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Amazon Earnings, Musk in China, Intel in Ohio · Bloomberg Intelligence

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  Speaker 1: On Today's Bloomberg Intelligence Show, we dig inside the big
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  Speaker 1: business stories impacting Wall Street and the global markets.
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  Speaker 3: Each and every week we provide in depth research and
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  Speaker 3: data on some of the two thousand companies and one
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  Speaker 3: hundred and thirty industries our analysts cover worldwide.
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  Speaker 1: Today, well look at why New York Community Bank posted
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  Speaker 1: earnings that were better than analyst feared.
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  Speaker 3: Plus we'll discuss how McDonald sales are being impacted by
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  Speaker 3: war in the Middle East.
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  Speaker 1: But first we dive into big tech and Amazon. Amazon's
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  Speaker 1: cloud unit posted the strongest sales growth in a year.
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  Speaker 3: It's really a sign that the retailer's most profitable unit
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  Speaker 3: is recovering from a slump as businesses resume spending on
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  Speaker 3: technology products, including AI services.
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  Speaker 1: Despite this, Amazon sales forecast for the current quarter fell
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  Speaker 1: short of analyst expectations, reflecting concern about the main e
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  Speaker 1: commerce business.
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  Speaker 3: From where We're doing Now by Anna ag Ran on
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  Speaker 3: Bloomberg Intelligence Technology Analysts. We first asked him for his
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  Speaker 3: big takeaway.
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  Speaker 4: I think the big spike in AWS profit is something
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  Speaker 4: that really alarmed us because you know, that was a
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  Speaker 4: number we weren't expecting for I honestly a few years.
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  Speaker 4: So if you look at it, AWS margins, operating margins
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  Speaker 4: came close to thirty seven thirty eight percent, little over
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  Speaker 4: thirty seven, and that was like eight points or eight
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  Speaker 4: percentage points higher than what Street was looking for and
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  Speaker 4: fourteen percentage points over last year. Absolutely phenomenal. I think
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  Speaker 4: that's really what I am hoping that you know, investors
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  Speaker 4: are focused on rather than all the other things.
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  Speaker 1: All right, and give us a sense if we just
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  Speaker 1: step back, give us kind of the market share layout.
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  Speaker 1: How does this market look between some of these big
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  Speaker 1: players like Microsoft, Google and Amazon.
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  Speaker 4: So Amazon only plays on the infrastructure layer, which is
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  Speaker 4: trying to give people raw material to build their applications.
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  Speaker 4: And when that they have a commanding market share over
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  Speaker 4: forty percent of the market, and in fact that they
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  Speaker 4: have maintained that for a while, I mean, which is
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  Speaker 4: surprising because Microsoft has been gaining share on it, you know,
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  Speaker 4: for a very long period of time, but from smaller players.
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  Speaker 4: And also the market's growing very much. So Amazon's currently
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  Speaker 4: at you know, revenue off over one hundred billion dollars
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  Speaker 4: in this market, but over.
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  Speaker 5: To all tech spending is you know, north.
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  Speaker 4: Of two trillion, frankly, so there's a lot of room
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  Speaker 4: to grow for everybody, not just Amazon, but Amazon, Microsoft, Google,
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  Speaker 4: you know, even Oracle, I mean, all of them will
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  Speaker 4: grow in this market.
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  Speaker 3: So if we take a look at the different layers
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  Speaker 3: of how AI kind of plays into cloud, the one
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  Speaker 3: area where Amazon maybe isn't getting as monch market share
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  Speaker 3: and maybe they're still developing that is the consumer facing side.
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  Speaker 3: What can they do there? What is their growth opportunity there?
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  Speaker 4: Yeah, I mean they have a lot of you know,
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  Speaker 4: I would say some apps that are working on it,
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  Speaker 4: but really the reason why Microsoft is ahead right now
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  Speaker 4: in that game is because of open Ai. They have
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  Speaker 4: a partnership with open Ai, and they run open AI's
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  Speaker 4: back end, which is when you do a search and
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  Speaker 4: chat GPT, Microsoft is running those searchers in the background
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  Speaker 4: or you know, the application runs on it, which is
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  Speaker 4: why Microsoft is getting the benefit of it. For AWS,
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  Speaker 4: the big benefit is going to come from companies or
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  Speaker 4: big corporations when they go out and build their AI applications.
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  Speaker 5: There's a high likelihood they're going to choose.
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  Speaker 4: AWS as much as they're going to choose Microsoft or Google.
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  Speaker 4: And that's really what Amazon's betting on.
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  Speaker 1: So you mentioned the margins, high margins at AWS. Can
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  Speaker 1: they maintain those margins? What are the risks for those margins?
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  Speaker 4: Yeah, I don't think they can maintain them, only because
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  Speaker 4: they have to spend a fair amount of money in
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  Speaker 4: order to you know, fulfill the demand expanding in data centers,
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  Speaker 4: buying new hardware, buying chips. So I'd be very surprised
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  Speaker 4: if you see that number again for a very long
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  Speaker 4: period of time.
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  Speaker 6: You know.
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  Speaker 4: Frankly speaking, I'll be happy with the thirty percent margin
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  Speaker 4: for the next several years while they make sure that
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  Speaker 4: they're doing the right investments to drive double digit growth
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  Speaker 4: rate on their top line.
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  Speaker 3: Let's talk about those investments. So they said they're going
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  Speaker 3: to quote meaningfully step up their capex to pay for
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  Speaker 3: all this AI infrastructure. But there was no like number
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  Speaker 3: given when Meta said that market didn't like it. What
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  Speaker 3: was the pass here that Amazon got?
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  Speaker 4: Yeah, but you know, Amazon's basically showcasing that they actually
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  Speaker 4: have been doing this successfully in terms of expanding data
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  Speaker 4: centers based on the capacity, so you know, before going in,
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  Speaker 4: you know, they had close to fifteen billion dollars yesterday
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  Speaker 4: in the first quarter in terms of capex, and it's
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  Speaker 4: going to go up over the next quarter. So we
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  Speaker 4: think it's going to be north of sixty five billion
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  Speaker 4: at this point for all of Amazon, with most of
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  Speaker 4: it going to AWS.
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  Speaker 5: But there's a reason for it.
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  Speaker 4: They are in contracts to fulfill cloud demand or you know,
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  Speaker 4: they need to be able to expand that to fulfill
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  Speaker 4: that massive cloud demand.
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  Speaker 5: An rug.
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  Speaker 1: You know what I did not see an Amazon's report
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  Speaker 1: a dividend.
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  Speaker 7: Why is that?
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  Speaker 5: Yeah?
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  Speaker 4: I mean I I you know, again, they're going to
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  Speaker 4: spend that sixty five billion dollars next year on capex also,
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  Speaker 4: so I'm I'm okay with not having a dividend for
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  Speaker 4: a while. I would rather you're a tech animals.
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  Speaker 1: You guys think that if you if you put out
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  Speaker 1: a dividend, it's signals that you're no longer a growth story.
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  Speaker 5: Yeah, it's a kiss of death. I'm not a big fan.
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  Speaker 3: Not Microsoft, Google. They disagree with you.
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  Speaker 4: Yeahb IBM kind of agrees with me at this point
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  Speaker 4: of that. So look at IBM. I mean, they have
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  Speaker 4: a massive dividend yield. I would rather they you know,
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  Speaker 4: they take that money and buy a bunch of new
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  Speaker 4: Hashi corpse kind of companies that are growing at fifteen
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  Speaker 4: to twenty percent. That will change the face of the company,
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  Speaker 4: make them, you know, even more relevant in the tech
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  Speaker 4: space than.
