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Chevron to Invest $7 Billion to Double Its Venezuelan Output · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts.
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  Speaker 3: Radio.
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  Speaker 4: News.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 5: you get your podcasts or watch us live on YouTube.
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  Speaker 6: Our U.S.
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  Speaker 2: Energy Secretary Chris Wright is in Caracas today and is
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  Speaker 2: expected to announce more than a dozen agreements with energy companies.
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  Speaker 2: The largest is with Chevron, which is significantly expanding in
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  Speaker 2: Venezuela operations with two giant oil fields in the Orinoco boat.
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  Speaker 2: We check in with Kevin Crowley. He's the senior oil
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  Speaker 2: reporter for Bloomberg News. He is based down there in
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  Speaker 2: the energy.
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  Speaker 1: Capital, Houston, Texas. Kevin, thanks so much for joining us here.
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  Speaker 2: You know, when you talk to folks here, in your
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  Speaker 2: sphere there of the energy business, what do they think
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  Speaker 2: about the Chevron deal?
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  Speaker 6: Well, first of all, it's a big deal. I think
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  Speaker 6: the first question is how much oil is going to
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  Speaker 6: come to the market immediately. And I think it's going
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  Speaker 6: to come gradually. This is what the CEO, Mike Wirth,
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  Speaker 6: told us in a TV interview earlier today. So, Chevron
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  Speaker 6: is planning to double its oil production to about 600,000
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  Speaker 6: barrels a day, going to spend about $ 7 billion today.
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  Speaker 6: with its joint venture partners doing that. But these are big, big,
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  Speaker 6: big projects requiring lots of drilling, lots of heavy equipment,
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  Speaker 6: lots of pipeline capacity. Venezuela has a lot of heavy oil,
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  Speaker 6: which is difficult to process. So, these barrels are going
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  Speaker 6: to come to the market kind of gradually. And what's
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  Speaker 6: interesting here is that they are not going to be
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  Speaker 6: a direct replacement for the barrels that are currently stuck
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  Speaker 6: through the Strait of Formosa. So we're not seeing any
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  Speaker 6: relief in oil prices today.
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  Speaker 2: Yeah, that's exactly right. So, Kevin, what do we know
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  Speaker 2: about some of the assurances that Chevron may have received
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  Speaker 2: either from the Venezuelan government or the U.S.
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  Speaker 1: Government?
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  Speaker 2: Because that has always been a concern that, boy, our assets,
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  Speaker 2: our investments can be nationalized overnight. And that's one of
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  Speaker 2: the many reasons that other majors left Venezuela and did
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  Speaker 2: not come back.
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  Speaker 6: Right, exactly. I mean, Venezuela's nationalized its oil industry twice
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  Speaker 6: in the last 50 years. So I put this question
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  Speaker 6: to Chevron CEO Mike Wirth in an interview, and he
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  Speaker 6: said he wouldn't go into the contract specifics, but he
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  Speaker 6: said there were very strong protections built into those contracts.
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  Speaker 6: With regards to, and I interpret that to mean sort
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  Speaker 6: of legal protections, but also with regard to arbitration. So
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  Speaker 6: if there is a dispute between Chevron and the Venezuelan government,
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  Speaker 6: they would be arbitrated in perhaps internationally as opposed to internationally.
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  Speaker 6: So Chevron seemed pretty confident that their money will be protected. Now,
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  Speaker 6: it is worth saying Chevron has a slightly different kind
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  Speaker 6: of risk tolerance for this. I mean, Chevron was the
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  Speaker 6: one U.S. oil major that stayed. in Venezuela after the
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  Speaker 6: nationalizations of the mid-2000s. They've been there the last 20
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  Speaker 6: years through all these sanctions and on again, off again,
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  Speaker 6: OFAC licenses and that. So they are in a slightly
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  Speaker 6: different position. We haven't seen Exxon go in. We haven't
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  Speaker 6: seen ConocoPhillips go in. These were two bigger U.S. oil
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  Speaker 6: companies that were nationalized under the Chavez regime.
