring our guests a new offering we know there is a lot of excitement behind.”Don’t miss these stories from CNBC PRO: More

Spirit Airlines shares jumped Monday after the budget carrier and JetBlue said after the market closed on Friday they would appeal a federal judge’s ruling blocking the airlines’ planned merger
JetBlue agreed to buy Spirit for $3.8 billion in a 2022 deal that would have created the country’s fifth-largest airline.
Spirit shares are down about 50% since a U.S. District Court judge blocked the merger.

Spirit and JetBlue planes at Fort Lauderdale-Hollywood International Airport (FLL) in Fort Lauderdale, Florida, US, on Wednesday, Nov. 1, 2023.
Eva Marie Uzcategui | Bloomberg | Getty Images

Spirit Airlines shares jumped about 20% on Monday after the budget carrier and JetBlue said after the market closed Friday that they would appeal a federal judge’s ruling blocking the airlines’ planned merger on antitrust grounds.
“Our merger agreement with Spirit remains in effect and we still have obligations under the agreement. … This is a standard procedure, required under the merger agreement,” JetBlue General Counsel Brandon Nelson said in a note to staff Friday.

JetBlue agreed to buy Spirit for $3.8 billion in a 2022 deal that would have created the country’s fifth-largest airline. U.S. District Court Judge William Young last week blocked that combination, citing reduced competition.
“JetBlue plans to convert Spirit’s planes to the JetBlue layout and charge JetBlue’s higher average fares to its customers,” Young wrote in his Jan. 16 decision. “The elimination of Spirit would harm cost-conscious travelers who rely on Spirit’s low fares.”
Spirit shares are down more than 45% since that ruling. The stock had dropped more than 60% after the decision but has rebounded slightly following the appeal and after Spirit raised raised its financial forecast for the fourth quarter of 2023. The carrier also said it is looking to refinance its debt.
JetBlue shares rose about 1% on Monday and have climbed more than 3% since its merger with Sprit was blocked.
Don’t miss these stories from CNBC PRO: More

Shares of Gilead fell after a key drug from the company failed to improve survival in a late-stage trial on patients with advanced lung cancer. 
The drugmaker said it will discuss the results with regulators and identify whether certain lung cancer patients may still benefit from the drug, called Trodelvy.
The results are a blow to Gilead, which is working to become a power player in the cancer space.

Sopa Images | Lightrocket | Getty Images

Shares of Gilead fell more than 10% on Monday after a key drug from the company did not significantly extend the lives of patients with a certain lung cancer in a late-stage trial.
The results are a blow to Gilead, which is working to become a power player in the cancer space. The treatment, Trodelvy, is one of Gilead’s best-selling cancer drugs, contributing roughly a third of its $769 million in oncology sales during the third quarter.

The phase-three study was part of an effort to expand the use of Trodelvy, which is already approved to treat some types of breast and bladder cancers.
Patients with advanced or metastatic non-small cell lung cancer who took Trodelvy lived longer than those who got chemotherapy alone, according to Gilead. But those results did not meet the trial’s bar for success. 
The drugmaker said it will discuss the results with regulators and identify whether certain lung cancer patients may still benefit from the drug.
Trodelvy belongs to a class of widely sought-out treatments called antibody-drug conjugates, or ADCs, which deliver a cancer-killing therapy to specifically target and kill cancer cells and minimize damage to healthy ones. Standard chemotherapy is less selective — it can affect both cancer cells and healthy cells.
ADCs are one of the hottest areas of the pharmaceutical industry, as large drugmakers ink deals to acquire or co-develop them.

Jefferies analyst Michael Yee said Gilead’s trial results are not “totally surprising” to the firm because data from early studies was mixed and data for competing drugs was “lackluster.”
Yee added that the trial results could “dent” investor confidence about whether Gilead will have significant sales in oncology. More

China recently reported exports of more than 5 million vehicles in 2023, topping Japan to become the top country for car exports in the world.
Rising volume from Chinse automakers like SAIC, Dongfeng and BYD comes amid declining U.S. vehicle exports as companies like General Motors have cut international operations.
Chinese companies are releasing new models in record times, and many are producing EVs efficiently and profitably.

A BYD Seagull small electric car is on display during the 20th Shanghai International Automobile Industry Exhibition at the National Exhibition and Convention Center (Shanghai)
Vcg | Visual China Group | Getty Images

DETROIT — Chinese automakers pose a growing threat to their American counterparts — even without selling directly to consumers in the U.S. market.
Sales of China-made vehicles are rising at notable rates in Asia, Europe and other countries outside those continents. China recently reported exports of more than 5 million vehicles in 2023, topping Japan to become the top country for car exports in the world.

