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China Targets Nvidia Over 2020 Deal, Straining Trade Talks · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 2: Up next, Carlo, we have this big news today. I
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  Speaker 2: feel like I was preparing for the show and then
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  Speaker 2: suddenly crossing the vire is China targets Nvidia over a
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  Speaker 2: two hunt over a twenty twenty deal, and with us
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  Speaker 2: to explain all of that is Bloomberg Intelligence, Globalhead of
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  Speaker 2: Technology Research, Mandy Singh. So, Mandy Mason, what we know
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  Speaker 2: so far? How serious are the alleged conditions that Invidio
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  Speaker 2: may have breached this Melanox acquisition and is this noise
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  Speaker 2: or should this be something that we should take seriously?
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  Speaker 3: Well, I mean typically what we have seen in cases
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  Speaker 3: like this when a regulator investigates, you know, an acquisition
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  Speaker 3: that was done in the past, is there could be
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  Speaker 3: a fine. There could be a hefty fine given you know,
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  Speaker 3: the size of the acquisition. Although we don't know what
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  Speaker 3: the you know, the investigation was all about, so they
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  Speaker 3: are very little details on what are transpired, but my
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  Speaker 3: sense is this is the timing is influenced by you know,
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  Speaker 3: the trade negotiations and what's going on with the US. Look,
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  Speaker 3: at the end of the day, China knows that Nvidia
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  Speaker 3: has some of its largest potential customers in China, and
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  Speaker 3: they would prefer those customers to get off of Nvidia dependency.
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  Speaker 3: I mean, that's the one thing that it's very obvious
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  Speaker 3: from the Chinese government. They don't want their largest customers
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  Speaker 3: of large anguid models to be relying on Invidia chips.
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  Speaker 4: Right, It's a national security issue for them. China had
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  Speaker 4: approved the in Vidia purchase of Melanox, a seven billion
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  Speaker 4: dollar deal, on the condition that Nvidia not discriminate against
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  Speaker 4: China these companies.
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  Speaker 5: That's that wording is very vague. How do you interpret that?
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  Speaker 3: Well, so, I mean, look at you know, how many
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  Speaker 3: architectures have been released by Nvidia since then, and so
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  Speaker 3: from that standpoint, the fact that you know, in the
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  Speaker 3: prior administration and Vidia was barred from selling their latest
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  Speaker 3: chips to the customers in China is just an illustration that. Yeah,
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  Speaker 3: I mean, all the other customers had you know, the
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  Speaker 3: latest and video chips accessible that wasn't the case with
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  Speaker 3: the Chinese customers. So there could be a lot of
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  Speaker 3: things that could be in play here in terms of
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  Speaker 3: the exact conduct that they found, you know, was not proper.
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  Speaker 3: But to my mind, it is just a negotiation lever
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  Speaker 3: that the Chinese government is pulling here. And look that
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  Speaker 3: in terms of the size of the market we know
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  Speaker 3: NVIDIAs said it's a fifty billion dollars addressable market for
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  Speaker 3: GPUs in China and it's expected to grow at a
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  Speaker 3: fifty percent plus cager. So it is a pretty big
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  Speaker 3: opportunity for a company like Nvidia and for other chip
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  Speaker 3: providers here in the US. And from that standpoint, you know,
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  Speaker 3: they could see the stakes up pretty high for companies
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  Speaker 3: that want to do business in China.
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  Speaker 2: The stock opened lower today, it's down by one and
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  Speaker 2: a half percent. How do you see this affecting investors
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  Speaker 2: sentiment around in Nvidia? Like, what are potential downside the
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  Speaker 2: risk to the stock? You alluded it. It could be
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  Speaker 2: just noise and the timing is curious, but still investors
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  Speaker 2: must be a little bit rattled at the very least.
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  Speaker 3: So what Nvidia has started doing is they've started embedding
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  Speaker 3: that in the guide. They said, if they were allowed
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  Speaker 3: to sell H twenties to China in three Q it
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  Speaker 3: could add another two to five billion dollars for the quarter.
