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Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our day
Speaker 2: Break anchors all around the world. Straight Ahead on the program,
Speaker 2: a look at next week's BED meeting and what stubbornly
Speaker 2: high inflation may mean for interest rates going forward. Also
Speaker 2: earnings from a US tech giant. I'm Tom Busby in
Speaker 2: New York.
Speaker 3: I'm Stephen Carolyn London.
Speaker 4: The question of autonomous weapons and how they should be
Speaker 4: regulated is up for discussion at a global conference in Vienna.
Speaker 5: I'm dead Prisoner, looking at whether the market for memory
Speaker 5: chips is turning as we look ahead to earnings from Samsung.
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Speaker 3: Good day to you.
Speaker 2: I'm Tom Busby, and we begin today's program with the
Speaker 2: Federal Reserve policymakers meet this coming Tuesday and Wednesday to
Speaker 2: decide on monetary policy. But after some rather disturbing data
Speaker 2: on inflation, could there really be interest rate cuts in
Speaker 2: the near future and for more? Were joined by Michael McKee,
Speaker 2: Bloomberg International Economics and Policy correspondent, Well, Michael, after the
Speaker 2: Fed's preferred measure of underlying inflation rose by just a
Speaker 2: little more than forecast in March, what do you expect
Speaker 2: to hear from the Federal Open Market Committee this Wednesday?
Speaker 2: And will it change their dot plot any There's.
Speaker 3: No change in the dot plot.
Speaker 7: That dot plot won't be revised until June, so we
Speaker 7: don't have to worry about that. No new economic forecasts,
Speaker 7: and no change in the Fed's attitude at this point.
Speaker 7: We saw the last couple of months before this coming
Speaker 7: meeting a lot of FED officials starting to say, well,
Speaker 7: maybe we're in no hurry to cut interest rates, and
Speaker 7: the data only reinforce that. So I think at this
Speaker 7: point that you're going to hear Jaypoal push back on
Speaker 7: the idea of rate cuts anytime soon. He won't put
Speaker 7: a time frame on it because they really don't know
Speaker 7: what's going to happen with the inflation. So I think
Speaker 7: what we're going to end up with is sort of
Speaker 7: status quo anti after the meeting, where the Fed is
Speaker 7: on hold and markets can price in November or December
Speaker 7: if they want, and nobody will really care because everybody
Speaker 7: will figure it'll change a lot between now and then
Speaker 7: and we'll see what happens.
Speaker 2: But higher for longer. That's going to be the watch
Speaker 2: through the spring, through the summer into the fall.
Speaker 7: Yeah, we need a new watch word, because it's not higher,
Speaker 7: it's high, it's you know, it's leave it where it is.
Speaker 7: There's no sentiment at all for raising interest rates at
Speaker 7: this point. The Fed thinks that interest rates are high enough,
Speaker 7: especially real rates being like two and a half percent,
Speaker 7: that that will have an effect. It will push down
Speaker 7: on inflation over time. It's just a question of how
Speaker 7: long that time period is now.
Speaker 2: Previously, the Fed projected hinted allegations of as many as
Speaker 2: three rate cuts this year. I think we can safely
Speaker 2: say that maybe out the window right now.
Speaker 7: That's probably out the window right now. I think it's
Speaker 7: fair to say that if there were a dot plot,
Speaker 7: it would be showing two or fewer rate cuts this year.
Speaker 7: But again I go back to the markets are always
Speaker 7: trying to figure out what the FED is going to do,
Speaker 7: and investors are taking options on what the Fed might
Speaker 7: do because they want to be there if the story
Speaker 7: changes and they want to make money on it. So
Speaker 7: we get these narratives of the market saying two rate
Speaker 7: cuts or three rate cuts or no rate cuts or whatever.
Speaker 7: And Fed officials are at a point now where they
Speaker 7: just do not know what's going to happen with inflation.
Speaker 7: It's hard to predict given the things that are moving,
Speaker 7: given the issues that we're seeing. So they're just going
Speaker 7: to take it month by month, and they're not really
Speaker 7: going to give you a good firm answer on what's
Speaker 7: going to happen, and they're not going to say whether
Speaker 7: markets are right or wrong.
