Latest / Bloomberg Intelligence / Shell Says It Has No Intention of Making an Offer for BP

Transcript

Shell Says It Has No Intention of Making an Offer for BP · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
• 0:14
  Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App.
• 0:18
  Speaker 1: Listen on demand wherever you get your podcasts, or watch
• 0:21
  Speaker 1: us live on YouTube.
• 0:23
  Speaker 2: Norma Linda Paul Shoeny were live here in our Bloomberg
• 0:25
  Speaker 2: Interactive Brokers studio, streaming live on YouTube as well. I
• 0:27
  Speaker 2: want to follow up on that story that Lisa was
• 0:30
  Speaker 2: just reporting. Do we have a deal in the energy
• 0:32
  Speaker 2: space or not?
• 0:34
  Speaker 3: Again?
• 0:34
  Speaker 2: Wall Street Journal was reporting that Shell early stages and
• 0:38
  Speaker 2: talks to acquire British Petroleum BP. Then Schell say no,
• 0:43
  Speaker 2: not so much. So I don't know where we are here.
• 0:45
  Speaker 2: Let's check in with Will Harris. It's his job to
• 0:47
  Speaker 2: know what's going on. He's a senior Global Energy analyst
• 0:50
  Speaker 2: for Bloomberg Intelligence. He's based in London. Hey, well, what
• 0:53
  Speaker 2: do you think's going on there with Shell and BP?
• 0:55
  Speaker 2: If anything?
• 0:57
  Speaker 4: Yeah, So, I think it's pretty important to point out here.
• 1:00
  Speaker 4: Shell was very quick to refute these reports from the
• 1:02
  Speaker 4: Wall Street Journal. It's pretty consistent with what we think.
• 1:06
  Speaker 4: This would be a very opportunistic and potentially quite risky
• 1:10
  Speaker 4: strategic departure for Shell. They have shown a very strict
• 1:14
  Speaker 4: capital discipline for the last several years, and so this
• 1:17
  Speaker 4: would be a big, big ticket item for them to
• 1:20
  Speaker 4: try and absorb. Any deal would likely near one hundred
• 1:23
  Speaker 4: billion dollars assuming something like a twenty percent premium, and
• 1:27
  Speaker 4: you would almost certainly see major antitrust hurdles, integration risks,
• 1:32
  Speaker 4: synergy challenges over many many years which would follow. So
• 1:37
  Speaker 4: in short, we think it's quite unlikely that the Shell
• 1:40
  Speaker 4: would make a run at the full full takeover of BP.
• 1:45
  Speaker 4: What we do think is probably more likely is they
• 1:47
  Speaker 4: could be interested in select businesses of BP that they
• 1:52
  Speaker 4: could add as sort of bolt on acquisitions.
• 1:55
  Speaker 5: Have this played out, of course, it would have been
• 1:57
  Speaker 5: a really major deal here. But what is M and
• 1:59
  Speaker 5: A activity look like More broadly in the sector.
• 2:03
  Speaker 4: So EMINE activity has sort of take a bit of
• 2:05
  Speaker 4: a back seat over the last little while. We've had
• 2:09
  Speaker 4: a pretty bearish commodity outlook, and notwithstanding the last couple
• 2:13
  Speaker 4: of weeks with a surge and geopolitical risk, we're mostly
• 2:17
  Speaker 4: seeing smaller, lower risk near field acquisitions from these companies.
• 2:24
  Speaker 4: They're not taking the kind of big risks that we
• 2:27
  Speaker 4: are that we have seen maybe in the last couple
• 2:31
  Speaker 4: of decades, and that's for many reasons. I mean, these
• 2:34
  Speaker 4: these portfolios are much more global and much more diverse
• 2:38
  Speaker 4: than they have been in the past. And there's this
• 2:41
  Speaker 4: tension at the moment within this peer group of how
• 2:45
  Speaker 4: how much to focus on their core oil and gas
• 2:48
  Speaker 4: hydrocarbon portfolios and how quickly to advance their energy transition ambitions.
• 2:55
  Speaker 4: What percentage of their capeck should they be investing in
• 2:58
  Speaker 4: renewable power hydrogen ev charging networks, knowing that these are
• 3:03
  Speaker 4: much lower return businesses than their core oil and gas projects.
