Morning News Call Reuters U.S

MORNING NEWS CALL REUTERS U.S. Edition Wednesday, April 5, 2017

TOP NEWS ANALYSIS • Euro zone business activity at six-year high in broad recovery Euro zone businesses enjoyed their best quarter in six years at the start of Apple aims for more control, less 2017 and although growth was not quite as fast as a flash estimate, the upturn cost as it accelerates in chip de- was broad-based, a survey suggested. sign • N.Korea test-fires missile into sea ahead of Trump-Xi summit North Korea test-fired a ballistic missile into the sea off its east coast, South Apple Inc's decision to stop licensing Korea's military said, ahead of a summit between U.S. and Chinese leaders graphics chips from Imagination who are set to discuss Pyongyang's increasingly defiant arms program. Technologies Group Plc is the clear- • JAB Holding to buy bakery chain Panera Bread in $7.5 bln deal est example yet of the iPhone mak- JAB Holdings, the owner of Caribou Coffee and Peet's Coffee & Tea, said it er's determination to take greater would buy U.S. bakery chain Panera Bread Co in a deal valued at about $7.5 control of the core technologies in its billion, including debt, as it expands its coffee and breakfast empire. JAB Hold- products - both to guard its hefty ings offered $315 in cash per Panera share, representing a 20.3 percent pre- margins and to position it for future mium to the stock's closing price on March 31. innovations, especially in so-called • Actelion shareholders back R&D spinoff, keep J&J deal on track augmented reality. Shareholders in Swiss biotech group Actelion approved spinning off its drug The strategy, analysts say, has al- discovery and early clinical pipeline into a new company, keeping Johnson & ready reduced Apple's dependence Johnson's $30 billion takeover on track to close in the second quarter. on critical outside suppliers like ARM • Toshiba's Westinghouse replaced chairman two days before bankrupt- Holdings Plc, now owned by Soft- cy filing Bank Group Corp. Apple once relied Westinghouse Electric Co replaced its chairman two days before the U.S. nu- heavily on ARM to design the main clear construction unit of Japan's Toshiba Corp filed for bankruptcy last week, processor for the iPhone, but it now as it tries to draw a line under the travails of a business that has cost it billions. licenses only the basic ARM archi- tecture and designs most of the chip itself. BEFORE THE BELL More recently, when Apple bought U.S. stock index futures were little changed and the dollar remained under the headphone company Beats Elec- pressure as investors remained on the sidelines ahead of a meeting between tronics, part of a $3 billion deal in the U.S. President Donald Trump and his Chinese counterpart Xi Jinping 2014, it ripped out the existing, off- later this week. ADP employment data and latest reading from ISM and Markit the-shelf communications chips and on non-manufacturing activity occupies the day’s economic calendar. Europe- replaced them with its own custom- an stocks gained as oil and basic resource stocks strengthened, while Asian designed W1 Bluetooth chip. markets ended broadly higher. Oil prices rose after data showed a decline in "Apple clearly got rid of all the con- U.S. crude oil inventories. Gold prices steadied ahead of the minutes from the ventional suppliers and replaced Federal Reserve's March meeting due later in the day. about five chips with one," said Jim Morrison, vice president of TechInsights, a firm that examines STOCKS TO WATCH the chips inside electronics devices. "Today we do much more in-house Deals of the day development of fundamental tech- • Panera Bread Co (PNRA). JAB Holdings, the owner of Caribou Coffee and nologies than we used to," Apple Peet's Coffee & Tea, said it would buy the U.S. bakery chain in a deal valued Chief Financial Officer Luca Maestri at about $7.5 billion, including debt, as it expands its coffee and breakfast em- said at a February conference. pire. JAB Holdings offered $315 in cash per Panera share, representing a 20.3 "Think of the work we do on proces- percent premium to the stock's closing price on March 31, the last trading day sors or sensors. We can push the before media reports of a potential deal. The deal includes the assumption of envelope on innovation. We have about $340 million of net debt, JAB Holdings and Panera said in a joint state- better control over timing, over cost ment. and over quality." • Qualcomm Inc (QCOM). The smartphone chipmaker has received approval Most vendors of consumer electron- from U.S. antitrust regulators for its proposed $47 billion acquisition of NXP ics products rely on outside suppliers Semiconductors NV, Qualcomm said in a statement on Tuesday. The waiting for chip design and development, period required for companies under the Hart-Scott-Rodino Antitrust Improve- primarily because it is extremely ex- ments Act has expired, the company said. Additionally, Qualcomm said it is pensive. That has created huge op- extending its cash tender offer for all outstanding shares of NXP. The tender portunities for companies like ARM, offer is now scheduled to expire at 5:00 p.m. EDT on May 2, 2017. Qualcomm Inc and Nvidia Corp, MORNING NEWS CALL - U.S. EDITION April 5, 2017