Speaker 2: Yeah, and there's a lot of meetings. Well, we have
Speaker 2: May first, we'll have a decision. That's that's this coming week,
Speaker 2: a June meeting, of July meeting, a September meeting. Interesting
Speaker 2: timing on the November meeting, and two days after the election,
Speaker 2: two days after a little delay there, right.
Speaker 7: Well, the loser is of the election is going to say, well,
Speaker 7: the FED should have and why did they wait until
Speaker 7: I lost?
Speaker 2: Yeah, Yeah, it's all the Fed's fault. Well, let's talk
Speaker 2: about there are still also good news in the economy.
Speaker 2: The economy is still strong, There is still strength, the
Speaker 2: labor to market market, still resilient, consumer spending a ton
Speaker 2: of money. So what's the fundamental cause of all this
Speaker 2: stubbornly high inflation.
Speaker 7: The fundamental cause appears to be that we just got
Speaker 7: into a situation of higher inflation and for a lot
Speaker 7: of reasons. Companies couldn't raise prices for years and years
Speaker 7: and years, and now they can, and they're trying to
Speaker 7: make up for the fact that they couldn't raise prices
Speaker 7: for so long, raise their margins, pay for some of
Speaker 7: the additional stuff that they're going to have to buy,
Speaker 7: or the additional wages they're going to have to pay,
Speaker 7: and it's it's gradually getting squeezed out of the economy.
Speaker 7: Although for the last three months, what we're seeing is
Speaker 7: it's sort of just paused. It's just stopped. So when
Speaker 7: does it reaccelerate higher or lower, we don't know.
Speaker 2: And the inflation rate that we saw this was just
Speaker 2: last week. The PCE for March two point seven percent.
Speaker 3: Right year of a year. It's not bad.
Speaker 2: I mean, it's not the two percent goal, but it
Speaker 2: really and it didn't affect, you know, the markets all
Speaker 2: that much you would expect if it was came in
Speaker 2: a little higher than expected and certainly higher than it
Speaker 2: was a year ago. But is that a new normal?
Speaker 2: Maybe a two point seven?
Speaker 7: It could be at least something we have to get
Speaker 7: used to for a while because we're not going to
Speaker 7: see any major changes anytime soon. The base effects, the
Speaker 7: fact that inflation was lower last year at this time
Speaker 7: means we won't get as much of a benefit on
Speaker 7: the year over year numbers. They are going to stay higher,
Speaker 7: and so people will look at that and think this
Speaker 7: is a problem. Also, the annualized rate of where we
Speaker 7: are now, if you're looking at the last three months
Speaker 7: and you look at it at an annual rate, you're
Speaker 7: up in the threes three point nine or something like that.
Speaker 7: So the trend is not your friend. Is the story here?
Speaker 7: And even if we don't see a big breakout in inflation,
Speaker 7: it doesn't look like we're going to see it come
Speaker 7: down soon. So then the question becomes how.
Speaker 3: Do people adapt to that?
Speaker 7: Do they start to feel this is a normal price level,
Speaker 7: even if the inflation rate has come down but not
Speaker 7: all the way to where it was, or do they
Speaker 7: still stay angry about it and complain about prices going up.
Speaker 2: Well, we shall see May first this Wednesday, the decision
Speaker 2: from the Fed. Our thanks to Michael McKee, Bloomberg International
Speaker 2: Economics and Policy correspondent, And we turn now to more
Speaker 2: big tech earnings as Apple reports at second quarter results
Speaker 2: this coming Thursday, and for more on what to look for,
Speaker 2: we're joined by Anna rag Rana, Bloomberg Intelligence Senior Technology Analyst.
Speaker 2: Now Honor Rock. A lot of headwinds facing Cooper Tino lately,
Speaker 2: but let's start with what you're expecting to hear in
Speaker 2: Apple's Q two report.
Speaker 8: Yeah, the expectations are pretty low. And you know, in
Speaker 8: all fairness, things have been tough for them and we
Speaker 8: don't see that changing at least in the next you know,
Speaker 8: six or twelve months, only because China has been weak
Speaker 8: and there are no signs that that's improving.
Speaker 2: Frankly, Now, China, there were reports that iPhone shipments in
Speaker 2: the first three months of this year tumbled nineteen percent.
Speaker 2: That's devastating. I mean, it's the second biggest market bare yeah.
