Latest / Bloomberg Intelligence / Chipmakers Sink as Nvidia Fails to Dispel AI Worry

Transcript

Chipmakers Sink as Nvidia Fails to Dispel AI Worry · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
• 0:14
  Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg
• 0:17
  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
• 0:21
  Speaker 1: or watch us live on YouTube.
• 0:24
  Speaker 2: The big earning story of the day is in Vidia
• 0:26
  Speaker 2: put out a really, really solid number but being caught
• 0:29
  Speaker 2: up in the downdraft. Continued downdraft selling of technology, in
• 0:34
  Speaker 2: particular software kind of AI themed names more specifically Kunjan Sobani.
• 0:41
  Speaker 2: He is the senior analyst covering the semiconductor companies for
• 0:44
  Speaker 2: Bloomberg Intelligence. He's based out in our San Francisco office.
• 0:47
  Speaker 2: I'm just reading your research note here. Give us a
• 0:49
  Speaker 2: sense of how you think the quarter went for Nvidia.
• 0:53
  Speaker 3: Yeah, this was one of the more stronger quarter showings
• 0:56
  Speaker 3: if you look at the last four quarters. The one
• 0:59
  Speaker 3: Q guide is the next quarter guide blew off most
• 1:02
  Speaker 3: of the high bar of the byside bogies that we
• 1:05
  Speaker 3: think the buyside was at. There was really nothing negative
• 1:09
  Speaker 3: to find, even if we go through a fine core
• 1:13
  Speaker 3: in this quarter and print, there were a couple of
• 1:15
  Speaker 3: positives that we really liked. One is the revenues from
• 1:19
  Speaker 3: their customers outside of the top five CSP and hyper
• 1:22
  Speaker 3: scales grew actually faster than those five customers. When we
• 1:27
  Speaker 3: look at the whole PHISS last fiscal year, that group
• 1:30
  Speaker 3: grew almost close to the top five. So all the
• 1:33
  Speaker 3: focus always goes to the top five, but this really
• 1:36
  Speaker 3: speaks to the breadth and the quality and the diversification
• 1:40
  Speaker 3: of demand for n media products, which is a good
• 1:43
  Speaker 3: robust side. Second thing we really liked is networking. So
• 1:47
  Speaker 3: if we look at the four Q numbers, majority of
• 1:49
  Speaker 3: the beat in data center was coming from networking. Their
• 1:53
  Speaker 3: networking attached continues to get stronger and honestly surpassing expectations
• 1:58
  Speaker 3: of what investors have or the networking division. And the
• 2:01
  Speaker 3: final thing we really liked was the gross margins. We
• 2:04
  Speaker 3: all are aware of the rising memory cost, the rising
• 2:07
  Speaker 3: way for the rising substrate cost. Despite all of these costs,
• 2:11
  Speaker 3: which the company does not pass through to its customers,
• 2:14
  Speaker 3: so sort of in a way eats that cost, they're
• 2:16
  Speaker 3: able to maintain this ridiculously high software level gross margins
• 2:20
  Speaker 3: for a hardware company.
• 2:21
  Speaker 4: What about growth and other segments like automotive or edge computing?
• 2:25
  Speaker 4: How important are those when it comes to the company's
• 2:28
  Speaker 4: long term earnings profile.
• 2:31
  Speaker 3: I don't think right now anyonus focus on those when
• 2:33
  Speaker 3: you look at the scale, I mean, majority of the
• 2:35
  Speaker 3: revenues coming from the data center, right, so they don't
• 2:38
  Speaker 3: really move a needle a lot. Automotive, however, will become
• 2:42
  Speaker 3: very critical when you think about the next three to
• 2:44
  Speaker 3: five years, because once we get to the stage where
• 2:47
  Speaker 3: we have a massive deployment of L three plus L
• 2:51
  Speaker 3: four plus automobiles on the road, not just in the US,
• 2:55
  Speaker 3: but also in China, this is where you know, this
• 2:58
  Speaker 3: could bring in tens of billions of dollars of revenue
• 3:01
  Speaker 3: for for Nvidia.
• 3:02
  Speaker 2: So what are we How should we think about China here?
• 3:05
  Speaker 2: Because I can't keep track. I don't know what chip's
• 3:08
  Speaker 2: allowed in, not allowed in, how long it will be
• 3:10
  Speaker 2: allowed in. Is the company just saying we're just going
• 3:13
  Speaker 2: to step back until we get greater clarity.
