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Unilever Split, Boeing Latest, Intel Grant · Bloomberg Intelligence

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Speaker 3: Today we'll look at why Boeing is predicting a massive
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Speaker 3: cash drain.
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Speaker 4: Plus well discuss how high power costs are impacting the
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Speaker 4: European economy.
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Speaker 3: But first we dive into consumer products and ice cream.
1:05
Speaker 3: Oh yeah.
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Speaker 4: Earlier in the week, Unilever set of plants to separate
1:08
Speaker 4: it's ice cream business and cut seventy five hundred jobs.
1:12
Speaker 4: This comes as the company seeks to boost profits and
1:14
Speaker 4: jumpstart sluggish growth in the UK.
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Speaker 3: For more at guest host Molly Smith and I were
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Speaker 3: joined by Bloomberg Intelligence analysts Deborah Aiken and Duncan Fox.
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Speaker 4: Debra senior analyst for Global Luxury Goods and Duncan Fox
1:24
Speaker 4: is a consumer products analyst.
1:26
Speaker 3: I first asked Duncan for more context on what's going
1:28
Speaker 3: on with Unilever.
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Speaker 5: I think if you go back two years, they thought
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Speaker 5: about it then when they sort of pushed it into
1:36
Speaker 5: five divisions and it was thought that they may sell
1:39
Speaker 5: it off or ipo it. So it's really coming back
1:42
Speaker 5: to the table. I think it was impossible back in
1:45
Speaker 5: twenty two because you had food inflation going not for
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Speaker 5: the charts, So I don't think anybody would do it dead,
1:52
Speaker 5: do anything with it. But it's a business thirty is
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Speaker 5: very capital intensive. They've got an excellent market share twenty percent,
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Speaker 5: so the globe leader by some way. But it's one
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Speaker 5: that I suppose if you want to refocus, you leave
2:06
Speaker 5: as a whole. It's a low margin business. We look
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Speaker 5: at it against the HBC business so I can see
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Speaker 5: why they would consider either selling or ibo in the business.
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Speaker 6: It does make sense in deep so you've been finding
2:19
Speaker 6: the retail space for a while. What do you make
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Speaker 6: of all this?
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Speaker 7: I think we can go back to the big offer
2:27
Speaker 7: that you never had and the way that since then,
2:30
Speaker 7: over the last few years, they've had a couple of
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Speaker 7: CEOs that just haven't done what the market had hoped.
2:37
Speaker 7: It's always been a wonder over whether beauty and personal
2:41
Speaker 7: care actually fitted with food and refreshments. And I think
2:45
Speaker 7: the market probably expects. Duncle and I were just talking
2:50
Speaker 7: that nutrition would be the next to go, actually, but
2:53
Speaker 7: they can't both go at the same time. So it
2:56
Speaker 7: really does make sense because you're left with businesses which
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Speaker 7: quickly they say end of twenty twenty five. So it's
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Speaker 7: typical a little bit slow churn from Unilever in the
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Speaker 7: way that they operate. But under the new CEO, Heinz Schumacher,
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Speaker 7: combined with trans and Nelson Pelts on the board and
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Speaker 7: the way that he turned around P and G, Mondalize
3:18
Speaker 7: and others, that we would expect to see this business
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Speaker 7: returned to hopefully the top end of a three to
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Speaker 7: five percent organic cells growth and two high teams. Digit
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Speaker 7: are just at operate in margin, which is where they
3:33
Speaker 7: used to focus until a few years ago, until that
3:36
Speaker 7: inflation came in and until they just couldn't pass it
3:40
Speaker 7: through in developed markets. They do much better in developing.
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Speaker 3: So duncan talk to us about the ice cream business.
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Speaker 3: Is it a good business?
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Speaker 5: Well, I think so. I mean you can't be to
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Speaker 5: a magnumh and you're on the way home, but'll say
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Speaker 5: it is a global leader pretty much in every geography.
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Speaker 5: I think so only number two in Latin America they
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Speaker 5: have leadership. And you said it's capital intensive because about
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Speaker 5: half of that global I think it's about an eighty
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Speaker 5: seven billion dollar business globally, and half of that is
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Speaker 5: through food service or impulse buying. So that's why you've
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Speaker 5: got to get everything right on the distribution. On my whole,
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Speaker 5: it looks like a Unilever holding or gaining market share
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Speaker 5: in most of the regions. So they're running it well.
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Speaker 5: But it does come down to innovation and actually that distribution.
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Speaker 5: We've just got to get it right making sure that
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Speaker 5: we can buy particularly impulse that product when you wanted
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Speaker 5: on the way home generally, so it can be a
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Speaker 5: bit weather dependent, and that's what makes it tricky, I
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Speaker 5: think to sell because if you're the leader, are there
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Speaker 5: to be shot at, So they've got to make sure
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Speaker 5: they keep investing. Current management team seems to be doing
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Speaker 5: that so good business. So I think an IPO seems
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Speaker 5: the most sensible way to go forward.
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Speaker 6: To be fair, I mean personally, I would say ice
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Speaker 6: cream is a twenty a year round to treat exactly.
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Speaker 5: Maybe that's just why I agree with exightly. It tends
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Speaker 5: to start at Easter, would you believe so for two
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Speaker 5: weeks time is the start of the season, So.
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Speaker 6: We're getting into high season for ice cream, I might say.
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Speaker 6: I mean the flip side of all this, though, is
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Speaker 6: the job cuts looking at about seventy five hundred, A
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Speaker 6: lot of those in middle management. I mean, how many
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Speaker 6: companies have we seen that that's really where so many
5:23
Speaker 6: of the job cuts are targeted at. Can you tell
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Speaker 6: us a little bit about that deb and the productivity
5:28
Speaker 6: gains that Unilever's looking to get from these job cuts.
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Speaker 8: Yeah.
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Speaker 7: I think in October Unilever did highlight that they had
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Speaker 7: a growth action plan and part of that was to
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Speaker 7: drive top line and to really look at how they
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Speaker 7: were implementing their productivity gains, so already ahead of this
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Speaker 7: announcement on ice cream, there's been a new strategic group
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Speaker 7: in place making not to change not just in ice
5:57
Speaker 7: cream but across the four of the businesses, but particular
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Speaker 7: cularly ice cream and refreshments when they separated from three
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Speaker 7: business units over to five in twenty twenty two, ice
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Speaker 7: cream in terms of profitability, and also actually homecare, which
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Speaker 7: they have there for now in which they need to
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Speaker 7: do much with with two lowest margin areas. So in
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Speaker 7: terms of what they're doing and the way forward, I
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Speaker 7: think that we see that productivity savings. They had a
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Speaker 7: one percent savings project one percent sales as a project
6:29
Speaker 7: cost savings project in place. They say that they will
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Speaker 7: drive eight hundred million of savings for one point two
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Speaker 7: percent productivity on the cost side of sales over three years.
