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Huawei Threat Poses Grave Risk To Trade Deal · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
• 0:05
  Speaker 1: along with my co host Lisa brahma Witz. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. We'll trade tensions between the U
• 0:23
  Speaker 1: S and China continue to escalate. The U S Commerce
• 0:26
  Speaker 1: Department announside it has placed China's largest telecom equipment company
• 0:30
  Speaker 1: on the Entity List, which denies US suppliers from selling
• 0:34
  Speaker 1: to Whahwei without a license. To get a sense of
• 0:37
  Speaker 1: what this does mean, not just for Whahwei, but for
• 0:39
  Speaker 1: the trade discussion between the US and China, we go
• 0:42
  Speaker 1: to Meredith Sumter, Meredith's head of research and strategy and
• 0:46
  Speaker 1: operations for the Eurasia Group, joining us in Washington, d C. Meredith,
• 0:49
  Speaker 1: thank you so much for joining us. Do you think
• 0:52
  Speaker 1: this band, which seems to be pretty serious, will actually
• 0:55
  Speaker 1: be activated? That's the critical question here, Paul, and what
• 1:00
  Speaker 1: we're gonna be watching for moving forward is whether or
• 1:02
  Speaker 1: not the US enforces a blanket VAN or whether it
• 1:07
  Speaker 1: chooses to instead issue licenses to most US in foreign suppliers. Uh.
• 1:12
  Speaker 1: The actual notice did come forth and say that a
• 1:16
  Speaker 1: license would be required and issued by the b I S,
• 1:19
  Speaker 1: but it all comes down to implementation from here. So, Meredith,
• 1:23
  Speaker 1: I'm struggling to understand the market reaction today because you
• 1:27
  Speaker 1: are seeing the NASDAK up one point three percent. There
• 1:30
  Speaker 1: seems to be a very risk on feel But it
• 1:32
  Speaker 1: seems like President Trump's issues with some of these big
• 1:36
  Speaker 1: technology companies out of China, this is a major escalation.
• 1:39
  Speaker 1: Why is it not being viewed that way? I couldn't
• 1:43
  Speaker 1: agree more, Lisa, and in fact this morning. So so
• 1:46
  Speaker 1: the notice came out last night, and at your AGEA group,
• 1:48
  Speaker 1: we've been working overnight to pull together own thoughts and
• 1:51
  Speaker 1: views as to how grave this really is not just
• 1:54
  Speaker 1: for the US relationship with China more broadly on technology
• 1:58
  Speaker 1: issues and on Huawei and five G, but also for
• 2:02
  Speaker 1: the trade negotiations that are ongoing. Even before last night's notice, Lisa,
• 2:08
  Speaker 1: we had drawn down our call of prospects for US
• 2:11
  Speaker 1: China trade deal by the G twenty. Of course, this
• 2:14
  Speaker 1: is when Presidents Trump and she are set to meet.
• 2:17
  Speaker 1: We dropped our call from a six probability to just
• 2:21
  Speaker 1: a probability. Now you add on top of this the
• 2:25
  Speaker 1: latest solvo against Kahwei, and we find ourselves in a
• 2:28
  Speaker 1: very serious situation. Indeed, Yeah, it's interesting, Meredith that that's
• 2:33
  Speaker 1: a significant reduction um. And again I would historically that
• 2:36
  Speaker 1: would have had a very negative impact on the market,
• 2:38
  Speaker 1: but as Lisa noted, the market seem to be shrugging
• 2:40
  Speaker 1: it off. I wonder what the impact will be on
• 2:44
  Speaker 1: China as it thinks about how it wants to react.
• 2:47
  Speaker 1: How do you think China will react to something like this.
• 2:53
  Speaker 1: We need to watch closely China's moves over the next
• 2:55
  Speaker 1: day or two. It's been very quiet out of Beijing,
• 2:58
  Speaker 1: and I think probably this is the sort of shock
• 3:01
  Speaker 1: um but also efforts on the part of Chinese leaders
• 3:05
  Speaker 1: to figure out how should they respond both to this
• 3:09
  Speaker 1: latest salvo against Huafwei, but also what does it mean
• 3:12
  Speaker 1: for their broader response to US. China ties. This is
• 3:17
  Speaker 1: all happening at a time fallen Lisa, when we're watching
• 3:20
  Speaker 1: a nationalist sentiment in China which appears to be hardening.
