Latest / Bloomberg Intelligence / BI Weekend: China Boeing Halt, LVMH Earnings

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BI Weekend: China Boeing Halt, LVMH Earnings · Bloomberg Intelligence

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Speaker 2: Today, we'll look at why Lovemaker LVMH posted weaker than
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Speaker 2: expected sales last quarter.
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Speaker 3: Plus we'll discuss how the tech company Intel is now
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Speaker 3: making good on plans to start spinning off non core assets.
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Speaker 2: But first we begin with the drug in pharmaceutical space.
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Speaker 2: This week, Pfizer terminated development of its obesity bill after
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Speaker 2: a patient in a clinical trial developed signs of liver injury.
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Speaker 3: This raises the odds that the drug maker will spend
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Speaker 3: billions on an acquisition to break in the blockbuster weight
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Speaker 3: loss market dominated by Novo, Nordisk and Eli Lilly.
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Speaker 2: For more, guest host Emily Grafail and I were joined
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Speaker 2: by Mikey Shap Bloomberg Intelligence senior pharma biotech analysts. We
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Speaker 2: first asked Mikey how big of an issue this recent
1:37
Speaker 2: news is for Pfizer.
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Speaker 5: Yeah, I mean, I think it's a sentiment issue. I mean, clearly,
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Speaker 5: you know, you go to massive BC market out the
1:45
Speaker 5: one hundred billion dollar plus in terms of sides, and
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Speaker 5: it's a market where you know, Phiz's already kind of
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Speaker 5: trailing large farm appears like Lily Rosch Novo in terms
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Speaker 5: of you know, the ABC pill itself. So this was
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Speaker 5: Danny glitpron So what what it they actually did was
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Speaker 5: it used to be a twice daily pill. They kind
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Speaker 5: of can that and repurposed it into a once daily
2:13
Speaker 5: Following the failure of another one of their OBCs pills,
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Speaker 5: Lot of Glippron, So I'd say, you know, confidence into
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Speaker 5: this readout, you know, was pretty low. We had ready
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Speaker 5: kind of removed it from our models, you know, back
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Speaker 5: in twenty three. But what it does, you know, create is,
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Speaker 5: you know to two concerns. One is you know, the
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Speaker 5: trailing timeline in the BCC space. And two it kind
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Speaker 5: of adds to the mid to long term growth worries
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Speaker 5: of the company. So they've got you know, about fifteen
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Speaker 5: billion dollars and lost revenue to looees that they'll need
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Speaker 5: to kind of offset over twenty five to twenty nine.
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Speaker 5: And at the moment, you know, it's quite hard to
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Speaker 5: see you know where that where that offset and where
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Speaker 5: that additional growth is going to come come from. Long
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Speaker 5: term obesity would be kind of one pillar. But you know,
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Speaker 5: following the danaglip from read out today or the news today,
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Speaker 5: you know that's obviously mean terminated. So you know, we
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Speaker 5: think that they're going to have to go to you know,
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Speaker 5: look to external assets in the obcit space if they're
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Speaker 5: going to remain a relevant player in the in that market.
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Speaker 4: Is anyone else doing obesity pills in this market right now?
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Speaker 5: Yeah? So, I mean there's a few biotechs out there
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Speaker 5: that are that are doing pills. In terms of the
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Speaker 5: large farmer competitors, you know, Lily's got one, we'll see
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Speaker 5: the data for that this year. Phase three that could
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Speaker 5: potentially launch in twenty six. Novo's got one they're expected
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Speaker 5: to file, and then you know Rush also has one
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Speaker 5: kind of in early to mid stage development too. On
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Speaker 5: the biotech front, you know, we're seeing moves for you know,
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Speaker 5: Viking structure turns and they all hold or or JP
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Speaker 5: ones in their pipeline two.
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Speaker 2: Hey, Mikey, can you put into just perspective the size
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Speaker 2: of this obesity market relative to other big verticals that
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Speaker 2: drive these former companies.
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Speaker 5: I mean, I think the excitement around robust is you
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Speaker 5: know one, it's you know, prevalence is rising. You're forty
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Speaker 5: percent of US adults at the moment that are obese,
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Speaker 5: and it's a relatively underpenetrated market. So I mean, you know,
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Speaker 5: penetration rates are you know, low single digits, you know
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Speaker 5: in the US at the moment, you know, probably even
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Speaker 5: lower elsewhere, you know, globally, and you know, we think
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Speaker 5: that this market could grow, you know, well in excess
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Speaker 5: of one hundred billion dollars so yeah, I mean it's
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Speaker 5: a massive opportunity. I think in terms of you know,
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Speaker 5: drug classes, I think PD you know, immuno oncology PD
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Speaker 5: are one PD one drugs, you know, with a kind
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Speaker 5: of biggest class to date in terms of sales. So
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Speaker 5: that's like your contruder Bristol or Duvo, but you know
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Speaker 5: gr ones could potentially surpass that.
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Speaker 4: So Michael, where does Fizer go from here after this setback?
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Speaker 4: Do they double down on obesc pills? Do they do
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Speaker 4: they try something new? What's the plan here for Pfizer?
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Speaker 5: So, I mean they've got another oral jylp one in
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Speaker 5: their pipeline, so it's in phase one. It's being developed
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Speaker 5: for diabetes, notatural you know, whether or not they can
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Speaker 5: also look at that in obesity two. But clearly the
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Speaker 5: timeline here is the issue. You know, You've got oral
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Speaker 5: jilp ones coming to market in twenty six onwards. You'll
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Speaker 5: probably have a wave of new treatments coming in, you know,
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Speaker 5: towards the end of the end of the decade. So
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Speaker 5: you know, we really think that Fiser is going to
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Speaker 5: have to go out, you know, either in license at
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Speaker 5: jilp one or do some sort of m and a
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Speaker 5: they're well positioned to do that. You know, they've got
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Speaker 5: ten to fifteen billion of M and a firepower you
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Speaker 5: know to four acquisitions. So that's really you know, how
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Speaker 5: we think that they're going to do, you know, play
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Speaker 5: catch up in this space in terms of you know,
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Speaker 5: I mentioned some biotechs out there that have you know,
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Speaker 5: quite appealing assets. You know, you've also got China to say,
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Speaker 5: you know, we've seen some very competitive data in Chinese
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Speaker 5: patients for some of those domestic players, and you know
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Speaker 5: we've seen the lights of Novo Astro mark kind of
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Speaker 5: all kind of you know, delve into China's R and
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Speaker 5: D locker to essentially bolster their OBC pipelines.