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Speaker 7: I worked that out on MODL to come in and
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Speaker 7: around a zero point four billion net positive but over
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Speaker 7: a three year period. And on the back of that,
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Speaker 7: actually I think there'll be more savings to be had,
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Speaker 7: but a deeper disposal plan across the four of the
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Speaker 7: businesses too.
6:58
Speaker 3: Are Thanks to Bloomberg Intelligence analysts Deb Achon and Duncan Fox.
7:02
Speaker 4: We move now to weight loss drugs. It looks as
7:04
Speaker 4: if the drug makers Novo Nordisks and Eli Lilly have
7:06
Speaker 4: a powerful new allies. They conquered the eighty billion dollar
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Speaker 4: obesity shot market, and that ally is former Weight Watchers
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Speaker 4: spokeswoman Oprah Winfrey.
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Speaker 3: Winfrey recently appeared on ABC special with executives from Novo
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Speaker 3: Nordisk and Eli Lilly for more on what all of
7:21
Speaker 3: this means. Guest host Molly Smith and I were joined
7:23
Speaker 3: by Madison Muller, Bloomberg News health reporter. We first asked,
7:27
Speaker 3: what's Oprah's role here with these drugmakers.
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Speaker 9: We're used to seeing Oprah as the face of weight
7:31
Speaker 9: Watchers obviously for the last almost a decade, and she
7:35
Speaker 9: said recently that she was exiting the board of Weight
7:37
Speaker 9: Watchers and then she said that it was to avoid
7:40
Speaker 9: potential perceptions of conflict of interest. And then she's doing
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Speaker 9: this special now which was all about weight loss.
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Speaker 3: She did special on ABC Television.
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Speaker 9: Yeah, on ABC.
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Speaker 3: Was it a paid promotion or it was not?
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Speaker 9: Novo Nordisks said that they didn't have any you know,
7:54
Speaker 9: financial anything to do with Oprah really, and she's not
7:58
Speaker 9: you know, two, our knowledge doesn't have a partnership with
8:01
Speaker 9: either of the drug manufacturers. But you know, people that
8:04
Speaker 9: were watching the show and were on Twitter sort of
8:07
Speaker 9: reacting to it said that it watched and seemed sort
8:10
Speaker 9: of like an infomercial for the drugs.
8:12
Speaker 6: Yeah, tell us a little bit more about who was
8:14
Speaker 6: on it. You were telling us that there were some doctors,
8:16
Speaker 6: but maybe they kind of glanced over the side effects
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Speaker 6: a bit and that this was really just a big,
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Speaker 6: you know, hype up moment for these weight loss drugs.
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Speaker 9: Yeah, so they heard from patients, There were doctors, There
8:26
Speaker 9: were executives from Nova Noordisk and Eli Lilly on the
8:29
Speaker 9: program as well. The majority of the program was sort
8:32
Speaker 9: of centered on patient experiences with these drugs, but it
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Speaker 9: really didn't get into details about the side effects, sort
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Speaker 9: of glossed over them, and the doctor that they had
8:42
Speaker 9: on talking about them said that the side effects were overhyped.
8:46
Speaker 3: Really, So again that kind of goes to the editorial
8:49
Speaker 3: integrity of it.
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Speaker 9: I mean, I'm not a journalist, but really, yeah, I mean,
8:53
Speaker 9: are real journalist. Yes, there was definitely I think that
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Speaker 9: it served and Oprah is on these drugs. She's had
9:02
Speaker 9: a great experience with them, so she says, and that's
9:05
Speaker 9: sort of what the program was centered around, and really
9:09
Speaker 9: spoke to that positive experience on the drugs.
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Speaker 6: So what are Oprah's feelings toward weight Watchers right now?
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Speaker 6: I mean, this is, like you said, she has been
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Speaker 6: the face of that company for so many years and
9:20
Speaker 6: now just like really seems to be doing like, you know,
9:22
Speaker 6: a total one to eighty and that weight Watchers would
9:26
Speaker 6: probably be on the losing end of the success of
9:28
Speaker 6: these drugs.
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Speaker 9: Yeah, yeah, and she asked, I mean, weight Watchers CEO
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Speaker 9: was on this program, and she asked a very pointed question,
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Speaker 9: you know, what is the role and what's the point
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Speaker 9: of weight Watchers now that we have these medications, which
9:41
Speaker 9: I think is sort of the question that the whole
9:43
Speaker 9: industry has been asking, and the diet industry and analysts
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Speaker 9: and everyone, and you know, weight Watchers CEO said that
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Speaker 9: there is still a role for them to play in
9:54
Speaker 9: supporting the community of sporting people's weight loss journeys. But
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Speaker 9: I guess that still sort of remains to be seen.
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Speaker 3: I really I hesitate to ask this question, but since
10:02
Speaker 3: you reported on it, what is ozembic face.
10:07
Speaker 9: Yes, so Ozembic face is another sort of trend that
10:10
Speaker 9: we're seeing happen right now, especially here in New York.
10:13
Speaker 9: People who have rapid weight loss from the weight loss
10:16
Speaker 9: drugs are getting this hollowed out look in their cheeks,
10:19
Speaker 9: which I mean, it happens with weight loss. It's not
10:22
Speaker 9: just from the drugs, but it's the rapid weight loss
10:24
Speaker 9: that sort of makes it more noticeable. So then they're
10:26
Speaker 9: seeking out plastic surgery clinics, medspots to get botox or
10:31
Speaker 9: facelifts and sort of help offset those effects.
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Speaker 6: Add that to the list of all the winners and
10:36
Speaker 6: losers off what comes out of ozempic. I mean we've
10:39
Speaker 6: I mean the original kind of knock on effect was like, oh,
10:41
Speaker 6: you know all the potato chip companies, right, maybe not
10:44
Speaker 6: so good for them, And now plastic surgery coming up.
10:47
Speaker 6: So it's just like the hollowing out of your face.