• 3:15
  Speaker 3: Yeah, And that's not just with Nvidia, it's with all
• 3:18
  Speaker 3: a chip makers. Right now, I mean for the last
• 3:20
  Speaker 3: I guess twelve two to three quarters, nobody's been able
• 3:24
  Speaker 3: to ship to China right, so on there's two factors,
• 3:27
  Speaker 3: A US allowing them to chip to China and then
• 3:29
  Speaker 3: also once that happens, will China accept these chips or not?
• 3:33
  Speaker 3: So until that issue is completely resolved, the street has
• 3:37
  Speaker 3: taken out numbers. Companies have taken out those numbers. They're
• 3:39
  Speaker 3: just not talking and you know, not thinking about that
• 3:42
  Speaker 3: right now.
• 3:43
  Speaker 4: So it's been a blowout quarter. Any risk that investors
• 3:46
  Speaker 4: should be watching that might effect grows and margins in
• 3:49
  Speaker 4: the next quarters.
• 3:51
  Speaker 3: Nothing specific to the company. What has really been hampering
• 3:55
  Speaker 3: the sentiment is this overall AI for TIG. I mean, look,
• 3:58
  Speaker 3: on one hand, the top customers who are announcing these
• 4:01
  Speaker 3: big capex raises are getting punished because they're spending too much, right,
• 4:06
  Speaker 3: So you can't have it both ways. Where the same
• 4:08
  Speaker 3: investors who don't like this spending too much from the
• 4:11
  Speaker 3: customers and Vidia is getting rewarded because of high capex
• 4:14
  Speaker 3: spend will also keep on getting rewarded. So there is
• 4:16
  Speaker 3: this AI fatigue that how long can you keep on
• 4:19
  Speaker 3: increasing this spend and what happens next year? Every year
• 4:22
  Speaker 3: when these numbers go up, a question comes about, well
• 4:25
  Speaker 3: can you keep going making them go up again next year? No?
• 4:27
  Speaker 2: No, I'm looking at the chip stocks, Kunjohn, your list
• 4:31
  Speaker 2: is looking really good here Advanced micro Devices and Intel
• 4:34
  Speaker 2: both up ninety percent and Vidia forty percent all on
• 4:37
  Speaker 2: trailing twelve month basis. Are tech investors software investors? Are
• 4:42
  Speaker 2: they hining out in you? Chip names?
• 4:45
  Speaker 3: Well, chip names definitely are doing better from a sector
• 4:49
  Speaker 3: perspective overall in the tech and for the obvious reasons.
• 4:52
  Speaker 3: When you now look at the EPs growth prospects, the
• 4:55
  Speaker 3: revenue growth prospects, right, A significant big portion of now
• 4:59
  Speaker 3: that in the next two to three years is definitely
• 5:01
  Speaker 3: coming to the chip name. So fundamentally a good spot
• 5:05
  Speaker 3: to be in.
• 5:06
  Speaker 2: I would say, what's the uh, what's the the next
• 5:11
  Speaker 2: play here for the chip space? Here? Is it simply iterating, iterating, iterating,
• 5:17
  Speaker 2: iterating on new chips and that drives the longer term
• 5:21
  Speaker 2: revenue Outlook.
• 5:23
  Speaker 3: Yeah, exactly what you said. Look, when we think about
• 5:26
  Speaker 3: the markets where AI has already proliferated, which is really
• 5:29
  Speaker 3: data centers, is just keeping up, you know, iterating to
• 5:33
  Speaker 3: make the compute more efficient, so we can reach the
• 5:35
  Speaker 3: stage where all this AI capex spending is no longer
• 5:38
  Speaker 3: a concern because the customers are able to monetize from that.
• 5:41
  Speaker 3: The second big wave will come from markets where AI
• 5:44
  Speaker 3: has not yet prolifitted. So think of your edge device,
• 5:47
  Speaker 3: your smartphones, your PCs, think of your automotive vehicles. Right,
• 5:51
  Speaker 3: So this will be the new vectors of secular growth
• 5:54
  Speaker 3: for the chip names where if AI proliferates faster here
• 5:57
  Speaker 3: they can start collecting a lot more revenue.
• 5:59
  Speaker 4: So just very quickly. How confident are you that this
• 6:02
  Speaker 4: demand will remain strong so at twenty twenty six and beyond.