• 3:25
  Speaker 1: For the longest time, Beijing has taken a very moderated
• 3:29
  Speaker 1: tone when responding to US pushing against Chinese industrial practices
• 3:35
  Speaker 1: and policies, and of course with the escalation of tariffs,
• 3:39
  Speaker 1: that may be changing. And again what it comes down
• 3:41
  Speaker 1: to is, first and foremost, Beijing is going to be
• 3:43
  Speaker 1: looking to understand how lenient or how hard rather will
• 3:47
  Speaker 1: the Trump administration be in executing um UH the approving
• 3:54
  Speaker 1: licenses or not for companies suppliers to be able to
• 3:58
  Speaker 1: continue to work for what? Right now? Why is this
• 4:00
  Speaker 1: important to Beijing? Huawei is its most important, biggest technology company.
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  Speaker 1: It is a global champion in leader UH, and if
• 4:12
  Speaker 1: fully implemented, the entity list would immediately deny Huahwei access
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  Speaker 1: to critical hardware and software suppliers here in the US
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  Speaker 1: that it uses in this global mobile infrastructure and handset businesses.
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  Speaker 1: This could virtually hit all of Huawei's products, high end smartphones,
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  Speaker 1: mobile infrastructure, data centers, and cloud services. It's going to
• 4:31
  Speaker 1: have an immediate global impact for any company that utilizes
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  Speaker 1: Huawei products or services. It really puts that company at
• 4:39
  Speaker 1: at grave risk. Meredith, how do we assess whether this
• 4:43
  Speaker 1: is just sort of a chip that President Trump is
• 4:46
  Speaker 1: using to try to bring a deal to a close
• 4:49
  Speaker 1: in the near term versus some sort of longer term
• 4:53
  Speaker 1: effort by the United States to curb Chinese growth and
• 4:57
  Speaker 1: development and technology space. So the Trump administration would say
• 5:01
  Speaker 1: that that look, these are are parallel tracks that the
• 5:05
  Speaker 1: efforts to investigate Huawei and to come to determination on
• 5:09
  Speaker 1: on what should happen with Huawei with the entity list,
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  Speaker 1: So that was separate from the ongoing three oh one
• 5:17
  Speaker 1: trade investigation and negotiations. But critical from here on is
• 5:23
  Speaker 1: watching for signs that Trump is actively seeking to manage
• 5:27
  Speaker 1: the situation, including by signaling to She continued interest in
• 5:31
  Speaker 1: negotiating um. This will will tell us if the prospect
• 5:36
  Speaker 1: of a meeting between Trump and She to de escalate
• 5:39
  Speaker 1: the trade tensions and to do it to de escalate
• 5:42
  Speaker 1: this latest evo against Huawei will take place in coming
• 5:46
  Speaker 1: weeks or not. Meredith Sumter, thank you so much for
• 5:49
  Speaker 1: taking the time with us well. The White House on
• 6:06
  Speaker 1: Wednesday initiated a two prompt assault on China, first barring
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  Speaker 1: companies deemed a national security threat from selling to the
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  Speaker 1: US and to threatening to blacklist Huawei technologies from buying
• 6:19
  Speaker 1: essential components. To get a sense of what this means
• 6:21
  Speaker 1: for the global telecom business. We welcome wu Jinhoe. Wouin
• 6:24
  Speaker 1: is a senior technology as for Bloomberg Intelligence based in Princeton,
• 6:27
  Speaker 1: New Jersey, and John Butler, senior Telecom services and Equipment
• 6:32
  Speaker 1: analysts for Bloomberg Intelligence. He joins us here in our
• 6:34
  Speaker 1: Bloomberg Interactive Broker Studio. So would I want to start
• 6:37
  Speaker 1: with you if you could just describe what Wahwei does
• 6:42
  Speaker 1: and how important they are to the global telecom space.
• 6:45
  Speaker 1: Thanks Paul, Thanks Lisa. So so a couple of things. Uh,
• 6:48
  Speaker 1: if you look at Wahwei the way I've always you,
• 6:50
  Speaker 1: blahweh is um one of the fastest growing company that
• 6:55
  Speaker 1: Americans have not really have heard of up until recently.
• 6:58
  Speaker 1: And what Whahwei is the number one telecom equipment supplier globally.