which have developed core technol- Results ogies for processing, communica- • Walgreens Boots Alliance Inc (WBA). Drugstore chain operator reported a tions and graphics that are used by surprise drop in quarterly sales, citing "challenging market conditions in conti- scores of vendors. nental Europe" and as a strong dollar reduced the value of sales outside the Now, though, Apple is so big that it United States. The company also said it would repurchase $1 billion worth of can economically create its own de- shares till Dec. 31. Net income attributable to the company, rose to $1.06 bil- signs, or license small pieces of oth- lion, or 98 cents per share, in the second quarter, from $930 million, or 85 ers' work and build on it. As with cents per share, a year earlier. Net sales fell to $29.45 billion from $30.18 bil- ARM and Qualcomm, the actual lion a year earlier. manufacturing of the chips is still contracted out to a semiconductor In other news foundry, such as those run by Sam- • Acorda Therapeutics Inc (ACOR). The company will cut nearly 20 percent sung Electronics and Taiwan Semi- of its workforce as part of a cost reduction plan, the company said on Wednes- conductor Manufacturing Co Ltd. day, less than a week after losing certain patents for its multiple sclerosis drug, Ampyra. The company, which had 597 employees as of Feb. 20, said the job MOVE FAST, SAVE MONEY cuts are expected to result in cost savings of more than $21 million annually. Bringing more of the design work in- • Alphabet Inc (GOOGL). Google said on Tuesday it would roll out a mobile house cuts complexity, people famil- YouTube application designed for India, boosting the search company's pres- iar with the processes say. Instead ence in a burgeoning market with spotty Internet access. Google has been of managing one or more design conducting extensive tests in India of YouTube Go, which allows users to save teams and then a fabricator, Apple videos to watch offline and monitor their data use. A beta version of the app has only to manage the fabricator. has been released in the Google Play Store in India, and will be released in It may also help the company move other emerging markets later, company executives said in an interview. faster - and save money - as it fo- • Amazon.com Inc (AMZN). The company will live-stream games for the U.S. cuses on new technologies such as National Football League this year, a company spokeswoman said on Tues- virtual and augmented reality. Apple day, marking a high-profile push by the online retailer to attract fans to its CEO Tim Cook has indicated that Prime shopping and video-playback club. As part of the deal, Amazon will Apple plans to integrate augmented stream 10 Thursday-night games online for Prime members exclusively. The reality into its products, which makes same games will be broadcast by networks CBS and NBC on television. Ama- 3-D sensors and graphics chips like zon beat out Twitter Inc, Facebook Inc and Google's YouTube for the digital Imagination's especially important. distribution rights, according to a person familiar with the matter. The company Even before formally cutting off Im- agreed to pay the NFL five times what Twitter spent on the rights last year, agination, Apple had given hints that which was reported to be $10 million, the person said. it was preparing to design its own • Chevron Corp (CVX). Nearly a century after the company amassed the No. graphics processors. Specifically, it 2 stake in America's largest oilfield, Chief Executive John Watson is hitting the introduced a piece of its own code accelerator on developing the company's vast Permian Basin holdings. In an called Metal for app developers. App interview, Watson made clear his desire to put the West Texas to New Mexico developers use Metal to make their expanse in the ranks of Chevron's biggest ventures. The U.S. bank has en- apps talk to the graphics chip on the countered government probes and lawsuits, and its board recently said an in- iPhone. ternal review may uncover more problematic accounts. By putting a piece of Apple-designed • ConocoPhillips (COP). A shutdown at the Syncrude oil sands facility in code between app developers and northern Alberta has curbed output from the company's Surmont plant, the the phone's chip, Apple has made it U.S. company said on Tuesday, as the shortage helped push heavy Canadian possible to swap out the chip without crude prices to the narrowest discount in nearly two years. "(The) Syncrude interrupting how the developers outage has had an impact on our output, but we are working with suppliers to work. That could also make it easier understand the timeline as the Syncrude owners work towards a full recovery," to bridge the gap for developers be- ConocoPhillips Canada spokeswoman Michelle McCullagh said in an email. tween the graphics chips on Apple's • Credit Suisse (CS). An anonymous tip to Dutch authorities on thousands of phones and its desktop computers, suspicious accounts at the company could hardly have come at a worse time which currently require some sepa- for Switzerland and its banks. "It's a wake-up call not only for the banking com- rate coding. munity but also for authorities," said Mark Pieth, an anti-corruption expert and “By promoting Metal instead of rely- criminal law professor at the University of Basel. "Instead of really just being ing on other existing standards, Ap- angry at others they should ask, have we really been zealous enough?" ple is not only able to control what • ExxonMobil (XOM). The oil company said it is in talks to buy a refining- graphics chip functionality is ex- petrochemical complex in Singapore that could boost its fuel and chemical posed at its own pace, but also blur production in Asia. "We can confirm that we are currently negotiating with the the line for developers between cod- receiver for Jurong Aromatics Corporation Pte Ltd to acquire JAC's assets on ing for desktop and mobile GPUs," Jurong Island," an ExxonMobil spokeswoman said. "While progress is being said Pius Uzamere, the founder of a made, no agreement has been reached yet," she said. virtual reality startup called Ether. • Innocoll Holdings Plc (INNL). U.S. investment firm Gurnet Point Capital is Taking control of the iPhone's chips