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Speaker 3: Our thanks to Mikey Shaw, Bloomberg Intelligence Senior Pharma biotech analysts.
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Speaker 2: The trade war between the US and China has been
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Speaker 2: heating up. This week, China ordered its airlines to stop
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Speaker 2: taking deliveries of Boeing jets and to halt purchases of
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Speaker 2: aircraft related equipment and parts from US companies.
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Speaker 3: The move is seen as a retaliatory measure in the
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Speaker 3: ongoing trade war between the US and China, which is
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Speaker 3: imposed here is to one hundred and forty five percent
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Speaker 3: on American goods.
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Speaker 2: For more on Boeing, Nora and I were joined by
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Speaker 2: George ferguson Bloomberg Intelligence senior Aerospace, Defense and airlines analysts.
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Speaker 3: We first asked George, how big of a deal this
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Speaker 3: news is for Boeing.
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Speaker 6: I don't see the being a big issue, right, So
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Speaker 6: this is one of those things that the relationship has
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Speaker 6: deteriorated over a period of time. We took another look
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Speaker 6: at when we saw orders from the Chinese airlines for Boeing,
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Speaker 6: and there's been like fifteen or sixteen this decade. I
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Speaker 6: think fifteen came in I think last year of two
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Speaker 6: hundred and forty two orders from China that are on
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Speaker 6: the books right now, the last real material size and
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Speaker 6: orders from the big Chinese airlines we saw back in
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Speaker 6: twenty eighteen. So this is a relationship that's been broken
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Speaker 6: for a while. Frankly, the Chinese haven't really been, like
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Speaker 6: I said, ordering from Boeing.
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Speaker 7: So the bigger issue.
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Speaker 6: Here, I think is Boeing delivering some of the airplanes
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Speaker 6: they've already built for the Chinese. Like I said, there's
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Speaker 6: some two forty of them sitting in the order books.
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Speaker 6: I suspect a bunch of them are already made and
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Speaker 6: Boeing would like to get rid of them. Part of
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Speaker 6: the shadow factory elimination they're trying to do to streamline operations.
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Speaker 6: Is the pain in the neck to have an airplane
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Speaker 6: on the tarmac that's sold that you've got to maintain,
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Speaker 6: but the customer isn't taking delivery of.
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Speaker 7: It'll slow that down.
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Speaker 6: I think it might hasten some of Boeing's push to
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Speaker 6: sell some of those airplanes. The Indians have bought a.
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Speaker 7: Bunch of them.
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Speaker 6: Maybe they're they're game for more, but I just don't
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Speaker 6: This is China admitting what they've already been doing.
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Speaker 3: Frankly, So, George, what exactly is the goal here? I mean,
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Speaker 3: to your point and also Jeffrey's analysts, they're noting that
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Speaker 3: Boeing has largely de risked from China, they said of
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Speaker 3: the country contributing roughly about five percent of the skyline
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Speaker 3: over the next couple of years. But also a source
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Speaker 3: of upside. What do you think the goal is here
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Speaker 3: if there seems to be marginal impact here to Boeing.
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Speaker 7: Yeah, look, I think.
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Speaker 6: It's splashy right for the Chinese to make this kind
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Speaker 6: of commentary, And look, I do think there's potentially some upside. So, look,
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Speaker 6: there's a couple of things that's been going on right China.
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Speaker 6: One is growing a lot slower since the pandemic. Prior
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Speaker 6: to the pandemic, China would take in three three hundred
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Speaker 6: and narrow bodies a year, more than half of them
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Speaker 6: would be Boeing. And so you know since the pandemic,
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Speaker 6: last year we saw about one hundred and fifty deliveries
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Speaker 6: of narrow bodies in a China. They were airbus airplanes.
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Speaker 6: So and look, you know in a global trade battle,
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Speaker 6: China could see a diminishing GDP. Right, this is a
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Speaker 6: country grown eight percent last decade, fourish percent this decade.
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Speaker 6: But if they get that, you know, if they decide
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Speaker 6: they're going to negotiate with the US, they get some
9:29
Speaker 6: of that growth back on the rails. I think inside
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Speaker 6: some of that negotiation you could see a requirement to
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Speaker 6: order Boeing airplanes. Donald Trump cut a similar deal in
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Speaker 6: his last administration. So there is some silver lining. And
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Speaker 6: like I said, I think the Chinese sort of they
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Speaker 6: know that the Boeing's at one of our biggest exporters.
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Speaker 6: They know they'll get some good headlines out of saying
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Speaker 6: we're not going to take any more bowing airplanes. But again,
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Speaker 6: I think this is already this is a microcosm of
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Speaker 6: the US kind of begetting uncoupled from China right now.
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Speaker 3: So this isn't a major headwind here for Boeing. But
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Speaker 3: what do you think are some headwinds that they could
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Speaker 3: be facing. What are some near term hurdles, you know.
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Speaker 6: I think Boeing has been down for so long that
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Speaker 6: I think most of the hurdles are clearing and you're
10:19
Speaker 6: going to see a pretty good year. I think the
10:20
Speaker 6: big issue this year is they've really got to get
10:23
Speaker 6: Spirit Aerosystems bought and integrated into Boeing.
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Speaker 7: I think that's well underway.
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Speaker 6: I'm hearing good news from people I know in the
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Speaker 6: industry about quality coming out of Spirit. They've got to
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Speaker 6: get rid of that shadow factory. These airplanes already built
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Speaker 6: sitting on the tarmac that they're maintaining.
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Speaker 7: You know, that's just a huge dragon expenses.
