38 2GM Friday May 27 2022 | the times
Business
The United States economy shrank by
more than expected at the start of the
year as the rising price of imports
pushed up the trade deficit.
The world’s biggest economy con-
tracted by 1.5 per cent in the first three
months of the year compared with the
same period in 2021, revised up from
the 1.4 per cent given in the first esti-
mate last month. The first reading came
as a surprise to economists, who
thought that the economy had grown
by 1 per cent.
It was the first drop in GDP since the
second quarter of 2020 in the depths of
the Covid-19 recession and followed
strong growth of 6.9 per cent in the final
three months of 2021.
Output fell despite continued spend-
ing by consumers and businesses, as the
country remains in the grip of its high-
est rates of inflation in four decades.
The decline was driven by a growing
trade deficit caused by rising consumer
goods imports and businesses trying to
build up stocks at the start of the year.
Despite wages failing to keep pace
with inflation, consumer spending
grew by 3.1 per cent at the start of the
year. Unemployment is near a half-cen-
tury low as businesses struggle to
recruit workers. There are now roughly
two vacancies for every unemployed
person in America.
Price rises are being driven by record
low unemployment — in contrast with
Europe, where inflationary pressures
come primarily from surging energy
and food costs amid the war in Ukraine.
Analysts expect the economy to
return to growth in the current quarter,
covering April to June.
The US Federal Reserve this month
raised interest rates by half a percent-
age point for the first time in more than
20 years as it stepped up efforts to curb
inflation at 8.3 per cent.
America’s central bank also will start
shrinking its $9 trillion balance sheet
next month to bring down price
growth.
Jerome Powell, chairman of the Fed,
said further 50 basis-point increases
would be “on the table” at future rate-
setting meetings, after implementing
its largest rate rise since 2000. Curbing
inflation was essential, he said. Price
growth was “much too high and we
understand the hardship it is causing.
We are moving expeditiously to bring it
back down.”
The housing market cooled last
month after rises in the cost of borrow-
ing, along with a sharp rise in house
prices and fewer homes for sale, made
houses less affordable for many. Sales
fell among existing homes and new
builds. Lydia Boussour and Kathy Bost-jancic, economists from the Oxford
Economics consultancy, warned that
the likelihood of the US falling into a re-
cession, which is defined as two quar-
ters of negative growth, was increasing.
“While we still expect the Fed to steer
the economy toward a soft landing,
downside risks to the economy and the
probability of a recession are increas-
ing,” they said in a research note pub-
lished yesterday.
“A more aggressive pace of Fed rateBroadcom is to acquire VMware, the
California-based cloud computing
company, in a $61 billion cash-and-
stock deal — the chipmaker’s most
ambitious attempt yet to diversify into
enterprise software.
The acquisition is the second biggest
announced globally so far this year,
trailing only Microsoft’s $68.7 billion
deal to buy Activision Blizzard, the
video games maker.
Broadcom’s offer price of $142.50 per
VMware share represents a premium of
nearly 49 per cent to the stock’s closing
price when talks of the deal were first
reported on May 22. Broadcom will also
assume $8 billion of VMware’s net debt.
The acquisition is a coup for Michael
Dell, founder and chief executive of
Dell Technologies, who spun VMware
out of the computer maker last year.
Dell owns 40 per cent of VMware, while
his financial backer, Silver Lake, the pri-
vate equity firm, owns 10 per cent.
In New York last night, Broadcom
hikes, a tightening in financial condi-
tions, the ongoing war in Ukraine and
China’s zero-Covid strategy increase
the risk of a hard landing in 2023.”
The International Monetary Fund
last month downgraded its US growth
estimate to 3.7 per cent this year, from
an earlier estimate of 4 per cent. The
fund said growth would slow to 2.3 per
cent in 2023, down 0.3 percentage
points, but it avoided forecasting a pro-
longed slowdown.Rapidly rising import costs send
US economy sharply into reverse
Arthi Nachiappan
Economics Correspondent
The world’s biggest economy contracted 1.5 per cent in the first part of 2022 but consumer spending grew by 3.1 per centActivist fails
to win seats
on board of
McDonald’s
Carl Icahn, the billionaire activist
investor, has lost in his attempt to win
two seats on the board of McDonald’s
Corp in order to highlight his campaign
over animal welfare.
Preliminary tallies yesterday showed
shareholders backed all 12 of Mc-
Donald’s directors and that Icahn’s two
nominees received about 1 per cent of
the vote, the company said.
