Cramer’s game plan: A busy week ahead of a make-or-break report

PepsiCo: Snack and beverage giant PepsiCo’s Tuesday earnings report will be a “bittersweet moment” for Cramer as longtime CEO Indra Nooyi prepares to step down from her post the following day.

“Indra reinvented the company, transforming it from a carbonated soda and salty snacks business into a more diversified operation with many healthy offerings. I’ve come to respect her not only for her business acumen, but, perhaps more important, for her leadership role as an executive focused on doing good works worldwide,” the “Mad Money” host said.

“Indra was well ahead of the curve on important issues like diversity, equality and sustainability,” he continued. “I’m hoping she stays on as a highly visible role model for everybody, especially billions of women, around the globe.”

As for the actual report, Cramer expected a good quarter that would send the stock higher, but warned that “the sector remains extremely out of favor” on Wall Street.

Paychex: The Federal Reserve’s latest interest rate hike is “basically free money” for payroll processors like Paychex, but this quarter, the old-line administrative giant may have run into a problem, Cramer said.

“The competition among companies that advise on business services like retirement savings — one of their smaller divisions — has gotten very fierce,” he said ahead of the company’s Tuesday earnings report.

“More important, we know that Square, the ambitious point-of-sale kingpin that we like so much, has decided to get into the payroll processing business itself. Square’s a big-time disruptor and they’re all about small- and medium-sized business, which is very much Paychex’s wheelhouse,” Cramer continued. “Call me conflicted.”

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Judge finds Apple infringes on Qualcomm patent but declines to block iPhone imports

Qualcomm has lost a bid to block sales of certain iPhone 7 models in the U.S. — even though Apple is infringing on one of its patents.

A U.S. International Trade Commission administrative law judge ruled on Friday that Apple infringed on a power saving patent to extend battery life in mobile devices.

Even so, Judge Thomas Pender found it is not in the public interest to ban the sale of certain iPhone 7 models in the U.S. as Qualcomm sought.

Qualcomm can still make its case for a ban to the full International Trade Commission, but Pender’s ruling strikes a blow to its efforts to gain an upper hand in its wide-ranging legal war with Apple.

“We are pleased the administrative law judge found infringement of our patented technology, but it makes no sense to then allow infringement to continue by denying an import ban,” said Qualcomm General Counsel Don Rosenberg in a statement. “That goes against the ITC mandate to protect American innovators by blocking the import of infringing products.”

Rosenberg added that Qualcomm is looking “forward to a full ITC commission review in the coming months and continues to pursue the more than 40 other patent infringement cases we have brought against Apple globally.”

Last year, Qualcomm filed a patent infringement complaint with the ITC that sought to block the sale of iPhone 7 models that contain cellular modem chips from Intel and run on networks from AT&T and T-Mobile.

Qualcomm is the market leader for top-tier cellular modem chips that link smartphones to cell towers and the wider wireless network. It originally charged Apple with violating six patents but trimmed that number down to three just prior to a trial before Pender in June.

In his ruling Friday, Pender found that Apple does not infringe on the other two patents.

The ITC does not have the authority to levy financial penalties. All it can do is block infringing products from being imported into the U.S.

Before it takes that step, however, it must consider the “public interest,” including whether the ban would harm competition or consumers.

Apple argued that an import ban could force Intel to exit the cellular modem business – giving Qualcomm an even more dominant market position.

Qualcomm countered that Intel has spent billions developing 4G and 5G technologies, and it was highly unlikely that it would walk away from that investment.

In the end, Pender found “the statutory public interest factors weigh against issuing a limited exclusion order,” according to a summary of the ruling posted on the ITC website.

Apple applauded Pender’s ruling.

“Qualcomm has continued to unfairly demand royalties for technologies they have nothing to do with to protect their monopoly,” the company said in a statement. “We’re glad the ITC stopped Qualcomm’s attempt to damage competition and ultimately harm innovators and U.S. consumers.”