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  Speaker 3: So that's how they guide going forward because of all
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  Speaker 3: the uncertainty. And remember the US government maybe getting a
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  Speaker 3: fifteen percent cut of those Nvidia or black Belt sales
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  Speaker 3: in China, so that's where the administration is negotiating. They
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  Speaker 3: want a cut of the chip sales. So I think
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  Speaker 3: everyone is involved, which is very surprising. You know, you
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  Speaker 3: would think it's you know, a company that is doing business,
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  Speaker 3: but in this case, there's a big geopolitical dimension to
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  Speaker 3: the entire thing that's going on here.
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  Speaker 4: Yeah, so it makes it extra complicated. At the same time,
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  Speaker 4: or maybe separately, I'm not sure which one it is,
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  Speaker 4: China has opened an anti dumping investigation into some US
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  Speaker 4: made analog chips. So the companies affected here would be
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  Speaker 4: Texas Instruments, Analog Devices, Broadcom, and on Semi. What can
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  Speaker 4: you tell us about this?
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  Speaker 3: Well, so again, I think when it comes to the
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  Speaker 3: analog side, the drivers are very different. Like we are
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  Speaker 3: supply constrained on the GPU accelerator side. On the analog side,
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  Speaker 3: the auto chip market has been pretty lackluster when you
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  Speaker 3: compare that to the overall chip complex, and so from
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  Speaker 3: that perspective, everyone is trying to find a lever to
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  Speaker 3: boost their sales given the lackluster demand. And I don't
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  Speaker 3: think there was any anti dumping, but that's where the
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  Speaker 3: negotiation aspect comes into play. That okay TI is another
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  Speaker 3: company that does business in China. What have they been
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  Speaker 3: up to? Is there anything in the conduct that they
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  Speaker 3: could point to? And so do my mind, you know,
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  Speaker 3: it's probably a reflection of that.
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  Speaker 2: Maybe very briefly, what lessons should other US and foreign
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  Speaker 2: semiconductor companies take from this experience in terms of risk
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  Speaker 2: to China regulatory backlash or conditional approval being revisited after
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  Speaker 2: a deal.
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  Speaker 3: That doing business in China is getting harder and harder.
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  Speaker 3: I mean, if you're a company that relied, like look
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  Speaker 3: at Synopsis, the stock top thirty percent partly was because
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  Speaker 3: of Intel pairing back on the license consumption, but also
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  Speaker 3: in China. They couldn't sign long term agreements in China,
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  Speaker 3: and they have a pretty sizable customer base in China.
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  Speaker 3: So that's just another illustration of the risk with China sales.
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  Speaker 4: The goalpost are constantly moving for companies operating in China,
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  Speaker 4: and you could argue for companies operating in the US
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  Speaker 4: as well.
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  Speaker 5: All right, man, Deep Sink, thank you so much.
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  Speaker 4: Bloomberg Intelligence, Global head of Technology Research, joining us here
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  Speaker 4: and again we are looking at shares of Nvidia isabel
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  Speaker 4: lower today because Beijing unexpectedly ruled that the company violated
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  Speaker 4: anti monopoly laws.
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  Speaker 5: With its twenty twenty acquisition of Melanox. Stay with us.
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  Speaker 5: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 4: Let's move on now to the headline we got this
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  Speaker 4: morning that this TikTok deal has been secured, or at
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  Speaker 4: least a framework deal has been reached, according to Scott Besson,
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  Speaker 4: our Treasury Secretary. President Trump says he will now speak
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  Speaker 4: with Chinese President Shi Jinping on Friday to complete the deal.
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  Speaker 4: Let's bring Matthew Shettenhelm. He has Bloomberg Intelligence media litigation
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  Speaker 4: analysts from Washington, DC. Matt, where does this leave TikTok's
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  Speaker 4: legal status.
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  Speaker 6: Well, Scarlett, it looks like we may finally be seeing
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  Speaker 6: some movement here. This has been an extended legal limbo,
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  Speaker 6: as President Trump has extended this law three times, even
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  Speaker 6: though it's not really clear that that's what Congress envisioned.