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  Speaker 1: Yeah, that's kind of where I wanted to go, Kevin.
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  Speaker 2: Do we think that once maybe Exxon and the others
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  Speaker 2: get a look at this this contract or at least
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  Speaker 2: talk to the Chevron management, they might get a level
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  Speaker 2: of comfort that they will go back into, you think?
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  Speaker 6: Well, that's certainly what the U.S. government hopes, that all
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  Speaker 6: these deals will create a level of confidence for others
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  Speaker 6: to follow. I think there will be others to follow.
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  Speaker 6: The problem is these fields are getting nabbed. They're getting
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  Speaker 6: snapped up quickly. And Exxon, for example, doesn't want to
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  Speaker 6: do anything small. So, if they want to go in,
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  Speaker 6: they'll want a large number of fields and they want
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  Speaker 6: to do things on a big scale. And, yeah, the
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  Speaker 6: question is what's left. So, yeah, so it remains to
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  Speaker 6: be seen who else will go in. But certainly with
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  Speaker 6: these big companies now committing real dollars, this is the
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  Speaker 6: first time we've seen real dollars being committed to Venezuela.
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  Speaker 6: There is a degree of confidence around the country.
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  Speaker 2: What are your sources telling you, Kevin, about the Strait
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  Speaker 2: of Hormuz? How much oil do we think is actually
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  Speaker 2: getting through on a daily basis? We heard from the Treasury,
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  Speaker 2: I mean, the Energy Secretary, a big, big number.
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  Speaker 6: What are you hearing? Yeah, so he was saying on
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  Speaker 6: Monday 17 million barrels got through the Strait of Hormuz.
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  Speaker 6: That's certainly a high. We don't think that's happening every
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  Speaker 6: day at all. There's still major constraints. I mean, we've
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  Speaker 6: seen a fair bit of uptick in conflict, I mean,
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  Speaker 6: just this week. It's interesting. There seems to be a
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  Speaker 6: tone around the administration this week. Secretary Besant and Chris
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  Speaker 6: Wright have been emphasising this line around workarounds, emphasising, you know,
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  Speaker 6: we're going to build pipelines and there's going to be
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  Speaker 6: other ways of getting around the straightforward moves. I think
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  Speaker 6: Besant said earlier today that straightforward moves wouldn't be very
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  Speaker 6: important in the oil industry in the future. So I
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  Speaker 6: just wonder if this... they're starting to kind of think
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  Speaker 6: that this conflict may be much more longer term and
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  Speaker 6: this might be the new normal for the straight.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 6:01
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 6:08
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 6:11
  Speaker 5: you get your podcasts or watch us live on YouTube.
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  Speaker 2: There are a lot of people that don't like higher
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  Speaker 2: energy prices. And I guess if you think about it,
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  Speaker 2: if you put gas in your truck or diesel in
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  Speaker 2: your truck or jet fuel in your plane and that
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  Speaker 2: kind of stuff, if you're a transportation company, this is
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  Speaker 2: a squeeze, I think. Let's check in with Lee Klaskow.
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  Speaker 2: He's a senior transport engineer. Logistics and Shipping Analyst for
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  Speaker 2: Bloomberg Intelligence. He also hosts a weekly podcast, Bloomberg Intelligence
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  Speaker 2: Talking Transports. Lee, what are your companies telling you? Railroad companies,
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  Speaker 2: trucking companies, air transport. I mean, the tankers, they all
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  Speaker 2: consume a lot of fuel.
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  Speaker 7: They certainly do. It's usually their highest cost. And they're
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  Speaker 7: able to pass a lot of that cost on through
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  Speaker 7: fuel surcharges. The problem is the volatility in fuel prices
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  Speaker 7: can be sometimes a drag on margins, especially when prices
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  Speaker 7: for fuel are rising quickly. Trucking, for example, their fuel
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  Speaker 7: surcharges resets every week. And railroads, it's anywhere between a
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  Speaker 7: week and 60 days, depending on the type of freight.