That volume from well-established, government-owned companies like SAIC and Dongfeng, as well as newer players like BYD, Nio and others, has catapulted China from the sixth ranking to the top seed since 2020. It comes amid declining U.S. vehicle exports as companies such as General Motors have cut international operations. U.S. auto exports in 2022, the most recent data available, were down 25% from their peak in 2016, according to the U.S. Bureau of Economic Analysis.
America — fourth globally in vehicle exports prior to 2020 — ranked sixth in the world last year, falling behind No. 5 Mexico, No. 4 South Korea and No. 3 Germany, according to global consulting firm AlixPartners.
“My No. 1 competitor is the Chinese carmakers,” said Carlos Tavares, CEO of Chrysler parent Stellantis, during a virtual media roundtable Friday. “This is going to be a big fight. There is no other way for a global carmaker like Stellantis that is operating all over the world than to go head-on with the Chinese carmakers. There is no other way.”
The threat extends beyond export volumes. Chinese automakers have set a new standard for vehicle production and pricing. They’re releasing new models in record times, and many are producing EVs efficiently and profitably — something that has alluded global automakers including America’s GM and Ford Motor.

BYD dominance

Automotive experts have pointed to BYD Co. as a prime example of the rise of China’s automakers. The company, backed by the Beijing government, last year topped Tesla to become the world’s largest seller of EVs.

Tesla CEO Elon Musk, whose company operates a large plant in China, has said Chinese automakers are the greatest competitors for his Texas-based company.
“There’s a lot of people who are out there who think that the top 10 car companies are going to be Tesla followed by nine Chinese car companies. I think they might not be wrong,” Musk said at The New York Times’ Dealbook conference in November.
Rhodium Group estimates that BYD received approximately $4.3 billion in state support between 2015 and 2020, according to The Economist. Beijing has also offered subsidies to incentivize buyers of electric cars.

Stellantis CEO Carlos Tavares holds a news conference after meeting with unions, in Turin, Italy, March 31, 2022.
Massimo Pinca | Reuters

BYD has cracked a code for low-priced EVs that seemingly transcends borders: Its BYD Seagull, a tiny EV that starts at roughly $11,400, would significantly undercut U.S. EV prices at less than $15,000 even when factoring in America’s 27.5% tariff on Chinese-made vehicles.
“This is a car that scares me,” said Kristin Dziczek, automotive policy advisor for the Federal Reserve Bank of Chicago’s Detroit branch, during the organization’s Automotive Insights Symposium last week. “How are we going to cut the price of EVs in half? China’s already done it.”
Mathew Vachaparampil, CEO of auto teardown and consulting firm Caresoft Global, estimates BYD is making $1,500 off each Seagull unit sold. At worst, the company breaks even, he said.
And the company is shipping more vehicles outside China: Overseas markets accounted for about 10% of BYD’s more than 3 million sales last year, doubling that share from the the beginning of the year, according to Bernstein.
“BYD has an unparalleled cost structure and product innovation ability, that stems from its high degree of vertical integration which will enable the company to thrive in the ongoing EV race in China and abroad,” Bernstein analyst Eunice Lee said in an analyst note last week. “Despite growing pricing pressure in China, we expect the company’s focus on overseas and premium segments will support 29% [compound annual growth rate] in earnings through 2025.”

Growth gone global

Backed by local and federal governments, the growth of Chinese automakers began in their home country — taking share away from mandatory joint ventures between non-domestic automakers and Chinese companies.
For example, GM’s share of the Chinese market, including its joint ventures, has plummeted from roughly 15% in 2015 to 8.6% at the end of the third quarter last year.
“What’s going on in China at home? These [new energy vehicle] brands have become dominant,” Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, said at the Chicago Fed’s auto conference. “They were 26% [market share] a few years ago, up to more than 50% in 2022 and headed towards two-thirds by the end of the decade.”