2 MORNING NEWS CALL - U.S. EDITION April 5, 2017 nearing a deal to acquire the Ireland-based specialty drugmaker, people famil- can also help Apple keep costs iar with the matter said on Tuesday. The deal would add the Innocoll's suite of down, which is especially important collagen-based medicines to Gurnet Point's portfolio of life science business- as it gears up for a feature-laden es. Should the negotiations be completed successfully, a deal could be an- new iPhone this fall. Timothy Arcuri nounced as early as this week, the people said. of Cowen & Co said in a research • JPMorgan Chase (JPM). The head of the U.S. bank said on Tuesday the note that he thinks the curved bank is not planning to move many jobs out of Britain in the next two years in a screens expected on the new phone softening of tone on the likely impact from Brexit. Even though his stance ap- could add as much as $50 in cost, pears to have moderated Jamie Dimon said on Tuesday the bank is preparing for example. for a so-called "hard Brexit" in which Britain loses access to EU's single mar- Shebly Seyrafi, an analyst at FBN ket, disrupting access to its main trading partner. "This does not entail moving Securities, estimates that the aver- many people in the next two years," he said in a letter to the US bank's share- age price of an iPhone increased holders. only 1 percent to $695 last quarter, • Lloyds Banking Group (LYG). The company plans to close a further 100 while costs increased 8 percent to branches resulting in the loss of over 200 jobs, according to the Unite trade $420, resulting in an iPhone gross union. The union said in a statement the Britain's lender plans to close 54 margin of 39.6 percent. That is down Lloyds branches, 22 Halifax branches and 24 Bank of Scotland branches. from the 44 percent average gross "The continuous stream of branch closures announced by the UK's retail bank margin for iPhones in 2015, accord- branches appears to show no signs of ending," said Rob MacGregor, Unite ing to Seyrafi's estimates. national officer. A spokesman for Lloyds was not immediately available to Apple spends only $75 million a year comment. on licensing fees for Imagination's chips. But licensing fees to chip de- signers, taken together, are a signifi- ANALYSTS' RECOMMENDATION cant cost for the iPhone. Apple re- • Bank of New York Mellon Corp (BK). Deutsche Bank cuts target price to cently sued Qualcomm for $1 billion $54 from $55 expecting another challenging quarter on lagged market returns, over licensing terms for its communi- tepid FX trading and securities lending and seasonally high expenses. cations chips - which Apple would • Discover Financial Services (DFS). Evercore ISI raises target price to $79 have trouble designing in-house be- from $77 citing the company’s solid and improving earnings power. cause of patent issues.