• 3:07
  Speaker 2: All Right, I'm putting on my m and a banker
• 3:09
  Speaker 2: hat will here because I want to get a deal
• 3:11
  Speaker 2: on the tape here. I want some bankers and lawyers
• 3:13
  Speaker 2: to get paid here. BP's got a market cap of
• 3:16
  Speaker 2: eighty billion dollars. That's a big number. That's a lot
• 3:18
  Speaker 2: of money. But Shells at two hundred billion and Exon
• 3:22
  Speaker 2: Mobiles at four hundred and seventy billion, is BP are
• 3:25
  Speaker 2: they big enough to play on the global energy stage
• 3:28
  Speaker 2: these days?
• 3:29
  Speaker 4: So it's a good point and the answer is not really. So.
• 3:33
  Speaker 4: BP has suffered terribly on valuation compared to Shell, and
• 3:37
  Speaker 4: particularly compared to their American counterparts Exon and Chevron. This
• 3:41
  Speaker 4: is for many reasons. They've had a flip flopping strategy
• 3:44
  Speaker 4: over the pace of their energy transition progress. Their costs
• 3:48
  Speaker 4: have been far too high, They're spending has been far
• 3:51
  Speaker 4: too high. They for a couple years they were planning
• 3:56
  Speaker 4: to reduce their hydrocarbon production by a significant amount. They've
• 4:00
  Speaker 4: turned that around, so they've sort of been all over
• 4:03
  Speaker 4: the place. Their valuation has suffered, which makes them a
• 4:06
  Speaker 4: potentially interesting acquisition target. We've written for a while now
• 4:11
  Speaker 4: that the sum of their parts is much more than
• 4:14
  Speaker 4: where they're currently valued. Their balance sheet is also quite
• 4:18
  Speaker 4: over leveraged, so this makes them an attractive acquisition target.
• 4:23
  Speaker 4: But as we know, there are very very limited suitors
• 4:26
  Speaker 4: out there Exon, Chevron, Shell, potentially some Middle Eastern NOCs.
• 4:33
  Speaker 4: But as I mentioned, there's those massive challenges for a
• 4:37
  Speaker 4: scale of this sort of acquisition, and as a result,
• 4:41
  Speaker 4: we continue to think that it is probably unlikely.
• 4:47
  Speaker 3: Not much happening.
• 4:47
  Speaker 5: When you look at this share performance here for some
• 4:50
  Speaker 5: of these US based companies like Exon as you called out,
• 4:53
  Speaker 5: and Chevron here. But how are these companies scaling right now?
• 4:58
  Speaker 5: What is it looking like right now in terms of
• 5:00
  Speaker 5: how these US based companies are performing in comparison to
• 5:02
  Speaker 5: their competitors.
• 5:04
  Speaker 4: So Excell and Chevron have a very differentiated strategy compared
• 5:08
  Speaker 4: to the Europeans. There's a very wide strategic divergence across
• 5:11
  Speaker 4: the Atlantic. Exon and Chevron have stayed the course with
• 5:15
  Speaker 4: oil and gas for the most part. They are still
• 5:18
  Speaker 4: investing heavily in oil and gas growth, particularly in the
• 5:22
  Speaker 4: Permian and also down in Guyana with some major projects
• 5:26
  Speaker 4: coming online now and in the near future. And you
• 5:29
  Speaker 4: can compare that to the European strategies which have moved
• 5:33
  Speaker 4: quite quickly into renewable power, off solar, offshore wind, hydrogen,
• 5:38
  Speaker 4: and I think the proof is in the putting as
• 5:40
  Speaker 4: far as how the markets have received these. You can
• 5:44
  Speaker 4: see Exon and Chevron are currently trading at about thirty
• 5:47
  Speaker 4: percent higher on a forward earning spasis than the European group.
• 5:52
  Speaker 4: So the market has certainly told them what they think.
• 5:57
  Speaker 4: The issue with the Europeans that they've been pulled in
• 6:01
  Speaker 4: two different directions. They have their traditional energy investors and
• 6:04
  Speaker 4: they also have a growing cadure of sustainability minded investors
• 6:11
  Speaker 4: that are demanding a quicker reduction in carbon intensity and
• 6:16
  Speaker 4: a quicker pacing of their energy transition investments.