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Speaker 6: They got to get them delivered out to customers, sold
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Speaker 6: off to new customers, and it's all about in the
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Speaker 6: back half of the year building more airplanes in the factory.
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Speaker 6: We've been watching it in the first quarter of the year.
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Speaker 6: I think they're getting about twenty twenty five through the
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Speaker 6: factory every month to keep building on that cadence. That's
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Speaker 6: going to generate the cash and the profitability they need.
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Speaker 7: And oh, by the way, they added.
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Speaker 6: Twenty six billion dollars to inventory since I think twenty
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Speaker 6: eighteen we have it and support at some five hundred
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Speaker 6: equivalent to five hundred and seven thirty sevens. As they
11:19
Speaker 6: start building from the inventory on hand, their cash generation
11:23
Speaker 6: is going to be supercharged. They could have a really
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Speaker 6: nice back half of twenty twenty five.
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Speaker 2: Our thanks to George ferguson Bloomberg Intelligence, senior Aerospace, Defense
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Speaker 2: and Airlines analysts.
11:33
Speaker 3: Coming up, we'll break down why Elliott Investment Management is
11:36
Speaker 3: said to be building a stake in Hewlett Packard Enterprise.
11:39
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Speaker 3: I'm Paul Sweeney and I'm Normal Linda filling it for
12:12
Speaker 3: Alex Biel. We moved next to the luxury sector this week.
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Speaker 2: LVMA shares dropped after the luxury group published weaker than
12:19
Speaker 2: expected quarterly sales.
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Speaker 3: The company was weighed down by sluggish demand for high
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Speaker 3: end goods in China and the US and an escalating
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Speaker 3: trade war.
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Speaker 2: For more, Nora and I were joined by Debora Aik
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Speaker 2: and Bloomberg Intelligence luxury goods analyst.
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Speaker 3: We first asked deb what she took away from LVMH's
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Speaker 3: most recent results.
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Speaker 8: Fashion and Leather goods is fifty percent of their sales,
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Speaker 8: so actually this is a key one organic sales growth
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Speaker 8: figure only, not yearnings. And we saw with Fashion and
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Speaker 8: Leather it was down five the marketed expected down half.
12:48
Speaker 8: And what we saw behind that the US is holding
12:50
Speaker 8: o poque social Europe, but where they did a big
12:53
Speaker 8: chunk of their business last year from tourism shifting across
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Speaker 8: from China to Japan. That's now dried up against two
13:00
Speaker 8: years of big numbers, and the big thing is that
13:03
Speaker 8: it hasn't repatriated back to the mainland. So that was
13:07
Speaker 8: one side. Another side for them would be if we
13:11
Speaker 8: think about the wines and Spirits division, which houses their cognacs,
13:16
Speaker 8: that's still very tough in the US and also in China,
13:20
Speaker 8: and then Sephara was a big growth driver last year
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Speaker 8: for them in the US that's kind of fallen away
13:26
Speaker 8: a little bit on the big comps.
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Speaker 3: So of course we know weakness in sales in China
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Speaker 3: has really been an overhang for LVMH and just the
13:33
Speaker 3: broader luxury industry. But the EU expects US tariffs to
13:37
Speaker 3: remain as talks make little progress. So that being said,
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Speaker 3: how are a lot of these luxury companies really thinking
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Speaker 3: about this tear iff environment and the uncertainty there as
13:47
Speaker 3: it thinks about the US consumer.
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Speaker 8: We've done certainly a lot of our own work on
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Speaker 8: Excel dug deep gone through all of the different factors,
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Speaker 8: and we can see when we look at these companies
14:00
Speaker 8: a range of maybe two to eight percent or in
14:02
Speaker 8: terms of needing price rise. So the highest end companies
14:07
Speaker 8: have the biggest margin, so therefore costs are lower and
14:12
Speaker 8: generally they're operating out of Europe, and so that means
14:16
Speaker 8: that they would need to price probably low to mid
14:18
Speaker 8: single digit to cover that, given that currently across Europe
14:22
Speaker 8: we have a ten percent power of risk hike.
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Speaker 9: Of course that.
14:26
Speaker 8: Could change, but you know it's going to be difficult
14:29
Speaker 8: because the last three years we've seen price hikes of
14:31
Speaker 8: twenty five percent, so since we've had a pandemic recovery,
14:36
Speaker 8: so there really are running off a very high base
14:39
Speaker 8: on the price in they're going to have to really
14:41
Speaker 8: determine what they do in terms of more manufacturing over
14:44
Speaker 8: there where they can so for mid range for some
14:47
Speaker 8: of elv Matre's fashion and leather goods, we think around
14:51
Speaker 8: a third of their US is covered in terms of
14:54
Speaker 8: US sales versus production. But there's a long way to go,
14:57
Speaker 8: and it can't be done quickly because you need really
15:00
Speaker 8: good artisans and to be training in labor, and that's
15:04
Speaker 8: one of the biggest issues for these companies.
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Speaker 2: I'm looking at the PGeo function on the Bloomberg terminine.
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Speaker 2: I see that Asia excluding Japan picks up about twenty
15:13
Speaker 2: seven percent of LVMH's business. So it's material. What are
15:17
Speaker 2: they saying about China. Is this a market that they
15:19
Speaker 2: can depend upon being a growth driver going forward or not?
15:24
Speaker 2: Because it's I know just from reading your work and
15:27
Speaker 2: talking to you in the past, China's really a lynchpin
15:30
Speaker 2: for global luxury.
15:31
Speaker 7: Yeah.
15:32
Speaker 8: I mean the big thing and the big hit over
15:35
Speaker 8: the last quarter really in these share prices has been
15:38
Speaker 8: that second half of last year we saw the US
15:42
Speaker 8: really start to improve, and that was offering a bit
15:45
Speaker 8: of a lifeline until we could start to see China,
15:48
Speaker 8: hopefully by the second half this year improve that or
15:51
Speaker 8: that changes, the mindset changes, the consumer sentiment changes, and
15:55
Speaker 8: so yes, for the long term, there's still a lot
15:58
Speaker 8: to do for all these companies in each of then
16:00
Speaker 8: we'll say they still pin their hopes on China for
16:03
Speaker 8: the long term, more infrastructure into the marketplace, owning the
16:07
Speaker 8: consumer more over there. But certainly in the short term
16:10
Speaker 8: and in the year ahead, the Cummuch uncertainty, and I
16:13
Speaker 8: really think that that hits hard on consumer sentiment, not
16:16
Speaker 8: only in the US, but also and particularly in China.