-- By Stephen Nellis ECONOMIC EVENTS 0815 ADP national employment for Mar: Expected 187,000; Prior 298,000 0945 Markit Composite Final PMI for Mar: Prior 53.2 0945 Markit Services PMI Final for Mar: Prior 52.9 1000 ISM N-Manufacturing PMI for Mar: Expected 57.0; Prior 57.6 1000 ISM N-Manufacturing Business Activity for Mar: Expected 61.5; Prior 63.6 1000 ISM N-Manufacturing Employment Index for Mar: Prior 55.2 1000 ISM N-Manufacturing New Orders Index for Mar: Prior 61.2 1000 ISM N-Manufacturing Price Paid Index for Mar: Prior 57.7

S&P 500 COMPANIES REPORTING RESULTS Bed Bath & Beyond Inc (BBBY). Expected Q4 earnings of $1.77 per share Monsanto Co (MON). Expected Q2 earnings of $2.79 per share Walgreens Boots Alliance Inc (WBA). Expected Q2 earnings of $1.36 per share

CORPORATE EVENTS 08:30 Walgreens Boots Alliance Inc (WBA). Q2 earnings conference call 09:00 Schlumberger NV (SLB). Annual Shareholders Meeting 09:30 Monsanto Co (MON). Q2 earnings conference call 10:00 Multi Packaging Solutions International Ltd (MPSX). Annual Sharehold- ers Meeting 11:00 Greenbrier Companies Inc (GBX). Q2 earnings conference call 16:30 8Point3 Energy Partners LP (CAFD). Q1 earnings conference call 16:30 Carnival Corp (CCL). Annual Shareholders Meeting 17:00 Bed Bath & Beyond Inc (BBBY). Q4 earnings conference call 20:00 Yum China Holdings Inc (YUMC). Q1 earnings conference call

3 MORNING NEWS CALL - U.S. EDITION April 5, 2017

EXDIVIDENDS American Eagle Outfitters Inc (AEO). Amount $0.13 American Express Co (AXP). Amount $0.32 Brady Corp (BRC). Amount $0.21 Bristol-Myers Squibb Co (BMY). Amount $0.39 General Dynamics Corp (GD). Amount $0.84 Gentex Corp (GNTX). Amount $0.09 Global Net Lease Inc (GNL). Amount $0.18 Marsh & McLennan Companies Inc (MMC). Amount $0.34 Mastercard Inc (MA). Amount $0.22 Monsanto Co (MON). Amount $0.54 Morningstar Inc (MORN). Amount $0.23 NetApp Inc (NTAP). Amount $0.19 Roper Technologies Inc (ROP). Amount $0.35 Royal Gold Inc (RGLD). Amount $0.24 Sysco Corp (SYY). Amount $0.33 TPG Specialty Lending Inc (TSLX). Amount $0.39 Whole Foods Market Inc (WFM). Amount $0.14

(All analysts' estimates are according to Thomson Reuters I/B/E/S)

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