Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight Ahead on the program, we'll
Speaker 2: look ahead to earnings from some of tech's magnificent seven.
Speaker 2: I'm Nathan Hager in Washington.
Speaker 3: I'm Caroline Hedkit in London, where we're asking whether UK
Speaker 3: five Minister Kastarma can throw frosty relations with China.
Speaker 4: I'm Doug Chrisner looking at what Apple earnings will indicate
Speaker 4: about Asia.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Nathan Hager. We begin today's
Speaker 2: program with the Federal Reserve. Jay Powell and company begin
Speaker 2: their first monetary policy meeting of twenty twenty six on Tuesday,
Speaker 2: with the first rate decision of the year to come Wednesday.
Speaker 2: So what should we expect as we map out policy
Speaker 2: for the rest of the year. Let's bring in Michael
Speaker 2: McKee for more on this, our international economics and policy
Speaker 2: correspondent for Bloomberg Radio and Television. Mike, I guess, as
Speaker 2: far as the January decision goes, would probably be a
Speaker 2: big shock if we got another rate cut this week, right,
Speaker 2: So what should we be looking for.
Speaker 5: I think this is gonna be another one where the
Speaker 5: FED is sort of going to be anxious to make
Speaker 5: as little news as possible, which I don't think they're
Speaker 5: going to be able to avoid, but there is no
Speaker 5: rate cut in train, so they're unlikely to do that.
Speaker 5: That would be a shock. There's been no news that
Speaker 5: would justify that at this point, and all the speakers
Speaker 5: going into the blackout period, we're saying, you know, we
Speaker 5: don't think we need to kind anything. So I think
Speaker 5: you'll get a unanimous decision no to sense this time
Speaker 5: for a hold, and then the question always, as always,
Speaker 5: moves on to what do they do at the next meeting,
Speaker 5: which is in March. I think they're going to avoid
Speaker 5: making any kind of specific forecast because they don't know
Speaker 5: what the data are going to show. We're still coming
Speaker 5: out of this as the government shutdown, data shortage, so
Speaker 5: they won't have a lot of information.
Speaker 2: Well, let's talk about the information that they have gotten
Speaker 2: thus far. I mean, we have seen some more labor
Speaker 2: market reports, we've gotten non farm payrolls, you've gotten the
Speaker 2: Fed's preferred gage of inflation as well. What does that
Speaker 2: tell you about what the economy looks like going into
Speaker 2: twenty twenty six.
Speaker 5: Well, if you're looking at it in terms of the
Speaker 5: Fed's dual mandate, you do have inflation. The PCEE numbers
Speaker 5: came out last week at looking at two point eight percent,
Speaker 5: which is up from the month prior. But now these
Speaker 5: are November numbers. The December numbers won't come out yet
Speaker 5: for a couple of weeks, and in the December numbers,
Speaker 5: the expectation is inflation will rise again to three percent.
Speaker 5: And then when you look at the jobs numbers, it's
Speaker 5: the unemployment rate went down last month and Java's claims
Speaker 5: have stayed extremely low. So at worst, maybe you say
Speaker 5: for the moment, the labor market has stabilized, and so
Speaker 5: there's not really an economic argument for cutting rates. There's
Speaker 5: also a feeling that given the tax cut bill, we're
Speaker 5: going into tax season now, people will get higher refunds
Speaker 5: than they have in prior years and that will feed
Speaker 5: some spending into the economy and keep it a little
Speaker 5: bit stronger. So there's no real need to cut rates
Speaker 5: at the moment now.
Speaker 2: It's interesting because at the of last year, there was
Speaker 2: so much focus on the idea of cracks in the
Speaker 2: labor market. Now, as you say, we are seeing this
Speaker 2: sort of sign of stabilization. While it seems like this
Speaker 2: last mile of getting inflation back down to the Fed's
Speaker 2: two percent target just seems to look like an uphill climb.
Speaker 2: Could we be seeing the Fed's focus shift now from
Speaker 2: the job market to inflation once again.
Speaker 5: I think they will move back they were emphasizing the
Speaker 5: labor market. I think they'll move back to the middle
Speaker 5: at this point and waiting for more data. Next week
Speaker 5: we won't have the December PCE numbers, so they'll still
Speaker 5: be looking to guess at what the numbers are going
Speaker 5: to be, and even if it's going up to three percent,
Speaker 5: that's going to concern them. So I think they try
Speaker 5: to keep their options open with that and not emphasize
Speaker 5: the labor market just as much. But the problem with
Speaker 5: both sides of the man data and the data are
Speaker 5: the uncertainty that the Trump administration has caused has not
Speaker 5: gone away. We just went through a week of We're
Speaker 5: going to put big tariffs on Europe. Oh, no, we're not,
Speaker 5: And so companies don't know what to do. They're kind
Speaker 5: of hunkered down at the moment. They don't want to
Speaker 5: fire a lot of people if the economy is going
Speaker 5: to pick up. But if the economy is going to
Speaker 5: slow down or we're going to have inflation issues, then
Speaker 5: they're going to try to control costs and you might
Speaker 5: see some layoffs. So at this point we're kind of
Speaker 5: in this no man's land that we've been in for
Speaker 5: a year.