• 6:06
  Speaker 3: So from the visibility that the Nvidia and its peers
• 6:10
  Speaker 3: have announced, it definitely looks like for the chip guys
• 6:13
  Speaker 3: at least until first half twenty twenty seven, is sort
• 6:16
  Speaker 3: of locked in and pretty safe unless something major macro
• 6:19
  Speaker 3: or geopolitical event doesn't happen beyond you know, starting second
• 6:23
  Speaker 3: half twenty seven. We don't have a lot of risk
• 6:26
  Speaker 3: modeled in, but that is something we cannot say, but
• 6:29
  Speaker 3: for sure that it's locked in already.
• 6:31
  Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
• 6:38
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 6:42
  Speaker 1: weekdays at ten am Eastern on Apple Cocklay and Android
• 6:45
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 6:49
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 6:53
  Speaker 2: We are fortunate here at Bloomberg to speak. Some of
• 6:55
  Speaker 2: the really the smartest people out there in the marketplace
• 6:58
  Speaker 2: are our next guest certainly qualify. It's been so kind
• 7:00
  Speaker 2: to give us time over the years to help us
• 7:03
  Speaker 2: get up. You know what's going on in the world
• 7:05
  Speaker 2: of technology, and that's Genemunster, Managing partner for Deepwater Asset Management. Gene,
• 7:09
  Speaker 2: let's just start with I guess the topic of the day,
• 7:11
  Speaker 2: which is in Vidia. You know, I know you tech
• 7:13
  Speaker 2: guys look for the beaten raised type of thing, and
• 7:16
  Speaker 2: I think that's what we got here. What do you
• 7:18
  Speaker 2: make in Vidia's report, Gene.
• 7:21
  Speaker 5: Well, there's like three orbits here, Paul. There's the reaction
• 7:25
  Speaker 5: the report, the reaction to the report, there's the fundamentals.
• 7:29
  Speaker 5: Then there's kind of the AI trade. So there are
• 7:31
  Speaker 5: three different orbits. And maybe specifically on the stock being down,
• 7:35
  Speaker 5: we'll call it five percent today on what objectively was
• 7:39
  Speaker 5: better than the whisper numbers, and some want to zero
• 7:42
  Speaker 5: in on what the key whisper was. That was revenue
• 7:45
  Speaker 5: growth for the April quarter. The street was in print
• 7:48
  Speaker 5: at sixty four percent. The whisper was that they were
• 7:51
  Speaker 5: going to guide to around seventy percent, and they guided
• 7:55
  Speaker 5: to seventy nine percent. It's the high end of their range.
• 7:58
  Speaker 5: And so if you put the together, that's kind of
• 8:01
  Speaker 5: why you got that first like up three percent kind
• 8:03
  Speaker 5: of reaction when the when initially the numbers hit, the
• 8:07
  Speaker 5: guidance hit, and so, like you said, it's about beating rays,
• 8:11
  Speaker 5: beating the whispers specifically. So how do you make sense
• 8:14
  Speaker 5: if that is in fact the case? How do you
• 8:17
  Speaker 5: make sense of what the stock is doing? And I
• 8:19
  Speaker 5: think part of it comes down to there is this
• 8:23
  Speaker 5: broader narrative just around this company is just getting too big.
• 8:27
  Speaker 5: There is also the piece that some of this, like
• 8:30
  Speaker 5: I mentioned, is that the whisper number was higher than
• 8:32
  Speaker 5: the imprint numbers. Shares of Nvidia since we saw Google
• 8:37
  Speaker 5: and Amazon ramp up their capex commentary three weeks ago,
• 8:42
  Speaker 5: Shares Nvidia, even with the sell off today are up
• 8:45
  Speaker 5: about eight percent now. That compares to the Nasdaq which
• 8:48
  Speaker 5: is up about two percent. So essentially some of this
• 8:52
  Speaker 5: was priced in even though they beat the numbers. I
• 8:54
  Speaker 5: think that's really some important context. But if I may
• 8:57
  Speaker 5: just kind of even zoom back even further and look
• 9:00
  Speaker 5: at the broader narrative around in Nvidia is since October
• 9:04
  Speaker 5: twenty eighth, that's when Meta shares got hit because of
• 9:08
  Speaker 5: their big CAPPAX guide and kind of change the narrative
• 9:11
  Speaker 5: in terms of how investors think about AI infrastructure since
• 9:15
  Speaker 5: October twenty eighth, and the NASAQ is down about four
• 9:17
  Speaker 5: percent and shares of Nvidia are down ten percent, even
• 9:21
  Speaker 5: though the numbers have gone up, call it thirty percent
• 9:24
  Speaker 5: since then. And so what you're really seeing here is
• 9:27
  Speaker 5: this continued skepticism that investors have specifically about the sustainability
• 9:34
  Speaker 5: of the trade. And I don't think it's any commentary
• 9:37
  Speaker 5: about the strength of the fundamentals, but I think that's
• 9:40
  Speaker 5: what we're seeing with the share price reaction this morning.