BYD’s new luxury brand Yangwang is selling its first model, the U8, for more than 1 million yuan (US$160,000).
CNBC | Evelyn Cheng

And the growth hasn’t stayed home. Chinese companies have begun expanding into Mexico, Europe and elsewhere, Wakefield said. They’ve largely done so through cheap, relatively inexpensive models — some of which American automakers have given up on — as well as EVs, which experts view as an open market for the companies.
Chinese companies accounted for 8% of Europe’s all-electric vehicle sales as of September last year and could increase their share to 15% by 2025, according to the European Union. The EU believes Chinese EVs are undercutting the prices of local models by about 20% in the European market.
The influx of Chinese EVs has spurred the European Union to launch government support for the industry.
In Mexico, China-built vehicles with internal combustion engines increased from 0% market share to 20% of the country’s light-duty vehicle sales over the past six years, according the Chicago Fed’s Dziczek.
“Mexico is the second-largest market for China-made vehicles other than Russia,” she said. “They’re going to be on our shores in Mexico in the not-too-distant future.”

Coming to America

For decades, Chinese auto companies have said they will begin selling vehicles in the U.S. under their own brands, but none have succeeded.
That’s not to say China doesn’t compete in the U.S. market. Aside from major supply chain ties, there are also a handful of auto brands owned by Chinese companies operating in the U.S., such as Lotus, Volvo (including its Polestar spin-off) and niche EV maker Karma.
American companies, such as GM and Ford already, or plan to, manufacture some vehicles in China to be imported and sold in the U.S. GM imports its Buick Envision from China to the U.S., while Ford last year said it would import its forthcoming Lincoln Nautilus crossover from China.
But as of yet, a U.S. driver can’t easily buy a Dongfeng, BYD or other Chinese-made vehicle stateside.

2024 Lincoln Nautilus

Aside from potential regulatory hurdles and protectionism acts, some believe Chinese automakers could find success in expanding to the U.S. market the same way Japan’s Toyota Motor and South Korea’s Hyundai Motor have done.
Those automakers made their entrances to the U.S. market with affordable, accessible vehicles, then increased their offerings to boost quality and safety and ultimately expanded to higher-end models.
“The Japanese carmakers came to the U.S. in the ’70s,” Stellantis’ Tavares said. “They needed 50 years to reach the top of the market with some of the competitors that we know well. I don’t see any reason why this would not happen with the Chinese.”
— CNBC’s Michael Bloom contributed to this article. More