• 6:21
  Speaker 2: Well, I watched the first season A Landman. I now
• 6:24
  Speaker 2: consider myself an expert on all things oil and gas,
• 6:29
  Speaker 2: but I have to put myself in the shoes of
• 6:31
  Speaker 2: some of these European investors. I mean they're willing to
• 6:34
  Speaker 2: take lower valuations, lower returns for I guess a sociological
• 6:40
  Speaker 2: kind of bent there a little bit. Or they are
• 6:44
  Speaker 2: European investors? Are they saying scrolled, I'm just going to
• 6:46
  Speaker 2: go where i can get the best returns in this space.
• 6:48
  Speaker 2: I'm going to go to Exonmobile and Chevron and things
• 6:50
  Speaker 2: like that. How are the clients that you talked to,
• 6:52
  Speaker 2: how are they thinking about it?
• 6:54
  Speaker 6: Yeah?
• 6:54
  Speaker 4: So to be clear, I think that this ideology is
• 7:00
  Speaker 4: somewhat fading into the background or for the time being.
• 7:04
  Speaker 4: And I think it was initially viewed as the enegy
• 7:09
  Speaker 4: transition was unfolding a lot more quickly than in reality,
• 7:13
  Speaker 4: and so it was sort of seen as a heavy
• 7:17
  Speaker 4: carbon profile was seen as a major major risk to
• 7:20
  Speaker 4: these companies. But in reality, oil and gas investors want
• 7:25
  Speaker 4: oil and gas exposure and So the European oil and
• 7:29
  Speaker 4: gas companies have been sort of sitting on the fence
• 7:32
  Speaker 4: as a result, and they've been unable to placate either side,
• 7:35
  Speaker 4: either the energy investors or the sustainability minded ones.
• 7:40
  Speaker 5: I was looking through some headlines that came through earlier
• 7:41
  Speaker 5: on the Bloomberg terminal. So the US is also targeting
• 7:44
  Speaker 5: EU methane regulations in trade talks. Also the US target's
• 7:48
  Speaker 5: corporate sustainability due diligence directive that's coming from the Wall
• 7:51
  Speaker 5: Street Journal. What's the latest right now in terms of
• 7:54
  Speaker 5: the atmosphere and environment? What are people discussing right now
• 7:57
  Speaker 5: as we think about drilling really here.
• 8:01
  Speaker 4: So drilling is is taking a sort of very cautious
• 8:05
  Speaker 4: approach at the moment. The investment plans for these companies
• 8:08
  Speaker 4: are relatively flat year over year, and I think this
• 8:12
  Speaker 4: is shadowing really the commodity price environment that we're seeing.
• 8:17
  Speaker 4: So the growth is somewhat subdued. But what we what
• 8:23
  Speaker 4: we are seeing from this group is is a big
• 8:25
  Speaker 4: focus on shareholder return, so buybacks, continued dividend policy growth,
• 8:31
  Speaker 4: and a focus on trading for the for the larger
• 8:35
  Speaker 4: of the group.
• 8:36
  Speaker 2: All right, So Bill, just to bring in full circle
• 8:38
  Speaker 2: here Shell BP. Do you think something happens and if
• 8:42
  Speaker 2: you do, with the regulators allow it.
• 8:46
  Speaker 4: So the regulatory issue is massive for this, you know.
• 8:50
  Speaker 4: I think it's important to note that this tie up
• 8:53
  Speaker 4: has been rumored to happen for you know, longer than
• 8:55
  Speaker 4: I've been alive, and it hasn't. And I think one
• 8:59
  Speaker 4: one of the big reasons for that is the anti
• 9:01
  Speaker 4: trust issue. And so this particularly applies for the fuel
• 9:06
  Speaker 4: retail marketing component of these companies, where you could potentially
• 9:11
  Speaker 4: see the majority or even all of the fuel supply
• 9:15
  Speaker 4: of certain countries being dominated by one company. Countries will
• 9:19
  Speaker 4: not like that, So I think this is probably the
• 9:22
  Speaker 4: number one reason why it hasn't happened so far. I
• 9:24
  Speaker 4: continue to think it's the reason why it won't happen.