• 9:43
  Speaker 4: I think it's also because Nvidia has a huge mote
• 9:45
  Speaker 4: in training because if it's GPU, but when it comes
• 9:47
  Speaker 4: to inference, not so much. And I feel like that's
• 9:50
  Speaker 4: where AMD is a competitor and Broadcom with its custom chips,
• 9:53
  Speaker 4: and maybe that's where the disappointment came from, at least
• 9:55
  Speaker 4: when we're seeing this morning, well you.
• 9:58
  Speaker 5: Know this that all plays in to this longer narrative,
• 10:01
  Speaker 5: which had less to do about what was said on
• 10:03
  Speaker 5: the call last night and so what you're tapping into
• 10:06
  Speaker 5: is as inference, and I just want to quickly frame
• 10:09
  Speaker 5: in inference for those listeners who may not be as
• 10:12
  Speaker 5: familiar with that. A lot of the AI infrastructure spend,
• 10:15
  Speaker 5: of course, has been related to training. The inference piece
• 10:18
  Speaker 5: is that's really the substance of what AI is. Think
• 10:21
  Speaker 5: of AI's inference inferences. Thinking that piece is there's debates
• 10:26
  Speaker 5: about what are the most what are the optimal chips,
• 10:30
  Speaker 5: the optimal GPUs you need for that. And my sense
• 10:33
  Speaker 5: is that as part of the conversation, I think in
• 10:36
  Speaker 5: video is going to be in a great place. I
• 10:38
  Speaker 5: suspect that they're going to grow and count, So I
• 10:41
  Speaker 5: think inference is going to be huge opportunity. I want
• 10:43
  Speaker 5: to just quickly frame in how big inference is that
• 10:45
  Speaker 5: you can have multiple winners here if you look at
• 10:48
  Speaker 5: the size of inference, Jensen talks about being potentially a
• 10:51
  Speaker 5: thousand times bigger than what traditional compute is. What we're
• 10:56
  Speaker 5: seeing in our own use of AI internally is we're
• 10:59
  Speaker 5: seeing tens of thousands of times more use of tokens
• 11:02
  Speaker 5: when it comes to inference. And so inference is this
• 11:06
  Speaker 5: scary topic because for some Nvidia investors because this competitive
• 11:10
  Speaker 5: dynamic comes up. Do you need less power chips? But
• 11:13
  Speaker 5: the reality is the amount of chips still, the amount
• 11:15
  Speaker 5: of AI infrastructure that's going to be needed to power
• 11:18
  Speaker 5: this over the next decade, I think is being grossly
• 11:21
  Speaker 5: underestimated by investors.
• 11:23
  Speaker 2: Gene, you've been covering this technology industry for decades. You've
• 11:26
  Speaker 2: seen everything. I want to ask you, based upon your experience,
• 11:31
  Speaker 2: how do you think about what's happening in the software
• 11:33
  Speaker 2: side of the business right now? Stock selling off, particularly
• 11:36
  Speaker 2: the software is a service stocks like a software Salesforce
• 11:39
  Speaker 2: dot Com Really under the guys that wait, AI is
• 11:42
  Speaker 2: going to really disrupt this software business. How do you
• 11:45
  Speaker 2: put that into context for people?
• 11:48
  Speaker 5: So I think that for those who are reading the
• 11:52
  Speaker 5: headlines and looking at the stock reaction to these earnings,
• 11:56
  Speaker 5: I think kind of the substance of what's going on
• 11:58
  Speaker 5: underneath the hood is being missed. It's really hard for
• 12:00
  Speaker 5: I think that audience to really grasp the improvement that
• 12:04
  Speaker 5: these models have had over the past three months. Of course,
• 12:07
  Speaker 5: open claw and claud code claw work are kind of
• 12:10
  Speaker 5: the signature products that have caused some of that breakthrough,
• 12:15
  Speaker 5: But that change has had what I think is going
• 12:18
  Speaker 5: to have a profound impact on software, and the way
• 12:20
  Speaker 5: we've been investing around it is we've lowered our exposure
• 12:24
  Speaker 5: to seat based software companies because ultimately, if this is right,
• 12:28
  Speaker 5: that knowledge work is going to be impacted, there will
• 12:31
  Speaker 5: be less seats out there. AI agents don't purchase seats,
• 12:34
  Speaker 5: and separately that the usage based models. So we're still
• 12:37
  Speaker 5: holders of companies like data Dog and Snowflake, and so
• 12:41
  Speaker 5: those models I think are going to do well. So, Paul,
• 12:43
  Speaker 5: the answer is is that software is at a profound crossroad.