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  Speaker 5: They are right now.
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  Speaker 4: So I'm always in that camp that when you are
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  Speaker 4: a tech company, you got to constantly reinvent yourself otherwise
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  Speaker 4: somebody will come and eat your lunch.
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  Speaker 1: I mean, on Rock and I we just fundamentally disagree
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  Speaker 1: on this. We agree to disagree. We go to our
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  Speaker 1: separate corners.
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  Speaker 3: Can I ask a dumb question for the two of you,
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  Speaker 3: then is there room for both of you to be right?
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  Speaker 8: Like?
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  Speaker 3: Can these tech companies throw off enough cash they can
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  Speaker 3: reinvest in a healthy way and also pay a dividend.
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  Speaker 4: Yes on our own Yes, yes, absolutely, Alex, I completely
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  Speaker 4: agree with that because what happens is if you give
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  Speaker 4: a very small token dividend, it opens the doors to
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  Speaker 4: a lot of institutional investors that are bound by their
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  Speaker 4: charter to only invest in companies that pay are dividend.
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  Speaker 4: So there is a logical reason to do it. But
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  Speaker 4: I'm okay with Amazon. It's going to take a year
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  Speaker 4: or two years to get to.
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  Speaker 5: That path, all right.
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  Speaker 3: So there's a whorl where you.
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  Speaker 6: Can both be ready.
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  Speaker 1: We can there's a place where we can meet in them.
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  Speaker 3: Is there a capex number that you wouldn't like from Amazon?
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  Speaker 3: They didn't give a.
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  Speaker 4: Number now, not at this point. The only reason is
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  Speaker 4: because we see forward contracts. As of this morning, when
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  Speaker 4: they filed their ten Q, we saw cloud commitments go
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  Speaker 4: up twenty nine percent.
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  Speaker 5: I mean that's a very big number.
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  Speaker 4: And frankly, when on the enterprise side, we haven't seen
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  Speaker 4: orders coming for AI at this point. AI orders are
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  Speaker 4: only coming in from consumer applications like CHACKGBT, people running
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  Speaker 4: that at this point, over the next few years, we
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  Speaker 4: should see a massive spike in you know, people creating
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  Speaker 4: new applications or companies creating new applications, and that's going
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  Speaker 4: to only drive more growth for AWS, Microsoft and Google.
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  Speaker 1: Our thanks to Anaagrana, Bloomberg Intelligence technology analyst.
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  Speaker 3: We move next to the EV space in Tesla CEO
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  Speaker 3: Elon Musk recently paid a quick visit to China and
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  Speaker 3: it paid immediate dividends for the ev giant.
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  Speaker 1: Tesla received an in principle approval from government officials to
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  Speaker 1: deploy its driver assistance system in China. Also reached the
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  Speaker 1: mapping navigation deal with Chinese tech giant Bydo, and met
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  Speaker 1: requirements for how it handles data security and privacy issues.
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  Speaker 3: From more on all of this, we were joined by
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  Speaker 3: Craig Drudell, Bloomberg Global Autos Editor. Craig began by telling
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  Speaker 3: us that his tentative China deal has been in the
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  Speaker 3: works for some time.
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  Speaker 9: It wasn't necessarily the case that this was, you know,
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  Speaker 9: kind of an overnight saying, actually, the last time that
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  Speaker 9: Musk was in China, this was something that we reported
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  Speaker 9: at the time was on the agenda. It's been something
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  Speaker 9: that Tesla has been after for quite some time, and
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  Speaker 9: it's increasingly a way that you know carmakers are competing
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  Speaker 9: in China is you know, how advanced is your driver
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  Speaker 9: assistant system. You know that that keeps you from crashing,
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  Speaker 9: that keeps you in your lane, that allows you in
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  Speaker 9: some cases to take your hands off the wheel. But
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  Speaker 9: in all cases, you know you absolutely are responsible for
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  Speaker 9: for you know, the car, and you know no companies
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  Speaker 9: are are taking responsibility legal responsibility if if you get
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  Speaker 9: into a craft, you know, with the exception of of
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  Speaker 9: some you know, very small sort of limited fleets and
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  Speaker 9: contained areas, and you know there are quirks as you
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  Speaker 9: might imagine, you know, by market for what is required
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  Speaker 9: to be able to offer these systems that really need
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  Speaker 9: to be safe and also need to have, you know,
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  Speaker 9: controls for data collection and and you know, the cameras
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  Speaker 9: used to navigate the surroundings that these cars are going
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  Speaker 9: to need to to pilot around. And that's been a
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  Speaker 9: hang up for Tesla and other international companies that you know,
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  Speaker 9: they need to in all cases work with local Chinese
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  Speaker 9: companies for things like mapping and navigation. So one of
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  Speaker 9: the key sort of you know, takeaways from this trip
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  Speaker 9: was Tesla agreeing to do that with bayd in China.
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  Speaker 3: So who owns the stuff it.
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  Speaker 9: Is importantly you know, it's a matter of ownership and
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  Speaker 9: where it's kept. And so you know, this has come
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  Speaker 9: up years ago. Actually, Tesla had a bit of a
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  Speaker 9: hang up where their cars were banned from you know,
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  Speaker 9: being in the area of military compounds and other sort
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  Speaker 9: of sensitive parts of kind of out of concerns about
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  Speaker 9: you know, any information that cars were gathering, and you know,
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  Speaker 9: there were concerns about whether any data was going from
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  Speaker 9: Tesla's China operations back to the US, and so Tesla
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  Speaker 9: needed to sort of rea kinda that you know, any
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  Speaker 9: data collected in China will stay in China, and so
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  Speaker 9: that has been you know, something that they've had this
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  Speaker 9: sort of acquiesce to as of you know, several years ago.
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  Speaker 9: But they needed to still sort of you know, clear
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  Speaker 9: you know, approval for you know, making sure that their
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  Speaker 9: teas were crossed and eyes were dotted in that respect,
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  Speaker 9: and they needed this deal with BAYD. It does seem
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  Speaker 9: to be the case that they need to meet other
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  Speaker 9: conditions in order for FSD to be offered in China.
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  Speaker 9: It's still not a done deal, but what you know,
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  Speaker 9: sort of hoops they still have to jump through are
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  Speaker 9: a bit unclear at this point.
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  Speaker 1: So how does this change, if at all, kind of
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  Speaker 1: the competitive landscape for Tesla in China. I know, you
• 10:43
  Speaker 1: guys have been reporting a lot of how some of
• 10:44
  Speaker 1: the local ev makers have really become very good and
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  Speaker 1: very competitive.
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  Speaker 9: Yeah, I think it absolutely is something that's been missing
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  Speaker 9: for Tesla that, assuming all goes well here, it will
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  Speaker 9: no longer be a sort of strike against them among
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  Speaker 9: consumers who really, you know, want the most cutting edge technology.