10:49
Speaker 6: You've got the saggy skin.
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Speaker 9: There and yeah, yeah, like the extra loose skin. Ab View,
10:54
Speaker 9: which makes botox has said that this could be a potential,
10:57
Speaker 9: you know, boon for botox sales going forward, said that
11:00
Speaker 9: at earnings last quarter.
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Speaker 6: So it's like I can't keep up.
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Speaker 3: Yeah, So on these GLP drugs. Where are we in
11:06
Speaker 3: terms of, let I know someone who has a prescription,
11:10
Speaker 3: but this person cannot get it filled because there's not
11:11
Speaker 3: enough supply where and it is not me? Where are
11:14
Speaker 3: they not ensured?
11:16
Speaker 8: Right?
11:16
Speaker 3: Yeah, so that two questions, Yeah, where are we on
11:19
Speaker 3: ramping up supply to meet demand? And then secondarily who
11:22
Speaker 3: pays for this stuff? Yeah?
11:23
Speaker 9: I mean the supply problem has been a huge issue
11:26
Speaker 9: and Nova Noordas, Skinnela, Lily are investing billions of dollars
11:29
Speaker 9: to ramp up supply to try to meet demand. But
11:33
Speaker 9: you know, I've seen an analyst notes they're like the
11:35
Speaker 9: demand for these products just seems like it's insatiable. And
11:38
Speaker 9: at this point they're already coming from behind. So and
11:41
Speaker 9: all of these investments in production capacity like take a
11:44
Speaker 9: couple of years to come online, so we're sort of
11:47
Speaker 9: just still racing to keep up with it. It's you know,
11:50
Speaker 9: probably Lily said, is probably going to be you know,
11:53
Speaker 9: not this year that they're able to meet supply, maybe
11:55
Speaker 9: next year. So we're still still trying to ramp up
11:58
Speaker 9: the supply there and then and in terms of paying
12:01
Speaker 9: for it, we have like I think fifty percent of
12:04
Speaker 9: commercial plans cover the drugs for obesity. A third of
12:10
Speaker 9: state health plans through Medicaid cover the drugs. Medicare does
12:13
Speaker 9: not cover weight loss drugs, so it's very patchy still
12:17
Speaker 9: and a lot of people are paying out of pocket.
12:19
Speaker 3: Our thanks to Madison Muller, Bloomberg News Health reporter.
12:21
Speaker 4: All right, coming up, we're going to break down why
12:23
Speaker 4: Boeing is predicting a massive cash strain.
12:25
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13:04
Speaker 4: Move next to the aerospace industry and Boeing. This week,
13:07
Speaker 4: Boeing predicted a massive cash strain for the first quarter.
13:10
Speaker 3: Boeing Chief financial Officer Brian West said cash out flow
13:12
Speaker 3: will reached four billion to four and a half billion
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Speaker 3: in the first quarter. Analyst had expected five billion.
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Speaker 4: C Yelller reflects a shifting priorities over at Boeing, the
13:20
Speaker 4: company's grappling with the aftermath of a near catastrophic fuselage
13:24
Speaker 4: failure on a seven thirty seven Max nine aircraft earlier
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Speaker 4: this year.
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Speaker 3: For more in all of this, we were joined by
13:29
Speaker 3: George ferguson Bloomberg Intelligence, senior Aerospace, Defense and Airlines analysts.
13:33
Speaker 3: We first asked George for context on what's going on
13:36
Speaker 3: at Boeing.
13:36
Speaker 5: Well, I mean, I.
13:37
Speaker 10: Think we heard it from Brian West, you know. Besides,
13:40
Speaker 10: I think the cash flow guidance he provided he provided
13:43
Speaker 10: few details about anything else. And so he describes a
13:47
Speaker 10: lot of processes, you know, processes at the FAA to
13:50
Speaker 10: get airplanes certified, processes and refining, the manufacturing process, curing,
13:57
Speaker 10: you know, the excess outsourcing they've probably done over the
14:00
Speaker 10: last couple of decades. I think what you really get
14:02
Speaker 10: is a sense of a company that's in a state
14:05
Speaker 10: of a lot of flucks. The market likes the fact
14:07
Speaker 10: that he talked about casual being positive by the end
14:10
Speaker 10: of the year, so it sounds like they've got a
14:12
Speaker 10: pretty nice ramp up in you know, sort of resuming
14:17
Speaker 10: build rates at their factories across the year. That was
14:20
Speaker 10: better than what I expected. But again, the storyline inside
14:24
Speaker 10: the company is still one that's all about flux and
14:27
Speaker 10: not about details. So I just wonder, I think I
14:31
Speaker 10: got a sense there's some risk in that cashalow projection.
14:35
Speaker 3: So, George, you've covered Boeing for decades here, can you
14:37
Speaker 3: recall a time when maybe they're they've had these quality
14:40
Speaker 3: issues before? Is this how unprecedented is these you know,
14:43
Speaker 3: last couple of years, Really.
14:46
Speaker 10: I think thoroughly unprecedented. Right, So, even as I was
14:50
Speaker 10: leaving Blackrock, you know, the during the global financial crisis,
14:54
Speaker 10: I remember Boeing stock was down at thirty three dollars
14:57
Speaker 10: a share, pretty cheap than what it is today. That
15:00
Speaker 10: the discussion then was just about like a defense portfolio,
15:03
Speaker 10: who products really weren't that modern, and angst about the
15:07
Speaker 10: company's future, but not these kind of problems inside their
15:11
Speaker 10: manufacturing business, which is the core business of this company. Right,
15:14
Speaker 10: it's an engineering and manufacturing company. If you can't manufacture
15:17
Speaker 10: things well in aerospace, that's a bad sigen. So I
15:21
Speaker 10: don't think it's ever been this bad ever.
15:23
Speaker 4: So just to recap at a Bank of America conference
15:25
Speaker 4: in London, the CFO, so the cash outflow is going
15:28
Speaker 4: to reach four to four and a half billion in
15:30
Speaker 4: the first quarter. Analysts we're looking for maybe five billion
15:34
Speaker 4: plus and like you said that maybe we'll get cash
15:36
Speaker 4: flow positive by the end of the year. That was
15:38
Speaker 4: the indication from Boeing, do we believe Okay, that's not
15:42
Speaker 4: the right question. How did they come up with this estimate?