• 7:04
  Speaker 1: They're also the number one smartphone supplier globally. And UM,
• 7:09
  Speaker 1: you know, from a supply cham perspective, they rely on
• 7:13
  Speaker 1: a lot of the U S components because even though
• 7:16
  Speaker 1: they do make their own chips, uh, they can't make
• 7:18
  Speaker 1: all of it. So there is a global supply chain
• 7:21
  Speaker 1: application from this from a potential ban So I'm just wondering, John,
• 7:27
  Speaker 1: from your perspective, which companies in the United States stand
• 7:30
  Speaker 1: to benefit the most. I mean, certainly we've there's been
• 7:32
  Speaker 1: a lot of focus on the ones that have that
• 7:35
  Speaker 1: have suffered as a result of speculation that Wahwei could
• 7:38
  Speaker 1: be uh that could be banned from buying components here.
• 7:42
  Speaker 1: So the immediate thoughtly said that I had when I
• 7:44
  Speaker 1: heard this news was g it's good for Nokiana, Ericson,
• 7:48
  Speaker 1: which are not US companies, um, but they compete very
• 7:53
  Speaker 1: closely with Huawei in the radio based station market. So
• 7:58
  Speaker 1: as all these networks in the US initially and elsewhere
• 8:02
  Speaker 1: around the world later this year upgrade to five G,
• 8:06
  Speaker 1: the race is on between Huawei, Nokia, Ericsson, and Samsung
• 8:11
  Speaker 1: to get share of that market. So I think net
• 8:14
  Speaker 1: net this is good for Nokia and Ericsson. The one
• 8:18
  Speaker 1: thing to watch is what Jim was talking about. There's
• 8:21
  Speaker 1: the threat of a ban on the supply of US
• 8:24
  Speaker 1: components to Huawei, and so the question becomes, how does
• 8:29
  Speaker 1: Beijing respond to that if in fact the US makes
• 8:33
  Speaker 1: good on that threat. So Jin, how about on the
• 8:36
  Speaker 1: chip side. I know, again some of the big chip makers,
• 8:40
  Speaker 1: a lot of them US based. Uh you know, listen,
• 8:42
  Speaker 1: Huawei is a big customer. How are they reacting sure. So, Um,
• 8:47
  Speaker 1: I'm looking at my screen right now, and uh, half
• 8:50
  Speaker 1: my screen is green and half my screen is read.
• 8:54
  Speaker 1: So from from the red side has been essentially all
• 8:57
  Speaker 1: the chip makers. Anybody who's anybody in the semiconductor space
• 9:01
  Speaker 1: will supply to Whahwei, especially given their dominance and a
• 9:05
  Speaker 1: smartphone space and on the networking space in particular in
• 9:09
  Speaker 1: the optical space. So if we look at companies like
• 9:12
  Speaker 1: Neo Photonics of a small cap company, but they supply
• 9:16
  Speaker 1: optical components of Whawe, they are about revenues. And on
• 9:19
  Speaker 1: the other hand, we have companies like Skywork as well
• 9:23
  Speaker 1: as Corvo, meaningful radio frequency chip suppliers globally. Um, you know,
• 9:29
  Speaker 1: they're about ten percent of sales, and then you have
• 9:31
  Speaker 1: a slew of companies that provide anywhere between two to
• 9:37
  Speaker 1: three percent of total sales to Yahwei. So John, you're
• 9:41
  Speaker 1: talking about how you know there is this sort of
• 9:45
  Speaker 1: positive benefit potentially to providers of five G technology in
• 9:49
  Speaker 1: the United States who are not going to have these
• 9:51
  Speaker 1: restrictions on them. I'm just wondering that you also mentioned
• 9:54
  Speaker 1: the retaliation from China. What are some of the potential
• 9:58
  Speaker 1: steps that China could take Well, the one I'm worried about,
• 10:02
  Speaker 1: Lisa is the potential for Apple to get slapped with
• 10:06
  Speaker 1: restrictions in China. Um. They derive almost of their revenue
• 10:11
  Speaker 1: from from Greater China, so that would include Hong Kong
• 10:15
  Speaker 1: and other surrounding regions within China. But the reality is
• 10:20
  Speaker 1: that Beijing wanted to really get tough on Apple, Um,
• 10:23
  Speaker 1: it would hurt and it could hurt the US as well.