Speaker 2: You talked about the Fed maybe not wanting to make
Speaker 2: much news at this meeting. Of course, this is coming
Speaker 2: at a time where the Central Bank is facing continued
Speaker 2: pressures outside the committee room. This is going to be
Speaker 2: Chair Powell's first policy meeting since he announced that he's
Speaker 2: under a Justice Department investigation. How much could that weigh
Speaker 2: on this decision? Will it?
Speaker 5: I don't think it weighs on the decision at all,
Speaker 5: because the of Powell is sort of vengeance by the
Speaker 5: President and the rest of the members of the Open
Speaker 5: Market Committee aren't going to think it means anything, and
Speaker 5: they will ignore it. But what will be interesting is,
Speaker 5: since the FED is not expected to do anything exciting
Speaker 5: or surprise anybody with monetary policy, is the first question
Speaker 5: going to be about the decision or is it going
Speaker 5: to be about the president's efforts to atara and feather
Speaker 5: the FED chair. There probably will be a lot of
Speaker 5: focus on that, and my guess is that Powell will
Speaker 5: try to shut that down, maybe say I've already spoken
Speaker 5: my piece on this, maybe something about the importance of
Speaker 5: FED independence, But I don't think he wants to spend
Speaker 5: the entire news conference in a shouting match with the President.
Speaker 2: We know you're going to be there for that news
Speaker 2: conference and for the decision as well, with the January
Speaker 2: policy decision of the Federal resis coming up later on Wednesday.
Speaker 2: Thank you for this, Mike. As always, it's Michael McKee,
Speaker 2: international economics and policy correspondent from Bloomberg Radio and Television.
Speaker 2: We move next to a slew of corporate earnings. The
Speaker 2: focus this week turns to some of the biggest names
Speaker 2: in tech. We're going to hear from Tesla, Microsoft, meta
Speaker 2: platforms all on Wednesday. We'll also hear from Apple after
Speaker 2: the closed Thursday, let's bring in Bloomberg Tech co anchor
Speaker 2: Ed Ludlow to get a set for the Magnificent seven
Speaker 2: earnings kickoff. Great to have you here.
Speaker 6: Ed.
Speaker 2: Let's start with Tesla because we heard from the CEO
Speaker 2: Elon Musk at the World Economic Forum this past week.
Speaker 2: He was talking about the optimist robots. Is that where
Speaker 2: the focus is going to be for investors when it
Speaker 2: comes to the earnings.
Speaker 6: Yeah, when it comes to earnings, like you have to
Speaker 6: kind of unpick all of the noise that comes from
Speaker 6: Elon Musk in the interim. So what happened at the
Speaker 6: end of twenty twenty five is Tesla had its second
Speaker 6: consecutive sales decline on an annual basis. Basically, they're not
Speaker 6: selling as many evs and there's lots of evidence that
Speaker 6: musks medical activities last year impacted that we had the
Speaker 6: end of federal credits in the United States and other
Speaker 6: factors you know about the economy and competition. So when
Speaker 6: it comes to earnings, you kind of look for, well,
Speaker 6: was that story true. What is Tesla's explanation for it?
Speaker 6: Because it's the first chance that they really talk about it.
Speaker 6: Then there's all the big picture stuff, and you know,
Speaker 6: we say on Bloomberg Tech all the time, Must's greatest
Speaker 6: skill is keeping all the investors looking to the horizon
Speaker 6: on those future projects, which are robotaxi and humanoid robots.
Speaker 2: So when it comes to the core business, though, what's
Speaker 2: the show me story for Elon Musk and for Tesla
Speaker 2: when it comes to EV demand the fact that we
Speaker 2: don't have those incentives and we're seeing that draw down
Speaker 2: in demand across the EV sector. What's that going to
Speaker 2: mean for Tesla when it comes to the earnings.
Speaker 6: Yeah, again, it's a cutting through the noise kind of thing,
Speaker 6: especially when we're reporting the news on it. But what
Speaker 6: Tesla has done more recently inconsistently is in their earnings
Speaker 6: deck a growth target. They will either say or they
Speaker 6: won't say, we expect fifty percent compound annual growth rates.
Speaker 6: And that's the only indication that we get to tell
Speaker 6: us that they have firm data and firm belief that
Speaker 6: they will or won't grow. Historically, that's been the story
Speaker 6: for many years. Grew at fifty percent a year, and
Speaker 6: then it stopped and as I just said two straight
Speaker 6: years of declining growth, declining sales growth, so you look
Speaker 6: into the deck. But again, you know, it depends on
Speaker 6: the questions the analysts asked. It depends on what tests does.
Speaker 6: A bit differently, the retail investors get to ask questions
Speaker 6: that they submit through an online portal, and lots of
Speaker 6: those often don't even worry about the day to day
Speaker 6: business of selling evs. They just care about those shiny things.
Speaker 2: Yeah, speaking of shiny things, let's move on to some
Speaker 2: of the other companies reporting earnings this week, including Meta Platforms.
Speaker 2: Of course, they've gone all in on AI spending right now.
Speaker 2: Is there such a thing as too much AI capex
Speaker 2: When it comes to Meta.