16:20
Speaker 8: Another one we saw was biased off with Nivre in
16:23
Speaker 8: the very high end LA Prairie came out, and I'm
16:26
Speaker 8: just trying to get a feel of how beauty is
16:28
Speaker 8: doing over there, and the view there is that they've
16:31
Speaker 8: had to clean up China even more on their Laprairie brand,
16:35
Speaker 8: which is very high end skin care, and they're having
16:38
Speaker 8: to actually also think about Nivia and rebrand and to
16:41
Speaker 8: at least the premium level. So there's more price volatility
16:46
Speaker 8: in the market and that's already starting to creep up
16:49
Speaker 8: in China.
16:50
Speaker 2: Thanks to Debek and Bloomberg Intelligence luxury goods analysts.
16:53
Speaker 3: This week, we focus on a Bloomberg Big Take story
16:56
Speaker 3: titled GM and It's eight year, thirty five billion dollar
16:59
Speaker 3: EV bet brace for tariff head. You can find that
17:02
Speaker 3: on Bloomberg dot com. And the terminal.
17:04
Speaker 2: Story looks at how General Motors has to figure out
17:06
Speaker 2: how to sell cars in Donald Trump's America after spending
17:09
Speaker 2: about thirty five billion dollars on its EV transition.
17:12
Speaker 3: For more, Paul and I will join by David Welch,
17:14
Speaker 3: Bloomberg Detroit BUREA Chief.
17:16
Speaker 2: We first asked David to break down why times are
17:18
Speaker 2: tough right now at GM.
17:19
Speaker 10: If you look at Trump's policies, they're pretty tough on
17:23
Speaker 10: all the car companies, right, I mean, you've got this
17:25
Speaker 10: tariff regime out there that still hasn't been sorted out.
17:28
Speaker 10: Trump has indicated that he might have some leniency in
17:31
Speaker 10: the offering for car companies. But they've built up the
17:34
Speaker 10: supply chain and assembly in the US, Canada, Mexico and
17:39
Speaker 10: other places for decades now. They have made more investments
17:43
Speaker 10: based on USMCA, which was a Trump trade deal, and
17:46
Speaker 10: now that could be upended. GM makes two of its
17:49
Speaker 10: evs in Mexico. It's two of its cheapest ones, the
17:52
Speaker 10: Chevy Equinox and Chevy Blazer, and so it makes it
17:56
Speaker 10: tough from that standpoint for those two vehicles and some
17:59
Speaker 10: of the parts that can in for those vehicles, and
18:01
Speaker 10: then generally for GM's business, tariffs are just not a
18:04
Speaker 10: good thing. They import vehicles, they import components, all of
18:06
Speaker 10: that that makes it tough. Trump has also said he
18:09
Speaker 10: hasn't done it yet, but he said that he wants
18:10
Speaker 10: to get rid of the Biden era Inflation Reduction Act.
18:14
Speaker 10: Those are up to seventy five hundred dollars in tax
18:17
Speaker 10: credits for people who buy evs. That makes GM's life difficult.
18:21
Speaker 10: With this big investment they have out there. There could
18:24
Speaker 10: be relief on this. There are ways to get around it.
18:26
Speaker 10: But if you're General Motors and you've got a dozen
18:28
Speaker 10: of v's out there and the program on the whole
18:31
Speaker 10: loses money. They're improving the profitability, but it does lose money.
18:35
Speaker 10: The pressure's really on, as it always has been, but
18:38
Speaker 10: even more so with Trump policies to get those vehicles
18:41
Speaker 10: to a break even or a profitable level and then
18:43
Speaker 10: sell them in big enough numbers where you continue to
18:45
Speaker 10: get economies of scale and you can drive the cost down.
18:48
Speaker 10: So it's not impossible. They're working hard at it, as
18:51
Speaker 10: we have a lot of detail on in the story
18:53
Speaker 10: in terms of reducing battery cost, improving efficiency at the
18:57
Speaker 10: assembly plan level, that sort of thing. It's hard work
19:00
Speaker 10: and EV's this kind of transition was always going to
19:03
Speaker 10: be difficult. It is for everybody. But you know, in
19:06
Speaker 10: GM's case, they've done some reining in of investment, but
19:09
Speaker 10: they've really continued their push and some of their rivals
19:12
Speaker 10: have reined it in, pulled back in the face of
19:14
Speaker 10: all of this. So GM's sticking with it and they're
19:18
Speaker 10: really working hard to make it profitable.
19:21
Speaker 3: David, As you said, the pressure is on does CEO
19:24
Speaker 3: Mary Barrow really have a dog in this fight to
19:26
Speaker 3: electrify GM in the EV space. I mean, of course
19:29
Speaker 3: she's trying to get a little bit of a peek
19:30
Speaker 3: into Tesla's playbook by hiring some of their veterans from Tesla,
19:34
Speaker 3: But do they really have the brand recognition that they
19:37
Speaker 3: need to push through on this charge.
19:39
Speaker 10: Yeah, that's a tough one. I think what they're trying
19:43
Speaker 10: to do here is they're trying to change that right.