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  Speaker 9: It remains to be seen how big a deal it
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  Speaker 9: will be for Tesla from a revenue standpoint, because we
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  Speaker 9: don't know at this point how much Tesla will be
• 11:12
  Speaker 9: looking to charge for it. We don't know, you know,
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  Speaker 9: to what extent they may have to share some revenue
• 11:17
  Speaker 9: with some of their partners. It's not clear whether by
• 11:19
  Speaker 9: do maybe gets a cut. You know, in the US,
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  Speaker 9: Tesla and you know throughout the world, Tesla has made
• 11:25
  Speaker 9: a point to really be you know, want to be
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  Speaker 9: vertically integrated, and that's you know, fancy talk for in
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  Speaker 9: control of its own destiny. Uh, they were willing to
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  Speaker 9: sort of acquiesce in this case, I think because they
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  Speaker 9: really could use this boost in China at a time
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  Speaker 9: when their lineup is getting a bit tired and they're
• 11:43
  Speaker 9: losing a lot of market share to companies like byd Well.
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  Speaker 3: This also raises the question too, it doesn't take a
• 11:48
  Speaker 3: lot of news to get Tesla stock moving, not that
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  Speaker 3: a trip to China wasn't a big deal, but like
• 11:54
  Speaker 3: you said, there's so many questions as to the actual
• 11:56
  Speaker 3: revenue driver and what it's going to mean.
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  Speaker 7: I mean, you have to wonder is.
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  Speaker 3: Not going to take a lot for any kind of
• 12:02
  Speaker 3: shorts Craig to cover.
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  Speaker 9: I think that's right. And this is also a name
• 12:06
  Speaker 9: that you know, options traders absolutely love. It's it's sort
• 12:11
  Speaker 9: of like the meme stock that has lasted as a
• 12:13
  Speaker 9: meme stock as that craze has sort of faded away.
• 12:17
  Speaker 9: And so you know, anytime to your point, you know,
• 12:20
  Speaker 9: Musk is able to sort of get the momentum with
• 12:23
  Speaker 9: you know, the narrative, it tends to lead to big swings.
• 12:27
  Speaker 9: So you know, early this year, I think he lost
• 12:29
  Speaker 9: control of that narrative. And it's not at all a
• 12:33
  Speaker 9: mystery as to why that is, you know, looking at
• 12:35
  Speaker 9: last week's earnings, but I think he was really able
• 12:38
  Speaker 9: to sort of change what people were talking about last week.
• 12:41
  Speaker 9: We'll see whether or not, you know, this is mostly
• 12:43
  Speaker 9: talk as opposed to you know, going to lead to real,
• 12:47
  Speaker 9: sort of meaningful change in Tesla's earnings trajectory, which has
• 12:50
  Speaker 9: not been trending in the right direction.
• 12:52
  Speaker 1: Our thanks to Craig Trudell, Bloomberg Global Autos Editor.
• 12:55
  Speaker 3: All right, coming up, we're going to break down why
• 12:57
  Speaker 3: McDonald's is now looking to focus on affordable prices in
• 12:59
  Speaker 3: the US.
• 13:00
  Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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  Speaker 1: depth research and data on two thousand companies from one
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  Speaker 1: b I go on the terminal.
• 13:10
  Speaker 3: I'm Paul Sweeney, a Mlex Steel, and this is Bloomberg.
• 13:17
  Speaker 2: This is Bloomberg Intelligence with Alex Steel and Paul Sweeney
• 13:22
  Speaker 2: on Bloomberg Radio.
• 13:24
  Speaker 3: We look next at the food service industry. At McDonald's,
• 13:27
  Speaker 3: the fast food chain's quarterly sales fell short of analysts
• 13:29
  Speaker 3: expectations in the first quarter, and results were hurt by
• 13:32
  Speaker 3: slow and growth in the US and Boycott's related to
• 13:34
  Speaker 3: the Israel Hamas war.
• 13:36
  Speaker 1: The restaurant chain now looks to focus on affordable prices
• 13:39
  Speaker 1: in the US for more and all this, we were
• 13:41
  Speaker 1: joined by Michael Halen, Bloomberg Intelligence Senior restaurant and food
• 13:44
  Speaker 1: service analyst. We first asked Michael for his reaction to
• 13:47
  Speaker 1: McDonald's quarterly it results.
• 13:49
  Speaker 10: I'd say the biggest takeaway was, you know, the fact
• 13:52
  Speaker 10: that April's flat so far in the United States. That's
• 13:55
  Speaker 10: trailing the industry level, you know the industry data that
• 13:59
  Speaker 10: we get so and also you know, Burger King showed
• 14:02
  Speaker 10: an acceleration in the US and their US numbers, so
• 14:06
  Speaker 10: I would say that was the biggest surprise. You know,
• 14:08
  Speaker 10: McDonald's still on a five year trend, is vastly outperforming
• 14:12
  Speaker 10: Burger King almost the other quick service names, but there
• 14:15
  Speaker 10: seems to be some slowing if I was to guess
• 14:18
  Speaker 10: some of that bad press around the eighteen dollars big
• 14:21
  Speaker 10: mac meal in some markets, you know, could be hurting
• 14:23
  Speaker 10: because we are seeing US consumers really push back against
• 14:27
  Speaker 10: price increases right now, and they're being more picky about
• 14:30
  Speaker 10: where they spend their money.
• 14:32
  Speaker 1: Mike, I see just in the Bloomberg reporting here. Executives
• 14:35
  Speaker 1: have also said that low income consumers in the US,
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  Speaker 1: which is an important part of the company's customer base
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  Speaker 1: are pulling back. That does that mean we're going to
• 14:42
  Speaker 1: see more promotions which might put pressure on the margins.
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  Speaker 10: Yeah, McDonald's has come out and said they're going to
• 14:48
  Speaker 10: focus more on their value menu. They're going to continue
• 14:50
  Speaker 10: to offer promotions, a lot of them.
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  Speaker 7: Through the apps.
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  Speaker 10: So it looks like a full on value war is here.
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  Speaker 10: I mean, Burger King Borg Kings could be a little
• 14:59
  Speaker 10: bit more careful with their discounting because in the last
• 15:03
  Speaker 10: five years or so they've gotten too aggressive and it
• 15:05
  Speaker 10: hurt franchising margins. So they kind of hoopooed that a
• 15:09
  Speaker 10: little bit. But we think a full blown value war
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  Speaker 10: is here and it's on the table for twenty twenty four.
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  Speaker 3: So does the value war take into account a bigger burger?
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  Speaker 3: Is that the deal?
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  Speaker 5: Well? Value?
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  Speaker 10: You know, it's measured in a couple of ways. It's
• 15:21
  Speaker 10: not just the price, but it's what you get for
• 15:23
  Speaker 10: the price, right, And so I'm sure McDonald's has done
• 15:27
  Speaker 10: their legwork and they have some customer feedback that says
• 15:31
  Speaker 10: that they want some Bigger burgers on their menu, and
• 15:34
  Speaker 10: so that's going to be interesting. They said they're going
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  Speaker 10: to start testing it in the second half of this year,
• 15:39
  Speaker 10: so it may not hit the United States for quite
• 15:42
  Speaker 10: some time. But yeah, there's a couple of ways to
• 15:45
  Speaker 10: measure value.
• 15:46
  Speaker 1: Hey, Mike, what are the McDonald's of the world, and
• 15:48
  Speaker 1: you know, the other restaurant companies you talked to, what
• 15:50
  Speaker 1: are they saying about these GLP one drugs? Are they
• 15:54
  Speaker 1: really going to impact their business?