Speaker 6: Quite the opposite. The expectation is that capital expenditures across
Speaker 6: Meta and then the hyperscalers. So Meta, as you know,
Speaker 6: is a social media company that's also very interested in
Speaker 6: artificial intelligence, but it does not operate in the business
Speaker 6: of renting computer capacity to others. Those are cloud providers
Speaker 6: in other words, Amazon, Microsoft, Google, and to a lesser extent, Oracle.
Speaker 6: But metas spending on its own data centers is so
Speaker 6: significant that we put it in that bucket, and the
Speaker 6: story's not changed from last quarter or last year. We
Speaker 6: track capital expenditures across all those names, and the market
Speaker 6: wants to see confidence of spending. The basic logic is
Speaker 6: if capital expenditures are in the range that investors forecast,
Speaker 6: they're higher than they were last year, then that shows
Speaker 6: a commitment to spending, because the companies believe on the
Speaker 6: other side of building more data centers comes revenue growth,
Speaker 6: comes profit from all their work, particularly in AI.
Speaker 2: And we're going to hear from one of those hyperscalers.
Speaker 2: You just mentioned Microsoft. Of course there as your cloud business.
Speaker 2: It seems like that's been going gangbusters for several quarters now.
Speaker 2: So what's the expectation when it comes to Microsoft.
Speaker 6: Yeah, Microsoft can be a pretty straightforward story. Again, we
Speaker 6: look at its capital expenditures because as one of the
Speaker 6: biggest data center operators and owners, you want to see
Speaker 6: their commitment to doing it. But then in terms of segments,
Speaker 6: it's just about the top line growth of that as
Speaker 6: your cloud computing business, and you know it's in the
Speaker 6: thirties and plus or minus a few percent against street consensus,
Speaker 6: makes a really big impression on how AI. The investment
Speaker 6: starts with the chips that go in data centers, you
Speaker 6: have to spend a lot of money on that. But
Speaker 6: when you start to show sales growth in cloud, it's
Speaker 6: evidence that that payoff is happening.
Speaker 2: So when we start to look at these earnings, Z,
Speaker 2: what are you expecting when it comes to this ongoing
Speaker 2: debate about AI valuations and you know circular spending in
Speaker 2: the space as well.
Speaker 6: Yeah, but the issue then takes us back to growth.
Speaker 6: The valuations are being justified by that growth narrative. And
Speaker 6: you know, if you read on the Bloomberg terminal, the
Speaker 6: team on equities in particular point out that actually that
Speaker 6: growth if we take the MAGS seven as a bucket,
Speaker 6: or we take the higher growth tech stock s and
Speaker 6: P five hundred, it isn't expected to be where it
Speaker 6: was in more recent quarters. So that gives you the
Speaker 6: potential for upside, of course, but it also means that
Speaker 6: they're going to have to tell a pretty good story
Speaker 6: to convince investors that where valuations are currently, these are
Speaker 6: stocks worth putting money into.
Speaker 2: You're going to see that story play out later on
Speaker 2: this week. Thank you for this and again great have
Speaker 2: you on with us. That's Bloomberg Tech co anchor Ed
Speaker 2: Ludlow and coming up on Bloomberg Daybreak weekend, we'll look
Speaker 2: at whether the UK's Prime Minister Keir Starmer can thought
Speaker 2: frosty relations with China. I'm Nathan Hager and this is Bloomberg.
Speaker 2: This is Bloomberg Daybreak Weekende will book ahead at the
Speaker 2: top stories for investors in the coming week, and Nathan
Speaker 2: Hager in Washington up later in the program will look
Speaker 2: ahead to how earnings from Apple may have been affected
Speaker 2: by business in Asia. But first in the coming days,
Speaker 2: UK Prime Minister Keir Starmer will become his nation's first
Speaker 2: leader to travel to China in more than seven years.
Speaker 2: Starmer seeking to improve diplomatic ties as several geopolitical points
Speaker 2: of tension remained between the two countries. So how will
Speaker 2: Starmer's planned visits to Shanghai and Beijing play out? For
Speaker 2: more Let's go to London and bring in Bloomberg Daybreak
Speaker 2: Europe anker Caroline Hepger Nathan.
Speaker 3: The last British premier to visit China was Treisa May
Speaker 3: back in twenty eighteen. Since then, relations between the two
Speaker 3: countries have worsened. After the crackdown on pro democracy protests
Speaker 3: in Hong Kong, a spate of espionage and cyber attack allegations,
Speaker 3: and Beijing's support for Russia's war in Ukraine. Despite the
Speaker 3: frosty state of affairs, Starmer is seeking something of a thaw.
Speaker 3: His optimistic approach is one he defended during a recent
Speaker 3: speech in which he called for the UK to take
Speaker 3: a pro business approach to China, whilst recognizing that it
Speaker 3: poses a threat to national security.
Speaker 7: I am clear that no transformation today carries greater consequence
Speaker 7: than the rise of China. It is a nation of
Speaker 7: immense scale, ambition and ingenuity, a defining force in technology,
Speaker 7: in trade and global governance. So our response will not
Speaker 7: be driven by fear nor softened by illusion. It will
Speaker 7: be grounded in strength, clarity and sober realism, in line
Speaker 7: with our wider international approach, and guided by our conviction.
Speaker 3: That was the UK Prime Minister Kirs Starmer speaking there.