Speaker 8: Yeah, they're a local brand called Wahweh, which is doing
Speaker 8: very well, and partially they're doing well because they came
Speaker 8: out with a new phone after a few years of
Speaker 8: being really absent in the market. So people who you know,
Speaker 8: I would say, wanted a new phone are probably choosing
Speaker 8: something more local, something that they are used to, And
Speaker 8: you know that's really hurting Apple because it is a
Speaker 8: high end brand, but you know it is it is
Speaker 8: not I would say doing as well as it was
Speaker 8: a few years ago.
Speaker 2: Well, the iPhone definitely the cash cow, but there's also iPads,
Speaker 2: max services like Apple Music, Apple TV plus what's new
Speaker 2: and what will investors be looking for in those revenue streams?
Speaker 8: Yeah, I think you know, almost all of them will
Speaker 8: pretty much be in line with what the company said
Speaker 8: would happen in the last quarter. So no major surprises
Speaker 8: and iPads right now, because the next one is going
Speaker 8: to be launched next month. No same thing for the
Speaker 8: Mac and the back pro. The services business is the
Speaker 8: only one that I would say is going to have
Speaker 8: a good growth rate, somewhere in the ten to twelve
Speaker 8: percent range. They have been doing well there because you know,
Speaker 8: once you have the device, you're going to go and
Speaker 8: buy more things in terms of games and applications, and
Speaker 8: you know, more iCloud storage. So all sorts of things
Speaker 8: do add up into it. You know, you break your phone,
Speaker 8: the Apple care goes into it, so that all those
Speaker 8: things bundle up and that's doing better. But you know,
Speaker 8: services alone cannot just sustain Apple's growth. It has to
Speaker 8: be the iPhone. So the biggest thing for us is
Speaker 8: going to be what comments do they make about China
Speaker 8: and do they really show us any hope of a
Speaker 8: recovery over there?
Speaker 2: How about its AI ambitions? Is there a perception on
Speaker 2: Wall Street Apple maybe a little behind some of the
Speaker 2: other T giants.
Speaker 8: Oh you're too kind by staying a little uh far
Speaker 8: behind and in that particular case, and I think I
Speaker 8: think they've realized it. And you know, we we saw
Speaker 8: Mark German telling us that they shut down the car
Speaker 8: division and are putting all the engineers back in the
Speaker 8: AI you know framework at this point. So they have
Speaker 8: an event coming in June called the WWDC or the
Speaker 8: Worldwide Developers Conference, where they have promised to showcase a
Speaker 8: lot of their new AI features. I think it's going
Speaker 8: to be still too early for them to come up
Speaker 8: with something really a killer app like Opening I. I
Speaker 8: think that's going to take a little bit longer, perhaps
Speaker 8: another year to get get really squared away. If they
Speaker 8: were investing crazy amount of money right now.
Speaker 9: What could happen though?
Speaker 8: And that's another rumor that we heard thanks to Mark German,
Speaker 8: that they may do a deal with Google to license
Speaker 8: their model to put them on the you know, the
Speaker 8: iOS operating system. Now, if that happens, I think that
Speaker 8: could be the catalyst investor may be looking for, because
Speaker 8: while Apple may be behind in some of that GENEI capabilities,
Speaker 8: Google's been doing well over there, and I think licensing
Speaker 8: that intellectual property from Google may may help Apple's ambition.
Speaker 2: No, that would be something very new for Apple dealing
Speaker 2: with Google then, but.
Speaker 8: They do that on the search side, remember they you know,
Speaker 8: that's the default search, So they actually have a partnership
Speaker 8: and Google pays a lot of money to Apple for
Speaker 8: for those rights.
Speaker 2: Hey, let's talk about the vision pro the mixed reality
Speaker 2: headset thirty five hundred bucks. Has this been a real
Speaker 2: swing and a miss for Apple? I mean reports say
Speaker 2: demand is so low that it's slash introduction.
Speaker 8: Yeah, But to be very honest, I saw that report. Also,
Speaker 8: when we had first looked at this thing, we were
Speaker 8: already at that number of four hundred to five hundred
Speaker 8: thousand units or somewhere in that range. This is not
Speaker 8: a killer app. Think of this as this is an
Speaker 8: investment in what could be someday a bigger opportunity in
Speaker 8: terms of a new kind of operating system to do things.