GINA RAIMONDO seemed frustrated when she took the stage at the Reagan National Defence Forum in California in December. The Department of Commerce, which she leads, had just tightened restrictions on the sale of American semiconductors to China. But Nvidia, the world’s most valuable chipmaker, had immediately started developing a new, slightly less powerful artificial-intelligence (AI) chip for the Chinese market, to which the restrictions would not apply. “If you redesign a chip…that enables [China] to do AI, I’m going to control it the very next day,” Ms Raimondo warned.That was bombastic, given that it had taken her department a full year to rework the restrictions to cut off Nvidia’s previous workaround. But America’s five-year campaign against Chinese technology is intensifying. Earlier this month it was reported that Jensen Huang, Nvidia’s chief executive, and two fellow chip bosses had been summoned to testify in Congress about their Chinese business. On January 19th ABB, a Swiss industrial group, revealed that American lawmakers were investigating its links with China. ABB said it was co-operating with the investigation; Nvidia has said that it is working closely with the government to ensure compliance with the export controls. Neither Democrats nor Republicans are likely to relent. In a presidential-election year Joe Biden, the unpopular Democratic president, cannot afford to look weak on China. His Republican predecessor and main rival, Donald Trump, has long been America’s China-basher-in-chief. China hawks in Washington want to stymie Chinese efforts both to get around the rules and to recreate the necessary technological capabilities at home. However, the mixed record of export controls so far shows why harsher measures will be difficult to design—and not necessarily more successful.China has found some ways to work around the existing controls. To Ms Raimondo’s chagrin, for instance, it is possible to train AI models using chips that are not necessarily at the cutting edge, so long as you have enough of them. If the sale of any chip which can “do AI” is to be banned, as she implies, America must restrict the flow of a much broader array of chips to China.image: The EconomistIt is hard to know just how much broader. Trade statistics do not break out the graphics processing units (GPUs) used to train and run AI models from the larger flow of integrated circuits. But a sense of the scale of such a ban can be gleaned by examining the financial statements of Nvidia, which sells a range of GPUs. It has earned between 21% and 26% of its revenues from China over the past few years. In the nine months to October the company took in $8.4bn from the Chinese market. Almost all of Nvidia’s products can be used to “do AI”. Mr Huang has said that his firm has no “contingency” for being cut off from China.Another difficulty for America stems from enforcement. The Department of Commerce is empowered to punish any transgressions it discovers. Last year it fined Seagate, a hard-drive manufacturer, $300m for allegedly breaching export controls by sending components to Huawei, a blacklisted Chinese tech champion. But it is the chip firms themselves that are largely responsible for enforcement. That includes ensuring that their customers are not, in fact, a buying front for Chinese entities with which trade is prohibited. This is hard. “You have coin-sized devices and technologies that are widely commercially available, and indistinguishable from the controlled technologies, distributed around the planet,” says Kevin Wolf, an American lawyer and former official.The result is a situation ripe for smuggling, which experts say is impossible to quantify but doubtless rife. It also encourages transshipment. Firms in countries that have not signed on to the American export-control regime, like Singapore, can buy chips and send them on to Chinese entities without the knowledge of the American firms or the Department of Commerce. Nvidia’s most recent quarterly earnings for 2023 show that its sales to Singapore grew by a factor of five over the same period in 2022, faster than anywhere else.Of all customers in China, the one best placed to use such workarounds to get the chips it needs is the People’s Liberation Army. If one of America’s main aims is to deny China access to advanced technology for developing military AI, it is probably failing. Instead the controls are raising the costs to Chinese buyers of acquiring American AI chips. That in turn is aligning China’s tech sector with its government’s policy of indigenous technological development. Chinese tech giants used to prefer buying higher-quality American technology to investing in research and development. Their incentives have changed.The clearest evidence that this is happening comes from Huawei. The company, whose core business is making telecoms gear, was first targeted by America in 2019 for allegedly breaching sanctions on Iran. A measure called the “foreign direct product rule” (FDPR) cut Huawei off from any chips that had been produced using American technology (which is to say virtually all sophisticated ones). In 2022 the FDPR was deployed against the entire Chinese AI industry, and broadened in October to encompass a wider range of AI chips and chipmaking tools, and to require licences to ship products to countries such as the United Arab Emirates (albeit not Singapore) that are thought to serve as middlemen for Chinese buyers.Before it was blacklisted, Huawei had its microprocessors manufactured by TSMC, a Taiwanese contract chipmaker. It spent $5.4bn on TSMC-made chips in 2020, before America’s export controls extended to the Taiwanese firm. Now it is doing more business with SMIC, China’s biggest chipmaker. SMIC’s capabilities were thought to be many years behind those of TSMC. But last year it came to light that the company was making a Huawei-designed AI chip, the Ascend (and a smartphone chip, the Kirin, which raised many Western eyebrows after Huawei unexpectedly launched a handset containing it in September).With their access to foreign chips curtailed, Chinese AI companies are now turning to Huawei and SMIC for chips. China’s government is encouraging them, and continuing to shower the industry with subsidies in the hope of creating an industry to rival Nvidia and other American companies. Export controls have, in effect, forced China to embrace import substitution.The designers of America’s controls foresaw some of this. That is why, from the start, they also targeted China’s ability to recreate advanced technology at home. The controls restrict trade not just in chips themselves but also in tools used to make them. That has involved bringing on board allies such as the Netherlands and Japan, home to many of the toolmakers. As with chips, the tool controls place limits on the sophistication of the equipment that can be sold to Chinese buyers. And as with chips, just how sophisticated a tool has to be to fall under the controls has been the subject of intense debate.The critical machines are those used to etch transistors onto silicon wafers. The most cutting-edge equipment of this sort is made and sold exclusively by ASML, a Dutch company, and has been blocked from China for years. But older generations of such lithography tools can still be sold there. ASML’s sales to China have grown dramatically over the past year, as have those of companies that produce other chipmaking tools. In the most recent quarter Chinese sales made up almost half of ASML’s total revenue. Other toolmakers also sell lots of their wares to China (see chart).But, as with chips, export controls are giving Chinese toolmakers a strong incentive to invest in catching up technologically with foreign rivals. Already domestic toolmakers’ sales are growing. On January 15th one of them, NAURA, which manufactures other etching tools, said it expected its revenue to have risen by almost 50% in 2023.America’s campaign against Chinese technology may, then, be both ineffective and counterproductive. Ineffective, because China is adept at exploiting loopholes. And counterproductive, because it is leading to the creation of a more sophisticated Chinese industry. It may also be predicated on a wrong assumption: that the future economic and military balance of power depends on AI, and that AI depends on computing power. “Both of these are guesses,” points out Chris Miller, a historian of technology at Tufts University in Boston. It is far from clear that AI will have strategic importance. And even if it does, computing power may not be the overriding factor in its development. As Mr Miller points out, oomph is expensive, so AI developers will try to use it as sparingly as possible.Despite all this, America seems likely to toughen up its export controls on ai chips, as Ms Raimondo all but promised in December. And Republican lawmakers are eyeing more expansive controls still. Some of them see a new threat coming from the other end of the sophistication spectrum, which is less about China’s techno-military might and more about its economic power. Chips are required in growing volumes as components in everything from electric vehicles and heat pumps to electricity grids. By 2027 China could be making almost 40% of such semiconductors, reckons TrendForce, a research firm. The current export controls do nothing to curb China’s dominance of this business, which uses a lot of older American technology.Three congressional Republicans, Mike Gallagher, Elise Stefanik and Michael McCaul, are thus working on a bill which will force the commerce department to cut China off from all American chip technology, not just the most advanced stuff. Gaining support from allies for such an extreme policy will be hard. Japanese and Dutch businesses—and their governments—rankle even at the porous controls that are in place today. But if Mr Trump, an alliance sceptic, returns to power, the lack of support is unlikely to matter one bit. ■ More