Speaker 3: So can the British government draw a line under what
Speaker 3: has been a turbulent period for UK China relations or
Speaker 3: could you o political tensions and US influence maybe change things?
Speaker 3: To think about this, I'm joined by Bloomberg's UK political correspondent,
Speaker 3: Ellen Milligan and our chief Asia correspondent was in Matheson.
Speaker 3: Welcome to both of you, and then can I start
Speaker 3: with you. There was a time when under the previous government,
Speaker 3: the Conservatives, we were talking about the Golden Age in
Speaker 3: UK China relations. I remember that, but it does seem
Speaker 3: like a long time ago, doesn't it.
Speaker 8: Yes, So do you remember when David Cameron and Gguping
Speaker 8: went to that kind of village pub and pulled pints chips.
Speaker 8: I mean, we just really haven't seen that in the
Speaker 8: last ten years, and you were saying that, I mean
Speaker 8: really kind of that short lived Golden age. You know,
Speaker 8: billions promised in Chinese investment, much closer ties break down
Speaker 8: and sad over initially over that crackdown on activists in
Speaker 8: Hong Kong, a former British colony, but also over espionage
Speaker 8: and cyber attack allegations, and then more recently in the
Speaker 8: last few years China support for Russia. So what Kiss
Speaker 8: Starmer's administration has long complained of is that under the
Speaker 8: Tories there was this kind of back and forth between
Speaker 8: the Golden era and then a complete almost freeze of
Speaker 8: ties under particularly Boris Johnson, and that they wanted to
Speaker 8: get back to a more cooperative approach, but where they
Speaker 8: would still challenge China where they needed to in.
Speaker 3: Terms of Kiirs Stalma's recent foreign policy ideas. Then the
Speaker 3: effort to try to set the record straight on Labour's
Speaker 3: China strategy. What is their view, because there does seem
Speaker 3: to be still a push pull, a strong push pull
Speaker 3: in the UK about what attitude to adopt to Beijing.
Speaker 9: Yeah.
Speaker 8: I mean kir Starmer came in promising clarity over their
Speaker 8: China policy and I think we've had anything but that.
Speaker 8: I mean when he entered office in twenty twenty four,
Speaker 8: there was quite a quick succession in terms of high
Speaker 8: profile visits to China. David Lammi, who was the Foreign
Speaker 8: Secretary at the time now Deputy Prime Minister, the Chancellor
Speaker 8: Rachel Reeves both went over there and that pretty much
Speaker 8: stopped when Donald Trump and re entered the White House
Speaker 8: in January last year. I think Kirstarmer's foreign policy priorities
Speaker 8: were very much about establishing of relationships with the US,
Speaker 8: avoiding of the most harsh trade tariffs Ukraine, and also
Speaker 8: the reset that he has been pursuing with the European Union.
Speaker 8: And Donald Trump is of of famous China hawk and
Speaker 8: so no visits really happened, and if they did happen,
Speaker 8: they were very much under the radar and Britain didn't
Speaker 8: shout about them. And I think what has happened in
Speaker 8: the last few months, Macron did a hyper file visit
Speaker 8: to Bishi, Mattz, the German Chancellor, has one planned, and
Speaker 8: crucially Trump had his own bilateral meeting with Uguping and
Speaker 8: has also planned a state visit, and I think Starmer
Speaker 8: felt as though that paved the way for him to
Speaker 8: be able to kind of soften relations with China.
Speaker 3: Now to Okay Rozu in Asia, how does China see
Speaker 3: its relationship with the UK? Maybe sort of historically and
Speaker 3: also now, Well.
Speaker 9: It depends how far back you want to go, because
Speaker 9: there is a lot of history there. In more recent history,
Speaker 9: it's probably been more down than up obviously from that
Speaker 9: moment of the beer and the beer and the pub
Speaker 9: after that, but it's never been easy in the past
Speaker 9: in a ways, just to find this relationship from the
Speaker 9: China side. You know, they now see themselves, no doubt
Speaker 9: as the senior partner, shifting from one hundred years ago,
Speaker 9: the aftermath of the Opium Wars, which very wounding to China,
Speaker 9: you know, they manage an arrangement to get the return
Speaker 9: of Hong Kong. But China probably sees the UK still
Speaker 9: having a sense of a proprietary air, you know, weighing
Speaker 9: in particularly on Hong Kong issues, protests there, the rule
Speaker 9: of law. We've seen Kiss Starmer criticize the conviction of
Speaker 9: the former Hong Kong media mogul jimmy Li. So a
Speaker 9: sense in China's eyes that the UK is still willing
Speaker 9: to interfere in its business in a different way perhaps
Speaker 9: than during the Opium Wars, but it's still there. And
Speaker 9: for China, what they want to do is put this
Speaker 9: relationship to focus really on business and investment and trade
Speaker 9: because that's where China wants to benefit. And for them,
Speaker 9: the UK is a useful market as they also want
Speaker 9: to diversify in trade. So for them now they probably
Speaker 9: see this relationship as very transactional, but probably themselves is
Speaker 9: a bit more of the senior partner. Yeah.
Speaker 3: Is the UK seen as a strategic who by China
Speaker 3: or is it simply as a kind of trading partner?