15:44
Speaker 4: Like what are the factors that go into this kind
15:46
Speaker 4: of estimate.
15:47
Speaker 10: That's exactly we don't know, right, And so some of
15:49
Speaker 10: you it's all about deliveries. It's all about deliveries of
15:52
Speaker 10: commercial airplanes. I heard. What I thought was, we're going
15:56
Speaker 10: to be at rate thirty eight by the end of
15:58
Speaker 10: the year, which is the rate they should have probably
16:00
Speaker 10: built out all year long, and then we'll move to
16:03
Speaker 10: the next higher rate that's thirty eight a month, sorry
16:05
Speaker 10: on the seven thirty seven, and we'll move to the
16:08
Speaker 10: next higher rate when the FAA lets us. So our
16:12
Speaker 10: view at Bloomberg Intelligence of what we think build rates were,
16:15
Speaker 10: I can tell you we have factored in a fourth
16:18
Speaker 10: quarter at rate thirty eight. But it sounds like quarter
16:21
Speaker 10: one is going to be a really rough quarter, so
16:24
Speaker 10: they'll have to pull a lot of things back together
16:26
Speaker 10: to get rate back to thirty eight by the end
16:28
Speaker 10: of the year.
16:30
Speaker 4: I think it's feels like everything has to go right, yeah,
16:33
Speaker 4: for that to happen, Paul, And as we.
16:35
Speaker 3: Know, that never happened. Never happens. But George, you've told
16:38
Speaker 3: us in the past, in the airspace business, there is
16:40
Speaker 3: no hey, we did a pretty good job on this plane.
16:42
Speaker 3: It has to be perfect every single time, otherwise it's disastrous.
16:47
Speaker 3: And they from their customers perspective, Georgie, if I'm a
16:50
Speaker 3: big buyer, like a Southwest or United, what am I
16:54
Speaker 3: saying to these guys? I mean, I fly thousands of
16:56
Speaker 3: these planes every single day in my fleet. What am
16:59
Speaker 3: I telling the Boeing these days?
17:01
Speaker 10: Yeah, so you're watching very very closely. Of course you're
17:04
Speaker 10: telling Boeing the quality is job one. Safety quality is
17:08
Speaker 10: job one. But if you're especially if you're like a
17:11
Speaker 10: Southwest or a Ryanair where you're a pure fleet, right,
17:14
Speaker 10: you really can't afford your most important supplier to have
17:18
Speaker 10: problems like this. So I think you're quietly coaching them
17:23
Speaker 10: to improve things hoping for better. But you're probably biting
17:26
Speaker 10: your nails a little bit, right because if there's it
17:29
Speaker 10: continues to be serious problems. You're not switching to airbus,
17:34
Speaker 10: you know, overnight. And I don't know that those people
17:36
Speaker 10: are considering it. I'm not saying that they are, but
17:39
Speaker 10: you got to be concerned. You've got to be watching
17:40
Speaker 10: very closely.
17:41
Speaker 3: George. Let's talk about the other half of your research coverage,
17:44
Speaker 3: which is the airlines themselves. I just flew Newark to
17:47
Speaker 3: Salt Lake City seven thirty seven Max eight fully packed
17:52
Speaker 3: to the gills both ways. How are the airlines doing
17:54
Speaker 3: these days?
17:55
Speaker 10: Yeah, so in one queue, I think a bunch of
17:58
Speaker 10: them are going to show losses. They they're filling airplanes
18:01
Speaker 10: because I think the revenue managers never let airplanes go
18:04
Speaker 10: down the runway with almost, you know, being entirely full.
18:08
Speaker 10: But everything what counts, as you know, the most, is
18:10
Speaker 10: going to be the ticket prices. And you know, when
18:13
Speaker 10: we looked at four Q as we closed out of
18:15
Speaker 10: four Q, the biggest challenge to the higher revenue that
18:20
Speaker 10: they were bringing in was all about these higher pilot salaries.
18:23
Speaker 11: Right.
18:23
Speaker 10: They gave a bunch away to the pilots and so
18:25
Speaker 10: while we're all paying more for the ticket, the pilot's
18:28
Speaker 10: getting more in the front seat. They probably deserve it.
18:30
Speaker 10: They work pretty hardilot's so happy you do. Actually, So
18:36
Speaker 10: profitability is still challenged compared to what we saw last decade.
18:40
Speaker 10: I think fares would have to go even higher, and
18:43
Speaker 10: we've seen them softening a bit. This summer. Could be
18:45
Speaker 10: a little bit better for the airlines, if you know,
18:48
Speaker 10: if we have a bunch of Airbus A three twenties
18:50
Speaker 10: out of the market because of the gear turbo fan problems,
18:52
Speaker 10: if Boeing deliveries are slowing down capacity gains in the marketplace,
18:57
Speaker 10: it could be a little bit better. But we're not
18:59
Speaker 10: looking at an environment where we think they're going to
19:01
Speaker 10: see twenty nineteen levels of profitability, not twenty nineteen, you know,
19:04
Speaker 10: even last decade levels of profitability this summer. So I'd
19:08
Speaker 10: say profits still a little bit weak. As the airlines recover,
19:12
Speaker 10: I think there might be just too much capacity in
19:14
Speaker 10: the marketplace.
19:14
Speaker 3: Our Thanks to George ferguson Bloomberg Intelligence senior aerospace, defense
19:18
Speaker 3: and airlines analysts, we move next.
19:20
Speaker 4: To the chip space. This week, the US Commerce Department
19:22
Speaker 4: announced that it will award the tech company Intel eight
19:24
Speaker 4: and a half billion dollars in grants and as much
19:27
Speaker 4: as eleven billion dollars in loans. It's a preliminary agreement
19:30
Speaker 4: to help fund an expansion of Intel semiconductor factories.
19:33
Speaker 3: Intel is the first company to land a funding deal
19:35
Speaker 3: from the twenty twenty two Chips and Science Act for
19:38
Speaker 3: Advanced chip making facilities. The Chips Act set aside billions
19:41
Speaker 3: in grants to persuade chip companies to build factories on
19:44
Speaker 3: American soil.
19:45
Speaker 4: For more on this, we were joined by Mackenzie Hawkins,
19:47
Speaker 4: a Bloomberg News US industrial reporter, and we first asked
19:50
Speaker 4: for some context here on the Intel story.