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  Speaker 7: But while it does cover the miles that they travel,
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  Speaker 7: as you probably know, trucking companies, sometimes they have to
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  Speaker 7: travel from point A to point B to pick up
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  Speaker 7: a load, and that's obviously not covered under their fuel
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  Speaker 7: surcharge most.
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  Speaker 3: Of the time.
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  Speaker 7: So it does have a negative impact to margins. But,
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  Speaker 7: you know, I think the knock-on effect, obviously, is the
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  Speaker 7: impact to consumers. It's inflationary. You know, when you're spending
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  Speaker 7: more at the pump, you're buying less stuff, and stuff
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  Speaker 7: is shipped in trucks and trains. And so that's probably
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  Speaker 7: less opportunity for freight for them. So, you know, that's
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  Speaker 7: a big concern. Yesterday, the whole group was down, probably on,
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  Speaker 7: you know, the fact that oil rose a little bit yesterday,
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  Speaker 7: and coupled with the fact that the ISM index, which,
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  Speaker 7: while still in expansion territory, was slightly below expectations.
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  Speaker 3: Do companies ever remove the surcharge, the fuel surcharge, or
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  Speaker 3: does it only go up and up and up?
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  Speaker 7: Well, it sometimes comes down. So when fuel prices come down,
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  Speaker 7: it does come down. So when fuel prices are coming
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  Speaker 7: down quickly, it's actually a tailwind for earnings because they
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  Speaker 7: are charging the customers a price higher than what they're
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  Speaker 7: actually paying for today because of the lag effect.
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  Speaker 3: They're slower to remove the fuel surcharge or bring them
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  Speaker 3: down than what the actual market price is.
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  Speaker 7: So for trucking, for example, they reset every week, and
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  Speaker 7: it's based on the price of diesel, the national price
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  Speaker 7: of diesel.
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  Speaker 3: By the way, the national price of diesel, $ 5. 68 a gallon,
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  Speaker 3: according to AAA.
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  Speaker 1: Five months high.
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  Speaker 4: Yep.
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  Speaker 1: My son has a hybrid.
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  Speaker 6: He doesn't care.
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  Speaker 2: He's laughing all the way.
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  Speaker 1: Your stocks have been ripping, Lee.
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  Speaker 2: I'm looking at some of the trucking stocks up 30%, 40%
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  Speaker 2: this year.
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  Speaker 1: The railroad stocks up big this year. What's going on?
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  Speaker 1: So there's two things.
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  Speaker 7: The space is obviously early cycle and people are a
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  Speaker 7: little excited about what's going on with the industrial economy
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  Speaker 7: given the data center build out that's really been helping
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  Speaker 7: with freight. That coupled with ag has been pretty good
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  Speaker 7: as well. That's one thing. But really what's probably primarily
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  Speaker 7: driving it is a tighter trucking market. The trucking industry
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  Speaker 7: has been terrible for the last three or four years.
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  Speaker 7: And up until about six months ago, you've seen rates
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  Speaker 7: starting to inch off really depressed levels and the levels
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  Speaker 7: that were a lot of trucking companies were not making
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  Speaker 7: money and a lot of trucking companies were leaving the
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  Speaker 7: industry because of bankruptcies or they just couldn't make any more, make.
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  Speaker 1: Money and make a go of it.