Speaker 9: Do you think was my dut of China sees many,
Speaker 9: if any Western nations as strategic allies. It might see
Speaker 9: them as useful, but not as allies, perhaps since of
Speaker 9: dividing and conquering in the West a bit so splitting
Speaker 9: Europe and the UK off somewhat from the US, maximizing
Speaker 9: the tensions that the US has right now with Europe
Speaker 9: and the UK on different matters. So probably as a
Speaker 9: useful partner, not strategic ally, a transactional partner. Definitely a
Speaker 9: trading partner as long as the totality of that relationship
Speaker 9: is still to China's advantage. So net net, are its
Speaker 9: companies better off? Is it selling the sorts of things
Speaker 9: it wants to? Does it have a foothold in the
Speaker 9: industry as it wants? But that's probably how China would
Speaker 9: see it as less a strategic ally because it're not
Speaker 9: partnering on security matters. On defense, I mean, the UK
Speaker 9: has actually been quite critical of China for its tacit
Speaker 9: support of Russia for example in Ukraine was economic support
Speaker 9: for Russia. But certainly China would see them as a
Speaker 9: useful partner. Potentially.
Speaker 3: We have seen the likes of Rachel Reeves and David
Speaker 3: Lammy visiting China. Have they managed to make any progress?
Speaker 8: There was no substantial outcome from either of those visits.
Speaker 8: I think those initial visits were more about no one's
Speaker 8: been in years, so let's go and make sure that
Speaker 8: we get diplomacy back on track. More progress has been
Speaker 8: made recently. Peter Karl, the Tech Secretary when he's now
Speaker 8: Business Secretary, went out late last year and they've resumed
Speaker 8: this economic trade dialogue which had not taken place I
Speaker 8: think since before Boris Johnson. But you know, it means
Speaker 8: that Kisdom has almost put more pressure on himself with
Speaker 8: this state visit coming up. I mean the way he
Speaker 8: describes China as this is like the most consequential global
Speaker 8: shift to the UK of them, and so the stakes
Speaker 8: are really high for him.
Speaker 3: Roz does China want the UK to pick between the
Speaker 3: US and China? What is their perspective? I mean America
Speaker 3: has a view or mat doesn't.
Speaker 9: It They do, And for China they probably realize it's
Speaker 9: not realistic to try and say the UK has to
Speaker 9: pick a side there, but they can take advantage because
Speaker 9: that's what they like to do, is to spot an
Speaker 9: opportunity and to maximize ruptures and tensions. You know, and
Speaker 9: that sense just said the US led global order is
Speaker 9: changing into something more fractured into spheres of influence Trump
Speaker 9: in the Americas, China in Asia and so on, and
Speaker 9: exploiting that when it comes to trade, because it's clear
Speaker 9: Europe and the UK are acknowledging they need to do
Speaker 9: business with China. As Ellen was saying, there's a lot
Speaker 9: at stake for STARMA in this visit, you know, to
Speaker 9: manage the relationship and to walk those lines. And they'll
Speaker 9: be aware of that too him coming in, and they
Speaker 9: understand the UK will always have a relationship of sorts
Speaker 9: with the US. There is a lot of cooperation that
Speaker 9: still goes on between them, including on the defense side,
Speaker 9: despite what Donald Trump may say about that.
Speaker 3: Ellen just lastly, how important do you think the recent
Speaker 3: approval of a new Chinese embassy in London is It
Speaker 3: was an enormously contentious decision.
Speaker 8: Well, we've spoken about how the US approach China and
Speaker 8: Donald Trump coming back has complicated this research. There've been
Speaker 8: two other major obstacles in the past year for STARMA.
Speaker 8: One is this embassy approval. The government decided to call
Speaker 8: that embassy decision in from the local authorities almost a
Speaker 8: year ago now and have constantly delayed a decision on this,
Speaker 8: they've sought more information on what exactly China intends to do,
Speaker 8: how close this embassy would be to sensitive communication cables,
Speaker 8: and the timing is no coincidence that this decision has
Speaker 8: been made just the week before this state visit, and
Speaker 8: it really kind of paves the way for Starma to say, look,
Speaker 8: we've been able to make this big decision that you've
Speaker 8: wanted for a long long time. And also it's important
Speaker 8: because Britain has its own crumbling embassy in Beijing that
Speaker 8: it has had planning application to rebuild out for a while,
Speaker 8: so that's really important. And the second thing I would
Speaker 8: just say, because it would be a miss not to,
Speaker 8: is this criminal case against two Brits accused of spying
Speaker 8: for China that collapsed towards the end of last year,
Speaker 8: and that has been a big obstacle too. And we've
Speaker 8: spoken about there's a lot of China hawks across political
Speaker 8: parties in UK's Parliament and those are really the two
Speaker 8: big things that they continually point to for for examples
Speaker 8: for Starma to be much more cautious with China.
Speaker 3: Okay, Ellen, thank you so much for being with me.
Speaker 3: That Isenbag's UK political correspondent Ellen Milligan, and my thanks
Speaker 3: also to our chief Asia correspondent ros In Matheson for
Speaker 3: discussing this visit by Kirs Starmer to China, and we
Speaker 3: will of course have full coverage of the Prime Minister's
Speaker 3: trip to China, including reaction on the ground and the
Speaker 3: key takeaways from the talks. I'm Carolin Hetgar here in London.