Speaker 8: It's never going to be another iPhone, but it has
Speaker 8: a new category, it could have new apps, so you know,
Speaker 8: it's it's a good R and D experiment. I think,
Speaker 8: you know, some people will own it right now at
Speaker 8: thirty five hundred. I think a lot more people will
Speaker 8: own it at two thousand dollars someday when it you know,
Speaker 8: when the lower model comes out and the price goes
Speaker 8: down and people build applications on it. So it's a
Speaker 8: long term bet, but it's not going to move the
Speaker 8: needle for you and me financially. If you're looking at
Speaker 8: from Apple's you know overall revenue base well.
Speaker 2: Apple Q two earnings out this Thursday. In our thanks
Speaker 2: to Ana rag Rana, Bloomberg Intelligence senior technology analyst, coming
Speaker 2: up on Bloomberg Day Break weekend to look ahead to
Speaker 2: a global conference in Vienna, where the question of autonomous
Speaker 2: weapons and how they should be regulated will be up
Speaker 2: for discussion. I'm Tom Busby and this is Bloomberg. This
Speaker 2: is Bloomberg day Break weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Tom Busby in New York. Up later in our program
Speaker 2: will look ahead to earnings from Samsong in the state
Speaker 2: of the chip industry. But first, UK Prime Minister Rishi
Speaker 2: Sunak says he's committed to spending two point five percent
Speaker 2: of his country's GDP on the military by twenty thirty.
Speaker 2: France and Germany have also begun efforts to ramp up
Speaker 2: their own military spending and on the agenda at this
Speaker 2: week twenty twenty four Vienna Conference on Autonomous Weapons Systems, Leaders,
Speaker 2: we're going to peek at the latest technological developments in
Speaker 2: military weaponry which could change modern warfare forever and for more.
Speaker 2: Let's go to London and bring in Bloomberg Daybreak. Europe
Speaker 2: bankor Stephen Carroll.
Speaker 4: Tom After decades of scaling back, Russia's invasion of Ukraine
Speaker 4: prompted a rethink of defense budgets across Europe. Germany has
Speaker 4: started acalarrating military spending, including creating a one hundred undred
Speaker 4: billion euro rearmament fund. France two is stepping up spending
Speaker 4: on weapons. Here in the UK, the Prime Minister has
Speaker 4: promised to increase defense spending to two and a half
Speaker 4: percent of GDP by twenty thirty, although that would be
Speaker 4: after an election that's set for later this year. We
Speaker 4: spoke to a UK Politek's reporter James Wilcock about the
Speaker 4: pledge on Bloomberg Radio this week.
Speaker 3: Well, he would.
Speaker 10: Say that we live in a more uncertain world Steven.
Speaker 10: It's also very, very very popular with his back benches.
Speaker 10: Some of them have even pushed for it to goes
Speaker 10: high as three percent in the past, and that's the
Speaker 10: Defense Secretary, Ben Wallat's former Defense acually I actually say
Speaker 10: so it is a popular policy with the backbenchers. It's
Speaker 10: like to play well with the public as well. It's
Speaker 10: also something that Boris Johnson promised as Prime Minister back
Speaker 10: in twenty twenty two. So it is worth saying that
Speaker 10: this bid has now been refreshed, so it sort of
Speaker 10: plays to all of his bases in the sense, not
Speaker 10: to get away from the fact that it is a
Speaker 10: large sum of money.
Speaker 1: Yes, I'm two and a half percent of GDP of
Speaker 1: the target. I mean, the new element is putting the
Speaker 1: time frame around it, right, delivering that by twenty thirty
Speaker 1: it would seem. But of course there's a general election
Speaker 1: coming up, so how does that work?
Speaker 10: Quite I mean, and this is part of what is
Speaker 10: increasing these some quite cynical politicking by the Conservative Party
Speaker 10: where they promise spending commitment increases that will then have
Speaker 10: to be delivered after the next election. The big spike
Speaker 10: in this kind of money will come in twenty twenty eight,
Speaker 10: and so Labor for its parts, have said that in
Speaker 10: the next year if they were to being government, would
Speaker 10: have to institute a review into the military spending. That
Speaker 10: would happen in the next year. So there is no
Speaker 10: commitment here to continue this beyond the next government if
Speaker 10: the next government work to be Labor. And it was
Speaker 10: quite fascinating at the press conference which is announce this.