• 15:56
  Speaker 10: You know, I don't think there's too much worry about
• 15:59
  Speaker 10: that anymore. I know that was a big thing last
• 16:01
  Speaker 10: summer and into the fall, and it really impacted the
• 16:05
  Speaker 10: prices of some of these quick service restaurant chain stocks,
• 16:07
  Speaker 10: especially McDonald's. But I've seen a lot of different reports
• 16:11
  Speaker 10: out there, and you know, the amount of people on
• 16:14
  Speaker 10: these drugs ranges from you know, seven to twelve or
• 16:17
  Speaker 10: maybe fifteen percent best case if once they get to
• 16:21
  Speaker 10: like maybe a pill form instead of a shot, you know,
• 16:24
  Speaker 10: and we don't know about long term side effects from
• 16:27
  Speaker 10: some of these drugs, So I think initially there was
• 16:30
  Speaker 10: some concern, but over time McDonald's and these other chains,
• 16:33
  Speaker 10: they're going to figure out how to make a seven
• 16:36
  Speaker 10: to twelve percent smaller cheeseburger. Right They're getting smaller anyway,
• 16:39
  Speaker 10: because there's a historical situation in the cattle market right now,
• 16:43
  Speaker 10: and so beef prices are going to continue to stay
• 16:45
  Speaker 10: elevated in here for a couple of years, and so
• 16:48
  Speaker 10: chains are already starting to try to, you know, solve
• 16:52
  Speaker 10: for some of these problems, you know, ahead of broader adoption.
• 16:56
  Speaker 3: Yeah, I mean you have to think that translation is
• 16:58
  Speaker 3: going to hit in many different ways. But before we
• 17:00
  Speaker 3: let you go, we have about a minute left. So
• 17:02
  Speaker 3: who wins the value war right now? Based on what
• 17:05
  Speaker 3: you've seen.
• 17:05
  Speaker 10: It's interesting because you know McDonald's historically has and so
• 17:09
  Speaker 10: that's what's most interesting about them underperforming in April. Burger
• 17:14
  Speaker 10: King is an interesting one because you know, they have
• 17:18
  Speaker 10: easier comps. They struggled coming out of the pandemic for
• 17:22
  Speaker 10: a few years, right, and so they have easier comparisons
• 17:25
  Speaker 10: to lap lower average unit volumes at the store level,
• 17:28
  Speaker 10: and so there's room for some upside there. Chipotle absolutely
• 17:32
  Speaker 10: continues to knock the cover off the ball, and you
• 17:36
  Speaker 10: know McDonald's has scale, right, and so when they really
• 17:38
  Speaker 10: start pushing on value, everyone else is going to feel it.
• 17:42
  Speaker 10: So so you know, I'm confident that McDonald's can kind
• 17:46
  Speaker 10: of turn the tide here a little bit because they
• 17:48
  Speaker 10: can just offer burgers and other items at prices their
• 17:50
  Speaker 10: computers just can't match.
• 17:52
  Speaker 1: Thanks to Michael Halen, Bloomberg Intelligence Senior restaurant and food
• 17:55
  Speaker 1: service analysts, we.
• 17:57
  Speaker 3: Move now to regional banks. New York Community Bank posted
• 17:59
  Speaker 3: quarterly results that were better than analysts had feared, and
• 18:01
  Speaker 3: the lender also outlined a plan for reshaping it into
• 18:04
  Speaker 3: a more diversified and profitable bank.
• 18:06
  Speaker 1: For more, we were joined by Herman Chin, Bloomberg Intelligence
• 18:09
  Speaker 1: Senior analyst for US regional banks. We first asked Herman
• 18:12
  Speaker 1: for his key takeaways from the bank's earnings.
• 18:15
  Speaker 11: We learned a lot. So they gave a path forward
• 18:18
  Speaker 11: remains to be seeing if everything's going to go and
• 18:20
  Speaker 11: lockstep to their expectations. But they basically said they're moving
• 18:25
  Speaker 11: to a three year plan with a transition to be
• 18:29
  Speaker 11: more of a commercial bank and expecting any sort of
• 18:34
  Speaker 11: credit issues to be mostly cleaned up this year with
• 18:38
  Speaker 11: an earnings loss for the year. But it was a
• 18:41
  Speaker 11: low bar and they cleared up pretty healthily.
• 18:43
  Speaker 1: Okay, so just that review here. Their risk was rent
• 18:46
  Speaker 1: control departments in New York City, very focused business. They
• 18:50
  Speaker 1: were in, very niche Are they exiting that business. Are
• 18:55
  Speaker 1: they fixing that business is? How are they going to
• 18:58
  Speaker 1: make things right there?
• 18:59
  Speaker 11: The part of the three turnaround is de emphasizing that
• 19:02
  Speaker 11: multifamily rent regulated piece. There's thirty billion dollars of those
• 19:07
  Speaker 11: loans now on the balance sheets. They can't get rid
• 19:10
  Speaker 11: of them because there's not going to be a lot
• 19:12
  Speaker 11: of buyers, and if they would have to sell, they
• 19:14
  Speaker 11: take a big discount and take a big hit to
• 19:17
  Speaker 11: the balance sheet. So they're just going to manage through it.
• 19:20
  Speaker 11: They've been building their loan loss reserves on these over
• 19:24
  Speaker 11: the past couple quarters, so they're built up their reserves
• 19:27
  Speaker 11: to pretty much in line with peers. But that's one
• 19:30
  Speaker 11: of the unknowns is how credit quality is going to
• 19:34
  Speaker 11: perform going forward in a higher for longer rate scenario
• 19:38
  Speaker 11: with respect to these rent regulated loans.
• 19:40
  Speaker 3: There was an article at the Bloomberg today that talked
• 19:43
  Speaker 3: about how rent stabilized apartment buildings are Actually the rent's
• 19:47
  Speaker 3: going up and if you assigned two year leases, the
• 19:49
  Speaker 3: top can be like six and a half percent, And
• 19:51
  Speaker 3: I was in an americ control department it was like half
• 19:53
  Speaker 3: a percent, Like it was really really low. Are those
• 19:56
  Speaker 3: kind of increases enough to really help the likes of
• 20:00
  Speaker 3: a New York community bank.
• 20:02
  Speaker 11: Yeah, that's it helps. But a lot of the issues
• 20:07
  Speaker 11: that these borrowers, these landlords are facing is higher debt,
• 20:11
  Speaker 11: service coverage ratios and higher operating expenses. Right because if
• 20:15
  Speaker 11: you have to they gave an example, if you have
• 20:17
  Speaker 11: to replace the HVAC unit that costs thirty percent more
• 20:22
  Speaker 11: than it did two years ago. So all of these
• 20:25
  Speaker 11: operating expenses pile up. But then you can't raise your
• 20:27
  Speaker 11: rents to commensurate with your higher costs. So that's the issue,
• 20:32
  Speaker 11: and the higher rate issue where they have to refinance
• 20:34
  Speaker 11: at higher interest.
• 20:35
  Speaker 1: So rent stabilizers apartments, I was never I've never been
• 20:38
  Speaker 1: in one. Do they not just rise on the radar
• 20:41
  Speaker 1: of inflation or they really really fixed?
• 20:43
  Speaker 7: No, it's it's fixed.
• 20:44
  Speaker 1: Well, that's that's a tough business to be in if
• 20:46
  Speaker 1: you're a landlord, isn't right?