• 9:27
  Speaker 4: But I would not be surprised Shell to be interested
• 9:29
  Speaker 4: in something like BPS onshore, a US shale business which
• 9:35
  Speaker 4: is called BPX, maybe their Gulf of Mexico portfolio, which
• 9:38
  Speaker 4: is where there would be huge operational overlap and potential
• 9:42
  Speaker 4: cost synergies offshore Brazil in the deep water, and particularly
• 9:47
  Speaker 4: BP's LNG business, which is about half of what Shells is,
• 9:51
  Speaker 4: but combining those, it would be controlling roughly a quarter
• 9:55
  Speaker 4: of the global LNG market, and we know that's a
• 9:59
  Speaker 4: corner stone of Shell's long term strategy. So I think
• 10:02
  Speaker 4: those could be interesting. It's just a matter of the
• 10:05
  Speaker 4: right price and how badly BP wants to fix their
• 10:08
  Speaker 4: balance sheet.
• 10:10
  Speaker 2: Well, great stuff, as I always appreciate getting a few minutes
• 10:12
  Speaker 2: of your time. Will here, Senior Global Energy Antis, Bloomberg Intelligence.
• 10:15
  Speaker 2: He's over there in Queen Victoria Street, Bloomberg European HQ.
• 10:19
  Speaker 2: It is a spectacular building in the City of London,
• 10:22
  Speaker 2: right next to the Bank of England. It doesn't get
• 10:24
  Speaker 2: any more City of London than the Bloomberg HQ.
• 10:28
  Speaker 3: Appreciate that.
• 10:31
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 10:34
  Speaker 1: weekdays at ten am Eastern on Applecarclay and Android Auto
• 10:38
  Speaker 1: with the Bloomberg Business App. Listen on demand wherever you
• 10:41
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 10:44
  Speaker 2: Har we got normal, Linda Paul Swen. You live here
• 10:46
  Speaker 2: in our Bloomberg Interactive Brooker's Studio streaming live on YouTube
• 10:49
  Speaker 2: as well, So check us out there on that intraweb thing.
• 10:51
  Speaker 2: Walgreens Boots Alliance report quarterly profit that beat Wallster rereet expectations.
• 10:57
  Speaker 2: But this is the last one is a public company.
• 10:59
  Speaker 2: They're going private. So I want to figure out what's
• 11:01
  Speaker 2: going on out there in the world of the pharmacy business.
• 11:04
  Speaker 2: Jonathan Palmer, Senior Healthcare Ants, So Bloomberg Intelligence joins us
• 11:07
  Speaker 2: here in our Bloomberg in ARCTI broker studio. He doesn't
• 11:10
  Speaker 2: mail it in from points beyond like his management team.
• 11:13
  Speaker 2: He's here in the city John to talk to us
• 11:15
  Speaker 2: about what is happening with Walgreens Boots. Not so much
• 11:19
  Speaker 2: to Ernest say, but what's going on to it? They're
• 11:20
  Speaker 2: going private? Why are they going private?
• 11:22
  Speaker 6: Yeah, thanks for having me on, Paul. So it's an
• 11:24
  Speaker 6: interesting Wesson in terms of maybe how not to run
• 11:28
  Speaker 6: a business. I mean, Walgreens was formed about a decade
• 11:30
  Speaker 6: ago when it acquired Boots Alliance, the European businesses that
• 11:34
  Speaker 6: it owns, and then as subsequently sold the wholesale business
• 11:40
  Speaker 6: in Europe, and now it's just Walgreens and Boots pretty much.
• 11:43
  Speaker 6: And then they have another little bit of healthcare services
• 11:45
  Speaker 6: that acquired a couple of years ago. But pharmacy has
• 11:48
  Speaker 6: been in a structural decline for the last decade. You know,
• 11:51
  Speaker 6: the right AID tried to sell to then that got
• 11:54
  Speaker 6: squashed from anti trust purposes. Right AD has filed for
• 11:57
  Speaker 6: bankruptcy twice. Now there's a whole lot of pressure in
• 12:02
  Speaker 6: this industry, and that pressure is coming from the payers,
• 12:04
  Speaker 6: the PBMs, the insurance companies. And so it's an interesting
• 12:08
  Speaker 6: time because I think we've probably reached the bottom where
• 12:11
  Speaker 6: there's no more blood to be kind of squeezed from
• 12:13
  Speaker 6: the stone from pharmacies, and we're seeing new reimbursement models
• 12:17
  Speaker 6: come about what they call like cost plus, like Mark
• 12:19
  Speaker 6: Cuban's model cost plus drugs, where the PBMs are actually
• 12:23
  Speaker 6: forcing this on the pharmacies of the payment model. And
• 12:25
  Speaker 6: so it's interesting in that Walgreens is probably selling at
• 12:28
  Speaker 6: the bottom, but it might be you know, a little
• 12:31
  Speaker 6: brighter in the future from here.