19:53
Speaker 11: Biden signed the Chips Act into law in August twenty
19:56
Speaker 11: twenty two. Companies have been waiting for you know, well
19:59
Speaker 11: owned for a year to see those fund start flowing
20:02
Speaker 11: out the door. They haven't actually flowed out the door yet.
20:04
Speaker 11: Intel's awards just a preliminary agreement, and it will be
20:07
Speaker 11: likely until the end of this year that they start
20:09
Speaker 11: to actually see money doled out in tranches. But this
20:12
Speaker 11: is a huge investment in you know, the real leading
20:15
Speaker 11: American ship maker, and I mean these chips will power
20:19
Speaker 11: you know, the AI frenzy. There are the types of
20:21
Speaker 11: chips that go into nuclear missiles and hypersonics, and this
20:24
Speaker 11: is a really significant investment for the company and for
20:26
Speaker 11: the States for their building, including Arizona, Ohio, organ and
20:30
Speaker 11: New Mexico.
20:31
Speaker 4: So, okay, I love covering energy, so I'm really into
20:33
Speaker 4: the IRA And like what you've seen a lot in
20:35
Speaker 4: the IRA is everyone got super excited, but then actually
20:39
Speaker 4: sort of putting shovels in the ground was a lot
20:42
Speaker 4: more difficult. So there's like, yeah, yeah, we're gonna get
20:45
Speaker 4: the money, It's gonna happen, but it's not happening quite yet.
20:48
Speaker 4: How do we think this plays out from the chips act?
20:51
Speaker 4: Like when does Intel put a shovel in the ground.
20:53
Speaker 4: What other companies are trying to put their shovels in
20:55
Speaker 4: the ground and get the funding and will it actually,
20:58
Speaker 4: you know, happen.
21:00
Speaker 11: So Intel's already building these facilities. They've had a twenty
21:04
Speaker 11: billion dollar Arizona expansion underway for some time. They're building
21:07
Speaker 11: multiple fabrication facilities there. They're making some progress in Ohio,
21:11
Speaker 11: although there's been reporting that that's slightly delayed. We expect
21:13
Speaker 11: that construction to finish in twenty twenty six. Intel's rivals
21:17
Speaker 11: Taiwan Semi Conductor Manufacturing Company and Samsung out of South
21:21
Speaker 11: Korea are also building plants in the US. Both of
21:24
Speaker 11: their sites have seen some delays that the companies and
21:27
Speaker 11: the Biden administration insists are in line with typical projections,
21:30
Speaker 11: but time will tell on this one. It will be
21:32
Speaker 11: years before these facilities are stood up. The Commerce Department
21:35
Speaker 11: has set a goal that the US will produce twenty
21:37
Speaker 11: percent of the world's advance logic shows by the end
21:39
Speaker 11: of the decade. Currently we're at about zero, so that's
21:43
Speaker 11: a lot of progress to.
21:44
Speaker 5: Catch up on.
21:44
Speaker 11: Most of that production's happening in East Asia. The companies
21:47
Speaker 11: announced their projects before they got the funding from the
21:50
Speaker 11: federal government, but it is certainly their expectation that they
21:53
Speaker 11: will receive that funding, and they would like it to happen,
21:55
Speaker 11: probably a little bit faster than it did.
21:57
Speaker 3: Hem m Caasie. How secure is this funding over time,
22:00
Speaker 3: thinking that we may have a new administration in twenty
22:03
Speaker 3: twenty five, how secure is this funding and particularly you
22:06
Speaker 3: know in the out years.
22:08
Speaker 11: It's a great question. So there's a due diligence stage
22:11
Speaker 11: and then a final term cheat between Intel and the
22:14
Speaker 11: Commerce Department. That will likely come closer to the time
22:17
Speaker 11: of the presidential election, and the Commerce Department is setting
22:20
Speaker 11: all types of benchmarks that Intel must need for the
22:23
Speaker 11: money to be doled out over time. So it's not
22:25
Speaker 11: that they get the final agreement and then they get
22:27
Speaker 11: eight and a half billion dollars in grants and eleven
22:30
Speaker 11: billion dollars worth of loan guarantees. They have to meet
22:33
Speaker 11: benchmarks related to production, related to workforce development, and there
22:36
Speaker 11: are all types of requirements that Biden's Commerce Department might
22:40
Speaker 11: set that a potential from Commerce Department might not be
22:44
Speaker 11: as interested in. You've seen saying like child care facilities,
22:47
Speaker 11: which Intel and other companies have committed to community development
22:51
Speaker 11: agreements all those types of things. It's entirely possible that
22:55
Speaker 11: that could shift over time. But the reality is once
22:57
Speaker 11: they've got the equipment in the building, these are, you know,
23:00
Speaker 11: machines that cost hundreds of millions of dollars. They're committed
23:03
Speaker 11: to these facilities, but Intel's CEO Podcastingers said, we might
23:07
Speaker 11: need a ship back to two point zero. These companies
23:10
Speaker 11: are buying for a lot more money than they currently have.
23:12
Speaker 11: The events chipmakers together asked for more than double what
23:15
Speaker 11: the Commerce Department has available. So this isn't really something
23:17
Speaker 11: to watch over the next couple of years and decades.
23:20
Speaker 4: I mean, is President Trump really going to go to
23:22
Speaker 4: Ohio and Arizona and Oregon, New Mexico and be like,
23:25
Speaker 4: just kidding, I'm going to take this development back. I mean,
23:28
Speaker 4: I think that's going to be a tricky proposition, since
23:31
Speaker 4: hearing it is so much money. So I just came
23:33
Speaker 4: back mackenzie from energy conference basically, and I was just
23:36
Speaker 4: telling Paul that all the talk there was that tech
23:40
Speaker 4: companies are finally getting wise to the fact that they're
23:42
Speaker 4: going to build all this stuff they need power and
23:45
Speaker 4: the power isn't as easy to come by as they
23:48
Speaker 4: might have thought. Do you hear that at all on
23:50
Speaker 4: your industrial side, Like, hey, this is great build all
23:53
Speaker 4: these data centers Intel, but like, are you going to
23:54
Speaker 4: get that power? What do you plug it in?