Speaker 3: You can catch us every weekday morning for Bloomberg Daybreak
Speaker 3: you at beginning at six am in London. That's one
Speaker 3: am on Wall Street.
Speaker 2: Nathan, Thanks Caroline, and coming up on Bloomberg Daybreak weekend,
Speaker 2: we look ahead to earnings from tech giant Apple and
Speaker 2: how they may have been impacted by business in Asia.
Speaker 2: I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
Speaker 2: Daybreak week and our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Nathan Hager
Speaker 2: in Washington. We get Apple's latest earnings this week, and
Speaker 2: the company's business in Asia will be a key focal point.
Speaker 2: Let's get more on this from Bloomberg's Doug Krisner, host
Speaker 2: of the Daybreak Asia podcast.
Speaker 4: Nathan, there will be a couple of issues to consider
Speaker 4: from this quarterly report, First sales of Apple devices in
Speaker 4: Greater China, a market where the competitive landscape is shifting.
Speaker 4: And second, what those sales figures mean for Apple's partners
Speaker 4: and parts suppliers in the Asia Pacific. Joining me now
Speaker 4: for a closer look is Bloomberg's Vlad svov Lad is
Speaker 4: Tech editor for Asia, and he joins from our studios
Speaker 4: in Hong Kong, thank you for being here. What do
Speaker 4: we know about how well Apple products have been selling
Speaker 4: in Greater China, especially the iPhone?
Speaker 10: Well, absolutely, that is the company's iconic product. And Tim
Speaker 10: Cook did give us a little bit of foreshadowing at
Speaker 10: the last earnings saying that he looks forward to growth
Speaker 10: in China. And we got a hold of numbers from
Speaker 10: Counterpoint Research that showed that the iPhone overperform the broader
Speaker 10: smartphone market significantly. That was up roughly about twenty eight
Speaker 10: percent year and year in the holiday quarter, whereas the
Speaker 10: overall China smartphone market actually dipped a couple of percentage points.
Speaker 10: So really it signifies how big the iPhone seventy upgrades
Speaker 10: have been, how they're resonated with consumers. The analysts also
Speaker 10: pointed out that you had that covid era refreshed cycle,
Speaker 10: so all the people who got a smartphone at that
Speaker 10: time were due to get a new one, and presumably
Speaker 10: all the iPhone owners just kept going with the iPhone.
Speaker 4: So you and I have spoken in the past about
Speaker 4: the intense competition from Chinese handset makers like Quabwei and
Speaker 4: shao Me. Did that not show up in the last quarter.
Speaker 10: Well, those two particular brands were down double digit in
Speaker 10: percentage terms year and year for that quarter. It is
Speaker 10: significant to say that for the entire year in terms
Speaker 10: of shipments, while it was the biggest in China, it's
Speaker 10: just the particular quarter because of product cycles. Apples is
Speaker 10: very regular, it is like clockwork, but the likes of
Speaker 10: Huawei Shami, they tend to jump around, so you have
Speaker 10: some quarterly unevenness, so to speak. And one of the
Speaker 10: interesting things with the Chinese manufacturers themselves is that they
Speaker 10: keep handing over the crowd. So one year Apple will
Speaker 10: be ahead, one year it will be Vivo, Shami, Huawei,
Speaker 10: et cetera. So there's never really a clear cut leader
Speaker 10: or winner amongst them. Whereas Apple there is just one Apple,
Speaker 10: there is just one iPhone, and that's the recurring theme
Speaker 10: with the company. It has that ecosystem that nobody else had.
Speaker 4: Now Apple has established a well oiled supply chain right
Speaker 4: across the APAC region, although recently some capacity constraints seem
Speaker 4: to have become a factor. How well has Apple supply
Speaker 4: chain held up in the face of this demand.
Speaker 10: Well, the supply chain, I can kind of guess what
Speaker 10: you're getting into, which is that memory chip crunch, which
Speaker 10: has been the southern and overwhelming theme that we've seen
Speaker 10: across the entire supply chain. It is brought on by
Speaker 10: the AI demand. The likes of Nvidia and AMD are
Speaker 10: the ones who are buying up the capacity at Samsung,
Speaker 10: s k Heinix, and Micron. So all the memory that
Speaker 10: used to be the most commodified, the most boring component
Speaker 10: is now surging in costs, So that's hitting laptop manufacturers,
Speaker 10: smartphone manufacturers, et cetera. Again, Apple is fairly unique in
Speaker 10: this because Counterpoints and other analysts have said the premium
Speaker 10: tier of the smartphone market is not being affected, is
Speaker 10: the entry level is the mid range. We've seen some
Speaker 10: indications that some of the smaller manufacturers actually canceling products
Speaker 10: because they cannot get a hold of memory at a
Speaker 10: price that makes the product viable.
Speaker 4: Now we know that Apple outsources chip production to Taiwan Semiconductor.
Speaker 4: This relationship goes back years. TSMC has been the exclusive
Speaker 4: partner for producing processors for things like the iPhone, the iPad,
Speaker 4: and even Max and for a long time, Apple was
Speaker 4: TSMC's most important client. But these days that distinction seems
Speaker 4: to belong to Nvidia. Given the explosive demand that we
Speaker 4: have seen for high end chips now, TSMC has responded
Speaker 4: recently by raising the lower end of its CAPEX spending target.