• 20:48
  Speaker 11: It is now And there was a change in the
• 20:52
  Speaker 11: New York state laws that really capped how much the
• 20:55
  Speaker 11: rents can go up every year. So we're seeing the
• 20:58
  Speaker 11: repercussions of that for banks like your community.
• 21:01
  Speaker 3: Just so, I lived in one twenty years ago. For
• 21:04
  Speaker 3: a while, I had a two bedroom apartment huge on
• 21:07
  Speaker 3: one hundred and eighty third Street. I paid eight hundred
• 21:09
  Speaker 3: and fifty dollars.
• 21:10
  Speaker 5: Wow, it saved me.
• 21:12
  Speaker 7: Like, there's no.
• 21:12
  Speaker 1: Man, why you would give that up on those things
• 21:15
  Speaker 1: you keep it in your I got married, okay.
• 21:18
  Speaker 3: And my husband owned his apartment, so that was just better.
• 21:21
  Speaker 5: Yeah.
• 21:22
  Speaker 3: But like the dream was that it would go co
• 21:24
  Speaker 3: op or something and then I could buy it for
• 21:25
  Speaker 3: like crazy, crazy cheap. But also there was no incentive
• 21:29
  Speaker 3: on that end to like fix it up, like it
• 21:30
  Speaker 3: hadn't been fixed in forever and twenty years and the
• 21:33
  Speaker 3: kitchen was horrendous, But there's no incentive to like spend
• 21:36
  Speaker 3: money to do it to just then raise your rent
• 21:38
  Speaker 3: ahenomenal amount because it's sort of like a utility, right,
• 21:41
  Speaker 3: Like you can only raise it a certain amount. Even
• 21:43
  Speaker 3: if you put a certain amount of work in then
• 21:45
  Speaker 3: you can raise it a little bit more. But it's
• 21:46
  Speaker 3: not a huge propa generator from that end. But man,
• 21:49
  Speaker 3: that was that was nice.
• 21:51
  Speaker 1: That was nice.
• 21:51
  Speaker 3: I had a lot of classt space. So when they
• 21:54
  Speaker 3: talk about this, you know it for a diversification, right,
• 21:58
  Speaker 3: they want to be a diversified bank. What does that
• 22:00
  Speaker 3: mean for them?
• 22:01
  Speaker 7: Yeah?
• 22:01
  Speaker 11: What that means is they want to tilt more towards
• 22:03
  Speaker 11: business lending, commercial lending. They talked about their business portfolio
• 22:08
  Speaker 11: is about twenty billion dollars. They want to grow it
• 22:09
  Speaker 11: over time to be thirty billion. And the CEO, the
• 22:13
  Speaker 11: new CEO who came from One West, who was former
• 22:17
  Speaker 11: head of the OCC, he alluded to the fact that
• 22:20
  Speaker 11: they're going to hire more folks that he used to
• 22:22
  Speaker 11: work with in the past to really build this commercial
• 22:25
  Speaker 11: lending franchise. The issue is that they're losing your existing
• 22:29
  Speaker 11: commercial bankers, your folks that are focused on deposit inflow,
• 22:34
  Speaker 11: and these are former Signature employees. And they talked about
• 22:38
  Speaker 11: losing thirty five teams out of one hundred and thirty four.
• 22:41
  Speaker 11: So you've got folks leaving, but then you got to
• 22:43
  Speaker 11: refill them. So there's there's a lot of work to
• 22:46
  Speaker 11: be done there.
• 22:46
  Speaker 1: All right, let's step back and take a look at
• 22:48
  Speaker 1: your coverage in general, the regional bank coverage. I'm looking
• 22:51
  Speaker 1: at the spider s andp regional banking EKF. What's the
• 22:54
  Speaker 1: call out there and you talk to institutional investors, is
• 22:56
  Speaker 1: it can we buy these things?
• 22:58
  Speaker 7: Yeah?
• 22:58
  Speaker 11: The dip was the low was in October and you've
• 23:01
  Speaker 11: seen banks come back a little bit. What's helpful is
• 23:05
  Speaker 11: that the banks are talking about troughing margins and then
• 23:09
  Speaker 11: interest income, so that's good to see, and they expect
• 23:12
  Speaker 11: a improvement and growth in the back half of the year. Really,
• 23:16
  Speaker 11: to us, it really hinges on what the rate backdrop
• 23:19
  Speaker 11: is and if rates are going to be higher for longer.
• 23:21
  Speaker 11: The optimism that bank management teams are talking about for
• 23:25
  Speaker 11: a back half return of loan growth maybe just won't
• 23:29
  Speaker 11: materialize as well as they currently expect. So there's a
• 23:33
  Speaker 11: lot of questions if we do get that second half resurgence,
• 23:36
  Speaker 11: but bank management teams are talking about it's on the
• 23:39
  Speaker 11: other side, we still haven't seen the shoe to drop
• 23:43
  Speaker 11: on the credit quality fronts, and really the strong and
• 23:47
  Speaker 11: resilient economy has really helped that front.
• 23:49
  Speaker 7: Remains to be seeing.
• 23:51
  Speaker 11: If things really do to deteriorate, then then you're going
• 23:52
  Speaker 11: to see a pickup in charge offs as well.
• 23:54
  Speaker 3: Are deposits moving anywhere? So I have a citizen's bank
• 23:57
  Speaker 3: a couple of blocks from my house and I'm seeing a
• 23:59
  Speaker 3: five percent CD Man, I'm not getting that at city.
• 24:03
  Speaker 3: Are we seeing deposits move?
• 24:05
  Speaker 11: We have seen stability, so in the first half of
• 24:09
  Speaker 11: last year when we went through the regional banking turmoil,
• 24:12
  Speaker 11: there was a lot of deposits that were leaving to
• 24:15
  Speaker 11: go to the Bank of Americas and the JP Morgans
• 24:18
  Speaker 11: of the world, especially the large corporate deposits, where they
• 24:21
  Speaker 11: thought it would be much safer to be in a
• 24:23
  Speaker 11: two big to fail bank. Banks have recalibrated their pricing,
• 24:27
  Speaker 11: like you talked about the five percent CDs, So that's
• 24:31
  Speaker 11: helped a stabilizer a deposit base, and.
• 24:34
  Speaker 3: That's a large payout, like that's not going to be nothing, right.
• 24:37
  Speaker 11: That's not going to be nothing. The good thing is
• 24:39
  Speaker 11: that overall, with short term rates now pretty much stable
• 24:42
  Speaker 11: for the passive recorders, the banks have been keeping their
• 24:46
  Speaker 11: deposit costs fairly manageable, so we're not seeing that big
• 24:49
  Speaker 11: jump in costs that we saw last year after seb's failure.
• 24:54
  Speaker 1: All Right, my personal proxy for equality regional bank is
• 24:58
  Speaker 1: M and T Bank, You're former employer up there in Buffalo.
• 25:00
  Speaker 5: In order for that.
• 25:01
  Speaker 7: Name to really work is loan growth.
• 25:03
  Speaker 1: The thing I need to focus on. I need to
• 25:05
  Speaker 1: see loan growth for this one.
• 25:06
  Speaker 9: In work.
• 25:06
  Speaker 11: You need to see more confidence in loan growth and
• 25:10
  Speaker 11: also their their asset quality. So the potential knock on
• 25:14
  Speaker 11: them is they tilt more towards commercial real estate exposure
• 25:18
  Speaker 11: just because of their historical leanings. They've been trying to
• 25:22
  Speaker 11: reduce that over time, but they do screen higher on
• 25:25
  Speaker 11: commercial real estate.