• 12:47
  Speaker 5: And I don't think that all software has created equal
• 12:49
  Speaker 5: I think the usage based models, but I would say
• 12:51
  Speaker 5: that software needs to do something that we still haven't seen,
• 12:54
  Speaker 5: even with the Salesforce results last night. We need to
• 12:57
  Speaker 5: see these software companies stand up and basically punch back
• 13:01
  Speaker 5: at AI. They haven't done that. That's exactly what Google
• 13:04
  Speaker 5: did in the June quarter last year when they showed
• 13:08
  Speaker 5: that they can use generative AI to their advantage and search.
• 13:11
  Speaker 5: They really short circuited that negative narrative. And until software
• 13:16
  Speaker 5: companies can say, look at our seat growth moving higher,
• 13:19
  Speaker 5: look at how our RPU is per user is improving,
• 13:22
  Speaker 5: until they really have that flex that stand up. I
• 13:26
  Speaker 5: think that this narrative, this negative narrative around software is
• 13:29
  Speaker 5: going to persist.
• 13:30
  Speaker 2: Gene, Thank you so much yet again. Gene Mounster, Managing partner,
• 13:34
  Speaker 2: Deepwater Asset Management. He was one of the first folks
• 13:36
  Speaker 2: that kind of got helped me understand what AI is,
• 13:40
  Speaker 2: and now I kind of get a little bit of
• 13:41
  Speaker 2: a better understanding of what the potential threat for software
• 13:44
  Speaker 2: can be when you think about the seat licenses and
• 13:46
  Speaker 2: that could be a weakness for some of that revenue model. There.
• 13:51
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 13:58
  Speaker 1: You're listening to the Bloomberg and Tellen's podcast. Catch us
• 14:01
  Speaker 1: Live weekdays at ten am Eastern on Apple Coarclay, and
• 14:04
  Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
• 14:08
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 14:12
  Speaker 2: For months, we've been talking about the potential sale of
• 14:14
  Speaker 2: Warner Brothers Discovery, either to Netflix or to Paramount Skydance,
• 14:18
  Speaker 2: and we're going to get the latest on that because
• 14:20
  Speaker 2: there has been some movement, but these two companies actually
• 14:23
  Speaker 2: reported results and let's get the latest. There Etherrong Andath
• 14:26
  Speaker 2: and she's the media analyst of Bloomberg Intelligence. Ether will
• 14:29
  Speaker 2: get the deal update in a minute, but just give
• 14:31
  Speaker 2: us a sense of how these two companies are performing
• 14:33
  Speaker 2: on their own.
• 14:35
  Speaker 6: I mean, I think you've summed it up perfectly, Paul.
• 14:37
  Speaker 6: You know, you said it's a good thing that Warner
• 14:39
  Speaker 6: Brothers Discovery is being sold, and that's absolutely right. I mean,
• 14:42
  Speaker 6: you look at the TV network's division. This has been
• 14:45
  Speaker 6: the problematic division for all of these media companies. TV networks.
• 14:49
  Speaker 6: Ibada slumped something like twenty seven percent in the fourth quarter.
• 14:54
  Speaker 6: You look at the whole of twenty twenty five, you know,
• 14:56
  Speaker 6: Ibada for that segment is down twenty one percent. Writing
• 15:00
  Speaker 6: is on the wall. I mean, this is why this
• 15:01
  Speaker 6: company is up for sale. It's very clear. And you know,
• 15:06
  Speaker 6: I think really what everybody is going to be worried
• 15:08
  Speaker 6: about is what is the outlook should the spin happen,
• 15:12
  Speaker 6: Should Discovery Global be spun out into a separate company,
• 15:15
  Speaker 6: What really is the outlook for the TV network business?
• 15:19
  Speaker 6: And again we saw kind of very similar results with
• 15:22
  Speaker 6: Paramount as well. Yes, they're making, you know, the best
• 15:24
  Speaker 6: of what they can, but again the fundamentals themselves are
• 15:27
  Speaker 6: pretty weak.
• 15:28
  Speaker 2: Across the board.