Speaker 4: So when you consider expanding capacity, let's bring into the
Speaker 4: conversation Apple's other critical partnership in Asia, and that is
Speaker 4: fox Con, the largest contract manufacturer for Apple. So Vlad,
Speaker 4: I'm wondering whether fox Con, like TSMC, is being forced
Speaker 4: to increase its CAPEX to meet demand.
Speaker 10: Well, Foxcone is an interesting one and clearly it doesn't
Speaker 10: have that much in the way of capacity issues when
Speaker 10: it comes to consumer electronics light the iPhone. But increasingly
Speaker 10: FOXCNE is moving into being a data center hardware manufacturer.
Speaker 10: So effectively, when TSMC builds in video chips, somebody needs
Speaker 10: to put them in racks, build them into like fridge
Speaker 10: sized units that then go into data centres. Foxcone is
Speaker 10: doing a whole bunch of that. The company hasn't recently
Speaker 10: spoken about amping up its own spending, but it does
Speaker 10: stand to reason. Fox con does want to be has
Speaker 10: a very close relationship with video, just as it does
Speaker 10: with Apple. It does want to be the leader in
Speaker 10: this space. So to your point, it may well be
Speaker 10: the case that fox Conne and some of its competitors,
Speaker 10: many of them being Taiwanese companies as well, are going
Speaker 10: to ramp up as well because the demand. We saw
Speaker 10: this at c Yes Jensen, CEO from a Video and
Speaker 10: Other adjective said, the demand for AI hardware is still
Speaker 10: outstripping supply.
Speaker 4: When I think of memory chip makers, I think of
Speaker 4: South Korea. I think of Samsung and sk Heinex. But
Speaker 4: I also want to consider what's happening in China. We
Speaker 4: have Semiconductor Manufacturing International Corp. Known as SMIC or SMICK.
Speaker 4: This company also produces memory chips. So if the supply
Speaker 4: of memory is being constrained, I'm wondering whether Chinese firms
Speaker 4: like Smick are benefiting.
Speaker 10: Yeah, the opportunity right now is in fact for the
Speaker 10: Chinese manufacturers of memory chips. You have YMTC and some
Speaker 10: other players within China. They have the opportunity because they
Speaker 10: don't have the cutting edge the HBM technology that Heinigs
Speaker 10: and Samsung are dedicating all their attention to. So for
Speaker 10: them they can fill in the gap because Heinnicks has
Speaker 10: already said twenty twenty six memory capacity is already booked
Speaker 10: out and sold. And you're seeing these things emerging when
Speaker 10: you look at the consumer prices if you want to
Speaker 10: build your own PC, prices have more than doubled for ramsticks.
Speaker 10: So Smick itself also a lot like TSMC that it
Speaker 10: has its hands busy with orders from Huawei, which wants
Speaker 10: to build AI accelerators to compete with in video, and
Speaker 10: a number of players such as more Threads, which is
Speaker 10: another Chinese chip designer that wants to compete with in video.
Speaker 10: So Smick not necessarily busy with memory, but the likes
Speaker 10: of YMTC are going to have more of an opportunity
Speaker 10: in the broader market.
Speaker 4: So how well have the Chinese chip makers been doing
Speaker 4: in terms of improving the quality of their semiconductors, whether
Speaker 4: we're talking about memory or even processors.
Speaker 10: I would say that probably they're much closer to closing
Speaker 10: the gap on the memory front because, again, to do
Speaker 10: consumer electronics memory, some of these things are stabilized. Some
Speaker 10: of that technology is mature and hasn't jumped by leaves
Speaker 10: and bounds in the same way that it has done
Speaker 10: with logic processes, especially AI processes. So SNICK again is
Speaker 10: a very good example because it is effectively stuck at
Speaker 10: seven nanometer technology, while TSMC and Samsung are this year
Speaker 10: moving to two nanometers, which is several generations ahead, and
Speaker 10: the difference that that makes is kind of consistent. It
Speaker 10: means more transistors in less pace, it means more performance
Speaker 10: for less energy consumed. And again, when we're talking AI
Speaker 10: and data centers, energy consumed is a big factor.
Speaker 4: What about the adoption of artificial intelligence in China, especially
Speaker 4: on mobile devices.
Speaker 10: Apple intelligence doesn't even exist in China at the moment.
Speaker 10: Apple Intelligence outside of China has also been a disaster
Speaker 10: by Apple standards. It has gone nowhere. It is not
Speaker 10: a selling point whatsoever. But for Apple's constellation, the fact
Speaker 10: is that AI on devices is not selling point for anyone.
Speaker 10: Samsung has the most integration, uses Google Gemini for a
Speaker 10: whole bunch of stuff, it uses Samsung's own technology. Nobody's
Speaker 10: buying Samsung device because if its AI. Likewise, for Shaomi, Huawei,
Speaker 10: Honor is one of these companies that has its own
Speaker 10: built in AI agent that will do things for you
Speaker 10: on the device. These are interesting technologies. There are things
Speaker 10: that make a nice tech demo, but no consumer is
Speaker 10: actively going out and saying I will buy this brand
Speaker 10: over the other because I think it's AI agent is
Speaker 10: more valuable.