23:57
Speaker 11: Absolutely, infrastructure is a top concern for these you know,
24:00
Speaker 11: a big part of their ability to apply for chips
24:03
Speaker 11: X funding is to demonstrate commercial viability and that they
24:05
Speaker 11: have buy in from state and local officials to marshal
24:09
Speaker 11: the resources necessary to stand up factories that cost tens
24:12
Speaker 11: of billions of dollars to build sometimes require entire new
24:15
Speaker 11: water pipelines or energy resources. You know, take Arizona, which
24:20
Speaker 11: has not just this massive intel expansion but also a
24:23
Speaker 11: huge factory to factories under construction from PSMC. Arizona does
24:27
Speaker 11: one hundred year water planning. This is a desert and
24:30
Speaker 11: so they've had to very carefully plan their water development,
24:34
Speaker 11: ensure residents that their water supply is not going to
24:37
Speaker 11: be impacted, and I mean down to the land parcels
24:40
Speaker 11: in Arizona, they've planned these industrial parks. You see similar
24:44
Speaker 11: things happening in Indiana, which is expected to get a
24:47
Speaker 11: roughly fifteen billion dollar investment from Spehinex, which is one
24:50
Speaker 11: of the main advanced packaging companies out of South Korea.
24:53
Speaker 11: That announcement hasn't been formally announced yet on Boo Bloomberg
24:56
Speaker 11: has reported on it. So I mean, this is a
24:59
Speaker 11: massive infrastructure effort which, as you know, is coming alongside
25:02
Speaker 11: a lot of other investments in other sectors coming from
25:05
Speaker 11: the Inflation Production Acts, things like UV's batteries, hydrogen wind,
25:09
Speaker 11: solar and sort of more traditional heart infratructure from the
25:12
Speaker 11: Bipartisan Infrodructor Law.
25:14
Speaker 3: Our thanks to Mackenzie Hawkins, Bloomberg News US Industrial Reporter.
25:17
Speaker 4: Coming up on the program a conversation with Jim Fiitterling,
25:20
Speaker 4: CEO of the Dow Chemical Company, on consumer demand and
25:22
Speaker 4: power prices.
25:23
Speaker 3: Over in Europe, you're listening to Bloomberg Intelligence on Bloomberg Radio,
25:26
Speaker 3: providing in depth research and data on two thousand companies
25:29
Speaker 3: in one hundred and thirty industries. You can access Bloomberg
25:31
Speaker 3: Intelligence via b I go on the terminal. I'm Paul
25:34
Speaker 3: Sweeney and.
25:34
Speaker 4: A Malex Steele, and this is Bloomberg.
25:47
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
25:51
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25:54
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25:57
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26:01
Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
26:05
Speaker 4: We move next to social media and TikTok, and many
26:08
Speaker 4: US citizens are questioning whether they'll be able to use
26:10
Speaker 4: the app going forward.
26:11
Speaker 3: A swift passage of a house built last week would
26:14
Speaker 3: force a sale of TikTok or ban the app in
26:16
Speaker 3: the US. The bill would next have to pass through
26:18
Speaker 3: the US Senate.
26:19
Speaker 4: And this comes as US officials have argued that the
26:21
Speaker 4: Chinese government's relationship with TikTok's parent company, by Dance raises
26:25
Speaker 4: national security risks.
26:26
Speaker 3: Earlier in the week, guest host John Tucker and I
26:28
Speaker 3: were joined by Matthew Shuttenhelm Bloomberg intelligence media litigation analyst.
26:33
Speaker 3: We first asked him, what's the hold up with the
26:34
Speaker 3: bill in the US Senate.
26:36
Speaker 1: It's amazing to see the bipartisan support this has. You
26:40
Speaker 1: don't see legislation move three hundred and fifty two to
26:43
Speaker 1: sixty five like we saw last week in the House.
26:46
Speaker 1: You've seen senators on both sides say they want this.
26:51
Speaker 1: You've seen Chuck Schumer in the past, the Senate majority leader,
26:54
Speaker 1: say he likes the idea of requiring a change in
26:57
Speaker 1: ownership of TikTok, So exactly the question now. I think
27:02
Speaker 1: the hold up though, is, look, this is an election year,
27:05
Speaker 1: and even though you've seen President Biden say, look, get it,
27:08
Speaker 1: you know, if it comes to my desk, I'll sign it.
27:11
Speaker 1: He also has one hundred and fifty million Americans using
27:14
Speaker 1: this app, many of them young people. At a time
27:18
Speaker 1: when you have an election coming in November, when every
27:21
Speaker 1: vote matters, in particular young people to President Biden. So
27:26
Speaker 1: I think this legislation has a chance. I only give
27:29
Speaker 1: it a thirty percent chance though this year, And that's
27:33
Speaker 1: exactly because of the political risks of November, at a
27:37
Speaker 1: time when President Biden doesn't want to risk a potential
27:40
Speaker 1: backlash from those young voters. The Senate is controlled by Democrats.
27:45
Speaker 1: Senator Chuck Schumer is the majority leader. He decides how
27:49
Speaker 1: quickly this moves, and I think the looming election is
27:53
Speaker 1: a reason to move slowly. But after that, after this
27:56
Speaker 1: election is out of the way, I'd be a little
27:58
Speaker 1: more nervous if I were taking.
28:00
Speaker 3: So do we have any clear sense of what TikTok
28:03
Speaker 3: and byteedance how they're approaching this at this point, like
28:06
Speaker 3: what would they presumably do?
28:09
Speaker 1: Yeah, so that's a great question. I think we've seen
28:12
Speaker 1: indications from China that it would not be willing to
28:18
Speaker 1: support a divestiture. Now that could be posturing on that end,
28:23
Speaker 1: but I think there's the possibility that if the US
28:25
Speaker 1: passes this legislation that requires a divestiture or else there's
28:30
Speaker 1: an effective ban, there's a real possibility that China wouldn't
28:33
Speaker 1: allow any sort of divestiture like that To happen, so
28:37
Speaker 1: you're inevitably in the result of a band. Of course,
28:40
Speaker 1: you're also in courts as soon as Congress passes this.
28:43
Speaker 1: And you saw Montana pass the TikTok ban last year.
28:47
Speaker 1: It got tripped up in court. You saw President Trump
28:50
Speaker 1: before he was against this, he actually signed a ban
28:53
Speaker 1: of TikTok that was tripped up in the court. So
28:57
Speaker 1: once this passes, you still have a tough court challenge coming.
29:00
Speaker 1: And so TikTok's first line of defense is going to
29:03
Speaker 1: be to see you over this, all.