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  Speaker 6: He's been able to adopt these extensions in January, in April,
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  Speaker 6: and in June. And that extension set to expire on
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  Speaker 6: Wednesday of this week. And as you said, it sounds
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  Speaker 6: like there may be at least the shape of a
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  Speaker 6: deal coming into place to maybe be finalized after those
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  Speaker 6: talks on Friday. So it looks like there probably will
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  Speaker 6: be another extension since since the law is set to
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  Speaker 6: take effect on Wednesday, and we might not be done then.
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  Speaker 6: But this at least seems like progress.
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  Speaker 2: So it is progress indeed, and I feel like there
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  Speaker 2: has and one extension after the other. What outcome are
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  Speaker 2: we hoping to expect on Friday when President Donald Trump
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  Speaker 2: will speak with Chinese leaders? She didn't ping it's a
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  Speaker 2: share of American company or like, tell us what you're
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  Speaker 2: looking at.
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  Speaker 6: Well, it's really hard to know exactly what you know.
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  Speaker 6: The law contemplates a divestiture, so that the company that
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  Speaker 6: runs the US operations would not be controlled by byte Dance,
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  Speaker 6: and so what the way you read the law, it
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  Speaker 6: contemplates that there would be a divestiture likely to a
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  Speaker 6: US entity, probably where byte Dance owns less than twenty
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  Speaker 6: percent of that company, and that there would be no
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  Speaker 6: cooperation between those two companies they would be formerly affiliated
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  Speaker 6: under the law. I think the really interesting thing to
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  Speaker 6: watch is how much is this deal going to stick
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  Speaker 6: to the terms of the law. You could make a
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  Speaker 6: pretty strong argument that that president hasn't exactly adhered to
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  Speaker 6: the law so far, and he hasn't gotten any pushback.
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  Speaker 6: So it's not clear how much any deal will need
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  Speaker 6: to stick to the law or not right.
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  Speaker 4: Right right now, that's an important point, and you know
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  Speaker 4: it could not stick to law, But it doesn't matter
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  Speaker 4: if everyone's okay with it, Matthew In terms of companies
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  Speaker 4: affected by some kind of framework deal reached, for which
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  Speaker 4: companies is this good news?
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  Speaker 3: Well?
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  Speaker 6: Sure? I mean so Apple and Google have been hosting
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  Speaker 6: TikTok in their app store at enormous legal risk with
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  Speaker 6: this law in place, in theory that they are potentially
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  Speaker 6: exposed to liability of five thousand dollars per TikTok user,
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  Speaker 6: and you do that math and it's absurd, and so
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  Speaker 6: no one wants to operate with that cloud hanging over
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  Speaker 6: your head. So in that sense, you know, some clarity
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  Speaker 6: in the law here is good for those companies. I'm
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  Speaker 6: not sure it's so good for TikTok's competitors like Meta,
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  Speaker 6: that had the opportunity to have one of their top
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  Speaker 6: competitors in the US knocked out of the market, and
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  Speaker 6: it looks like that is going away. So looks like
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  Speaker 6: TikTok will remain a fierce competitor in the United States,
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  Speaker 6: and so Meta won't be able to use this law
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  Speaker 6: to its advantage.
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  Speaker 2: We also have a story published less than thirty minutes ago.
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  Speaker 2: It's about Treasury Secretary Scott bess and saying that the
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  Speaker 2: threat of allowing TikTok to go dark in the US
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  Speaker 2: was what ultimately sealed a framework deal. Can you talk
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  Speaker 2: to us more about how this strong arm negotiations may
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  Speaker 2: shape future negotiations between foreign companies in the US, and
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  Speaker 2: at least for this one specifically, in isolation, it looks successful.