• 15:29
  Speaker 4: Management also flagged the multi billion dollar efficiency program. How
• 15:32
  Speaker 4: should investors think about the trade offs between short term
• 15:35
  Speaker 4: cost and long term profitability for these initiatives.
• 15:39
  Speaker 6: Yeah, this is what we've always been worried about. I mean,
• 15:42
  Speaker 6: we've seen, you know, this story play out multiple times
• 15:44
  Speaker 6: Isabelle in all of these media companies, and yes, there's
• 15:47
  Speaker 6: always synergies and there's always efficiencies to be extracted, but
• 15:50
  Speaker 6: it does come at the expense of long term growth.
• 15:52
  Speaker 6: We've seen that with Warner Brothers Discovery. You know, they
• 15:55
  Speaker 6: came out with very aggressive synergy targets and yes, they
• 15:58
  Speaker 6: were able to deliver on a lot of those, but
• 16:01
  Speaker 6: then it did kind of hamper their growth prospects, especially
• 16:05
  Speaker 6: you know in the TV networks business, where we've seen
• 16:07
  Speaker 6: a significant deterioration in the fundamentals in the outlook. So
• 16:12
  Speaker 6: that is always there's you know, it's a very very
• 16:14
  Speaker 6: tricky balancing act. There's a very you know, they have
• 16:17
  Speaker 6: to walk this really this tie trope. Again. The whole
• 16:22
  Speaker 6: deal with Warner Brothers Discovery for Paramount is predicated on
• 16:26
  Speaker 6: something like about six to eight billion dollars in synergies.
• 16:30
  Speaker 6: So you know, we'll we'll see how all of that
• 16:33
  Speaker 6: plays out. But Yeah, it's going to be a tough
• 16:35
  Speaker 6: road ahead regardless of whether they win or they don't.
• 16:39
  Speaker 2: What is the update on the deal mechanics, ETHA, Where
• 16:42
  Speaker 2: are we right now?
• 16:44
  Speaker 6: Yeah, So it was really interesting policy. In Paramount's earnings
• 16:47
  Speaker 6: release yesterday, they said that, you know, there's a good
• 16:50
  Speaker 6: chance of the Paramount thirty one dollars per share offer
• 16:54
  Speaker 6: for all of Warner Brothers Discovery being deemed a superior proposal.
• 16:59
  Speaker 6: And we've seen of Paramount rally a little bit on that.
• 17:01
  Speaker 6: We've also seen actually Netflix rally on that. I think
• 17:04
  Speaker 6: investors are becoming more and more comfortable with Netflix kind
• 17:08
  Speaker 6: of walking away from this deal. So again, a lot
• 17:11
  Speaker 6: to play out here, But there hasn't been any official
• 17:14
  Speaker 6: word just yet from the Warner Brothers Discovery board about whether,
• 17:18
  Speaker 6: you know, the Paramount proposal is in fact superior.
• 17:21
  Speaker 4: It seems like it's still a story that we're going
• 17:24
  Speaker 4: to be following closely. Paramount also offered modest revenue growth
• 17:27
  Speaker 4: targets for twenty twenty six. What key drivers do you
• 17:30
  Speaker 4: think will determine whether the company meets that outlook or
• 17:33
  Speaker 4: exceeds that outlook or even surprise investors perhaps.
• 17:38
  Speaker 6: I mean, so the organic growth outlook Isabelle. Yes, they're
• 17:42
  Speaker 6: trying to do their best. Remember they did you know
• 17:44
  Speaker 6: this is this is also a merged company paramount. You know,
• 17:47
  Speaker 6: they just recently acquired sky Dance, so they're trying to
• 17:51
  Speaker 6: do the best with you know, those new film assets.
• 17:54
  Speaker 6: But again, you know, if you just kind of look
• 17:56
  Speaker 6: at it across the board, you know, in the context
• 17:59
  Speaker 6: of the entire media landscape, it's still a very very
• 18:01
  Speaker 6: subscale company. Whether we're looking at streaming numbers you know,
• 18:06
  Speaker 6: about eighty million subscribers versus almost three hundred and twenty
• 18:09
  Speaker 6: three hundred and thirty million for Netflix, or whether you're
• 18:12
  Speaker 6: looking at the film business or even the TV business.
• 18:15
  Speaker 6: Everything is fairly subscale. So they definitely need some kind
• 18:18
  Speaker 6: of an m and a strategy. Obviously, Warner would be
• 18:21
  Speaker 6: perfect if it happens. If it doesn't, we'll have to
• 18:23
  Speaker 6: wait and watch. But you know, they're doing their best
• 18:26
  Speaker 6: that they can from an organic growth perspective, I just
• 18:29
  Speaker 6: don't think it's going to be enough.