• 25:26
  Speaker 7: So if we get more stabilitia.
• 25:28
  Speaker 11: There and less loss content, then that's not going to
• 25:32
  Speaker 11: really work, even though the valuation is still higher than
• 25:35
  Speaker 11: your typical regional bank.
• 25:37
  Speaker 1: Our thanks to Herman Chan Bloomberg Intelligence, senior analysts for
• 25:40
  Speaker 1: US regional banks.
• 25:41
  Speaker 3: Coming up on the program, a look at why US
• 25:43
  Speaker 3: solar makers are seeking more tariffs and important equipment from
• 25:46
  Speaker 3: Southeast Asia.
• 25:47
  Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
• 25:50
  Speaker 1: depth research and data on two thousand companies and one
• 25:52
  Speaker 1: hundred and thirty industries. You can access Bloomberg Intelligence via
• 25:55
  Speaker 1: bi go on the terminal.
• 25:56
  Speaker 3: I'm Paul Sweeney and a Malex Steel and this is Bloomberg.
• 26:04
  Speaker 2: You're listening to Bloomberg Intelligence with Alex Steele and Paul
• 26:08
  Speaker 2: Sweeney on Bloomberg Radio.
• 26:11
  Speaker 3: We move now to Intel. The stagnating chip maker is
• 26:14
  Speaker 3: committing twenty eight billion dollars to build a factory in
• 26:17
  Speaker 3: Ohio called Ohio One, and it all goes well, Intel,
• 26:20
  Speaker 3: we'll be able to credibly compete for contracts to manufacture
• 26:23
  Speaker 3: state of the art chips.
• 26:24
  Speaker 1: This is a subject of the Bloomberg Big Take story
• 26:27
  Speaker 1: entitled Intel is betting twenty eight billion dollars on making
• 26:30
  Speaker 1: Ohio a global chips capital for where we were joined
• 26:33
  Speaker 1: by one of the story's co authors, Max Chafkin, Bloomberg
• 26:36
  Speaker 1: BusinessWeek Senior reporter. We first asked Max for more context
• 26:40
  Speaker 1: on his story.
• 26:41
  Speaker 8: So, Intel at one time was one of the world's
• 26:43
  Speaker 8: largest companies. It is essentially the one of the founding
• 26:47
  Speaker 8: parts of Silicon Valley. It's the reason it's called Silicon
• 26:49
  Speaker 8: Valley in fact. But over the last decade Intel has
• 26:53
  Speaker 8: really suffered. You know, they've they've sort of fallen behind
• 26:57
  Speaker 8: both the big chip makers in the un U, Nvidia, AMD,
• 27:01
  Speaker 8: and they've fallen way behind on manufacturing, behind TSMC and Samsung.
• 27:07
  Speaker 7: And that's a big problem for Intel.
• 27:09
  Speaker 8: This you know, large important American company, but of course
• 27:12
  Speaker 8: is also a problem for the United States because Intel
• 27:15
  Speaker 8: at this point is the only company making state of
• 27:18
  Speaker 8: the art ships or even trying to make state of
• 27:19
  Speaker 8: the art ships in the US. And over the last
• 27:22
  Speaker 8: few years they've pursued basically a turnaround, and that turnaround
• 27:26
  Speaker 8: is betting entirely on manufacturing.
• 27:29
  Speaker 7: You mentioned the project in Ohio.
• 27:31
  Speaker 8: President Biden has talked about that a fair number of times,
• 27:34
  Speaker 8: including bringing it up in the State of the Union address.
• 27:36
  Speaker 7: They're also major, you know, tens of.
• 27:39
  Speaker 8: Billions of dollars projects in Arizona and Oregon. This work
• 27:43
  Speaker 8: is being backed with a lot of money from Washington,
• 27:45
  Speaker 8: nineteen point five billion in grants and loans from the
• 27:48
  Speaker 8: Biden administration. So it's this big, ambitious attempt to turn around,
• 27:52
  Speaker 8: you know, a really important company that's fallen on some
• 27:54
  Speaker 8: hard times. It's also a big part of the White
• 27:57
  Speaker 8: House's geopolitical strategy.
• 27:59
  Speaker 1: The build a megafab? What is a megafab? And are
• 28:03
  Speaker 1: they going to get it done here? Because this is
• 28:04
  Speaker 1: the big numbers.
• 28:05
  Speaker 8: Intel's put twenty eight billion into this Ohio site so far.
• 28:08
  Speaker 8: The site is it's about forty five minutes north of Columbus.
• 28:12
  Speaker 7: You know, it's in a bunch of farmland. It's really muddy.
• 28:15
  Speaker 8: You go there now and what you really see is
• 28:17
  Speaker 8: just a ton of construction. The idea of a megafab
• 28:20
  Speaker 8: would be to have multiple chip factories each one of
• 28:24
  Speaker 8: these things. You know, you're talking on the order of
• 28:26
  Speaker 8: ten billion dollars.
• 28:27
  Speaker 7: They're going to.
• 28:28
  Speaker 8: Build two to start, and it sounds like a crazy
• 28:31
  Speaker 8: amount of money, but at this point, that is what
• 28:33
  Speaker 8: you need if you want to be able to compete
• 28:35
  Speaker 8: to make chips, say for the iPhone or for AI chips,
• 28:39
  Speaker 8: you know, to try to compete with Nvidia, which Intel
• 28:42
  Speaker 8: you know, really desperately would like to do, but it
• 28:44
  Speaker 8: just isn't quite there yet.
• 28:46
  Speaker 7: On the manufacturing side yet.
• 28:48
  Speaker 3: We have heard though of a lot of companies announcing
• 28:50
  Speaker 3: projects and manufacturing facilities and don't get done or the
• 28:53
  Speaker 3: timeline's pushed out or gets paired back.
• 28:56
  Speaker 8: Where's inteling, Yeah, yeah, we saw this of course during
• 28:59
  Speaker 8: the Trumpet minute. You know, there has been like a
• 29:01
  Speaker 8: political shift over the last i'd say decade where there's
• 29:05
  Speaker 8: a lot more enthusiasm both from Republicans and Democrats for
• 29:08
  Speaker 8: sort of state backed industrial projects.
• 29:11
  Speaker 7: Not all those have gone great.
• 29:12
  Speaker 8: You know, I mentioned this story that one of the
• 29:14
  Speaker 8: sites that Intel was looking at was this Wisconsin sight
• 29:18
  Speaker 8: outside of Racine.
• 29:19
  Speaker 7: People will remember.
• 29:20
  Speaker 8: That because Donald Trump called it the eighth Wonder of
• 29:22
  Speaker 8: the World. These eight or nine years ago talking about
• 29:26
  Speaker 8: Fox Cohn. You know, Fox Haunt opened there, but it
• 29:28
  Speaker 8: hasn't proven to be the job creator they want. And
• 29:31
  Speaker 8: there's a risk with this project as well. I will
• 29:33
  Speaker 8: say these semiconductor factories, they are like some of the
• 29:38
  Speaker 8: biggest and most ambitious kinds of factories you can build.
• 29:41
  Speaker 7: There are already It's like I said, it's muddy. There's
• 29:44
  Speaker 7: not a lot going on.
• 29:45
  Speaker 8: There right now, and there are Figura there are already
• 29:47
  Speaker 8: you know, fourteen hundred construction workers working on that site today.