19:46
Speaker 10: So one thing they'll point out is one they doubled
19:48
Speaker 10: their market share in the EV segment EV space in
19:52
Speaker 10: the US over the past year, and they did even
19:55
Speaker 10: better in the first quarters. They've got some sales momentum,
19:59
Speaker 10: and they're doing a on the coast, which is where
20:01
Speaker 10: most TV buyers are. But it is it is a
20:04
Speaker 10: bit tough when Chevrolet, for example, known for big pickup trucks,
20:07
Speaker 10: known for Chevy suburbans, Cadillact known for the Escalade. These
20:12
Speaker 10: are pretty thirsty and pretty expensive vehicles. They tend to
20:16
Speaker 10: do well in the middle of the country and in
20:18
Speaker 10: the South. So for GM, you can see why they
20:21
Speaker 10: want to push this right. They've got brands that do
20:24
Speaker 10: better in middle America. And if EV's are bought on
20:27
Speaker 10: the coast and you can get market share there, why
20:30
Speaker 10: wouldn't you push for that? It does bring in a
20:32
Speaker 10: different kind of buyer. And I think there's a bit
20:35
Speaker 10: of chicken egg and an egg here. Does the brand
20:37
Speaker 10: hurt them from selling EV's or does does selling EV's
20:40
Speaker 10: help them help get recognition for these brands with people
20:44
Speaker 10: who didn't look at them before. And I think that's
20:46
Speaker 10: the case they're making and they're having decent sales success,
20:49
Speaker 10: so there's a bit of momentum there while they're trying
20:51
Speaker 10: to do it.
20:51
Speaker 2: David tell us about the Ultium Cells factory outside of Nashville, Tennessee.
20:57
Speaker 10: It's very similar to the one in Ohio. Fascinating to
21:00
Speaker 10: walk through. These are pretty pretty well automated operations. It's
21:04
Speaker 10: not like when you walk into an assembly plant and
21:06
Speaker 10: you see workers swinging a i'd say a set of
21:10
Speaker 10: seating for the interior over on robotic arms and putting
21:13
Speaker 10: that in or bolting engines like they're watching computers. They're
21:18
Speaker 10: watching automated machinery that mixes chemicals or puts that chemical
21:22
Speaker 10: slurry onto a metallic sheet to make parts of the battery.
21:26
Speaker 10: Component's a very different type of thing. If you walk
21:29
Speaker 10: through a battery plant, or I should say a cell plant,
21:32
Speaker 10: it's kind of more like a like a chemical facility
21:35
Speaker 10: than it is like a traditional assembly plant.
21:38
Speaker 3: Our thanks to David Walch, Bloomberg Detroit Bureau Chief.
21:40
Speaker 2: We move next to news on the IT company, Hewlett
21:43
Speaker 2: Packard Enterprises.
21:44
Speaker 3: This week, we heard that Elliott Investment Management has built
21:47
Speaker 3: a position in HPE worth more than one and a
21:49
Speaker 3: half billion dollars. OUR data shows that the investment makes
21:53
Speaker 3: Elliott one of the company's top five shareholders.
21:56
Speaker 2: For more on this, Nora and I were joined by
21:57
Speaker 2: wu Jinho, Bloomberg Intelligence Senior technolo.
22:00
Speaker 3: We first asked wujin what this investment by Elliott and
22:03
Speaker 3: HPE is all about.
22:05
Speaker 11: It looks like Elliott is looking for an opportunity here
22:09
Speaker 11: to create a stake in terms of possibly extruction more
22:13
Speaker 11: cost actions from HPE, especially when the company is going
22:19
Speaker 11: through a down period from an execution standpoint as well
22:22
Speaker 11: from a demand perspective as well.
22:25
Speaker 3: So what exactly are they really wanting to do here
22:28
Speaker 3: through this investment? As an activist investor, what do they
22:31
Speaker 3: want to change?
22:32
Speaker 11: That's a good question, or I mean look, one of
22:34
Speaker 11: the things that I think they're doing is trying to
22:36
Speaker 11: extract more cost actions. One of the things that HPE
22:40
Speaker 11: did after the execution from the last quarter was cut costs, right,
22:45
Speaker 11: They cut about two five hundred to three thousand people.
22:50
Speaker 11: That's the plan over the next twelve to eighteen months.
22:53
Speaker 11: That's supposed to lower the cost structure by about five
22:55
Speaker 11: hundred basis points to have outex sales from twenty four
22:58
Speaker 11: percent to about nineteen percent for the year. Now, the
23:02
Speaker 11: closest cop would be Dell and Della is running around
23:04
Speaker 11: fifteen percent op ex of sales. So I think, you know,
23:10
Speaker 11: Elliott is trying to look for a little bit more
23:12
Speaker 11: than nineteen percent op ecks of sales to drive up
23:15
Speaker 11: the earnings going forward.
23:17
Speaker 2: So is this just a cost story from Elliott's perspective
23:21
Speaker 2: or is there something Hewlett should be doing they're not
23:25
Speaker 2: doing from a revenue perspective.
23:27
Speaker 11: Yeah, from a revenue perspective. I mean, if we look
23:30
Speaker 11: about if we turn back to last quarter, there was
23:32
Speaker 11: a really big execution fall Paul in terms of they
23:36
Speaker 11: mispriced their servers. If you're an investor, I mean, how
23:40
Speaker 11: does a company miss price servers to really screw up
23:44
Speaker 11: the rest of the year from a pricing standpoint and
23:47
Speaker 11: from a margin margin standpoint. So, you know, I wouldn't
23:50
Speaker 11: be surprised if Elliott is looking for our management change
23:53
Speaker 11: as well, because you know, HeLa Packard has lagged what
23:57
Speaker 11: Della has done from an AI server perspectives, and they
24:02
Speaker 11: really haven't gained material share on the networking side or
24:06
Speaker 11: on the storage side against some of their closest comps.
24:09
Speaker 3: Well, Elliott has a really successful track record from Salesforce
24:13
Speaker 3: to CIS Strict Systems a few others. How are people
24:16
Speaker 3: really receiving this right now? Are investors happy?
24:19
Speaker 11: You know, some of the calls that I've received initially
24:21
Speaker 11: off the print in Aura, is a Juniper deal off
24:25
Speaker 11: the table as a result, I don't think so. The
24:27
Speaker 11: one thing I will add was that Elliott was a
24:29
Speaker 11: stakeholder of Juniper multiple years back, and they did extract
24:34
Speaker 11: more dividends from Juniper as part of being a stakeholder.
