President of the European Commission Ursula von der Leyen delivers a statement in Brussels.
Kenzo Tribouillard | AFP | Getty Images
The European Union wants to put pressure on China to be neutral with its stance over Russia’s recent invasion of Ukraine, sources with knowledge of the matter told CNBC ahead of a virtual meeting between Brussels and Beijing on Friday.
There is concern among western officials regarding the role that China might play in the war between Russia and Ukraine. The Chinese authorities have so far refused to fully condemn Russia’s unprovoked invasion of its neighbor and have previously supported Moscow’s complaints about NATO expansion.
U.S. officials have also said that Russia has asked China for military and economic support — something that the Kremlin and Beijing have both denied.
European Council President Charles Michel and European Commission President Ursula von der Leyen are speaking Friday with China’s Prime Minister Li Keqiang at 10 a.m. Brussels time and then with Chinese President Xi Jinping at 2 p.m.
The goal of the summit is “ensuring, in a way, the neutrality of China so they don’t help Russia,” an EU official, who did not want to be named due to the sensitivity of the discussions, told CNBC Tuesday.
The same official said that EU-China economic links and recent trade disputes might be brought up during the conversations, but “the focus is definitely on Russia.”
A second EU official, also aware of the talks, told CNBC that the summit is a “defining moment for EU-China relations.” “If they [China] align themselves with Russia that will obviously have a very negative impact on relations with the EU,” the second official said.
A third EU official, who also preferred to remain anonymous, said the summit was initially meant to announce “small initiatives.” “But things have changed,” the same official said, adding that “the key message should be that there will be consequences if China does circumvent [western] sanctions.”
Earlier this month, Estonia’s Foreign Affairs Minister Eva-Maria Liimets told CNBC that if China were to help Russia in the invasion of Ukraine then the West should discuss sanctions against Beijing too.
In addition, different heads of state in the EU urged China last week to use its influence to stop the war in Ukraine.
Speaking to CNBC last week, Italy’s Prime Minister Mario Draghi said: “China is [the] most important country, they can be crucial in the peace process, they have lots of leverage, a lot of leverage, and so we are all waiting.”
Italy’s Foreign Affairs Minister Luigi Di Maio told CNBC’s Steve Sedgwick Tuesday: “We have frequently solicited all our international partners and even those actors with whom we do not agree to achieve peace and a diplomatic solution. Even China, like Turkey and many other countries, can contribute to this effort.”
“It is very important to participate in this effort so we can collectively show [Russian President Vladimir] Putin that a diplomatic solution is a better option for him than to carry on with this war,” Di Maio added.
The EU’s relationship with China has been bumpy in recent years.
Both signed an investment deal in late 2020 — just before U.S. President Joe Biden arrived at the White House. However the EU, just a couple of months later, decided to freeze the agreement citing concerns over human rights abuses in China.
More recently, the European Commission opened a case against China at the World Trade Organization arguing discriminatory trade practices against Lithuania, an EU nation.
“Friday’s summit was meant to be an opportunity to put a year of EU-China tensions in the rearview mirror and forge new ground for cooperation. Russia’s invasion of Ukraine and China’s refusal to condemn Moscow’s attack, however, have decisively dampened European expectations of a reset,” analysts at consultancy firm Eurasia Group said in a note Tuesday.
“European disappointment with China over Ukraine coupled with the strongest transatlantic unity in more than two decades will underpin closer EU-US cooperation against Beijing going forward,” they added.
The transatlantic relationship has improved in the wake of Russia’s invasion of Ukraine. After their foreign policy differences over the Taliban takeover of Afghanistan in the summer of 2021 and a controversial submarine deal between the U.S. and Australia that angered France; there now seems to be more cooperation between Washington and Brussels.
They have coordinated sanctions against Russia and the U.S. is currently working on supporting the EU to become more independent from Russian energy.
Fiji fires police commissioner and end security deal with China
Police operate a security check point in the Fijian capital of Suva in December following general elections. The Pacific island nation has played an important regional role amid competition between China on the one side and Australia, New Zealand and the United States on the other.
Saeed Khan | Afp | Getty Images
Fiji’s president on Friday suspended the commissioner of police following a general election saw the first change in government in the Pacific island nation in 16 years, after the military earlier warned against “sweeping changes.”
President Ratu Wiliame Katonivere said Commissioner of Police Sitiveni Qiliho had been suspended on the advice of the Constitutional Offices Commission, “pending investigation and referral to and appointment of, a tribunal.”
The Supervisor of Elections Mohammed Saneem was also suspended by the commission, the statement said.
Qiliho declined to comment to local media because he said he will face a tribunal over his conduct. He was seen as being close to former prime minister Frank Bainimarama, who led Fiji for 16 years before a coalition of parties narrowly won December’s election and installed Sitiveni Rabuka as leader of the strategically important Pacific nation.