Speaker 10: He was next to the Native Secretary General Jen Stoltenberg.
Speaker 10: Journalist tried to ask YenS if he'd had spoken to Labor,
Speaker 10: so like intervened and said, you know, YenS wouldn't be
Speaker 10: answering questions on that because that's dragging him into domestic politics.
Speaker 10: So it's a fascinating move by the Prime Minister to
Speaker 10: sort of look strong on the world stage whilst also
Speaker 10: trying to put labor into a spending commitment in hot water.
Speaker 10: So worth saying though that in this reporting, Sunak says
Speaker 10: this spending pledge, which he tops up to being seventy
Speaker 10: five billion over the next six years, is already fully costed,
Speaker 10: so it would not involve any spending cuts or any
Speaker 10: tax rises. He says it would be partly down to
Speaker 10: savings of nearly three billion pounds by cutting the civil service.
Speaker 3: The entire civil service paybill.
Speaker 10: Is ten billions, so there are some fascinating sums here
Speaker 10: that civil servants and policy wonks are still yet still
Speaker 10: properly take a look at that.
Speaker 4: Was Benberg Radio's UK politics reporter James Woolcock. Now, where
Speaker 4: all of this extra money will be spent is a
Speaker 4: topic that's going to be discussed at an event in
Speaker 4: the Austrian capital Vienna in the coming days. The Conference
Speaker 4: on Autonomous Weapons Systems will be tackling how developments and
Speaker 4: artificial intelligence are revolutionizing how wars are fought. Our reporter
Speaker 4: at Jonathan Tarne will be there, and I've been speaking
Speaker 4: to him about these issues and started by asking him
Speaker 4: exactly what sort of technology is covered by the term
Speaker 4: autonomous weapons.
Speaker 11: Virtually every day there's a new deal that's announced that
Speaker 11: involves autonomy and weapons systems. We saw the European Commission
Speaker 11: give Fails the Defense Maker contract that will you know,
Speaker 11: basically identify potential battlefield targets that will be uploaded into
Speaker 11: a database so that you know, future weapon systems can
Speaker 11: work with drones and artillery to more quickly kill battlefield targets. Obviously,
Speaker 11: in the Ukraine War we've seen some application of that
Speaker 11: concept already, drones reducing the amount of time that artillery
Speaker 11: needs to identify as target and fire. We've also seen
Speaker 11: in the Gaza conflict the use of artificial intelligence under
Speaker 11: the so called Lavender program to identify potential targets. So
Speaker 11: this is a very rapidly developing war space.
Speaker 3: Tell Us about who's going to be attending this conference.
Speaker 11: I would categorize them as the rule takers rather than
Speaker 11: the rule makers. Generally, these are going to be largely delegations,
Speaker 11: high level delegations from the Global South, some European countries
Speaker 11: on a foreign minister level. But these are not going
Speaker 11: to be the countries that are necessarily making the weapons systems.
Speaker 11: These are the countries that have a huge interest in
Speaker 11: regulating the autonomous weapons systems because they conceivably could be
Speaker 11: on the other end, and they want to have a
Speaker 11: rule book in order before they're before these systems widely proliferate.
Speaker 4: Because of course, this is an issue that poses major
Speaker 4: ethical questions for those that are in this industry. What's
Speaker 4: being thought around the impact that the proliferation of these
Speaker 4: kinds of weapons could have on conflict?
Speaker 11: Yeah, absolutely, you know, aside from the ethical issue of
Speaker 11: you know, reducing individual human lives to data in a
Speaker 11: potential autonomous weapons system, you know, you're seeing people trying
Speaker 11: to frame within established humanitarian law. So I mean, you know,
Speaker 11: humanitarian law does exist on the books. It requires distinction, proportionality,
Speaker 11: and precaution when militaries engage each other with civilians oftentimes
Speaker 11: in between. And so people are trying to step inside
Speaker 11: the technological development and the engineering development and trying to
Speaker 11: apply some of the ethical norms that have been established
Speaker 11: in the wake of the Last World War and try
Speaker 11: to bring some responsibility to bear to the developers, the engineers,
Speaker 11: the algorithm makers, and as well as the militaries who
Speaker 11: are going to have to develop rules of engagement when
Speaker 11: using this technology.