24:37
Speaker 11: They may you know, I wouldn't be surprised if Elliott
24:40
Speaker 11: wants a board seat to guide the management going forward.
24:44
Speaker 11: But I do think that the HPE Juniper deal is
24:46
Speaker 11: still going to be.
24:47
Speaker 2: On track thanks to Woo Jino Bloomberg Intelligence Senior Technology
24:50
Speaker 2: channelst coming up on the program.
24:52
Speaker 3: Well break down how the tech company Intel is now
24:54
Speaker 3: making good on its plans to start spinning off non
24:57
Speaker 3: core assets.
24:58
Speaker 2: You're listening to Bloomberg Intelligence on bloom Berg Radio, providing
25:01
Speaker 2: in depth research and data on two thousand companies and
25:03
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25:06
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25:08
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25:18
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25:22
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25:36
Speaker 3: I'm Paul Sweeney and I'm normal Linda filling in for
25:38
Speaker 3: Alex Steel. We move next to the tech sector.
25:41
Speaker 2: The tech company Intel is now making good on plans
25:43
Speaker 2: to start spinning off non core assets. This week, Intel
25:46
Speaker 2: agreed to sell a fifty one percent stake in its
25:48
Speaker 2: programmable chips unit Alterra to the private equity firm silver
25:52
Speaker 2: Lake Management.
25:53
Speaker 3: The transaction values Alterra at eight point seventy five billion dollars,
25:57
Speaker 3: and that's about half of what Intel paid for a
25:59
Speaker 3: decade ago. The deal is expected to close in the
26:02
Speaker 3: second half of twenty twenty five.
26:04
Speaker 2: For more, guest host Emily Gerfaio and I were joined
26:06
Speaker 2: by Mandeep Sing Bloomberg Intelligence senior tech industry analysts. Your
26:09
Speaker 2: first asked, Man Deep, what Intel is up to these days?
26:12
Speaker 9: Well, they got a new CEO, and I think he's
26:15
Speaker 9: making the moves. Everyone was looking forward to what is
26:19
Speaker 9: he going to do differently than Pat gel Singer, And
26:23
Speaker 9: it looks like he wants to turn around the foundry business.
26:27
Speaker 9: And there was one school of thought that thought Intel
26:30
Speaker 9: should sell the foundry and focus on chip design like Nvidia.
26:35
Speaker 9: But clearly he feels, you know, foundry business can be
26:39
Speaker 9: turned around. And so the easy pickings here is raise cash,
26:45
Speaker 9: you know, get rid of the non core assets, which
26:47
Speaker 9: is al Terra here. So they're selling fifty one percent stake,
26:51
Speaker 9: mobilize another business that comes to mind that they could
26:54
Speaker 9: sell and look. With a company like Intel, everyone knows
26:58
Speaker 9: that you know, you coun'try turn around this company to
27:02
Speaker 9: show high growth. It's more about how do you manage
27:06
Speaker 9: the company in a way where they're not burning a
27:08
Speaker 9: lot of cash as well as they can have you know,
27:11
Speaker 9: low to mid single digit growth. And I think that's
27:13
Speaker 9: going to be the playbook here.
27:15
Speaker 4: So, man, deep is silver Lake getting a good deal
27:17
Speaker 4: then with this axe show?
27:19
Speaker 9: I mean Intel paid you know, sixteen billion plus ten
27:22
Speaker 9: years back, so they held their company for ten years
27:25
Speaker 9: and now they're selling at half the price. And look,
27:29
Speaker 9: this isn't a high growth asset, which is why it
27:31
Speaker 9: was noncore to Intel. But we know Semis isn't that
27:36
Speaker 9: sweet part of the cycle where everyone seems to be
27:39
Speaker 9: bullish on AI and Semis. And so maybe silver Lake
27:43
Speaker 9: can come up with a better way to you know,
27:46
Speaker 9: leverage all Terra in that semi space because that's what
27:49
Speaker 9: everyone seems to be excited by. How can I play
27:52
Speaker 9: in the demand for Semis?
27:54
Speaker 2: Why did they solve a whole thing?
27:56
Speaker 9: Well, I mean it's a private equity player, so you know,
28:00
Speaker 9: they're not going to put a lot of money in
28:03
Speaker 9: one asset, and they just wanted fifty one percent so
28:06
Speaker 9: that they can run the company. At the same time,
28:09
Speaker 9: Intel can benefit if they are able to successfully turn
28:12
Speaker 9: it around. And yeah, I think Alterra still needs Intel
28:17
Speaker 9: technology to be successful, so it's not as if there's
28:20
Speaker 9: a complete decoupling. It just allows Intel to focus more
28:24
Speaker 9: on the core business, the foundry and their CPU business,
28:27
Speaker 9: as opposed to focusing on Alterra and Mobile IE. I
28:30
Speaker 9: think down the.
28:31
Speaker 4: Line, should we expect with this new Intel CEO to
28:34
Speaker 4: see more news like this Intel selling other parts of
28:38
Speaker 4: its business.
28:39
Speaker 9: I think so Mobile IE is definitely another one which
28:42
Speaker 9: is noncore to Intel, even if they want to double
28:46
Speaker 9: down on AI and chip design. Within AI, I mean
28:49
Speaker 9: Mobile I is more autonomous driving. And yeah, that also
28:53
Speaker 9: came from another acquisition that Intel did back in the day,
28:57
Speaker 9: so I hope they don't end up taking a lot
29:00
Speaker 9: on that one. But I do think the playbook here
29:04
Speaker 9: seems to be that they want to focus on foundry
29:07
Speaker 9: and core CPU chip design.
29:10
Speaker 2: Foundry that's making chips right.
29:13
Speaker 9: Yes, the manufacturing side.
29:15
Speaker 2: Now, who else does that?