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  Speaker 7: And so what we've seen is we've seen rates considerably
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  Speaker 7: rise in the spot market and that's really been driven
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  Speaker 7: by a lot of federal initiatives. They are forcing states
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  Speaker 7: to enforce rules that are on the book about English
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  Speaker 7: language proficiencies. They've been shutting down a lot of driving
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  Speaker 7: schools that have pumped out drivers that don't even know
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  Speaker 7: how to drive a truck. It's been pretty ridiculous. I
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  Speaker 7: think the Trump administration, for everything that you could say
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  Speaker 7: about what they're doing with trade, has done really great
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  Speaker 7: things when it comes to the trucking industry because it's
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  Speaker 7: making the industry safer and it's obviously making the roads
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  Speaker 7: safer for everybody.
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  Speaker 6: Right.
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  Speaker 3: But if they're closing down these commercial driving training schools,
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  Speaker 3: that means it's harder for these truckers to actually hire.
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  Speaker 1: How are they addressing that? How are they solving for it? Yeah.
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  Speaker 7: So they're going to have to pay more for truckers
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  Speaker 7: and then therefore the shippers.
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  Speaker 1: Have they started to do that?
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  Speaker 3: Yes.
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  Speaker 7: So if you're a trucker and you're working for a
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  Speaker 7: trucking company, you probably can go to a different trucking
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  Speaker 7: company and get a signing bonus. And you know, While
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  Speaker 7: there's some loyalty when it comes to working at a
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  Speaker 7: trucking company.
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  Speaker 1: Not like airline lounges. At the end of the day,
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  Speaker 1: they get paid per mile, right?
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  Speaker 7: And they want to be treated well. And so, you know,
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  Speaker 7: if they're slightly unhappy with the way they're treated, you know,
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  Speaker 7: they're happy to go down the street to another trucking
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  Speaker 7: company and maybe have a $ 10, 000 signing bonus, you know,
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  Speaker 7: if they reach certain criterias. So, you know, you are
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  Speaker 7: seeing that and, you know, you are going to and
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  Speaker 7: that is really what's going to be really interesting in
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  Speaker 7: the trucking market is that this cycle, this up cycle
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  Speaker 7: in rates is really going to be elongated. And it's
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  Speaker 7: going to be well beyond the typical 12 to 18
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  Speaker 7: months because of these structural changes, because a lot of
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  Speaker 7: these drivers that were kicked out, they're never coming back.
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  Speaker 6: Yeah.
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  Speaker 7: We're in past cycles. They would go work in construction
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  Speaker 7: and warehousing and then they would cycle back in.
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  Speaker 6: Yeah.
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  Speaker 7: And so what you're seeing is you're going to see
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  Speaker 7: a real structural change. And then, no, to answer your question,
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  Speaker 7: autonomous trucking is not there. They're not going to really
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  Speaker 7: fill the void. So it'll be a very interesting couple
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  Speaker 7: of years for the trucking industry. And what's great about
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  Speaker 7: trucking is the spot market within the truckload industry kind
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  Speaker 7: of ripples across all other modes. So then when spot
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  Speaker 7: markets rise, contractual markets rise, and the lessen truckload rates
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  Speaker 7: get better, then intermodal rates get better, railroad rates get better.
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  Speaker 7: And so that will have a knock-on effect for all
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  Speaker 7: freight rates. So in 2027 should be a pretty robust
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  Speaker 7: year for rates.
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  Speaker 1: More inflation for us, Paul. That's exactly right. Quick update
• 11:58
  Speaker 1: on what is it, CSX and Union Pacific, the merger
• 12:01
  Speaker 1: to create the first. Norfolk Southern. Norfolk Southern. OK, so
• 12:04
  Speaker 1: where are we on that?
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  Speaker 7: They just the the STB, the regulator just said, OK,
• 12:09
  Speaker 7: all the paperwork's in. We're going to start looking at
• 12:11
  Speaker 7: the merits of the deal. And so what you're going
• 12:14
  Speaker 7: to have is you're going to have both sides of
• 12:16
  Speaker 7: the argument press their case, and we're going to get
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  Speaker 7: some sort of a ruling, not until late 2027.
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  Speaker 6: Late 2027?