• 10:27
  Speaker 1: Keep in mind that one of the iPhones are manufactured
• 10:31
  Speaker 1: in China, so they could not only uh, look at
• 10:35
  Speaker 1: Apple or hit Apple on the sales side, but also
• 10:39
  Speaker 1: on the manufacturing side. It's interesting, John, just looking at Apple,
• 10:42
  Speaker 1: It's off about zero point eight percent today in a
• 10:45
  Speaker 1: market where the nasdacs up over one percent. So clearly
• 10:48
  Speaker 1: clearly some concern in there. Well, which just wondering, you know,
• 10:51
  Speaker 1: if if I'm Whahwei, this is a really big deal,
• 10:54
  Speaker 1: isn't it, Because I mean, this is really a threat
• 10:56
  Speaker 1: to my business because if I can't get chips from
• 10:58
  Speaker 1: the US, can they even source chips to make up
• 11:01
  Speaker 1: from other parts of the world. Um? Uh, great question, Paul. Uh.
• 11:06
  Speaker 1: The short answer is no. But the one thing that
• 11:09
  Speaker 1: I can say based on the learning's calls that I've
• 11:12
  Speaker 1: heard UM across my sector is that Wawei actually has
• 11:17
  Speaker 1: some STOCKPI stockpiling chips over the past couple of quarters
• 11:21
  Speaker 1: UH to help the risk some of the supply supply
• 11:25
  Speaker 1: chain concerns. We don't know how much that they've inventoried. UM,
• 11:30
  Speaker 1: it might be a quarter or two of supply. So
• 11:32
  Speaker 1: if this is a short band, and then let's keep
• 11:36
  Speaker 1: in mind a band has not been put in place.
• 11:38
  Speaker 1: But if there is a short ban in place, UM,
• 11:41
  Speaker 1: you know, it might not impact Huawei's business at all,
• 11:44
  Speaker 1: but if they lasts beyond two potentially three quarters UH,
• 11:48
  Speaker 1: then it could have broader implications for the space. I
• 11:51
  Speaker 1: have to say, Paul, it's interesting just looking at the
• 11:53
  Speaker 1: market reaction right now, it does not seem uh light
• 11:56
  Speaker 1: markets are fully pricing in that Huawei will be banned
• 12:00
  Speaker 1: from buying components in the US because right now, and
• 12:04
  Speaker 1: we're not seeing the sort of response that indicates that
• 12:07
  Speaker 1: people are betting on an escalation and trade concerns. Yeah,
• 12:10
  Speaker 1: you're right, I'm just looking at this strong nastac here.
• 12:12
  Speaker 1: So there's some pockets of weakness clearly where the semi chips,
• 12:15
  Speaker 1: but otherwise pretty strong that's right. Bloomer Intelligence is Wuginhoe
• 12:19
  Speaker 1: focusing on technology and John Butler focusing on telecoms. Thank
• 12:23
  Speaker 1: you so much for being with us. We appreciate it, so, Paul.
• 12:44
  Speaker 1: Among the people who I spoke with last night at
• 12:47
  Speaker 1: this modern CFO conference was Virginny Costa, chief financial officer
• 12:51
  Speaker 1: of Goodiva, and it was interesting. She talked about a
• 12:55
  Speaker 1: goal to increase revenue fivefold over the next five year
• 13:00
  Speaker 1: and the way that they're doing it is betting on
• 13:02
  Speaker 1: these cafes that they're starting to roll out. Uh and
• 13:05
  Speaker 1: something called a craffle or crawfle crossotte waffle uh, which
• 13:10
  Speaker 1: sounds delicious and which also sounds like you might not
• 13:14
  Speaker 1: want to know the content. It sounds very good. Let's
• 13:19
  Speaker 1: I started out the conversation. Are we talking about the
• 13:21
  Speaker 1: cafe concept? What is new? Why it was rolled out
• 13:25
  Speaker 1: in the first place? Uh? And how the first good
• 13:27
  Speaker 1: I have a cafe was rolled out in the United
• 13:29
  Speaker 1: States last month. Let's listen to what she had to say.