• 12:33
  Speaker 5: So as we're looking at the pharmaceutical space, or its
• 12:36
  Speaker 5: pharmacy space more broadly, here you've got Walgreens, you've got CBS,
• 12:40
  Speaker 5: but you also have you know, right in and all
• 12:42
  Speaker 5: these other companies.
• 12:43
  Speaker 3: But they lean a lot into the retail space.
• 12:45
  Speaker 5: So how much of these companies is really retail versus
• 12:49
  Speaker 5: the pharma pharmacy side.
• 12:51
  Speaker 6: Yeah, so the model has always been that the pharmacy
• 12:54
  Speaker 6: in the back of the store was what drew people in,
• 12:56
  Speaker 6: and they have to walk by all the shaving cream
• 12:58
  Speaker 6: and shampoo and salty snacks, and those were higher margin products.
• 13:02
  Speaker 6: The pharmacy was there to get them in this store.
• 13:05
  Speaker 6: I mean, there's been the Amazon effect over the last
• 13:08
  Speaker 6: fifteen years, right, everything goes online, so people aren't buying
• 13:11
  Speaker 6: things in the same way that they used to for
• 13:13
  Speaker 6: a convenience factor. I don't have to pick up my
• 13:15
  Speaker 6: shampoo right here at CBS because it's going to come
• 13:17
  Speaker 6: from Amazon tomorrow when I click the button. So that
• 13:22
  Speaker 6: piece of it has kind of gotten smaller and less
• 13:24
  Speaker 6: important over time.
• 13:26
  Speaker 3: So you did mention the idea of Amazon.
• 13:28
  Speaker 5: You've got Hymns and Hers, You've got all these other
• 13:30
  Speaker 5: brands that are literally bringing stuff to your doorstep. How
• 13:32
  Speaker 5: has this really impacted those brick and mortar companies.
• 13:36
  Speaker 6: Yeah, it's a great a great question because we've seen
• 13:39
  Speaker 6: a move to online business models. So you mentioned Hymns
• 13:42
  Speaker 6: and Hers. There's row Amazon has their own pharmacy. I mean,
• 13:46
  Speaker 6: they're not really big impactful companies from like a dollar perspective,
• 13:50
  Speaker 6: like their revenues or share of prescriptions is really quite low.
• 13:54
  Speaker 6: But I think what's happening is like we're just commoditizing
• 13:57
  Speaker 6: all this right and making it super easy. I think
• 14:00
  Speaker 6: ultimately in ten twenty years, all of our prescriptions will
• 14:03
  Speaker 6: be online.
• 14:04
  Speaker 2: Who sets prices for prescriptions? I know I'm going to
• 14:08
  Speaker 2: regret asking this question because the economics of your business
• 14:11
  Speaker 2: are the most complicated I've ever seen in my life.
• 14:14
  Speaker 6: Well, that's one of the big arguments around why there's
• 14:17
  Speaker 6: so much frustration from consumers and Washington and around drug pricing,
• 14:21
  Speaker 6: because our drug prices are the pointing at Boomberg's, are
• 14:24
  Speaker 6: different for people in Medicare and different from people from Medicaid.
• 14:27
  Speaker 6: There's no one price, Like if you go and buy
• 14:30
  Speaker 6: I don't know, a toy from Walmart, it's the same
• 14:33
  Speaker 6: no matter where you go, and it's usually probably within
• 14:36
  Speaker 6: spinning distance if you go to a competitor. Drug prices
• 14:39
  Speaker 6: are just all over the place. And so one of
• 14:42
  Speaker 6: the reasons the PBMs come under such fires, they're the
• 14:45
  Speaker 6: ones kind of controlling that system of pricing and making
• 14:48
  Speaker 6: it not transparent. And so I think what's happening is
• 14:52
  Speaker 6: we're getting to a place where transparency is being valued
• 14:55
  Speaker 6: and being pushed both in the market but also from
• 14:59
  Speaker 6: washing as well.