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  Speaker 1: It takes a long time. No kidding. This thing was announced, what,
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  Speaker 1: six months ago?
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  Speaker 3: A year ago.
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  Speaker 4: A year ago.
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  Speaker 3: The government moves slowly. Lee, do you watch The Gilded Age?
• 12:33
  Speaker 3: I don't. Oh, it's on HBO. Anyway, it's really good,
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  Speaker 3: and it's about the railroad barons. And, you know, when
• 12:40
  Speaker 3: they were doing a lot of stuff and, you know,
• 12:42
  Speaker 3: just expanding their empire.
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  Speaker 2: People liken the AI CapEx to, like, the railroad CapEx back.
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  Speaker 1: In the day. Yeah, yeah, yeah, yeah. Taking over the
• 12:50
  Speaker 1: world and making everyone pay up.
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  Speaker 6: Yep.
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  Speaker 2: All right, Lee, thanks so much. Appreciate it, Lee Klaskow.
• 12:55
  Speaker 2: He's a senior transport, logistics, and shipping analyst for Bloomberg Intelligence.
• 12:58
  Speaker 2: He also hosts a weekly podcast called Bloomberg Intelligence Talking Transports.
• 13:05
  Speaker 1: Stay with us.
• 13:06
  Speaker 5: More from Bloomberg Intelligence coming up after this. You're listening
• 13:13
  Speaker 5: to the Bloomberg Intelligence Podcast. Catch us live weekdays at
• 13:16
  Speaker 5: 10 a.m. Eastern on Apple CarPlay and Android Auto with
• 13:19
  Speaker 5: the Bloomberg Business App. Listen on demand wherever you get
• 13:22
  Speaker 5: your podcasts or watch us live on YouTube.
• 13:26
  Speaker 3: Another stock that is on the move this morning is Uber.
• 13:29
  Speaker 3: The shares have picked up some steam, now up 1.4%
• 13:34
  Speaker 3: on news that it is cutting about 3,300 jobs. That's
• 13:37
  Speaker 3: about 10% of its staff globally. Mandeep Singh is our
• 13:40
  Speaker 3: global head of tech research here at Bloomberg Intelligence. He's
• 13:43
  Speaker 3: in studio with us right now. Mandeep, this is very
• 13:46
  Speaker 3: much about turning Uber into a leaner company as it
• 13:50
  Speaker 3: reallocates some of its spending into the things that bring
• 13:54
  Speaker 3: a lot more value, like robo-taxi businesses.
• 13:57
  Speaker 4: Yeah, I mean, look, when it comes to Uber, it
• 14:01
  Speaker 4: feels like the hyper growth phase is past. And now
• 14:06
  Speaker 4: this company is growing, you know, at a very respectable
• 14:10
  Speaker 4: about 18 to 20 percent top line. But when it
• 14:13
  Speaker 4: comes to robo taxis or autonomous vehicles, they're facing a
• 14:18
  Speaker 4: lot of pressure from Waymo, which is going out on
• 14:22
  Speaker 4: its own. Tesla, we know they have ambitions and they
• 14:25
  Speaker 4: all are launching their own apps. And from a consumer standpoint, again,
• 14:30
  Speaker 4: we have talked about this in the past.
• 14:32
  Speaker 1: They don't have any loyalty.
• 14:33
  Speaker 4: They will download their own apps. And Uber is starting
• 14:38
  Speaker 4: to feel some pressure on their take rates as well.
• 14:41
  Speaker 4: So from that perspective, optimizing the cost structure, when you're
• 14:45
  Speaker 4: spending almost $ 50 billion, the total cost and expenses are
• 14:50
  Speaker 4: close to $ 50 billion. It's hard to imagine that for
• 14:54
  Speaker 4: an asset-like company, which actually brings a lot of external-like cars.