• 13:32
  Speaker 1: We decided really to open a cafe for two reasons. First,
• 13:36
  Speaker 1: because we had an existing based in Middle East. We
• 13:39
  Speaker 1: have about forty of those cafe in Middle East that
• 13:42
  Speaker 1: were very successful and in here in North America. As
• 13:46
  Speaker 1: you said, we opened up the first one last month
• 13:49
  Speaker 1: with a brand new concept and more excitedly. Actually, we
• 13:52
  Speaker 1: also now have an expanded assortment, so we have available
• 13:57
  Speaker 1: about two dozen of unique items and new items. One
• 14:02
  Speaker 1: that I'm very fond of is called the craffle. It's
• 14:05
  Speaker 1: a trademarked name. It's a combination of croissan and waffle
• 14:09
  Speaker 1: because it's actually a croissant that you press in a
• 14:12
  Speaker 1: waffle iron. And the beauty about it is that you
• 14:14
  Speaker 1: can fill it with either our milk or dark chocolate
• 14:18
  Speaker 1: for an afternoon snack, or you can have it severed
• 14:21
  Speaker 1: in the morning your breakfast sandwich, fill with hamond cheese
• 14:24
  Speaker 1: three cheese, which is my favorite egg sausage and career.
• 14:28
  Speaker 1: And it's really providing now an everyday occasion for our
• 14:31
  Speaker 1: customers to come to go diver and expanding on our
• 14:35
  Speaker 1: special occasion product. Now now you can come to us
• 14:39
  Speaker 1: every day. What's the financial case for opening up a
• 14:42
  Speaker 1: cafe at a time when restaurants are struggling, and we
• 14:45
  Speaker 1: know that other outlets are closing some some locations, we
• 14:50
  Speaker 1: think that there's a really immense opportunity to really rooted
• 14:54
  Speaker 1: in our Belgium heritage. We have a unique proposition. It's
• 14:58
  Speaker 1: a unique product as as said, and just to share
• 15:01
  Speaker 1: the craffle, we also have Belgium waffles. We also developed
• 15:05
  Speaker 1: a signature Godiver cafe that pair very well with chocolate
• 15:08
  Speaker 1: and as well as signature tea pairing the same thing
• 15:11
  Speaker 1: very well with chocolate. So it's a a really very
• 15:15
  Speaker 1: nice expanded assortment rooted in a special Belgium heritage, a
• 15:19
  Speaker 1: unique proposition that we believe will really benefit the customers
• 15:23
  Speaker 1: across all their parts. Is it the experience kind of
• 15:26
  Speaker 1: aspect of it as well, and is that really the
• 15:29
  Speaker 1: biggest source of growth going forward that you see right
• 15:32
  Speaker 1: now for Cadivera. Correct, absolutely, we think that exactly and
• 15:37
  Speaker 1: as a matter of fact, we have a plan to
• 15:40
  Speaker 1: grow our revenue fivefold over the next six years and
• 15:44
  Speaker 1: the big part of that growth will come from those cafe.
• 15:47
  Speaker 1: We intend on actually deploying about two thousand cafe across
• 15:51
  Speaker 1: the globe. And and again back to that opportunity to
• 15:54
  Speaker 1: really have a proposition that is really bringing customers across
• 15:58
  Speaker 1: all their parts and come in the morning, you can
• 16:01
  Speaker 1: come for your lunch. We also have grab and go,
• 16:04
  Speaker 1: you can come for your afternoon snacks. So now we
• 16:06
  Speaker 1: do have really building on our special occasion gifting proposition.
• 16:10
  Speaker 1: We really have a unique larger proposition. One thing that
• 16:15
  Speaker 1: we talk a lot about, aside from chocolate and wonderful waffles,
• 16:20
  Speaker 1: is the trade concerns that have been picking up recently.
• 16:23
  Speaker 1: And I have to wonder with a food consumer company
• 16:26
  Speaker 1: where I'm sure you import the ingredients from a lot
• 16:28
  Speaker 1: of different places, how much do some of the trade
• 16:32
  Speaker 1: tensions affect what you do? So the beauty of good
• 16:35
  Speaker 1: Ivan it's not really well known. It's we are actually
• 16:38
  Speaker 1: a global business. We are presenting more than a hundred countries.
• 16:42
  Speaker 1: We have about eight hundred retail locations. And the benefit
• 16:47
  Speaker 1: of this is that and with the international customer traveling,
• 16:51
  Speaker 1: we are really benefiting from all the different elements that
• 16:55
  Speaker 1: can you know, happen in every piece of the world.
• 16:59
  Speaker 1: Um So being globe all business help and enables you
• 17:02
  Speaker 1: I believe to have really a strong fundamentals to really
• 17:06
  Speaker 1: be in any sort of change that can happen in
• 17:09
  Speaker 1: So at some point in some place of the world,
• 17:12
  Speaker 1: what do you think it's going to be the biggest
• 17:13
  Speaker 1: challenge over the next few years. That's a very interesting question.