• 15:01
  Speaker 5: So we're looking at this situation right now where Walgreens
• 15:04
  Speaker 5: is being bought by Sycamore, you have Writing that went bankrupt,
• 15:07
  Speaker 5: you have all these companies struggling here. Where do you
• 15:11
  Speaker 5: see this going moving forward? In terms of those other
• 15:14
  Speaker 5: companies out there? Do you see more of these buyout situations?
• 15:17
  Speaker 6: Yeah, it's a good question when I think about the landscape.
• 15:20
  Speaker 6: I mean, as I mentioned a little while before, you know,
• 15:23
  Speaker 6: I think we're going to see this move to more
• 15:24
  Speaker 6: stuff online. Walgreens is interesting in that they've never really
• 15:29
  Speaker 6: partnered with insurance in the same way like CBS has
• 15:33
  Speaker 6: a PBM, they have insurance. They have this vertical model.
• 15:36
  Speaker 6: United Healthcare has a vertical model. I think those are
• 15:39
  Speaker 6: going to stay. I think we'll see I think we'll
• 15:43
  Speaker 6: still see retail pharmacies because people still need to go
• 15:46
  Speaker 6: around the corner and get something when they get I
• 15:47
  Speaker 6: don't know, a sinus infection or something like that they
• 15:50
  Speaker 6: needed today. But I think the value of those is
• 15:52
  Speaker 6: going to be minimized over time.
• 15:54
  Speaker 2: I go, after years of being a CBS guy, and
• 15:57
  Speaker 2: I've got like a jillion doses over the years of
• 16:00
  Speaker 2: like a Maxistilan for the four kids at CBS. I'm
• 16:03
  Speaker 2: now main Pharmacy, Spring Lake, New Jersey. No big company.
• 16:07
  Speaker 3: You switch, Hey, I switch, and.
• 16:09
  Speaker 6: But even those guys will say you switch to a
• 16:12
  Speaker 6: mom and pop.
• 16:13
  Speaker 2: Yes, now, but they'll say, we don't have everything. So
• 16:15
  Speaker 2: sometimes some things we just know we're not going to
• 16:17
  Speaker 2: carry because we can't.
• 16:18
  Speaker 6: We've done the same thing in Westfield, New Jersey.
• 16:20
  Speaker 2: Yeah, so there you go. So CBS is good for me?
• 16:22
  Speaker 2: All right, Jonathan? Are we gonna have any M and
• 16:24
  Speaker 2: A in the space there's nobody left?
• 16:26
  Speaker 6: Well, we've had a bunch of IPOs and kind of
• 16:28
  Speaker 6: this like tech golf care bubble. I don't know if
• 16:31
  Speaker 6: bubble is the right term, but we've seen Hinge Health
• 16:33
  Speaker 6: come to the market recently Omada. There's a lot more
• 16:36
  Speaker 6: waiting in the wings.
• 16:37
  Speaker 2: See all right, Jonathan Palmer, Senior Healthcare ANTLS. Bloomberg Intelligence
• 16:40
  Speaker 2: is one of our best Joining us live here in
• 16:41
  Speaker 2: our Bloomberg Interactive Broker Studio.
• 16:45
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 16:49
  Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android
• 16:52
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 16:55
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 16:58
  Speaker 2: We got normal Melinda, you have Paul Sweeney. You were
• 17:00
  Speaker 2: live here in our Bloomerg Interactive broker studio, streaming live
• 17:03
  Speaker 2: on YouTube as well. We're doing all that kind of stuff.
• 17:06
  Speaker 2: Were out there on your smart TV, you know, like
• 17:08
  Speaker 2: Samsung TV. Maybe it's little Roku when you just search
• 17:12
  Speaker 2: Bloomberg Pursuits and we just popped right up there.
• 17:14
  Speaker 1: All right.
• 17:14
  Speaker 2: Micron Technologies reported earnings here today, a semiconductor company. I
• 17:20
  Speaker 2: don't know a lot about this company, so I said,
• 17:22
  Speaker 2: let's get somebody smart in here to talk to us
• 17:23
  Speaker 2: about it. Jake Sullivan Silverman, he's the one. We got
• 17:26
  Speaker 2: semi conductor anolds fro Bloomberg Intelligence. He joined us here
• 17:29
  Speaker 2: in our Bloomerg directed broker studio talk to us about
• 17:31
  Speaker 2: Micron Technology. What did they report and what's to tell
• 17:36
  Speaker 2: you about the semi space.