• 29:52
  Speaker 8: Long run, they're saying it's going to employ something like
• 29:55
  Speaker 8: seven thousand. And you hear that, you think, okay, seven
• 29:57
  Speaker 8: thousand construction workers like that.
• 29:59
  Speaker 7: That's as a temporary job, not a full time job.
• 30:02
  Speaker 8: But the thing is with these sites, construction could go
• 30:05
  Speaker 8: on for decades. You know, it's conceivable if they really
• 30:08
  Speaker 8: built this thing out, that many of these construction workers
• 30:10
  Speaker 8: could work like their entire career building these things. Because
• 30:14
  Speaker 8: the nature of the business is you have to keep
• 30:15
  Speaker 8: reinvesting and you have to keep building new fabs. And
• 30:20
  Speaker 8: the way that you know, analysts and so on are
• 30:22
  Speaker 8: looking at this industry, there's gonna be a lot more
• 30:24
  Speaker 8: demand for chips, you know, in the coming decades and.
• 30:26
  Speaker 1: Avoid reading your story and in king story here. You know,
• 30:29
  Speaker 1: this is a great example or just certainly an expensive
• 30:32
  Speaker 1: example of onshoing the money for Intel in Ohio. But
• 30:35
  Speaker 1: then you guys also report twelve billion dollars for plant
• 30:38
  Speaker 1: being built in Arizona by Taiwan Semiconductor, six billion dollars
• 30:43
  Speaker 1: for one in Texas being built by South Korea Samsung Electronics.
• 30:46
  Speaker 1: So the money and is coming into the US for
• 30:49
  Speaker 1: to ensure this chip business.
• 30:50
  Speaker 7: Yeah, I think this.
• 30:51
  Speaker 8: May turn out to be, you know, a thing that
• 30:53
  Speaker 8: people are talking about in the next few months as
• 30:55
  Speaker 8: we get closer to November. You know, this has been
• 30:58
  Speaker 8: a big part of the Biden administrations industrial policy. It
• 31:01
  Speaker 8: has components of sort of a jobs program because like
• 31:04
  Speaker 8: as I was saying, you know, these are construction sites,
• 31:06
  Speaker 8: you know, potential good jobs for people. Even even in
• 31:09
  Speaker 8: these plants which are run by robots, the people still
• 31:12
  Speaker 8: work there.
• 31:13
  Speaker 7: And the other thing.
• 31:14
  Speaker 8: You have is this kind of competition with China and
• 31:17
  Speaker 8: the Biden administration really seeing you know, post COVID, post
• 31:22
  Speaker 8: chips shortage that the United States needs to sort of
• 31:25
  Speaker 8: be able to produce at least some of its own
• 31:28
  Speaker 8: high end chips, because right now that is not the case. Now,
• 31:31
  Speaker 8: the interesting thing is that idea, the sort of China
• 31:34
  Speaker 8: competition idea has devotees in both parties. You know, in Ohio,
• 31:38
  Speaker 8: Ohio is a state dominated by Republicans. The Republicans have
• 31:41
  Speaker 8: been touting this as well. However, you know, it's not
• 31:44
  Speaker 8: clear if Biden doesn't win, It's not totally clear like how.
• 31:48
  Speaker 7: Things might change with Trump.
• 31:50
  Speaker 8: But right now it really seems like, you know, the
• 31:54
  Speaker 8: US is all in on investing in chip factories. There's
• 31:57
  Speaker 8: even talk of a second chip sack, you know, the
• 32:00
  Speaker 8: idea that we might even appropriate more money for this stuff.
• 32:02
  Speaker 3: Not to talk about energy, but let's talk about energy.
• 32:05
  Speaker 3: How are they going to power these this kind of
• 32:07
  Speaker 3: fab excellent?
• 32:08
  Speaker 7: Yeah, I mean that is a huge issue.
• 32:10
  Speaker 8: And talking to Intel, that is like one of the
• 32:13
  Speaker 8: main issues in terms of where where you're going to
• 32:15
  Speaker 8: cite one of these things. So when you're talking about
• 32:17
  Speaker 8: building a fab, you're talking about essentially you need a
• 32:19
  Speaker 8: lot of space, you need energy, and you also need water.
• 32:23
  Speaker 8: Semiconductors use tons and tons of water. Now, Intel, what
• 32:28
  Speaker 8: they say is they are really mindful of their environmental stuff.
• 32:31
  Speaker 8: They're you know, you know, all in on sustainability and
• 32:34
  Speaker 8: so on a lot of the stuff that many companies say,
• 32:36
  Speaker 8: although I have to say they are already recycling a
• 32:39
  Speaker 8: huge amount of water at these plants, and and you know,
• 32:43
  Speaker 8: for this industry to have a future, it does have
• 32:45
  Speaker 8: to you know, continue you know, improving on sustainability.
• 32:48
  Speaker 3: Thanks to Max Chafkin Bloomberg, a BusinessWeek senior.
• 32:51
  Speaker 1: Reporter on Bloomberg Intelligence Radio, we bring you all the
• 32:54
  Speaker 1: top annulets, providing in depth research and data on two
• 32:56
  Speaker 1: thousand companies and one hundred and thirty industries.
• 32:58
  Speaker 3: We also have something here at Bloomberg called Bloomberg New
• 33:01
  Speaker 3: Energy Finance or BNF. The idea behind it is to
• 33:04
  Speaker 3: provide data on commodities and power, transport industries, buildings and
• 33:08
  Speaker 3: agriculture and also new technology.
• 33:11
  Speaker 1: This week we looked into US solar manufacturers and several
• 33:13
  Speaker 1: of them asking the US government to slap tariffs on
• 33:16
  Speaker 1: twelve point five billion dollars of imported equipment from Southeast Asia.
• 33:20
  Speaker 1: This is to help counteract what they say are unfair
• 33:22
  Speaker 1: practices by oversea rivals, but it also.
• 33:25
  Speaker 3: Sets the stage for a sweeping trade probe that threatens
• 33:27
  Speaker 3: to make power projects more expensive for more. We were
• 33:30
  Speaker 3: joined by Paul as Kano Bloomberg, an e f A
• 33:32
  Speaker 3: senior associate. We first asked Paul, if we can impose
• 33:35
  Speaker 3: tariffs on the stuff we need to decarbonize.
• 33:38
  Speaker 5: We should not.
• 33:39
  Speaker 6: And the US has been doing it for a while,
• 33:42
  Speaker 6: actually very quietly since twenty twelve, so it's not a
• 33:45
  Speaker 6: new thing, and it's really made solar more expensive in
• 33:49
  Speaker 6: the US and everywhere else in the world. So the
• 33:51
  Speaker 6: difference is the US has very generous has had very
• 33:54
  Speaker 6: generous subsidies for solar for a long time, and that
• 33:57
  Speaker 6: upsets some of those higher input costs. But is it
• 34:01
  Speaker 6: the most efficient way if you're trying to decarbonize quickly
• 34:04
  Speaker 6: and grow a sector quickly. Probably not.
• 34:07
  Speaker 5: So what are we.
• 34:07
  Speaker 1: Talking about here? The panels the more than the panels.
• 34:12
  Speaker 1: What are we talking about here?
• 34:13
  Speaker 6: Yeah, we're talking mostly cells and panels.
• 34:17
  Speaker 1: So the panel gets the sun. Where's it go from there?