• 18:31
  Speaker 2: Do you think Netflix will walk away? That would be
• 18:34
  Speaker 2: pretty bold.
• 18:37
  Speaker 6: They should, you know, collect they should collect the collected
• 18:42
  Speaker 6: to almost three billion dollars in termination fear. I mean,
• 18:44
  Speaker 6: this is really I mean, you know, you think about
• 18:47
  Speaker 6: this PALL in the long term. Yes, it's a great
• 18:49
  Speaker 6: asset to have, there's no doubt about it. But there's
• 18:51
  Speaker 6: it also comes with a tremendous amount of risk, not
• 18:53
  Speaker 6: to mention the biggest one being regulatory. So that's going
• 18:55
  Speaker 6: to be a big, big overhang, you know, for the
• 18:58
  Speaker 6: next twelve to eighteen months, and and of course after
• 19:00
  Speaker 6: that you have integration execution risks. So it's by no
• 19:03
  Speaker 6: means is it going to be you know, a Rosie
• 19:05
  Speaker 6: path ahead. I actually think Netflix will be better off
• 19:09
  Speaker 6: on its own.
• 19:12
  Speaker 2: Stay with us more from Bloomberg Intelligence coming up here
• 19:14
  Speaker 2: For this.
• 19:18
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 19:22
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 19:25
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 19:28
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 19:32
  Speaker 2: We are here in York City at the Bloomberg Interactive
• 19:34
  Speaker 2: Brokers Studio, streaming live on YouTube as well. Earning season
• 19:39
  Speaker 2: well in gear here and that includes Magna International Chicker MGA.
• 19:46
  Speaker 2: Magna is one of the world's largest automotive suppliers headquartered
• 19:50
  Speaker 2: in Ontario, Canada. Joining us today is Swami Kota Geary,
• 19:54
  Speaker 2: CEO of Magna International. Swami, thanks so much for joining
• 19:58
  Speaker 2: us here. I know you guys recently released earnings. What
• 20:01
  Speaker 2: can you tell us about your earnings that you just released,
• 20:03
  Speaker 2: maybe your outlook that you shared with your investors.
• 20:08
  Speaker 7: Good morning, Paul, Thanks for having me. You know, we
• 20:12
  Speaker 7: finished really the fourth quarter was strong, helped us finish
• 20:15
  Speaker 7: the year twenty twenty five in a strong way, setting
• 20:19
  Speaker 7: us up really good for twenty twenty six. We delivered,
• 20:23
  Speaker 7: you know, good cash flow. We hit the margin range
• 20:27
  Speaker 7: of five point six percent in EBIT that we talked about,
• 20:30
  Speaker 7: which set us up really good for twenty twenty six.
• 20:34
  Speaker 7: We are forecasting an EBIT range of six to six
• 20:38
  Speaker 7: point six. We are confident in the cash flow generation
• 20:43
  Speaker 7: and actually converting the earnings to cash. So we gave
• 20:48
  Speaker 7: a clear indication that we're going to be returning value
• 20:51
  Speaker 7: to the shareholders in the form of repurchase of twenty
• 20:55
  Speaker 7: four million shares in twenty twenty six, and all this
• 20:58
  Speaker 7: in a flat wallume as you see in our automotive industry,
• 21:04
  Speaker 7: that is the result of operational excellence and capital allocation discipline.
• 21:09
  Speaker 7: We have been doing this for the last three years
• 21:11
  Speaker 7: thirty five to forty BIPs annually, So if you take
• 21:15
  Speaker 7: twenty twenty six into account, this is the fourth year
• 21:19
  Speaker 7: running and our total margin expansion would adapt to about
• 21:23
  Speaker 7: two hundred basis points. So all in all, we feel
• 21:26
  Speaker 7: pretty good. It is a structural change in the operating
• 21:30
  Speaker 7: methodology and how we set our cost basis to the
• 21:34
  Speaker 7: reality of the industry today. So all in all, we
• 21:37
  Speaker 7: feel pretty good about twenty six.
• 21:40
  Speaker 4: With global auto production expected to stay flat, how realistic
• 21:46
  Speaker 4: is a midteen's profit growth this year?