• 17:38
  Speaker 7: Yeah, so they were had pretty strong results last night.
• 17:42
  Speaker 7: It was a beaten rays very strong on earnings based
• 17:47
  Speaker 7: on you know, strong gross margins and the big growth
• 17:53
  Speaker 7: was really what drove the strength in the quarter. And
• 17:57
  Speaker 7: pricing was relatively we based on mix but generally in
• 18:02
  Speaker 7: the right upward trajectory, and really, you know, the way
• 18:08
  Speaker 7: to think about memory is it's pretty ubiquitous across electronics.
• 18:12
  Speaker 7: You can think about smartphones, PCs, servers, both traditional and AI.
• 18:16
  Speaker 7: You know, everything that you have that's a in your pocket,
• 18:19
  Speaker 7: on your desk, sitting somewhere in your house, it's going
• 18:22
  Speaker 7: to have memory or storage some combination of the two
• 18:25
  Speaker 7: potentially as well.
• 18:27
  Speaker 5: So we all know that demand for AI computing is
• 18:29
  Speaker 5: really high right now. We're seeing a lot of those
• 18:31
  Speaker 5: companies capitalizing on it, and Wall Street really keeping a
• 18:34
  Speaker 5: high bar for these companies.
• 18:35
  Speaker 3: But how is Micron matching up with all the other companies?
• 18:40
  Speaker 3: Where are they in line?
• 18:41
  Speaker 7: Yeah, so, so generally speaking, you know, it's important to
• 18:46
  Speaker 7: keep in mind that Micron and a lot of the
• 18:48
  Speaker 7: memory peers really trade on a cyclical basis. There are
• 18:52
  Speaker 7: quite a few you know, inventory build ups and then
• 18:55
  Speaker 7: you know, companies do restocking. And in the past there
• 18:58
  Speaker 7: wasn't really as much of an AI story for Microns specifically,
• 19:02
  Speaker 7: but with high bandwidth memory of some of their other products.
• 19:05
  Speaker 7: You can think about high capacity solid state drives and
• 19:08
  Speaker 7: high capacity DRAM modules. That has all been an AI
• 19:11
  Speaker 7: story for the most part, and we've seen a lot
• 19:13
  Speaker 7: of tailwinds in that business. Micron continues to gain share
• 19:17
  Speaker 7: execute very well. It was a pretty important part of
• 19:19
  Speaker 7: their story for this past quarter and heading into the
• 19:22
  Speaker 7: end of this fiscal year.
• 19:23
  Speaker 2: And I started the beginning, I didn't know a lot
• 19:25
  Speaker 2: about Micron Technologies. No surprise, the stock's up fifty percent
• 19:29
  Speaker 2: year to date.
• 19:31
  Speaker 3: What's the story there.
• 19:32
  Speaker 7: Yeah, So, you know, there were definitely a lot of
• 19:35
  Speaker 7: worries once we got into the sort of you know,
• 19:38
  Speaker 7: tariff related potential headwinds in April, and that really was
• 19:42
  Speaker 7: a major drag on the stock price because there was
• 19:45
  Speaker 7: potential for higher prices across all of their product lines
• 19:49
  Speaker 7: and that could really be a hindrance to demand for
• 19:52
  Speaker 7: a lot of consumer related specifically products. But you know,
• 19:55
  Speaker 7: like PC's smartphones, USB drives and so as that kind
• 20:01
  Speaker 7: of you know, headwind kind of faded away, what's happened
• 20:04
  Speaker 7: is Micron has gotten those tailwinds from AI and bitter pricing,
• 20:09
  Speaker 7: and so there's just a couple of different factors that
• 20:13
  Speaker 7: have actually been really helping them out. They've continued to
• 20:16
  Speaker 7: generate solid free cash flow over the next over the
• 20:18
  Speaker 7: last several quarters, and the expectation is for that to continue.
• 20:21
  Speaker 7: That's very important in an industry that's very cyclical.
• 20:26
  Speaker 5: So it's out the conference called the Analysts, we're really
• 20:28
  Speaker 5: asking the CEO questions about HBM. They're trying to get
• 20:32
  Speaker 5: a sense of how much growth is coming.
• 20:34
  Speaker 3: Can you explain what that is for our listeners.