• 14:58
  Speaker 4: They don't even own the fleet. Why do they have
• 15:01
  Speaker 4: such a big employee base and cost structure? So it
• 15:05
  Speaker 4: doesn't surprise me that they are doing it irrespective of
• 15:08
  Speaker 4: AI optimizing some of that. And it makes sense.
• 15:12
  Speaker 3: I'm glad you bring up the lack of loyalty because
• 15:14
  Speaker 3: Paul Sweeney is notoriously not loyal to any car ride operator, right?
• 15:19
  Speaker 1: I arbitraged last night. South Amboy, don't.
• 15:22
  Speaker 2: Ever take a car from South Amboy down to the shore, 25% savings, almost,
• 15:28
  Speaker 2: arbitraging that.
• 15:29
  Speaker 6: How about that?
• 15:30
  Speaker 1: That's real money.
• 15:31
  Speaker 2: I'm gaming the system, as they say.
• 15:32
  Speaker 1: He's winning.
• 15:33
  Speaker 2: What's the latest thinking, Mandeep, in the industry about autonomous
• 15:38
  Speaker 2: vehicles and the threat it may pose longer term to
• 15:43
  Speaker 2: some of these ride-sharing companies?
• 15:44
  Speaker 1: I think it is a big threat.
• 15:46
  Speaker 4: I mean, the thing that saved the likes of Uber
• 15:49
  Speaker 4: so far is it's still a very small fraction of
• 15:53
  Speaker 4: the overall rides. I mean, when you think about how
• 15:56
  Speaker 4: many rides Uber does in a year, it is close
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  Speaker 4: to 12 billion plus rides. So from that perspective, autonomous vehicles,
• 16:05
  Speaker 4: which are there in more than 10 cities now, even
• 16:08
  Speaker 4: Waymo is there across a lot of the U.S.
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  Speaker 6: Cities.
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  Speaker 4: It just hasn't had the share of volume and the
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  Speaker 4: fleet you're required to scale. But everyone likes the experience.
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  Speaker 4: And so that is the threat. Like once you ramp
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  Speaker 4: up AVs and if AI helps expand the AV fleet,
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  Speaker 4: then that becomes a big risk. And Uber, to their credit,
• 16:30
  Speaker 4: has made a lot of investments. They don't have their
• 16:33
  Speaker 4: own AV technology, but they have invested a lot in
• 16:36
  Speaker 4: Nuro and a lot of the other companies in the ecosystem.
• 16:40
  Speaker 4: So it sounds like they will end up using these
• 16:42
  Speaker 4: cost savings to make more AV-related investments. I don't think
• 16:46
  Speaker 4: it's going into buybacks.
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  Speaker 1: Yeah, Waymo, very much a tourist activity in places like
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  Speaker 1: the Bay Area.
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  Speaker 6: Yeah. Yep.
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  Speaker 5: I took one.
• 16:52
  Speaker 6: See?
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  Speaker 4: Yeah.
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  Speaker 6: Very cool.
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  Speaker 3: I mean, again, Paul, not loyal to any ride-hailing company,
• 16:57
  Speaker 3: but he will go in a Waymo because it was
• 16:59
  Speaker 3: a fun thing to do.
• 16:59
  Speaker 2: He goaded me into it.
• 17:01
  Speaker 6: All right.
• 17:02
  Speaker 2: Promised me a meal in an Outburger.
• 17:04
  Speaker 6: All right.
• 17:04
  Speaker 1: That's worth it. That's worth it.
• 17:06
  Speaker 3: Mandeep, we also want to get your take on NVIDIA
• 17:09
  Speaker 3: and this $ 14 billion deal for Hugging Face.
• 17:12
  Speaker 1: That's what the reporting shows. What is Hugging Face?