29:05
Speaker 12: Right, So if this ultimately goes to the courts, you've
29:09
Speaker 12: got to explain to me, what's the legitimate national security
29:13
Speaker 12: threat of me going posting pictures of myself or video
29:18
Speaker 12: of myself, you know, redoing my bathroom or Lisa putting
29:22
Speaker 12: on her mas scare.
29:23
Speaker 1: That's exactly the question the courts are going to be asking.
29:26
Speaker 1: And the House went into closed session in committee when
29:29
Speaker 1: it talked about this, so so they kind of they
29:32
Speaker 1: were secret on the concerns that motivated this. But then
29:35
Speaker 1: after they had that closed session, all of a sudden
29:37
Speaker 1: it was fifty to zero voting in support. So we
29:39
Speaker 1: don't exactly know. I think the concern is that if
29:43
Speaker 1: this data is you know, not just you looking at
29:46
Speaker 1: at your you know, cat videos or whatever it is,
29:49
Speaker 1: but you know, one hundred and fifty million Americans everything
29:53
Speaker 1: that they are looking at all of this flow of
29:55
Speaker 1: data going to China. Let's China take a look at it.
29:59
Speaker 1: There's also a concern on the propaganda side that if
30:02
Speaker 1: China can impact sort of the flow of videos, can
30:06
Speaker 1: they start to shape thinking and in particular in young people.
30:10
Speaker 1: There's two sides of the concern here looking at the
30:14
Speaker 1: data about how we're using it and also influencing thought
30:17
Speaker 1: potentially by framing messages, by using an algorithm to promote
30:22
Speaker 1: certain ideas.
30:24
Speaker 3: Our thanks to Matt Sheltenhelm, Bloomberg Intelligence Media Litigation analysts,
30:27
Speaker 3: So Paul.
30:28
Speaker 4: Earlier this week, I was in Houston and I was
30:30
Speaker 4: joined by Jim Fitterling, CEO of the Dow Chemical Company,
30:33
Speaker 4: and he talked about consumer demand in US and Europe.
30:35
Speaker 4: And he told me that the high price of electricity
30:37
Speaker 4: in Europe is hurting customers, consumers, and the European economy.
30:42
Speaker 4: In the US though very different story. And I began
30:44
Speaker 4: this portion of our conversation by asking Jim if the
30:47
Speaker 4: US economy actually needs the FED to cut interest rates
30:50
Speaker 4: this year.
30:50
Speaker 8: You know, it's starting to feel like the economy is
30:53
Speaker 8: gaining a little bit of strength the beginning of the year.
30:55
Speaker 8: It's not.
30:56
Speaker 7: It's not robust.
30:57
Speaker 8: Maybe a little bit early to tell if this is
30:59
Speaker 8: a a long term trend, but it's been a decent
31:02
Speaker 8: start to the year. Electronics has been a bit stronger
31:06
Speaker 8: than last year. Last year was a kind of a
31:08
Speaker 8: weak spot, so our outlook is good. Automotive had a
31:11
Speaker 8: good year last year, and I think despite the discussion
31:14
Speaker 8: around electric vehicles and some of the flat to negative
31:17
Speaker 8: sentiment that's in the news, the reality is I think
31:20
Speaker 8: it's going to be another good year in the automotive sector.
31:23
Speaker 8: Housing has been the slowest start, but there's been an
31:27
Speaker 8: uptick in single family home starts, which is good. That
31:32
Speaker 8: usually has a ripple effect through a lot of other
31:34
Speaker 8: durable goods manufacturing. We haven't seen that yet. So a
31:38
Speaker 8: modest good start to the year, and we just see
31:41
Speaker 8: how things develop.
31:42
Speaker 3: So we're getting there.
31:43
Speaker 4: So that begs the question that if we do, say
31:45
Speaker 4: get two to three cuts this year, for example, from
31:47
Speaker 4: the FED, is your expectation that we see accelerated growth,
31:52
Speaker 4: higher infleation, does that actually start more growth?
31:56
Speaker 8: Well, I think in the commodity space and in our
31:58
Speaker 8: industry in particular, we tend to lead into a slowdown,
32:01
Speaker 8: and so we started to lead into this eighteen months
32:05
Speaker 8: middle of this year will be twenty four months ago,
32:08
Speaker 8: and we typically tend to lead out, and so it's
32:11
Speaker 8: too early to say we're coming out, but you can
32:13
Speaker 8: start to see shoots that are like when we see
32:16
Speaker 8: a recovery, and of course that demand. You know, what's
32:19
Speaker 8: missing from the economy right now is a durable goods
32:22
Speaker 8: demand and when that and construction demand, and when that
32:25
Speaker 8: comes back, those are high volume applications and that demand
32:28
Speaker 8: pool is going to mean that prices are going to
32:31
Speaker 8: move up a bit. I don't know if I would
32:33
Speaker 8: call that necessarily inflationary, but that's just the cycle.
32:37
Speaker 4: What do you think it's waiting for.
32:39
Speaker 8: I think it's waiting for rate reductions, for the mortgage
32:42
Speaker 8: rates to come down. I think that's the next big
32:45
Speaker 8: thing that typically triggers a kind of a shoot up
32:48
Speaker 8: in the housing market, and then that triggers a lot
32:51
Speaker 8: of other services and durable goods demand that comes behind it.
32:55
Speaker 4: So we may see a second half recovery. I'm hopeful
32:58
Speaker 4: sort of what I'm hearing from it, then hopeful? Is
33:00
Speaker 4: it a similar picture over in Europe? So the chemical
33:04
Speaker 4: sector in Europe is under a lot of pressure. I mean, INPO,
33:06
Speaker 4: costs are high. The economy there is weaker in many
33:10
Speaker 4: sense compared to the US.
33:12
Speaker 3: What's your take?
33:13
Speaker 8: European consumer demand is not nearly as strong as it
33:16
Speaker 8: is here in the States, And of course the weight
33:20
Speaker 8: of higher energy costs has hit the consumer a lot
33:23
Speaker 8: of different ways. Now we're seeing an improvement year over year.
33:27
Speaker 8: Obviously energy has come down, but an electricity, you know
33:31
Speaker 8: which most consumers purchase electricity costs are double, maybe a
33:36
Speaker 8: little bit more than what they are here in the US.