• 21:49
  Speaker 7: Yeah, I think, Like I said, the key of the
• 21:52
  Speaker 7: margin expansion has been operational excellence from our site. It
• 21:57
  Speaker 7: is actually controlling the control of as we said. And
• 22:02
  Speaker 7: on top of that, we are going through digitization process
• 22:06
  Speaker 7: where eighty percent of the plants are online on a
• 22:10
  Speaker 7: unified platform, which gives real good operational visibility for us,
• 22:14
  Speaker 7: looking at every little detail, how the lines are running,
• 22:19
  Speaker 7: what are the stoppages, how is the material flowing? Every
• 22:24
  Speaker 7: penny counts, So all of this is what has helped
• 22:26
  Speaker 7: us add the margin expansion in the last three years,
• 22:30
  Speaker 7: and we have good visibility, not just for this year.
• 22:33
  Speaker 7: We believe it's still early innings. Going into next year.
• 22:36
  Speaker 7: So time part really was you know, working through the inflation,
• 22:41
  Speaker 7: right it started in twenty twenty two, and we have
• 22:44
  Speaker 7: started coding jobs in twenty two, twenty three, twenty four
• 22:48
  Speaker 7: with new economic terms. The new programs are rolling in.
• 22:51
  Speaker 7: So a combination of self help and new economic terms
• 22:54
  Speaker 7: is what gives the you know, incremental margins that we're
• 22:58
  Speaker 7: talking about.
• 23:00
  Speaker 2: Swami talked to us about terrors, how they have impacted
• 23:03
  Speaker 2: your company, what changes you have made, or what to
• 23:07
  Speaker 2: deal with the tariff situation.
• 23:10
  Speaker 7: So to samitap last year we had roughly ten basis
• 23:14
  Speaker 7: points of impact. The actual tariff impact was somewhere in
• 23:19
  Speaker 7: the range of one hundred and seventy million for the
• 23:21
  Speaker 7: nine months because you know, it started in April. First.
• 23:25
  Speaker 7: We have been able to mitigate, you know, with some
• 23:28
  Speaker 7: of our own actions, working with our customers and then
• 23:32
  Speaker 7: staying USMCA compliant, increasing the USMCA compliance going forward. So
• 23:37
  Speaker 7: all in all, in twenty twenty six, we believe it
• 23:40
  Speaker 7: will be in the same range. The annual impact given
• 23:44
  Speaker 7: everything as we know today stays it's about two hundred
• 23:47
  Speaker 7: million or so. But we believe we can mitigate, continue
• 23:50
  Speaker 7: to work with our customers and so on and so forth.
• 23:53
  Speaker 7: So the net impact still would be in the range
• 23:56
  Speaker 7: of twenty five to thirty million this year.
• 23:59
  Speaker 4: How much of the growth would come from higher content
• 24:01
  Speaker 4: per vehicle, especially as Detroit, for example, shifts towards larger
• 24:06
  Speaker 4: pickups and SUVs.
• 24:08
  Speaker 7: Yeah, I think part of the margin increments that you're
• 24:12
  Speaker 7: seeing is the mix and the new programs coming in
• 24:15
  Speaker 7: and the change in content per vehicle. But a good
• 24:18
  Speaker 7: point to note might be we have been doing this
• 24:21
  Speaker 7: for the last twenty years. The growth over market has
• 24:26
  Speaker 7: been about We've been growing about four percent a year.
• 24:28
  Speaker 7: If you look at a ten year period. For the
• 24:30
  Speaker 7: last five years, we've been growing at twenty half percent.
• 24:34
  Speaker 7: So all in all, we continue to grow in low
• 24:37
  Speaker 7: single digits. I would say if you take a longer
• 24:40
  Speaker 7: period of time, one data point which will help you
• 24:44
  Speaker 7: give context. Twenty years ago, Magna was a twenty billion
• 24:48
  Speaker 7: dollar company and North America was producing fifteen million units
• 24:52
  Speaker 7: in production today roughly the same production as you know,
• 24:55
  Speaker 7: fifteen to fifteen and a half, and we are a
• 24:58
  Speaker 7: forty billion dollar company, right, So all this came through
• 25:02
  Speaker 7: diversifying our customer base and increasing our content per.
• 25:05
  Speaker 1: Veyfore this is the Bloomberg Intelligence podcast, available on Apple, Spotify,
• 25:12
  Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
• 25:16
  Speaker 1: ten am to noon Eastern on Bloomberg dot com, the
• 25:19
  Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You
• 25:23
  Speaker 1: can also watch us live every weekday on YouTube and
• 25:27
  Speaker 1: always on the Bloomberg terminal