Buy now, pay later helped fuel record holiday spending online, surging 14% year over year, but now that those bills are coming due, consumers aren’t sure how they’ll pay them.
The surge in use of buy now, pay later comes as credit card debt is at a record high and delinquency rates have nearly doubled over the past two years.
It’s unclear how often buy now, pay later bills go unpaid, but the people who use the services are more than twice as likely to be delinquent on another credit product, such as a car loan or mortgage.

Pedestrians walk by an advertisement for Klarna.
Daniel Harvey Gonzalez | In Pictures via Getty Images

When she started shopping for the holidays late last year, Kiki Andersen was struggling to buy her loved ones gifts. So she turned to a novel solution to get through the season: Buy now, pay later. 
The 31-year-old comedian from Los Angeles used Klarna and PayPal to split a variety of purchases into four interest-free payments spread out over a series of weeks. At the time, her upfront cost was about a quarter of the overall purchase price. 

But now that January has arrived and the other installments are starting, Andersen isn’t sure how she’s going to pay them off. She has found herself buried under a mountain of micro payments, wondering how she’s going to cover her bills. 
“I’ve definitely been selling clothes … if I have to go sell a pair of shoes to make a payment, I will,” Andersen told CNBC of the roughly $1,700 she racked up in buy now, pay later debt. “I’m definitely worried about [the payments]. It’s definitely a concern and I’m definitely going to have to find a way to come up with the money.”
Andersen is one of many Americans who turned to buy now, pay later to fund their holiday shopping last year to avoid credit card debt but are now having trouble paying off those bills. 
In an era where persistent inflation and record-high interest rates are shaping financial decisions for many shoppers, the service helped fuel a boom in overall online spending that topped out at $222 billion from Nov. 1 through the end of December. During the season, buy now, pay later usage hit an all-time high, rising a staggering 14% from the prior year and contributing $16.6 billion to online spending.
On Cyber Monday alone, buy now, pay later use spiked nearly 43%, Adobe said. 

“Sales, especially online sales, were probably juiced to some extent because of buy now, pay later usage,” said Ted Rossman, senior analyst at Bankrate. “A lot of people are drawn to this financing method as an alternative to something like a credit card where the average interest rate is a record high 20.74%. I would caution that you can still get into trouble with buy now, pay later … it can still encourage you to overspend and kind of trick yourself.”
The surge in use of buy now, pay later comes as credit card debt hits a record high and delinquency rates have nearly doubled over the past two years. While delinquencies were at historic lows during the Covid-19 pandemic, the rate of people who’ve gone more than 30 days without paying their credit card bill recently topped pre-pandemic levels, according to the Federal Reserve. 
It’s tough to say how buy now, pay later fits into the country’s overall debt picture. Providers that offer the service don’t typically disclose how often those bills go unpaid, and the debts aren’t reported to credit bureaus. Klarna, PayPal and Affirm all declined to share buy now, pay later delinquency rates with CNBC. 
Affirm has said the short-term and high-velocity nature of its buy now, pay later service makes traditional credit metrics less relevant. It writes off those unpaid loans within 120 days, which is why it doesn’t disclose delinquency rates for the service. It does disclose other credit metrics for its longer-term loans.
Klarna and Affirm previously told CNBC their underwriting strategies ensure that only people who can pay back the short-term loans can access the service because their business models wouldn’t work if people frequently missed payments. While Klarna charges late fees that top out at 25% of the purchase price, according to a review of its terms and conditions, Affirm does not.
Klarna said its global default rate for its overall business including buy now, pay later is less than 1%. In the U.S., 35% of consumers pay the company back early, it said.
The opacity surrounding the novel service has created a so-called phantom debt phenomenon that has left economists, regulators and even shoppers concerned about the effect it could have on the economy.
“It’s just this nebulous cloud of debt. Nobody really knows how it works and it’s just floating around us all the time and it definitely feels like a pending housing crisis, almost like 2008 but for shopping,” Andersen joked. “That’s the myth that Klarna and PayPal sell you on, is that you can have this lifestyle, you can have these things, but the truth is, you can’t.” 