• 17:15
  Speaker 4: So Hugging Face, I think the best comparison is they
• 17:19
  Speaker 4: are a repository of all the models. We talk about
• 17:24
  Speaker 4: Frontier Labs and open source models. And if you are
• 17:28
  Speaker 4: a company that wants to deploy an LLM, open source LLM,
• 17:32
  Speaker 4: Hugging Face has the repository of all the versions of
• 17:36
  Speaker 4: open source LLMs. And So from that perspective, they are
• 17:40
  Speaker 4: like the GitHub, a company that Microsoft bought. So the
• 17:43
  Speaker 4: surprising part here is Nvidia obviously is the largest chip company,
• 17:47
  Speaker 4: accelerator company looking to move into the software stack. I
• 17:51
  Speaker 4: would have expected a Microsoft looking to buy Hugging Face
• 17:56
  Speaker 4: or somebody that is operating in that layer. And look,
• 18:01
  Speaker 4: I think what Nvidia is signaling is they're just not
• 18:04
  Speaker 4: content to be that chip provider. They're partnering with Neo
• 18:07
  Speaker 4: Clouds to provide the compute infrastructure. And now with the
• 18:12
  Speaker 4: software layer, buying Hugging Face, They want to cover all
• 18:18
  Speaker 4: the adjacencies because they expect down the line, three to
• 18:22
  Speaker 4: four years down the line, everyone is developing their own chips,
• 18:25
  Speaker 4: all the hyperscalers, even the Frontier Labs, OpenAI. So they
• 18:29
  Speaker 4: want to make sure that NVIDIA is still that layer,
• 18:33
  Speaker 4: like the company that everyone standardizes on, like Intel back
• 18:37
  Speaker 4: in the day. I mean, Intel was the standard when
• 18:40
  Speaker 4: it comes to PCs, and they had a lot of
• 18:43
  Speaker 4: software components to their CPU strategy. I think that's what
• 18:47
  Speaker 4: NVIDIA is after. They want to move up the stack.
• 18:49
  Speaker 4: I wouldn't be surprised if they buy a security company,
• 18:52
  Speaker 4: you know, given all the focus on cybersecurity.
• 18:55
  Speaker 1: Stay with us.
• 18:56
  Speaker 5: More from Bloomberg Intelligence coming up after this. You're listening
• 19:03
  Speaker 5: to the Bloomberg Intelligence Podcast. Catch us live weekdays at
• 19:07
  Speaker 5: 10 a.m. Eastern on Apple CarPlay and Android Auto with
• 19:10
  Speaker 5: the Bloomberg Business App. Listen on demand wherever you get
• 19:13
  Speaker 5: your podcasts or watch us live on YouTube.
• 19:17
  Speaker 1: We are still in earnings season.
• 19:18
  Speaker 3: We're at the tail end of earnings season, but still
• 19:21
  Speaker 3: getting results, particularly those companies that are tied to the
• 19:24
  Speaker 3: AI story. And Dell is very much one of those companies. Dell,
• 19:29
  Speaker 3: of course, makes the AI servers. And if you look
• 19:32
  Speaker 3: at the shares of Dell today, up 4% after the
• 19:34
  Speaker 3: company boosted its sales outlook by $ 25 billion. Woojin Ho
• 19:39
  Speaker 3: is our senior hardware and networking analyst, and he's here
• 19:42
  Speaker 3: with us to give us his take on these results.
• 19:44
  Speaker 3: And Ugin, this is very much all the AI servers
• 19:48
  Speaker 3: and not so much the PC market, right?
• 19:51
  Speaker 4: Well, hey, Scarlett.
• 19:52
  Speaker 8: I think there's actually a lot of breadth in Dell's numbers, right?
• 19:57
  Speaker 8: I know the AI server numbers get a lot of headline, but,
• 20:02
  Speaker 8: you know, 11 billion or 14 billion of that upside
• 20:06
  Speaker 8: came from AI servers. So $ 11 billion has to come
• 20:08
  Speaker 8: from somewhere else, right? So the traditional server numbers, as
• 20:13
  Speaker 8: well as storage, is carrying that additional, increment the $ 11
• 20:17
  Speaker 8: billion in the server, in the outlook. And then that's
• 20:19
  Speaker 8: coming at a better profit margin too.