Speaker 4: When we have spoken in the past about the iPhone,
Speaker 4: the camera obviously becomes a focal point pun intended here,
Speaker 4: But when it comes to the iPhone seventeen, I'm wondering
Speaker 4: whether that's been a big selling point. The camera has
Speaker 4: been a selling point for Greater China.
Speaker 10: I'm sure it is mean people in China always care
Speaker 10: about specs. With them, more is always more. I would
Speaker 10: say that in particularly the iPhone seventeen, the base model,
Speaker 10: no other affixes after the seventeen has been a massive upgrade.
Speaker 10: One of the things Apple did is they added more memory. Again,
Speaker 10: memory the big thing right now without raising the price.
Speaker 10: So just looking iPhone sixteen to iPhone seventeen at that
Speaker 10: price level, there was a bigly, big uprating specification. So
Speaker 10: I feel like things like battery life camera improvements always come.
Speaker 10: There hasn't been like a blow your socks off kind
Speaker 10: of camera improvement from the iPhone, but the overallspec improvement,
Speaker 10: all those quality of life improvements are the things that
Speaker 10: people look for, and clearly the iPhone seventeen here's a
Speaker 10: sweet pot.
Speaker 4: You and I have spoken in the past about Apple
Speaker 4: diversifying some of its manufacturing outside of China, especially to India.
Speaker 4: Among the lessons from the pandemic was the vulnerability of
Speaker 4: being overly reliant on just one jurisdiction. So I'm curious
Speaker 4: to get your take, Vlad on where Apple is right
Speaker 4: now in trying to reduce its reliance on China as
Speaker 4: a manufacturing center.
Speaker 10: That is still the case increasingly what we're seeing, and
Speaker 10: the move to India in fact has been accelerating. But
Speaker 10: that's been quiet for several months now, and to my
Speaker 10: sense is that Apple will speak on it and figures
Speaker 10: will emerge when more pressure from say the Trump administration
Speaker 10: to do more in the way of the coupling. Over
Speaker 10: the long run, you can kind of see that made
Speaker 10: in China will be for the China market, which Let's
Speaker 10: not forget, is the world's biggest smartphone market, so Apple
Speaker 10: will never get rid of that part of its business
Speaker 10: so long as that's within its control, and that will
Speaker 10: always be very, very significant. India is again the big
Speaker 10: hub for doing manufacturing outside of China. Worth bearing in
Speaker 10: mind that India is also one of the biggest growth
Speaker 10: markets for smartphones, one of the biggest growth markets for
Speaker 10: the premium range. So Apple is putting a lot of
Speaker 10: focus on that. I would say that the company is
Speaker 10: trying to have everything effectively, like make sure it's big
Speaker 10: in India, make sure it's still big in China. Nothing
Speaker 10: will ever go neglected by Apple so long as there's
Speaker 10: big potential there.
Speaker 4: And Vietnam, which as we know, has been another manufacturing
Speaker 4: location for a few Apple products.
Speaker 5: That's right.
Speaker 10: The Vietnam is a place where things like iPads and
Speaker 10: let's say air pods production can happen. It is a
Speaker 10: place that others. Fox has facilities there and other manufacturers
Speaker 10: are also doing work. Again, that tends to be the
Speaker 10: move of manufacturing out of China toward India and Vietnam
Speaker 10: tends to be more of a high priority. When you
Speaker 10: hear more noise from the US administration, to say less
Speaker 10: of manufacturing leaf China. It tends to come and go
Speaker 10: with pressure from the White House.
Speaker 1: Effectively.
Speaker 4: One of the questions for me at this point as
Speaker 4: it relates to the shortage in memory components is whether
Speaker 4: Apple's margins will come under pressure and whether or not
Speaker 4: the company will be confronted with having the increase prices.
Speaker 4: It seems like the scarcity of memory is going to
Speaker 4: produce higher prices, and presumably those increases are going to
Speaker 4: be passed on ultimately to the consumer.
Speaker 10: Absolutely, the rising consumer electronics prices is already on the way,
Speaker 10: especially with laptops. I would again say you will see
Speaker 10: on the lower end of things, entry level devices will
Speaker 10: become much pricier. Mid range two. I suspect that Apple
Speaker 10: is one of the companies that will do with something
Speaker 10: to not let that price premium pass on to the consumer.
Speaker 10: Apple tends to be very steady with its pricing, so
Speaker 10: the premium end of the market will not be so
Speaker 10: much affected. But again it's worth recounting Micro and one
Speaker 10: of the Micro and executive sodas. This memory crunch is unprecedented,
Speaker 10: and we're talking something stretching deep into twenty twenty seven
Speaker 10: for sure.
Speaker 4: Glad we'll leave it there. Thank you so very much.
Speaker 4: Flat Savov, Bloomberg Tech Editor for Asia, joining from Hong Kong.
Speaker 4: By the way, Apple will be reporting those earnings on
Speaker 4: Thursday after the US close. I'm Doug Prisner. You can
Speaker 4: catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 4: wherever you get your podcast Nathan.
Speaker 2: Thanks Doug, and that does it for this edition of
Speaker 2: Bloomberg day Break Weekend. Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest on markets
Speaker 2: overseas and the news you need to start your day.
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