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  Speaker 6: It does look like this may have worked. This is
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  Speaker 6: not the way that these things typically work. But here
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  Speaker 6: Congress really gave President Trump a lot of leverage by
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  Speaker 6: passing this law. I think there it was questionable whether
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  Speaker 6: President Trump was using that level bridge by letting TikTok
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  Speaker 6: continue to operate. You could make the case that he
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  Speaker 6: could have made a stronger or leverage if you hadn't.
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  Speaker 6: But it seems to be working.
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  Speaker 4: Matthew, always a pleasure, Matthew Schuttenhelm, Bloomberg Intelligence media litigation
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  Speaker 4: analysts from Washington TC on TikTok's legal status now that
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  Speaker 4: there has been a framework deal.
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  Speaker 5: Reached on TikTok, according to Scott Besant, stay with us.
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  Speaker 5: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 11:43
  Speaker 2: Now, we're going to talk all about Tesla and Elon
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  Speaker 2: Musk buying one billion dollars worth of Tesla shares. Were
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  Speaker 2: joined by Craig Trudell. He's the Bloomberg Global Autos editor,
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  Speaker 2: joining us from London. So Ed, Craig, what can you
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  Speaker 2: tell us about Elon Musk purchasing one billion worth of
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  Speaker 2: Tesla shares? What signal do you think he's trying to
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  Speaker 2: send markets and shareholders with this move?
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  Speaker 7: I think I think it's pretty clear. There was an
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  Speaker 7: all out push on Friday, with Robin Denholm, the chair
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  Speaker 7: of the company, speaking with at Bloomberg Television, speaking with
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  Speaker 7: you know, the New York Times, the Wall Street Journal,
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  Speaker 7: all sorts of major news organizations about the merits of
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  Speaker 7: this pay package that the board is proposing. There's going
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  Speaker 7: to be a big shareholder vote in November on handing,
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  Speaker 7: you know, Musk, this this potentially up to one trillion
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  Speaker 7: dollars worth of stock. There's a lot of caveats all
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  Speaker 7: that that Musk would have to sort of, you know,
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  Speaker 7: pull a rabbit out of the hat again after you know,
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  Speaker 7: doing so after a twenty eighteen pay package where the
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  Speaker 7: board laid out out all these really ambitious you know,
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  Speaker 7: market value and performance milestones. Musk, you know, at that
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  Speaker 7: time it was kind of perceived as this moonshot pay package.
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  Speaker 7: He proceeded to knock them all out, and they're now
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  Speaker 7: calling this next paypackage a mark Dot pay package. So,
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  Speaker 7: you know, I think there's this This is all sort
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  Speaker 7: of part of a piece, right of trying to get
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  Speaker 7: investors to sort of you know, focus on you know,
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  Speaker 7: far out there targets objectives from us that would make
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  Speaker 7: shareholders a whole lot of money. And it comes amid
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  Speaker 7: you know, real signs of stress for the core here
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  Speaker 7: and now business for Tesla where their sales have just
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  Speaker 7: really struggled this year and there haven't really been signs
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  Speaker 7: of of sort of meaningful change in that trend even
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  Speaker 7: into this quarter.
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  Speaker 4: Right, so this will properly motivate him. I'm so glad
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  Speaker 4: you brought up the twenty eighteen pay package and some
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  Speaker 4: of the moonshot milestones that laid out for Elon Musk.
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  Speaker 4: What was the most I don't want to use the
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  Speaker 4: word outrageous, but the most ambitious of those milestones? And
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  Speaker 4: did he surpass each and every one of them?