The ‘beast’ of buy now, pay later

Alaina Fingal, a New Orleans-based financial coach and the founder of The Organized Money, typically receives five or six emails at the beginning of January from people who overspent during the holidays and need help managing their finances. 
This year, it was closer to 20 or 25. 
“Most people used all of their cash, they ran out of cash, then they would put it on a credit card and then if they maxed out credit cards, then they would go to other services like buy now, pay later,” Fingal told CNBC.
Fingal said she spoke with one client who had two maxed-out credit cards and used two buy now, pay later services, leaving her struggling to make payments.
“Since she couldn’t afford it in the first place, those minimum payments are causing her to struggle a lot to cover food and her regular bills for this month,” said Fingal. “So it just creates this cycle that becomes harder and harder to come out of.” 
While it’s unclear how often buy now, pay later bills go unpaid, the people who use them are more than twice as likely to be delinquent on another credit product, such as a car loan, personal loan or mortgage, according to a 2023 study from the Consumer Financial Protection Bureau. People who use the service also tend to have higher balances on other credit products and lower credit scores, according to the CFPB. 
As more shoppers use the products, consumers are torn about how they feel about it. In the weeks after Christmas, some on the social media platform X, formerly known as Twitter, said they were grateful for buy now, pay later and wouldn’t have been able to buy holiday gifts without it.
Others called it “dangerous” and vowed to stop using it as a New Year’s resolution. At least one shopper said they had to use their rent money to pay their buy now, pay later bill. 
“Buy now, pay later is a beast. It definitely is. But you have to be the bigger beast,” said Hensley Resiere, a loyal Klarna user, in response to the difficulties some shoppers have with the service.
In an interview with CNBC, the 34-year-old refugee caseworker from Jersey City, New Jersey, said Klarna helped her provide an “amazing” Christmas for her family. But when she first started using buy now, pay later during the Covid-19 pandemic, she had trouble keeping track of the payments and found herself overdrafted by hundreds of dollars and crushed with fees. 
“When I realized I can still get what I want, like designer items, and not have to pay the full purchase on spot, I lost my damn mind. … It was like a kid in a candy store,” Resiere recalled. “Let’s say Klarna gave me $1,000. In my head, I was like, ‘Oh my God, that’s free money.’ So I’m spending the whole thousand, forgetting that I have rent, car note, car insurance, all these bills, groceries, everything.” 
Resiere was in a cycle where she had to wait to get paid to cover her overdraft fees. These days, she has a system in place to manage the payments so they don’t interfere with her other bills. 
“Even though I’m in my career now and of course making more money, any way that I can split my payments and not worry about bills, I’m definitely, definitely all for,” said Resiere. “It splits the payments so I don’t really feel it. Yes, I’m paying the same amount but the fact that it’s being spread out, it doesn’t hurt as much.”
Branika Pride, a mom of three who lives in Birmingham, Alabama, and works in higher education, told CNBC she used Afterpay, Block’s buy now, pay later service, this Christmas to buy her kids an icemaker, a PlayStation 5 and Drake concert tickets. She uses a variety of providers, depending on what the retailer offers. Pride said the service came in handy this Christmas because she waited until the last minute to start shopping and was reluctant to put down the full cost of the purchases at once.
“I’ve used it in the past, not as heavy as I did this time,” she said, adding that she racked up about $1,300 in buy now, pay later debt over the holidays. “I just really didn’t get into the holiday spirit until the week of Christmas. So it was just kind of funny at the end when I was just making all the purchases I was like, ‘Ooh, I’m gonna regret this in two weeks.'” 
Pride said she’s never had trouble covering her buy now, pay later payments and typically uses the service around payday, so she knows she’ll have the funds by the time the next installment rolls around. She appreciates the flexibility that it offers her, but acknowledged that it can promote overspending or get in the way of her larger financial goals. Without it, she probably wouldn’t buy as many discretionary items as she does.
“Every year I say I don’t want to take it into the New Year,” said Pride. “But somehow, it always comes with me.”Don’t miss these stories from CNBC PRO: More