• 20:37
  Speaker 7: Yeah, So, high bandwidth memory HBM it's a very important
• 20:41
  Speaker 7: part of AI servers. It's attached pretty much directly to
• 20:44
  Speaker 7: the GPUs that Nvidia cells that end up in these
• 20:47
  Speaker 7: big server stacks, and so high bandwidth memory has been
• 20:51
  Speaker 7: an area where Micron has been gaining share. Sk Heinex
• 20:56
  Speaker 7: was the incumbent, and Micron has been executed very well
• 21:00
  Speaker 7: on their roadmap. First on eight high as you'll hear
• 21:03
  Speaker 7: in the call right, but also twelve high as well.
• 21:06
  Speaker 7: So eight high is for Blackwell and twelve high is
• 21:09
  Speaker 7: for Blackwell ulture GB three hundred that's coming out, So
• 21:12
  Speaker 7: that procurement cycle has already kicked in and they're going
• 21:16
  Speaker 7: to see a pretty strong demand over the next coming
• 21:18
  Speaker 7: months and quarters for their twelve high stack products. And
• 21:22
  Speaker 7: it's really all AI related demand for HBM.
• 21:26
  Speaker 3: It's AI.
• 21:28
  Speaker 2: So that takes us back to the big big picture,
• 21:30
  Speaker 2: And I know you and your technology research colleagues at
• 21:32
  Speaker 2: Bloomberg Intelligence, you do a ton of work on AI.
• 21:35
  Speaker 2: You've got what I think is the definitive report on AI.
• 21:38
  Speaker 2: So folks, if you haven't seen it, go to the
• 21:40
  Speaker 2: Bloomberg BI go and that's the definitive.
• 21:42
  Speaker 3: Report on Wall Street.
• 21:43
  Speaker 2: I think on AI, we never talk about eighty eight
• 21:46
  Speaker 2: more because it's tariffs all day, every day. Just give
• 21:49
  Speaker 2: us the latest on the AI story. The investors you
• 21:51
  Speaker 2: talk to, the clients you talk are they still as
• 21:53
  Speaker 2: bullish on AI as they were, say, last year.
• 21:56
  Speaker 7: Yeah, I think there's a lot of optimism still in AI.
• 22:00
  Speaker 7: For Micron specifically, it's been you know, we've been talking
• 22:03
  Speaker 7: about in Nvidia kind of beating and raising for so
• 22:05
  Speaker 7: many quarters and maybe a little bit of a slowdown
• 22:08
  Speaker 7: last quarter or so. But but Micron, the story was
• 22:12
  Speaker 7: so early. They still like very small percentage of their
• 22:16
  Speaker 7: revenue is AI related. So it's kind of interesting how
• 22:19
  Speaker 7: there's been a little bit of a dichotomy in terms
• 22:21
  Speaker 7: of AI not being the same tailwind for Micron that
• 22:25
  Speaker 7: you'd see for some other companies like in Nvidia. But
• 22:27
  Speaker 7: there's still a lot of optimism in the investor community,
• 22:29
  Speaker 7: and there's quite a few people trying to understand where
• 22:32
  Speaker 7: does Micron really benefit from AI and how much more
• 22:35
  Speaker 7: you know, infrastructure expansion for AI, you know, hyperscale capics,
• 22:40
  Speaker 7: how does that benefit Micron and how much more do
• 22:42
  Speaker 7: we need to see for Micron or really benefit heavily
• 22:44
  Speaker 7: from that?
• 22:45
  Speaker 2: All right, Jake, thanks so much for joining us. Really
• 22:46
  Speaker 2: appreciate it. Jake Silverman, Semiconductor Anas Bloomberg Intelligence joining us
• 22:50
  Speaker 2: live here in our Bloomberg Interactive Broker studio. We have
• 22:53
  Speaker 2: what I think is the best technology research on Wall
• 22:55
  Speaker 2: Street mandates seeing anarag Rana lead it. But we've got
• 22:59
  Speaker 2: Animal globally covering the global technology space, Asia, Europe, the US,
• 23:05
  Speaker 2: We're everywhere. So that's how you have to cover technology
• 23:09
  Speaker 2: these days, and we make the investment.
• 23:11
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 23:16
  Speaker 1: and anywhere else you get your podcasts. Listen live each
• 23:19
  Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
• 23:23
  Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
• 23:27
  Speaker 1: You can also watch us live every weekday on YouTube
• 23:30
  Speaker 1: and always on the Bloomberg terminal