Qualcomm and Apple are fighting a fierce legal war in courts worldwide over intellectual property. It shows no sign of ending anytime soon. On Monday, Qualcomm upped the ante by accusing Apple of stealing proprietary software and providing it to Intel so it could develop more competitive cellular modem chips for smartphones.

Qualcomm has filed patent infringement and breach of contract lawsuits against Apple in Germany, China, the U.S. and elsewhere. Several of these cases go to trial later this year or next year.

Apple claims Qualcomm uses its market dominance in modem chips to force smartphone makers to overpay for use of its cellular inventions. It has stopped paying patent royalties to Qualcomm, and designed Qualcomm’s chips out of the latest iPhone models.

Qualcomm counters that its cellular technologies are the lifeblood of iPhones. Without them, iPhones would be glorified iPods, which sell for considerably less.

For use of Qualcomm’s patents, Apple was paying $15 to $20 per phone, according to analysts.

Qualcomm has a second infringement case against Apple pending at the ITC. It involves three additional patents. A trial was held earlier this month, where Apple likely made similar public interest arguments regarding a possible ban harming Intel and overall competition in the cellular modem market.

Pender is retiring from the ITC. A new administrative law judge is expected to release initial findings in the second case in January.

Qualcomm’s shares ended trading Friday up 32 cents at $72.03 on the Nasdaq exchange.

mike.freeman@sduniontribune.com;

Twitter:@TechDiego

760-529-4973

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CFO Exit Puts Spotlight on JC Penney’s CEO Hunt

Finance chief Jeffrey Davis’s exit from

J.C. Penney
Co.


JCP -4.05%

has turned up the heat for the retailer to find a new chief executive.

Mr. Davis’s decision to depart the company, announced Thursday, comes at a vulnerable time for the troubled retailer, which already had seen its leadership ranks dwindle over the past few months.

The Plano, Texas, company has been without a CEO since June 1, when Marvin Ellison left to take the helm at

Lowe’s
Co

s.

At the time, J.C. Penney named a group of four executives, known as “Office of the CEO,” to manage day-to-day operations. The exit of Mr. Davis, who was also part of that group, brings that team down to two: Executive Vice President of Supply Chain Mike Robbins and Chief Information Officer/Chief Digital Officer Therace Risch. Chief Customer Officer Joe McFarland left in July to join Mr. Ellison at Lowe’s.

J.C. Penney is coming under more pressure to fill the CEO chair, said Joel Bines, partner and co-head of retail at consulting firm AlixPartners LLP.

“They are in the danger zone and they need a leader who understands how to operate in the danger zone so that they can get themselves reoriented and have the time to figure out what comes next in retail,” Mr. Bines said.

J.C. Penney has advanced its search for a new chief executive, a company spokesman said in an email.

“The board is encouraged by the amount of interest it’s received, and expects that a decision is drawing near,” he said.

The retailer said Jerry Murray, the company’s senior vice president of finance, will assume the CFO role on an interim basis. However, Mr. Murray won’t be joining the Office of the CEO, the spokesman said in an email, adding that the two-person team will continue operating at its current capacity at this time.

The retailer must finalize its CEO pick before it can turn to filling the CFO spot, said Peter Crist, chairman for executive recruiter Crist|Kolder.

“You must have your CEO in your line of sight,” Mr. Crist said. “If I’m a CEO candidate looking at a troubled situation like J.C. Penney, I have a team in my head, and I probably have a CFO in my head who would come with me.”

This type of leadership dynamic often emerges in business turnaround situations, and as a result would turn off potential CFO candidates, Mr. Crist said.

“You can’t expect someone who’s any good to come into a CFO gig when they don’t know who their partner is,” he said.

And filling the finance chief role will be a challenge at J.C. Penney. The new CFO must be skilled at managing finances and operations, be a strategic thinker and know how to manage an array of stakeholders from creditors to analysts to investors, Mr. Bines said.

“The next CFO of J.C. Penney needs to be a Swiss army knife: extremely capable across a wide range of competencies for CFOs, and that’s a tough thing to find,” said Mr. Bines.