29:17
Speaker 9: Well, we've heard the news around in Vidia, you know,
29:20
Speaker 9: using TSMC to make their AI supercomputers here in the US,
29:25
Speaker 9: So that's that was quite a bit of news because
29:28
Speaker 9: I would have thought TSMC would partner with Intel, and
29:31
Speaker 9: there was some rumblings about you know, TSMC doing something
29:35
Speaker 9: with Intel, at least here in the US. But it
29:38
Speaker 9: looks like Nvidia is thinking about making their next CI
29:42
Speaker 9: supercomputer with TSMC. No talk about Intel, and that will
29:46
Speaker 9: be here in the US.
29:47
Speaker 2: So then I thought there's some deal that there were
29:50
Speaker 2: Intel's gonna do a bunch of that stuff.
29:52
Speaker 9: Yeah, so that's where there was talk about Intel and
29:55
Speaker 9: TSMC partnering. So that was the foundry side of Intel.
29:58
Speaker 9: But I don't think that's happening now.
30:01
Speaker 2: So the Biden plan with Intel, which was to do
30:04
Speaker 2: a big, big deal, big investment, is that's still on
30:07
Speaker 2: or No.
30:08
Speaker 9: So the chips Act money was given to Intel. It
30:11
Speaker 9: was also given to TSMC for the Phoenix fab where
30:14
Speaker 9: they will be making this AI supercomputer with Nvidia. But look,
30:20
Speaker 9: I think in the case of Intel, the challenge has
30:22
Speaker 9: always been why have they not participated in this AI wave?
30:27
Speaker 9: And the Chipsack money didn't help over there.
30:30
Speaker 3: Our thanks to Mandy seeing Bloomberg Intelligence senior tech industry analysts.
30:34
Speaker 2: Staying with the tech sector, we recently learned that tech
30:36
Speaker 2: giant Apple has been exempted from one hundred and twenty
30:39
Speaker 2: five percent tariffs on goods produced in China. This includes iPhones, iPads, max,
30:44
Speaker 2: Apple watches, and air tags.
30:46
Speaker 3: Separately, we learned that Apple will begin analyzing data on
30:49
Speaker 3: customer's devices in a bid to improve its AI platform.
30:52
Speaker 2: For more on this and all things Apple, Nord and
30:54
Speaker 2: I were joined by Mark German, Bloomberg News Managing editor
30:57
Speaker 2: for Global Consumer Tech. We first asked more how he
31:00
Speaker 2: thinks Apple will just the Washington policy moving forward.
31:03
Speaker 12: That's a big question.
31:04
Speaker 13: We're on a bit of a roller coaster here where
31:06
Speaker 13: Apple's constantly needing to think about adjusting, and then how
31:10
Speaker 13: are they gonna adjust? And then what happens if they
31:12
Speaker 13: adjust and then they have to adjust them a different direction.
31:16
Speaker 13: You can really think of Apple as just like the
31:18
Speaker 13: biggest ship in the water. Ye, it's gonna take a
31:20
Speaker 13: while to move anything. So these adjustments they have to
31:25
Speaker 13: be made with precision, right, And so it's really it's
31:29
Speaker 13: a sporadic situation. You really don't know what's going to happen.
31:31
Speaker 13: But at least for now they're in good shape. But
31:33
Speaker 13: who knows a long that's gonna last. But no matter
31:36
Speaker 13: what Trump does moving forward, I'd be very surprised if
31:40
Speaker 13: this he talks about this sectoral tariff on these types
31:45
Speaker 13: of devices, maybe I'm wrong. I just don't think there's
31:48
Speaker 13: any way it's gonna be one hundred and forty five percent.
31:50
Speaker 13: So either way, you're still at a big improvement.
31:53
Speaker 3: Of course, with the tariffs as an added layer of
31:55
Speaker 3: a headwind for the company, they're not stockpiling, and so
31:59
Speaker 3: we're seeing them increasing shipments and everything. But it seems
32:02
Speaker 3: as though this isn't necessarily due to more demand, but
32:05
Speaker 3: more or less the fact that they're just trying to
32:07
Speaker 3: prepare for the worst. Is that the case, Yeah.
32:09
Speaker 13: That's right, trying to get as many phones as no
32:11
Speaker 13: tariffs or at low tariffs as possible, whether it's from
32:14
Speaker 13: China during this period right now with no tariff, whether
32:17
Speaker 13: it's from India at this period with the lower tariff,
32:20
Speaker 13: get as many as you can into the US channel
32:22
Speaker 13: to fulfill demand. The problem is that we're about to
32:25
Speaker 13: go through a product transition, right They're about to move
32:27
Speaker 13: to the iPhone seventeen.
32:28
Speaker 7: So the question just got the sixteen.
32:29
Speaker 3: I'm behind, That's fine.
32:31
Speaker 13: The point we're trying to make here, yes, yes you
32:34
Speaker 13: are behind. You're also behind, right, But the point you're
32:37
Speaker 13: trying I'm trying to make here is that these iPhone
32:40
Speaker 13: seventeens are not ready to be pumped out. So the
32:43
Speaker 13: question is what is the terariff situation going to be
32:46
Speaker 13: in September October when these things are flying off the
32:49
Speaker 13: manufacturing lines. Where are these going to come from? So
32:51
Speaker 13: at this point it's so difficult to figure out what's
32:54
Speaker 13: going to happen.
32:55
Speaker 12: What do they need to do?
32:57
Speaker 2: In reality? I can't imagine and China not being an
33:02
Speaker 2: integral part of Apple in the next five years. I
33:05
Speaker 2: mean it has to, right, you can't switch.
33:07
Speaker 13: Nothing's changing. Well that's not true. Things are changing, but
33:12
Speaker 13: China's not going away. Yeah, right, don't forget that the
33:15
Speaker 13: US makes up about what a third of Apple's overall sales.
33:19
Speaker 13: You've still got two thirds of the world that's going
33:21
Speaker 13: to rely on this China supply chain. China's critical for
33:24
Speaker 13: rest of the world.
33:26
Speaker 3: So how's Apple doing in the AI game right now?
33:29
Speaker 3: I mean, so, I know we have iOS what's going
33:32
Speaker 3: on there? I know we have iOS eighteen point five
33:34
Speaker 3: or something coming soon that's coming.