• 20:21
  Speaker 2: $ 25 billion up on their revenue forecast. Just to give
• 20:25
  Speaker 2: people a sense of context, they have $ 150 billion of revenue.
• 20:29
  Speaker 2: I don't think I've seen that type of raise as
• 20:31
  Speaker 2: a percentage of revenue. I mean, it doesn't happen very often.
• 20:35
  Speaker 2: Who do they got back there forecasting the revenue?
• 20:39
  Speaker 8: Look, you're guiding a little bit conservatively, Paul, but there's
• 20:44
  Speaker 8: a couple of components that's really driving the memory, the
• 20:48
  Speaker 8: guidance as well. You know, resilient, strong volumes, of course, right?
• 20:53
  Speaker 8: But they're also catching the memory inflation and passing it
• 20:57
  Speaker 8: through to their customers. So when, you know, we've been
• 20:59
  Speaker 8: talking about memory quite a bit at BI, and if
• 21:03
  Speaker 8: you're getting like 200 to 300% memory, inflation and passing
• 21:07
  Speaker 8: it to your customers. You're catching a little bit of
• 21:09
  Speaker 8: that on the guidance.
• 21:12
  Speaker 3: What did you hear from the executives in terms of
• 21:15
  Speaker 3: commentary on the path ahead? I mean, there's a lot
• 21:18
  Speaker 3: of demand. We know that. And Dell is in a
• 21:21
  Speaker 3: very good position. But there are some competitors it deals with.
• 21:24
  Speaker 3: And I'm curious how bullish they sounded, even as you
• 21:27
  Speaker 3: said that they're being conservative in their outlook.
• 21:31
  Speaker 8: I'm telling you, Scarlett, these guys sounded very bullish, right?
• 21:36
  Speaker 8: And I think the large size and scale matters here.
• 21:40
  Speaker 8: I'm going to give you a case in point. HP
• 21:43
  Speaker 8: reported the evening before, and they raised their PC guidance,
• 21:47
  Speaker 8: but their margins came in like around 5% on the
• 21:50
  Speaker 8: PC side. Dell's PC business, you know, which they're seeing
• 21:56
  Speaker 8: sinking unit demand but passing through pricing as well, they
• 21:59
  Speaker 8: did about 8% on PC margins. The only way that
• 22:04
  Speaker 8: you can get a 400 basis point differential on how
• 22:07
  Speaker 8: much you're getting on your PC is just scale. These
• 22:10
  Speaker 8: guys have massive scale that they're able to get memory
• 22:14
  Speaker 8: at probably an incremental lower cost and capture that incremental
• 22:19
  Speaker 8: price increase better than others.
• 22:22
  Speaker 1: Memory, supply.
• 22:23
  Speaker 2: Give us an update on where we are today. How
• 22:26
  Speaker 2: scarce is it? How difficult is it to get memory
• 22:29
  Speaker 2: and all that type of stuff? And how's that going
• 22:30
  Speaker 2: to play out over the coming, I don't think it's months,
• 22:33
  Speaker 2: I think it's quarters and years probably.
• 22:36
  Speaker 8: Well, I don't want to go to years because my
• 22:40
  Speaker 8: PC costs will continue to go upward. When I speak
• 22:46
  Speaker 8: to my colleague, Jake Silverman, in terms of the memory capacity.
• 22:51
  Speaker 8: We're just going to be in a very tight supply
• 22:52
  Speaker 8: environment up until at least the second half of 2027
• 22:56
  Speaker 8: and likely into 2028. New capacity is coming online, but
• 23:00
  Speaker 8: it takes about two years for these shells to be
• 23:03
  Speaker 8: built and then up and running. So give or take
• 23:08
  Speaker 8: four to six quarters before we start getting memory pricing relief.
• 23:13
  Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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