J.C. Penney last month reported that net sales for its fiscal second quarter fell 7.5% to $2.76 billion, missing the $2.86 billion in revenue analysts polled by Thomson Reuters forecast. Same-store sales rose 0.3% for the period ended Aug. 4, missing the FactSet estimate of a 1% increase.

Write to Tatyana Shumsky at tatyana.shumsky@wsj.com

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Intel Issues Update on Supply Problems at 14nm

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Intel has been having supply issues at 14nm related to the delayed ramp of its 10nm production and (the company claims) increased demand for its enterprise and data center products. Intel’s Bob Swan, current CFO and interim CEO, has released a statement in which he assigns blame for Intel’s production trouble to surging data center and cloud revenue. Data center revenue grew 25 percent in the first six months of the year, while cloud revenue grew 43 percent.

There’s undoubtedly truth to some of this. According to Gartner, server revenues and shipments both rose sharply in the first part of the year. Increased demand for server hardware means increased demand for the largest-core count CPUs, which puts pressure on Intel’s manufacturing capacity by requiring the company to build larger dies that result in fewer wafers per die. But Intel has also been stuck in the middle of a 10nm transition that has sapped its manufacturing capacity by effectively idling significant amounts of its overall production capability.

But Swan’s attempt to blame the shortfall on an upturn in the PC industry — which he does — is simply laughable. Writes Swan:

For example, second-quarter PC shipments grew globally for the first time in six years, according to Gartner. We now expect modest growth in the PC total addressable market (TAM) this year for the first time since 2011… The surprising return to PC TAM growth has put pressure on our factory network. We’re prioritizing the production of Intel Xeon and Intel Core processors so that collectively we can serve the high-performance segments of the market. That said, supply is undoubtedly tight, particularly at the entry-level of the PC market.

Why is this claptrap?

Because the consumer PC market grew by 2.7 percent in Q2 2018 after declining roughly 30 percent from 2011-2018. Intel blaming its issues on an unexpected growth in the consumer PC market after a near-30-percent decline over seven years is absurd. The PC market growth might be the straw that broke the camel’s back, but it’s not the proximate cause of Intel’s production shortfall. The company made strategic decisions as far as 2014 to idle Fab 42 rather than bringing it up on 14nm. It later opted to convert Fab 42 to 7nm directly back in 2017 rather than ramping it as a 10nm facility. The industry also canceled the push for 450mm wafers several years ago (such technology wouldn’t be online to offset increased silicon demand yet, but avenues that could have increased production at Intel and other foundries long-term were not pursued due to the downturn in PC sales several years ago). But the growth in server and data center sales (where much larger chips are used) and 10nm’s failure to ramp (the node, by introduction, will be at least three years behind schedule) are responsible for Intel’s shortfalls, not some single-digit uptick in consumer PC sales.

593459-the-why-axis-pc-shipments-2009-2018

PC sales by vendor through Q1 2018. A tiny bump in Q2 2018 isn’t exactly going to change the decline.

The reason Intel is likely putting its emphasis on the impact in the low-end consumer PC market is simple: The company can choose, to some extent, where it takes this hit. It’s going to shove the impact into the lower-end of the space, where any share it cedes to AMD will do its own competitor as little good as possible. AMD, of course, has its own ideas about gaining market share from Intel in data centers and cloud installations; the company is expected to take approximately 5 percent of the server market by the end of 2018.

Intel’s letter also states that it will increase an additional $1B into 14nm facilities in Oregon, Arizona, Ireland, and Israel to boost 14nm capacity and that its 10nm production remains on-track for volume insertion in 2019. No updated date was given, which means Q4 2019 is still the official expected introduction date.

Now Read: Intel Goes Back to 22nm for New Chipset to Address Manufacturing Shortage, AMD May Regain 30 Percent Desktop Market Share By Q4 2018, and If Intel Is Suffering a CPU Shortage, Can AMD Pick Up the Slack?

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