“McDonald’s shareholders value a
board of directors with a breadth of
experiences to advise the brand on the
multitude of issues that can impact the
business on a daily basis,” Enrique
Hernandez, chairman of the burger
giant, said.
Icahn, who has made a career out of
pushing poor-performing companies
to improve, owns roughly $50,000
worth of McDonald’s stock, and nomi-
nated two candidates to force the com-
pany to honour a decade-old promise
to stop buying pork by the end of this
year from suppliers that house the
animals in crates.
He has said confining the pigs in
crates during their pregnancy is inhu-
mane and sought to shine a spotlight on
the practice more broadly.
By the end of this year, McDonald’s
now expects that between 85 per cent
to 90 per cent of its American pork
supply to come from pigs that are not
kept in gestation crates when they are
pregnant.
McDonald’s said yesterday that it
was committed to remaining a leader
on environmental, social and govern-
ance (ESG) initiatives, including
animal welfare.
Icahn had appealed to large index
funds that often pay more attention to
ESG issues to back him in his efforts to
win the board seats, but voting tallies
showed that BlackRock, which has a
4.6 per cent stake in the company,
supported McDonald’s. The company
said in a filing in April that it expected
to spend roughly $16 million in the
proxy fight with Icahn.
Icahn declined to comment.
Shares in McDonald’s closed $4.08,
or 1.7 per cent, higher at $248.09 in New
York last night.Times Business ReporterKENT NISHIMURA/LOS ANGELES TIMES/GETTY IMAGESBroadcom buys into the cloud for $61bn
shares closed up $19.03, or 3.6 per cent,
at $550.66. VMware’s stock rose $3.82,
or 3.2 per cent, to $124.36.
Broadcom was founded as a private
company in 1961 and floated in 1998. It
designs high-speed integrated circuits
used in hardware such as TV set-top
boxes, modems and network cards. The
business also makes products foremerging broadband markets.
VMware is dominant in the so-called
virtualisation software market, which
allows corporate customers to run mul-
tiple applications on their servers.
Hock Tan, chief executive of Broad-
com, who built the company into one of
the world’s biggest chipmakers through
acquisitions, is now turning his atten-tion to the software sector. The
VMware deal will almost triple Broad-
com’s software-related revenue to
about 45 per cent of its total sales.
Daniel Newman, an analyst at Futu-
rum Research, said Broadcom would
immediately become a major software
player. “Something like VMware... will
open a significant number of doors that
their current portfolio probably
doesn’t,” he said.
VMware will be allowed to solicit
offers from rival bidders for 40 days as
part of the agreement.
Broadcom’s move into software
began after its attempt to acquire
mobile chip giant Qualcomm was
blocked by Donald Trump, then the US
president, in 2018 on national security
grounds.
Since then Broadcom has bought CA
Technologies, a business software firm,
for $18.9 billion, and Symantec’s secur-
ity division for $10.7 billion. It has also
explored buying SAS Institute, the ana-
lytical software company, but did not
proceed with a bid.Times Business Reporter
Concerns that Google’s dominance is
limiting competition in the £1.8 billion
marketplace for digital advertising are
being scrutinised by the regulator.
The Competition and Markets
Authority (CMA) is assessing whether
the US search engine giant, owned by
Alphabet, has broken the law by illeg-
ally favouring its own services over
those of smaller rivals.
The investigation will run alongside
a separate, wider inquiry into whether
Google’s 2018 agreement with Meta,
the owner of Facebook, codenamed
Jedi Blue, has led to smaller companies
being excluded from the market.
The CMA said it was examining three
links in the complex “ad stack” techno-
logy that mediates in the real-time buy-
ing and selling of online advertising
space, in each of which Google owns the
largest service provider. It will look atWatchdog on alert over
Google’s digital ad control
whether Google is distorting competi-
tion by limiting the compatibility of
some services, while contractually ty-
ing others together, making it more
difficult for rival ad servers to compete.
Andrea Coscelli, chief executive of
the CMA, said that weakening compe-
tition in the sector could reduce ad rev-
enues paid to publishers while raising
costs for advertisers. “It’s vital that we
continue to scrutinise the behaviour of
the tech firms that loom large over our
lives and ensure the best outcomes for
British people and businesses,” he said.
Google said it would share details of
its systems with the regulator, adding
that its tools have supported an esti-
mated £55 billion in economic activity
for more than 700,000 UK businesses.
A draft government bill to give the
CMA more powers to govern big tech
firms, through a Digital Markets Unit
within the regulator, was announced in
the Queen’s Speech this month.Simon Freeman40%
Stake in VMware owned by
Michael Dell
Source: VMware