33:35
Speaker 13: But Apple AI is not doing so hot. They've just
33:38
Speaker 13: replaced the person in charge of Siri, right, They're pulling
33:42
Speaker 13: any lever they can. One of the issues with Apple
33:45
Speaker 13: Intelligence is that their privacy stance has prevented them from
33:49
Speaker 13: gathering as much data possible in order to train their
33:52
Speaker 13: AI models. To get AI models working, probably you have
33:54
Speaker 13: to train them with data, right, and the best data
33:57
Speaker 13: you can get is the data that your customers are
33:59
Speaker 13: in putting into their iPhones. They don't do that. Open
34:02
Speaker 13: AI does it. Google does it. That's why their tools
34:04
Speaker 13: are so great. What Apple is doing now is they're
34:07
Speaker 13: putting in this new privacy centric approach where they're going
34:10
Speaker 13: to take your data on your phone, analyze it on
34:13
Speaker 13: the phone, compare it to the fake data.
34:16
Speaker 12: Right. They use fake data that.
34:17
Speaker 13: They just create out of thin air while using AI,
34:21
Speaker 13: compare it so they know which fake data is most
34:23
Speaker 13: similar to the real data, and then they'll use that
34:26
Speaker 13: best of the bunch fake data.
34:27
Speaker 12: To train their AI model. So you're seeing.
34:30
Speaker 13: These it is it is complicated, hard to wrap your
34:33
Speaker 13: head around, and so they're basically pulling every lever they can.
34:37
Speaker 2: Now we've said in the past, Apple doesn't need to
34:40
Speaker 2: be first in things because they just need to wake
34:44
Speaker 2: to the technologies kind of out there and then they're
34:46
Speaker 2: going to come in and make it beautiful. Is that
34:49
Speaker 2: still hold for AI.
34:52
Speaker 13: That's the problem usual playbook. You're right, don't be first,
34:58
Speaker 13: be the best. Well, they're certainly not first, and they're
35:03
Speaker 13: probably the worst. Wow of all the big tech names.
35:07
Speaker 13: They are the worst in AI of all the.
35:08
Speaker 2: Big tech How concerned, Copertino, I mean it's extremely concerning.
35:12
Speaker 13: They were going to have the head of AI retire.
35:15
Speaker 13: Perhaps he's not going anywhere. They just replaced him on Siri.
35:20
Speaker 13: There is certainly a lot of work and accountability that
35:22
Speaker 13: needs to be done there, And the question is how
35:24
Speaker 13: long is it going to take till you have something compelling?
35:27
Speaker 13: And I do think it's going to be at least
35:29
Speaker 13: a few years. But don't forget AI is not the phone.
35:32
Speaker 13: The phone moved fast, but there was new innovation in
35:36
Speaker 13: the phone. Maybe you know every year every couple of
35:39
Speaker 13: years AI, you're getting a new deep Seek every three weeks.
35:43
Speaker 12: There could be a big.
35:44
Speaker 13: AI innovation announced tomorrow. In fact, I think Open Ai
35:49
Speaker 13: just rolled something out Chat GPT four Dot one model
35:52
Speaker 13: the other day or yesterday. And so the speed at
35:55
Speaker 13: this that this moves at is what's really concerning, because
35:59
Speaker 13: Apple just doesn't move at that speed.
36:00
Speaker 12: They're not built to operate at the speed of the break.
36:06
Speaker 13: I think they can, but that would also require a
36:08
Speaker 13: big c change because Apple is historically bad at integrating
36:12
Speaker 13: larger companies into their overall operational workforce. And so it's
36:17
Speaker 13: like you take a step back and you ask yourself,
36:19
Speaker 13: what is Apple really good at. They're good at the phone,
36:22
Speaker 13: They're good at the iPad, they're good at the watch,
36:23
Speaker 13: They're good at health stuff, They're good at core.
36:27
Speaker 12: On device software.
36:29
Speaker 13: Not really good at cloud though they have some excellent
36:32
Speaker 13: cloud based services at this point, not really good at AI.
36:35
Speaker 12: They're getting good.
36:36
Speaker 13: At TV from you know what I hear from people
36:39
Speaker 13: who like their shows. But they're just a company at
36:44
Speaker 13: this point that's running based on legacy ideals and they
36:50
Speaker 13: need a bit of modernization. And the question is is
36:54
Speaker 13: that going to happen. Don't forget this company is run
36:56
Speaker 13: by the same group of people.
36:58
Speaker 2: Who's just as does Tim Cooks still have the support
37:00
Speaker 2: of the street and of the board.
37:01
Speaker 13: Oh yeah's you know, Tim cook wouldn't write his own ticket,
37:04
Speaker 13: There's no question there. They're down nineteen percent this year, right,
37:08
Speaker 13: but look how much they're up over the last fifteen years.
37:13
Speaker 13: What he's done is amazing, you know, everyone counted him
37:17
Speaker 13: out after Steve Jaws passed away.
37:19
Speaker 12: Right, Steve Jaws is.
37:20
Speaker 13: A one of one innovator in mind and this type
37:23
Speaker 13: of thing, and it would have been very easy and
37:26
Speaker 13: not surprising, if you know, Apple not folded up shot,
37:30
Speaker 13: but really moved away from what they were, And in
37:34
Speaker 13: many respects they have moved away, but at the same.
37:36
Speaker 12: Time they've grown so much.
37:40
Speaker 13: The way Apple's at the center of all our lives
37:41
Speaker 13: today was not the way they were at the center
37:44
Speaker 13: of our lives ten years ago. They were not at
37:46
Speaker 13: the center of the universe.
37:47
Speaker 12: A decade ago.
37:48
Speaker 13: They're at the center of the center of the universe today.
37:50
Speaker 12: Because Steve Jobs left them with a lot.
37:52
Speaker 13: Of momentum and Tim Cook executed better than anyone else
37:55
Speaker 13: would have been able to execute.
37:57
Speaker 3: Our Thanks to Mark German Bloomberg News, a managing editor
37:59
Speaker 3: for Gloeble Consumer Tech.
38:01
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