• 17:17
  Speaker 1: I think what continues and that's part of what the
• 17:20
  Speaker 1: conversation has been together is I think um and with
• 17:24
  Speaker 1: my heart as a CFO, I think what really matters
• 17:27
  Speaker 1: is big data and how we will use and and
• 17:30
  Speaker 1: actually leverage big data. I think there's still a lot
• 17:33
  Speaker 1: of things that everybody is learning, either from a customer
• 17:37
  Speaker 1: perspective because you have access to such a lot of information,
• 17:41
  Speaker 1: but as well as an enterprise how to really leverage
• 17:44
  Speaker 1: the data. So I think it's um it's a challenge,
• 17:47
  Speaker 1: but as well as a great opportunity for everybody as
• 17:51
  Speaker 1: individuals and as well as professionals in an organization. Do
• 17:54
  Speaker 1: you think that the big data issue is the biggest
• 17:56
  Speaker 1: change facing CFOs right now? I think it's a big
• 17:59
  Speaker 1: company none of what has made that role evolve over
• 18:03
  Speaker 1: already the past few years, and he will continue to evolve.
• 18:06
  Speaker 1: I believe how often do you actually eat goodiva chocolate
• 18:09
  Speaker 1: because you're quite slimmed. I'm wondering, and how often do
• 18:11
  Speaker 1: you have quaffles, honest, honest chocolates every day? I cannot
• 18:16
  Speaker 1: help it. I have my my favorite proline and the
• 18:20
  Speaker 1: crawfoy is very addictive. Once you have tasted one, you
• 18:23
  Speaker 1: want that for your breakfast morning every morning? So that's
• 18:26
  Speaker 1: what you have every morning for breakfast. I try every
• 18:29
  Speaker 1: morning a different flavor. I have to admit, maybe all
• 18:32
  Speaker 1: have your metabolism. Virginia Costa, thank you so much for
• 18:35
  Speaker 1: being with us. That was Virginia Costa, CFO of Godiva,
• 18:38
  Speaker 1: on their new cafe concept and maybe why should eat
• 18:41
  Speaker 1: quaffles every morning? I think that was my takeaway. Lisa,
• 18:44
  Speaker 1: it sounds delicious, certainly very angry. Honestly. She elaborated a
• 18:49
  Speaker 1: little bit on the panel about big data and just
• 18:52
  Speaker 1: what that means for a retail brand, how you can
• 18:55
  Speaker 1: predict people's habits so you can predict when people are
• 18:58
  Speaker 1: going to be coming in and better cater to them.
• 19:01
  Speaker 1: It's just there's a lot of opportunity with big data
• 19:04
  Speaker 1: that a lot of particularly retail facing companies are exploring,
• 19:07
  Speaker 1: but frankly all companies. That was really interesting to me. Yeah,
• 19:11
  Speaker 1: it's interesting, and just for the good divers story, just
• 19:13
  Speaker 1: to hear that, you know, the kind of growth they
• 19:15
  Speaker 1: are forecasting for their company and uh, you know, basing
• 19:17
  Speaker 1: that growth on the cafe concept. So you know, I
• 19:21
  Speaker 1: would say a significant change in kind of their business model,
• 19:23
  Speaker 1: getting into kind of the retail side of chocolate. Walmart
• 19:41
  Speaker 1: shares are having their best one day rallies since December
• 19:45
  Speaker 1: as they reported better than expected earnings their strongest same
• 19:48
  Speaker 1: store growth in nine years. Joining us now to discuss
• 19:52
  Speaker 1: Bert Flicking ger managing director for Strategic Resource Group, in
• 19:55
  Speaker 1: our Bloombergotter Active Broker Studios in New York Bird, can
• 19:59
  Speaker 1: we get a sense of how long lasting the strength
• 20:03
  Speaker 1: that we saw in Walmart seems to be? Lisa, the
• 20:07
  Speaker 1: strength will go on for the foreseeable future, certainly the
• 20:11
  Speaker 1: next ten to fifteen years. If you look at Chicago,
• 20:14
  Speaker 1: where you're broadcasting from now, you look at south side Chicago, Land,
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  Speaker 1: the state, Uh, from the Great Lakes region to the northeast,
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  Speaker 1: densely populated areas. Walmart has one store for every thirty
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  Speaker 1: to fifty thousand people in Alabama and states like California,
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  Speaker 1: they've got one store for every half a million people.