33:39
Speaker 8: So I think, you know, there's a big question when
33:42
Speaker 8: I look at my downstream customers in Europe, I'm always
33:45
Speaker 8: questioning how long will they be there? And if you
33:48
Speaker 8: don't have a domestic market to service in Europe, you
33:51
Speaker 8: really can't afford to export from Europe. So if you
33:54
Speaker 8: don't have a domestic market to service, you have to say,
33:57
Speaker 8: you know, what does my footprint need to be? How
33:59
Speaker 8: long can I be there in order to be part
34:02
Speaker 8: of that economy?
34:03
Speaker 4: That's a big deal. I mean that you're talking about
34:04
Speaker 4: the automotive industry, construction industry, like, is that going to move?
34:10
Speaker 4: What's your best sense?
34:11
Speaker 8: A lot of technology comes out of there too, I
34:14
Speaker 8: mean beyond just the industry. A lot of the technology
34:17
Speaker 8: that we use around the world starts in Europe. And
34:20
Speaker 8: so you know, exporting technology obviously is a little bit
34:23
Speaker 8: easier than exporting product. But we're already starting to see
34:29
Speaker 8: imports of electric vehicles from China into Europe. We're seeing
34:34
Speaker 8: China has become a lower cost competitor than Europe in petrochemical,
34:38
Speaker 8: so you're starting to see product move into Europe. The
34:41
Speaker 8: Middle East obviously has been a big supplier because of
34:44
Speaker 8: their cost position into Europe. Europe's getting a bit of
34:48
Speaker 8: a reprieve right now because of the Suez Canal situation,
34:51
Speaker 8: so operating rates are up a little bit, but I
34:54
Speaker 8: think that'll once that Israel Gaza conflict has resolved, then
34:58
Speaker 8: we'll see things go back to normal.
35:00
Speaker 4: Is it fair to say that you wouldn't build a
35:02
Speaker 4: new chemical plant in Europe right now?
35:04
Speaker 7: Be very tough.
35:05
Speaker 8: You'd have to be in a very specialized downstream market
35:09
Speaker 8: that you knew could handle the higher input costs, but
35:12
Speaker 8: I would say, in general, be very tough.
35:14
Speaker 4: So for you, then let's take a look at inmpleation
35:16
Speaker 4: for a second. Where are cost still rising and where
35:19
Speaker 4: are they falling.
35:20
Speaker 8: You're starting to see some costs, I mean, cost and
35:24
Speaker 8: commodities came off pretty dramatically. I think one of the
35:27
Speaker 8: reasons we announced our final investment decision on our project
35:31
Speaker 8: in Canada at the end of last year was because
35:33
Speaker 8: we were able to lock in a lot of bulk
35:36
Speaker 8: material costs like steel, concrete, cement, all the things we
35:42
Speaker 8: need to build a plan. So I think that's been
35:45
Speaker 8: good now. Obviously, as some of this construction demand and
35:49
Speaker 8: things come back, that'll tend to rise with the cycle.
35:52
Speaker 8: But I think if you looked at the commodity portion,
35:55
Speaker 8: a lot of inflation came out of there. If you
35:59
Speaker 8: look at the concerns like going to the grocery store,
36:02
Speaker 8: some of that hasn't come out yet, and so I
36:05
Speaker 8: think we're starting to see that. With the de stalking
36:08
Speaker 8: that happened last year, no signs of really restocking in
36:13
Speaker 8: the value chain, I think you're going to start to
36:15
Speaker 8: see some of that consumer inflation come out to and
36:17
Speaker 8: I think that's a little bit what the Fed's looking at.
36:20
Speaker 4: Are you worried about tariffs come I don't know November
36:24
Speaker 4: January from either president.
36:27
Speaker 8: As a global company and as a company that's been
36:30
Speaker 8: part of global trade for many, many years, teriffs don't
36:35
Speaker 8: stimulate demand anywhere, So I think what would happen under
36:39
Speaker 8: a terraff regime is we might not be happy with
36:42
Speaker 8: the demand result. Global free trade has been a better
36:46
Speaker 8: platform for growth. It's been better for growth, not just
36:50
Speaker 8: for the US, and we're advantaged, of course because of
36:53
Speaker 8: energy among other things, but it's been great for other countries.
36:57
Speaker 8: It's lifted so many people out of poverty, created a
37:00
Speaker 8: middle class. It's allowed technology to transfer around the world.
37:05
Speaker 4: So it also just mean that you would have to
37:07
Speaker 4: produce and use the products in country.
37:11
Speaker 3: Right.
37:11
Speaker 4: You have to produce and do a crunchry be totally
37:13
Speaker 4: separate from each other.
37:15
Speaker 8: Right when we have a supply chain today that is
37:18
Speaker 8: not US centric and hasn't had time to reshore, so
37:21
Speaker 8: that would become inflationary in and of itself. So I think,
37:25
Speaker 8: you know, the thing we're trying to fight and the
37:28
Speaker 8: tool we're using, they both could end up being inflationary.
37:32
Speaker 8: I don't know the tariffs is the answer.
37:34
Speaker 4: Let's turn to if you're building a new plant today,
37:38
Speaker 4: what are you going to power it with in the
37:40
Speaker 4: next ten to fifteen years, Like, what's going to be
37:42
Speaker 4: that thing?
37:42
Speaker 8: Well, we're all building a new plant in Canada and
37:46
Speaker 8: the purpose for going up there was to build the
37:48
Speaker 8: world's first zero scope on and two emissions ethylene complex.
37:54
Speaker 8: We will power it with hydrogen. It's a pretty elegant
37:59
Speaker 8: solution because we actually take ethane and natural gas liquid,
38:03
Speaker 8: we crack it to make ethylene and we make two
38:05
Speaker 8: byproducts methane and hydrogen. Lindy will come in and build
38:10
Speaker 8: an autothermal reformer that'll convert that to pure hydrogen, and
38:13
Speaker 8: that pure hydrogen will fire the furnace. So it's a
38:15
Speaker 8: very closed loop system that will allow us to capture
38:20
Speaker 8: all the CO two off the autothermal reformer and sequester
38:23
Speaker 8: that and maybe zero scope one and two ethylene and
38:27
Speaker 8: plastics there. It'll be the biggest hydrogen carbon capture project
38:32
Speaker 8: of its kind in the world, and it'll be the
38:35
Speaker 8: first one. First phase will be up in twenty twenty.
38:38
Speaker 7: Seven, all right.
38:39
Speaker 4: Thanks to Jim Fitterling, CEO of a Dow Chemical company.
38:42
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