Speaker 4: When we talk about the sort of the development of
Speaker 4: this technology, where are we seeing the bulk of the
Speaker 4: development happening which parts of the world.
Speaker 11: Well, I mean it's the It closely tracks general military
Speaker 11: expenditures as well as arms exports.
Speaker 9: So you're talking about the big three.
Speaker 11: US, China, and Russia in terms of development and where
Speaker 11: we're focusing. It really depends on who you talk to. Obviously,
Speaker 11: if you speak to the companies, they're going to tell
Speaker 11: you that we're talking about narrow versus general autonomous system
Speaker 11: development that is narrow, which is where we are currently
Speaker 11: with autonomous systems, drones, satellites identifying potential targets that will
Speaker 11: help a human make a decision, but whether it's to
Speaker 11: engage versus eventually conceivably and this is kind of the
Speaker 11: sky net what has been here too for science fiction,
Speaker 11: generalized artificial intelligence that can target and engage by itself.
Speaker 11: If you ask military people, they're going to come out
Speaker 11: with a different set of answers about where we are
Speaker 11: in the development arc, and I think rules of engagement
Speaker 11: speak prominently there. I mean, do we you use this
Speaker 11: in an urban battle landscape populated by civilians and then
Speaker 11: you move down the spectrum to the general public represented
Speaker 11: by officials and diplomats, and you know, that is what
Speaker 11: next week's conference is mostly about speaking too, and that
Speaker 11: is where there's a rising call for regulation.
Speaker 4: Is there any hope of progress being made on that issue?
Speaker 4: Because as you say, there an ativy outline, there are
Speaker 4: so many elements to this that would need to be
Speaker 4: thought about and discussed. What is the hope that there
Speaker 4: might actually be some consensus on what can be regulated?
Speaker 9: Yeah, I mean the short answer is no.
Speaker 11: The reason this is taking place in Vienna is because
Speaker 11: Vienna is home to arguably the most successful arms control
Speaker 11: convention in history. That's Nuclear Non Proliferation Treaty one hundred
Speaker 11: and ninety three parties signed that. You know, it's subsequently
Speaker 11: helped to bring into force the Treaty against the Nuclear Weapons.
Speaker 11: But the point here is that we're really at the
Speaker 11: beginning in these and if there was any treaty or
Speaker 11: tangible set of rules, that will take years to negotiate,
Speaker 11: and there's a lot of skepticism that negotiation can keep
Speaker 11: pace with the rate of technological change, and there are
Speaker 11: just some very fundamental questions such as monitoring and verification.
Speaker 11: I mean, with something like the NPT, which has very
Speaker 11: successfully prevented nuclear weapons from proliferating. You have physical inspectors
Speaker 11: going around the world and measuring grand levels of enriched
Speaker 11: uranium or plutonium, and there's a material regime in place.
Speaker 11: Much more complicated in the digital realm, where you're conceivably
Speaker 11: programming and developing algorithms that frankly break the space.
Speaker 9: And time continuum. You know, we.
Speaker 11: Were like used to as human beings hitting each other
Speaker 11: over the head with the rock, and then that developed
Speaker 11: into projectiles, long bows or guns. But this sense of
Speaker 11: immediacy and the process of killing one another is stretching
Speaker 11: into days and weeks or months with autonomous systems where
Speaker 11: items can be programmed to kill at a distance and
Speaker 11: great time length.
Speaker 3: I mean, given the absolute enormity of these dilemmas, how
Speaker 3: are the industry playing this in the meantime.
Speaker 9: Well, the industry is very excited because it means more.