• 34:20
  Speaker 6: Correct, it goes into an inverter, which is the brains
• 34:22
  Speaker 6: of the system, and the inverter translates that direct current
• 34:26
  Speaker 6: power that the panels produce into alternating current power.
• 34:29
  Speaker 1: Which is the one that we use thank you for
• 34:31
  Speaker 1: because I represent like ninety nine percent of our listeners.
• 34:34
  Speaker 3: It's true, Sorry about that. Yes, so what part of
• 34:37
  Speaker 3: that would be taxed with the teraroff the panels?
• 34:41
  Speaker 6: But what typically those tariffs target are the cells, which
• 34:44
  Speaker 6: is the cells is essentially what composes those panels. You
• 34:47
  Speaker 6: stack them together and you assemble them because the cells
• 34:51
  Speaker 6: is really the true, the true technological component of the panel.
• 34:55
  Speaker 6: The panel is just like cells assembled basically. So with
• 34:59
  Speaker 6: some of these companies are trying to do is impose
• 35:02
  Speaker 6: a new set of tariffs on Like there's already tariffs
• 35:04
  Speaker 6: on panels coming from Southeast Asia, and there will be
• 35:07
  Speaker 6: new tariffs coming in June, but this would be an
• 35:09
  Speaker 6: additional set of tariffs that they're trying to impost.
• 35:12
  Speaker 3: Why can't these companies, like at First Solar or something
• 35:15
  Speaker 3: make these panels themselves.
• 35:17
  Speaker 6: They do, so First Solar sits in a different league.
• 35:20
  Speaker 6: First Solar has a different technology this we're talking about
• 35:23
  Speaker 6: crystalin silicon technology. First Solo uses a different type of
• 35:27
  Speaker 6: technology called thin film, and they for Sola has been
• 35:31
  Speaker 6: producing their own panels for a long time and they
• 35:33
  Speaker 6: have really ambitious plans in the US.
• 35:35
  Speaker 3: But I guess that's the point, right, because they don't
• 35:37
  Speaker 3: want the cheaper ones coming in and diluting what they're
• 35:39
  Speaker 3: able to sell. So why can't I guess the better
• 35:41
  Speaker 3: question I should have is why can't they make it
• 35:43
  Speaker 3: for as cheap is the ones that Southeast Asia is
• 35:45
  Speaker 3: selling for.
• 35:46
  Speaker 6: Yeah, the question is probably the answer is not going
• 35:48
  Speaker 6: to surprise you. Just higher input costs, higher production costs,
• 35:53
  Speaker 6: higher labor costs. You cannot really reach the same scale
• 35:56
  Speaker 6: that you can in the Asian countries. In the US.
• 35:58
  Speaker 6: It's not just about the factory that you have that
• 36:00
  Speaker 6: you're where your assemble or making the cells or making
• 36:03
  Speaker 6: the panels. It's about all of the adjacent supply chain.
• 36:05
  Speaker 6: And China and some of these Asian countries, and by
• 36:09
  Speaker 6: extent from being so closely to China, they are able
• 36:12
  Speaker 6: to ramp up all of the adjacent supply that they
• 36:14
  Speaker 6: need in a very efficient way. Typically, those megabases in
• 36:18
  Speaker 6: China have massive solar factories, and if you go across
• 36:22
  Speaker 6: the road, that's where your aluminum frame supplier is going
• 36:25
  Speaker 6: to be. If you go in a little bit further
• 36:27
  Speaker 6: down the road, that's where your glass supplier is going
• 36:29
  Speaker 6: to be. So it works in in coordination quite quite nicely,
• 36:33
  Speaker 6: and that helps improve efficiencies and lower costs.
• 36:36
  Speaker 5: It doesn't seem high tech to me.
• 36:38
  Speaker 1: Why would I care if China is producing them other
• 36:40
  Speaker 1: than if at any time they could stop producing them.
• 36:43
  Speaker 3: Because you're saying that there's no like cybersecurity or security
• 36:46
  Speaker 3: measure for that.
• 36:47
  Speaker 1: Don't I just want the cheapest panel.
• 36:49
  Speaker 6: That's That's correct, And that's exactly what we've been trying
• 36:52
  Speaker 6: to say for a long time. Solar manufacturing is a
• 36:56
  Speaker 6: terrible business to be in competition is really fears where
• 36:59
  Speaker 6: typically go through all these swings of over capacity, a
• 37:02
  Speaker 6: bunch of bankruptcies, and then new companies arise from from
• 37:05
  Speaker 6: nowhere and there's again over capacity. The IP and really
• 37:09
  Speaker 6: that the technological know how there is really not that difficult.
• 37:14
  Speaker 6: And I really don't understand, We don't understand why you
• 37:18
  Speaker 6: would want to throw so much money at building this
• 37:20
  Speaker 6: industry in the US unless it's a geopolitical hatch, which
• 37:23
  Speaker 6: is something that obviously begs a very different question and
• 37:27
  Speaker 6: a very different set of analysis.
• 37:29
  Speaker 3: What kind of let's say that these tariffs do go through.
• 37:32
  Speaker 3: So this request could raise the prospect of tariffs as
• 37:36
  Speaker 3: high as two hundred and seventy one point five percent
• 37:39
  Speaker 3: later this year. Let's just pretend that that happens. Yeah,
• 37:41
  Speaker 3: and I want to install a solar panel on my
• 37:43
  Speaker 3: house in Massachusetts. What's that going to cost me?
• 37:46
  Speaker 6: Now, it's going to cost you a ton more money?
• 37:50
  Speaker 6: A ton I don't like a ton No, I mean,
• 37:52
  Speaker 6: the two hundred and seventy one percent is very unrealistic.
• 37:56
  Speaker 6: So what's happened Typically in these petitions, this is a
• 37:59
  Speaker 6: little bit of boring stuff, But what happens is what
• 38:03
  Speaker 6: happens is they file this petition and then if the
• 38:06
  Speaker 6: US agrees to investigate these companies, they have to prove
• 38:11
  Speaker 6: that the amount of subsidies that they receive is not
• 38:14
  Speaker 6: as high as what that country wide tariff would look like.
• 38:17
  Speaker 6: So typically they get a tariff rate that is much
• 38:20
  Speaker 6: lower than the two seventy one percent that you're referring to.
• 38:24
  Speaker 6: And it can range from like thirty to fifty percent.
• 38:27
  Speaker 6: It just really it just really depends. But the bottom
• 38:30
  Speaker 6: line is if that were to happen, obviously imports from
• 38:34
  Speaker 6: Southeast Asia would be completely ruled out in the US
• 38:37
  Speaker 6: and that would really trigger the renaissance of the US
• 38:42
  Speaker 6: manufacturing industry. But you would have to pay more for
• 38:45
  Speaker 6: your panels thanks.
• 38:46
  Speaker 3: To Paul as Kano, Bloomberg NEF Senior Associate.
• 38:49
  Speaker 1: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
• 38:52
  Speaker 1: providing in depth research and data on two thousand companies
• 38:54
  Speaker 1: and one of thirty industries.
• 38:56
  Speaker 3: And remember you can access Bloomberg Intelligence through Bigo on
• 38:59
  Speaker 3: the terminal.
• 39:00
  Speaker 1: And I'm Paul Sweeney.
• 39:01
  Speaker 5: Stay with us.
• 39:02
  Speaker 1: Today's top stories and global business headlines are coming up
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• 39:09
  Speaker 8: M