The day before a coalition agreement was struck, Qiliho and Bainimarama called on the military to maintain law and order because they said the hung election result had sparked ethnic tensions, a claim disputed by the coalition parties.
The Pacific island nation, which has a history of military coups, has been pivotal to the region’s response to competition between China and the United States, and struck a deal with Australia in October for greater defence cooperation.
On Thursday, Fiji Times reported that Rabuka said his government would end a police training and exchange agreement with China.
“Our system of democracy and justice systems are different so we will go back to those that have similar systems with us,” the prime minister was quoted as saying, referring to Australia and New Zealand.
The prime minister’s office did not immediately respond to a request for comment.
Republic of Fiji Military Forces Commander Major General Jone Kalouniwai earlier this month warned Rabuka’s government against making “sweeping changes,” and has insisted it abide by a 2013 constitution which gives the military a key role.
Inventory glut and underused factories
Intel CEO Pat Gelsinger, with U.S. President Joe Biden (not pictured), announces the tech firm’s plan to build a $20 billion plant in Ohio, from the South Court Auditorium on the White House campus in Washington, January 21, 2022.
Jonathan Ernst | Reuters
Investors hated it, sending the stock over 9% lower in extended trading, despite the fact that Intel did not cut its dividend.
The earnings report, which was the eighth under CEO Pat Gelsinger’s leadership, shows a legendary technology company struggling with many factors outside of its control, including a deeply slumping PC market. It also highlights some of Intel’s current issues with weak demand for its current products and inefficient internal performance, and underscores how precarious the company’s financial health has become.
“Clearly, the financials aren’t what we would hoped,” Gelsinger told analysts.
In short: Intel had a difficult 2022, and 2023 is shaping up to be tough as well.
Here are some of the most concerning bits from Intel’s earnings report and analyst call:
Intel didn’t give full-year guidance for 2023, citing economic uncertainty.
But the data points for the current quarter suggest tough times. Intel guided for about $11 billion in sales in the March quarter, which would be a 40% year-over-year decline. Gross margin will be 34.1%, a huge decrease from the 55.2% in the same quarter in 2021, Gelsinger’s first at the helm.
But the biggest issue for investors is that Intel guided to a 15 cent non-GAAP loss per share, a big decline for a company that a year ago was reporting $1.13 in profit per share. It would be the first loss per share since last summer, which was the first loss for the company in decades.
Management gave several reasons for the tough upcoming quarter, but one theme that came through was that its customers simply have too many chips and need to work through inventory, so they won’t be buying many new chips.
Both the PC and server markets have slowed after a two-year boom spurred by remote work and school during the pandemic. Now, PC sales have slowed and the computer makers have too many chips. Gelsinger is predicting PC sales during the year to be around 270 million to 295 million — a far cry from the “million units-a-day” he predicted in 2021.
Now, Intel’s customers have to “digest” the chips they already have, or “correct” their inventories, and the company doesn’t know when this dynamic will shift back.
“While we know this dynamic will reverse, predicting when is difficult,” Gelsinger told analysts.
Underpinning all of this is that Intel’s gross margin continues to decline, hurting the company’s profitability. One issue is “factory load,” or how efficiently factories run around the clock. Intel said that its gross margin would be hit by 400 basis points, or 4 percentage points, because of factories running under load because of soft demand.
Ultimately, Intel forecasts a 34.1% gross margin in the current quarter — a far cry from the 51% to 53% goal the company set at last year’s investor day. The company says it’s working on it, and the margin could get back to Intel’s goal “in the medium-term” if demand recovers.
“We have a number of initiatives under way to improve gross margins and we’re well under way. When you look at the $3 billion reduction [in costs] that we talked about for 2023, 1 billion of that is in cost of sales and we’re well on our way to getting that billion dollars,” Gelsinger said.
Long-term investors have always closely watched how the company balances the near-term need to placate shareholders with the massive capital spending needed to stay competitive in the semiconductor manufacturing business.
If Intel is cutting costs and still needing to invest in chip factories to power its turnaround, analysts say it may want to reconsider its dividend. Intel spent $6 billion on dividends in 2022, but did not cut its dividend on Thursday.
Meanwhile, the company said it wants to cut $3 billion in costs for 2023 and analysts believe it wants to spend around $20 billion in capital expenditures to build out its factories.
Gelsinger was asked about this dynamic on Thursday.
“I’d just say the board, management, we take a very disciplined approach to the capital allocation strategy and we’re going to remain committed to being very prudent around how we allocate capital for the owners and we are committed to maintaining a competitive dividend,” Gelsinger replied.
There was at least one bright spot for Intel on Thursday.
Mobileye, its self-driving subsidiary that went public during the December quarter, reported earlier in the day, showing adjusted earnings per share of 27 cents and revenue growth of 59%, to $656 million. It also forecast strong 2023 revenue of between $2.19 billion and $2.28 billion. Shares rose nearly 6% during regular trading hours Thursday.
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