Speaker 11: Contracts, and we've seen the markets reaction to the AI
Speaker 11: hype in recent weeks and months, and so you know,
Speaker 11: this is a way for the military not only to
Speaker 11: plug into the AI buzz, but also they're riding a
Speaker 11: wave of increased militarism at present. We see nations increasing
Speaker 11: defense budgets, We see the outbreak of war on multiple
Speaker 11: fronts and multiple theaters around the world, and so you know,
Speaker 11: clearly the defense industry stands to benefit from this, and
Speaker 11: there's a number of arguments that they make, and some
Speaker 11: of them may well turn out to be accurate, that
Speaker 11: this will help to reduce casualties and help decision making
Speaker 11: so that civilians are not caught in the crossfire. Nevertheless,
Speaker 11: there's legitimate concern by a number of countries that will
Speaker 11: be attending the Vienna meeting next week to make sure
Speaker 11: that rules are enforced. Just as rules of war are
Speaker 11: enforced with older technologies, they want to ensure that rules
Speaker 11: are enforced with digital technologies.
Speaker 4: Thanks to our apporter in Vienna, Jonathan Cherone Stephen Carol
Speaker 4: in London, you can catch us every weekday morning here
Speaker 4: for Bloomberg Daybreak. You're it be getting out six am
Speaker 4: in London and one am on Wall Strace.
Speaker 2: Tom Well, thank you, Stephen, coming up on Bloomberg day
Speaker 2: Break weekend and look ahead to Samsung earnings and the
Speaker 2: state of the computer chip industry. I'm Tom Busby, and
Speaker 2: this is Bloomberg. I'm Tom Busby in New York with
Speaker 2: your global look ahead at the top stories for investors
Speaker 2: in the coming week. When it comes to tech earnings
Speaker 2: these days, the focus is on artificial intelligence, and that's
Speaker 2: especially true for chip makers. Their products are used in
Speaker 2: a variety of applications, from smartphones to data centers and more.
Speaker 2: And one of the biggest AI chip makers, South Korea, Samsung,
Speaker 2: is out with its latest earnings this week. Daybreak Asia
Speaker 2: co host Brian Curtis and Doug Krisner join us now
Speaker 2: for a preview.
Speaker 12: Tom. The chip makers are at the heart of the
Speaker 12: AI revolution. As we've seen, much of the focus has
Speaker 12: been on AI data centers and accelerators made by Nvidia,
Speaker 12: but high bandwidth memory chips are equally critical, and we'll
Speaker 12: talk more about that. They've been called the backbone of
Speaker 12: both artificial intelligence and machine learning. Here's Bloomberg Semiconductor reporter Ian.
Speaker 13: King, and this is really an essential part of these
Speaker 13: large AI training models, the speed at which the process
Speaker 13: that can get into memory, grab the information and get
Speaker 13: back out and get back on with what it's doing.
Speaker 13: Has a huge impact on how quickly you can train AI.
Speaker 13: So that's a really good opportunity for some song, for
Speaker 13: Micron and for.
Speaker 5: Heinix, that is Bloomberg C and King. Now, just last week,
Speaker 5: South Korea's sk Heinix said sales related to AI more
Speaker 5: than doubled in the latest quarter. Sk Heinex is the
Speaker 5: world's number two maker of memory chips. In the week ahead,
Speaker 5: we'll hear from number one Samsung once again, Bloomberg C
Speaker 5: and King.
Speaker 13: The traditional volume, which memory is all about volume really
Speaker 13: comes from smartphones and comes from PCs. Those markets aren't
Speaker 13: getting any worse, but it's way too early to say
Speaker 13: that they're in growth mode again. What people are really
Speaker 13: focused on is the data center and AI market and
Speaker 13: how that is going to have an impact on memory.
Speaker 13: Twenty twenty four is going to be a good year
Speaker 13: for these companies. Everybody's forecasts a double digit revenue growth
Speaker 13: after a pretty disastrous year last year.
Speaker 12: Bloombergs Ian King for a closer look at semiconductor markets
Speaker 12: and to help preview the Samsung earnings. We're joined by
Speaker 12: Bloomberg's Glad Savov, our tech editor in Hong Kong, and
Speaker 12: Youlam Lee, Bloomberg, senior tech editor based in Seoul. ELM,
Speaker 12: let me go to you first. So we already had
Speaker 12: the preliminary results from Samsung sales and profit higher than expected,
Speaker 12: so we kind of know what to expect, and analysts
Speaker 12: are projecting net income up fourfold from a year ago.
Speaker 12: It seems an astonishing number. Will will that be more
Speaker 12: because of semiconductors or smartphones or both?