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  Speaker 7: Yeah? I mean in terms of the milestones there, I
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  Speaker 7: mean just even the market cap figures I think, you know,
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  Speaker 7: when they were laid out, you know, it was it
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  Speaker 7: was just sort of unfathomable that you know, a car
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  Speaker 7: company could be you know, a trillion dollar company, and
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  Speaker 7: you know, give give the guy credit. He went out
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  Speaker 7: there and and made it happen. You know, I think
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  Speaker 7: Tesla now is trying to sort of, you know, incentivize
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  Speaker 7: him to you know, turn Tesla into a company that
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  Speaker 7: has many multiples of even Navidia, the most valuable company
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  Speaker 7: in the world in the here and now. And yet
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  Speaker 7: you know, the sort of path to getting there is
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  Speaker 7: really uncertain because you know, you've you've heard Musk make
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  Speaker 7: these pitches about robotaxis and about humanoid robots. But you know,
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  Speaker 7: he's starting essentially from zero from a humanoid robot perspective
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  Speaker 7: and from a ROBOTAXI perspective. He's got you know, a
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  Speaker 7: very very small number of cars on the roads in Austin,
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  Speaker 7: Texas that still have people you know, in the in
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  Speaker 7: the front row minding those cars and in certain cases
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  Speaker 7: actually still behind the wheel. So you know, he is
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  Speaker 7: a long long way from accomplishing some of these new
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  Speaker 7: objectives that the board has set form.
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  Speaker 2: This must buying shares personally, is governance concerns or could
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  Speaker 2: it even actually reinforce skepticism about how closely Tesla's board
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  Speaker 2: is aligned with his self interest, his being Musk.
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  Speaker 7: You know, I think just generally whenever a CEO or
• 15:21
  Speaker 7: an insider of a company is buying shares. That's taken
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  Speaker 7: as a good thing and not necessarily you know, something
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  Speaker 7: to look at skins at from a corporate governance perspective.
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  Speaker 7: It does, however, I think it's worth sort of you know,
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  Speaker 7: thinking about this billion dollar purchase and context. This is
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  Speaker 7: a guy who's you know, sort of you know, a
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  Speaker 7: billion dollars can be found in his couch cushions, right
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  Speaker 7: he is is the top person on the Bloomberg Billionaires Index.
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  Speaker 7: He was very briefly, you know, not from that spot
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  Speaker 7: last week by Larry Ellison. But he's worth about you know,
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  Speaker 7: four hundred and twenty billion dollars at the moment, and
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  Speaker 7: so you know just how meaningful this is. With any
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  Speaker 7: other CEO, you would look at a billion dollar Stoft
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  Speaker 7: purchase and maybe take, you know, take real note of that.
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  Speaker 7: With Musk, is it that you know, huge a show
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  Speaker 7: of confidence? Maybe not in the context of, you know,
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  Speaker 7: just how much wealthy has Craig.
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  Speaker 4: All of this emphasis on what Elon Musk can do
• 16:19
  Speaker 4: and what Elon Musk can achieve by a certain period
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  Speaker 4: really raises a key man risk. Here is there succession
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  Speaker 4: plan for Elon Musk if something should happen to him.
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  Speaker 4: I mean, I'm looking at the company management and he's
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  Speaker 4: got seventeen years tenure at Tesla. The person in the
• 16:35
  Speaker 4: next closest tenure or the next longest tenure is Shaotong
• 16:39
  Speaker 4: Ju tom Ju at.
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  Speaker 5: Two point four years. He's the senior vice president of APAK.
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  Speaker 7: Yeah, it's a very good question, and it's something that's
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  Speaker 7: sort of considered actually in this new proxy where you know,
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  Speaker 7: the board sort of lays out this idea of getting
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  Speaker 7: you know, some some buy in from Musk in terms
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  Speaker 7: of how being and assisting on succession. At the same time,
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  Speaker 7: you're hearing Robin Denholm, the chair of the board, you know,
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  Speaker 7: tell Bloomberg TV last week that there aren't any other
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  Speaker 7: people out there like Elon who can actually lead this
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  Speaker 7: company over the next decade or so. And so, you know,
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  Speaker 7: I think they want to kind of have it both ways,
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  Speaker 7: right of we must, you know, incentivize this guy because
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  Speaker 7: he's the only one who can do this, and yet
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  Speaker 7: we do realize we need to sort of assuage these
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  Speaker 7: concerns about succession.
• 17:29
  Speaker 4: Correct Trudell always a pleasure of Bloomberg Global Autos editor
• 17:32
  Speaker 4: on Elon Musk buying a billion dollars worth of Tesla's shares.
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