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  Speaker 1: So Uh, Doug McMillan, dynamic CEO is like the reincarnation
• 20:41
  Speaker 1: of Elane Elane May and Warren Beatties Uh seminal movie
• 20:45
  Speaker 1: Heaven Can Wait. He's uh investing in technology, investing in rooftop, solar,
• 20:53
  Speaker 1: every other kind of savings and lowering prices to race
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  Speaker 1: shop or standard of living. And instead of looking at
• 20:59
  Speaker 1: marketing as an expense, he's got the best and the
• 21:01
  Speaker 1: most effective advertising anywhere worldwide in retail. So for one
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  Speaker 1: of the numbers that jumped out at me is that
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  Speaker 1: has really for several quarters now is the online business.
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  Speaker 1: Their e commerce business. The revenue is up thirty seven percent. Boy,
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  Speaker 1: it looks like, after you know, some initial stumbles early
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  Speaker 1: on in their development of their e commerce platform, they've
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  Speaker 1: really figured it out, and it looks like they're gonna
• 21:22
  Speaker 1: give Amazon a run for their money in terms of
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  Speaker 1: the e commerce across a broad swath of consumer products.
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  Speaker 1: Paul completely correct, And what Walmart is doing is investing
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  Speaker 1: in robotics, UH mechanization, satellite communications, doing it everything themselves,
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  Speaker 1: where their competitors, with the exception of Amazon, are outsourcing.
• 21:43
  Speaker 1: So Walmart has more terribly like Bloomberg on the terminal.
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  Speaker 1: Walmart has more terrob bytes of data than anybody worldwide,
• 21:52
  Speaker 1: than the other than the US Pentagon to be able
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  Speaker 1: to deliver a ninety percent of the Bloomberg XM serious
• 22:00
  Speaker 1: audience within the next fifteen months, UH forty of the
• 22:03
  Speaker 1: top fifty metro areas ultimately forty five of the top fifties.
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  Speaker 1: So whether it's in store click and collect or the
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  Speaker 1: FedEx centers in the Walmart eleven format in Avon, Colorado, UH,
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  Speaker 1: can consumer can save worldwide anywhere anytime with Walmart. No
• 22:23
  Speaker 1: one else can do that. Well, you know, when we
• 22:24
  Speaker 1: talk about Amazon and the shipping costs, we always focus
• 22:28
  Speaker 1: on how much more they're spending UH to get those
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  Speaker 1: packages to people sooner and sooner. And Walmart is trying
• 22:34
  Speaker 1: to compete with that, offering similar types of delivery times.
• 22:37
  Speaker 1: And I'm wondering how much they're spending is going up?
• 22:40
  Speaker 1: Spending is going up, Lisa, But uh, their total supply
• 22:45
  Speaker 1: savings at Walmart. So Amazon will sell small products light
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  Speaker 1: and weight small in cube uh and make a lot
• 22:53
  Speaker 1: of money. But if someone wants to order a baby
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  Speaker 1: stroller or a big bag of pet food, UH, Amazon
• 23:00
  Speaker 1: on charges a fortune and part of the savings and
• 23:03
  Speaker 1: in Walmart's brilliance in being the low price leader. Bloomberg
• 23:08
  Speaker 1: Editor in chief of Meredith Matthew Winkler did a great
• 23:12
  Speaker 1: session with Tom yesterday on E S g u UM
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  Speaker 1: Environmental social, sustainable and governance. And Walmart is investing so
• 23:23
  Speaker 1: much in sustainable rooftop solar with Inner Solar and others
• 23:28
  Speaker 1: as his Amazon target all the and BJ's wholesale club too,
• 23:33
  Speaker 1: that whether it's terraces or not, Walmart is finding so
• 23:37
  Speaker 1: many ways to save to reinvest. So, as Tom King says,
• 23:42
  Speaker 1: what are the units? Walmart was up three point four
• 23:45
  Speaker 1: percent as Paul reference today and same store sales, but
• 23:48
  Speaker 1: units are up over five percent. So you've got dollar
• 23:51
  Speaker 1: stores like Fred's multi regionally potentially filing for bankruptcy liquidation.
• 23:57
  Speaker 1: So Walmart's becoming a shopping center with in the four
• 24:00
  Speaker 1: walls of of Walmart and displacing thousands of shopping centers
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  Speaker 1: across America in the In the process, Walmart's winning, to
• 24:08
  Speaker 1: your point, Lisa, for the foreseeable future at least um
• 24:12
  Speaker 1: to and beyond. So just you know, looking at the
• 24:16
  Speaker 1: Bloomberg terminal um and the pg O function for Walmart's
• 24:20
  Speaker 1: nick at about almost of their sales from international, give
• 24:24
  Speaker 1: us a sense of where do you think that number goes?
• 24:27
  Speaker 1: You want to do? You think they want to continue
• 24:28
  Speaker 1: to grow their international business, grow international, but cautiously in
• 24:33
  Speaker 1: our field work UK Ireland. We saw the twin towers
• 24:38
  Speaker 1: of power from the continent. Uh all Brecht, which owns
• 24:41
  Speaker 1: Trader Joe's an Aldi in the US and Lethal as
• 24:45
  Speaker 1: well as Occato and Amazon wal run Walmart out of
• 24:48
  Speaker 1: the UK old earlier continental Europe. So Walmart took the money.
• 24:53
  Speaker 1: I was going to take the money from Ozda to
• 24:55
  Speaker 1: reinvest in flip card in India, uh cautiously proceeding in
• 24:59
  Speaker 1: pr See or mainland China because the government is not
• 25:02
  Speaker 1: as supportive as one might think. So Walmart wins in
• 25:06
  Speaker 1: North America, throughout Central and Latin America, and win selectively
• 25:11
  Speaker 1: in Asia. But India is going to be the big
• 25:13
  Speaker 1: growth engine and will Walmart International will be profitable sales
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  Speaker 1: and market share growth up to about a third to
• 25:20
  Speaker 1: thirty five percent of the company over the next ten years.
• 25:24
  Speaker 1: But we would be remiss if we didn't talk about
• 25:26
  Speaker 1: tariffs and Walmart's comments on the fact that they plan
• 25:29
  Speaker 1: on passing along the increased costs of certain goods to
• 25:32
  Speaker 1: consumers and they expect consumers to be able to absorb that.
• 25:36
  Speaker 1: That was taken as really good news by markets. Can
• 25:39
  Speaker 1: you talk a little bit about why good news by
• 25:42
  Speaker 1: markets is the Bloomberg Terminal reported today Lisa UH gross
• 25:47
  Speaker 1: margins at Walmart or over four percent for the first
• 25:50
  Speaker 1: time in a long time. Also, Walmart's offsetting tariff increases
• 25:54
  Speaker 1: by going to key vendors, for example an apparel on
• 25:57
  Speaker 1: the Bloomberg Terminal UH cotton prices the last two crop
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  Speaker 1: years or historic lows, so Walmart saying, look, the cost
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  Speaker 1: of raw materials for the suggested retail price are only
• 26:10
  Speaker 1: one or one tenth of the products. So you the manufacturer,
• 26:14
  Speaker 1: whether you find savings in cotton, whether you find savings
• 26:18
  Speaker 1: in technology or supply chain, or on shoring manufacturing in America,
• 26:23
  Speaker 1: North America or using other countries in Southern Ation instead
• 26:27
  Speaker 1: of North Asia to produce the effect of Walmart terrorists
• 26:31
  Speaker 1: will be material, as you said, but not nearly as
• 26:35
  Speaker 1: meaningful and and to the point of almost being diminimous
• 26:39
  Speaker 1: in this Gary Shilling deflationary environment where the cost of
• 26:42
  Speaker 1: TVs and consumer electronics decline year after holiday year. Bert Flickinger,
• 26:48
  Speaker 1: Managing Director, Strategic Resource Group, thank you so much for
• 26:51
  Speaker 1: joining us. We always appreciate your comments on Walmart and
• 26:54
  Speaker 1: all things retail. Thanks for listening to the Bloomberg p
• 26:57
  Speaker 1: andl podcast. You can subscribe and listen to Inner Use
• 27:00
  Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. M
• 27:03
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
• 27:06
  Speaker 1: abram Woits. I'm on Twitter at Lisa abram Woits. One.
• 27:09
  Speaker 1: Before the podcast, you can always catch us worldwide on
• 27:11
  Speaker 1: Bloomberg Radio