Speaker 14: That's right, there are something is a very complex company
Speaker 14: with different type of businesses. Obviously, semiconductor unit is such
Speaker 14: an important pivotal unit for the company that is expected
Speaker 14: to rebound in the first quarter, as well as smartphone unit.
Speaker 14: Smartphone obviously they have introduced you know, the S twenty
Speaker 14: four new AI phone in the first quarter, so that
Speaker 14: is really boosting their shipments and revenue during the quarter.
Speaker 14: Their division together is with home appliances and together they
Speaker 14: account for you know, majority of the maybe forty percent
Speaker 14: of the revenue. So we expect both the semiconductor unit
Speaker 14: as well as the semiconductor and Home applians unit to
Speaker 14: do well in the first quarter.
Speaker 5: Vlad, when we consider chips used in AI. Fast speed
Speaker 5: comes to mind, reduced power consumption comes to mind. I'm
Speaker 5: wondering when you compare the chips manufactured by Samsung and
Speaker 5: you compare them, Let's say to sk Heinex, how do
Speaker 5: they stack up one against the other.
Speaker 15: Well, that's the interesting thing, and I mean Julien can
Speaker 15: speak more to that, but really Heinis for the first
Speaker 15: time in their relationship Samsung, Heine's being very close to
Speaker 15: America competitors, has the lead. Heinis took that lead. It
Speaker 15: invested very early into HBM as a category, and it
Speaker 15: has the lead in having the better technology. It has
Speaker 15: the lead in having Nvidia as its customer, and Vidia
Speaker 15: trusted Heinex and its technology first. Now, the thing that's
Speaker 15: happening and the thing that's going to happen over the
Speaker 15: next few months, is Samsung is catching up. It says
Speaker 15: that it has a more advanced version of HBM. It's
Speaker 15: moving fast. It has the bigger resources. And one of
Speaker 15: the interesting things that we saw in the wake of
Speaker 15: Heinex's earnings, which were really impressive, was share price actually dropped.
Speaker 15: And part of the reason for that was because investors
Speaker 15: and analysts we're looking at Heinex. Henix has to increase capacity,
Speaker 15: so it has to increase spending. Every bit of growth
Speaker 15: for Heinex in terms of its productivity and in terms
Speaker 15: of its sales is going to come at the cost
Speaker 15: of more capex.
Speaker 12: So a lot. We have heard some different comments from
Speaker 12: the companies that we've heard from so far. We had
Speaker 12: very strong numbers from Texas Instruments looking more at the
Speaker 12: automotive and industrial sectors, and then you already highlighted sk
Speaker 12: Heinex and TSMC actually raised a few questions about smartphones
Speaker 12: and PCs and ASML's numbers were kind of scarily bad.
Speaker 12: Should we be positive about the overall semiconductor industry here
Speaker 12: or should we be somewhat cautious?
Speaker 9: Oh?
Speaker 15: I believe so again. AI is such a massive trend.
Speaker 15: This past week, Metas earnings gave a warning sign to
Speaker 15: a bunch of people in the US, and I came
Speaker 15: on radio and I said, do mistake Meta for being
Speaker 15: a representative for the entire industry. And what happened immediately
Speaker 15: the next day, Microsoft and Google boths of past expectations,
Speaker 15: largely driven by the cloud businesses, the ones that provide
Speaker 15: those AI services that infrastructure the facility for companies, startups,
Speaker 15: et cetera to train the AI models. The demand is
Speaker 15: their Heinix, TSMC, Samsung, all the component suppliers and video
Speaker 15: as well. They had gone to sell as many chips
Speaker 15: as they can make. That is the thing that we've seen,
Speaker 15: especially with Heinis. We've had Tom Kang in South Korea saying,
Speaker 15: if Henis wants to sell more chips, it needs to
Speaker 15: build more factories.
Speaker 5: You limb when you think about artificial intelligence, so much
Speaker 5: of the focus has been on these data centers, but
Speaker 5: I'm wondering when it comes to the individual devices, the
Speaker 5: smartphones in particular, how sophisticated it has Samsung become in
Speaker 5: building smartphones that can handle a lot of the AI
Speaker 5: technology that we're looking forward to applying to various aspects
Speaker 5: of life.
Speaker 9: Yeah. Sure. So.
Speaker 14: One one of the areas that some song is really
Speaker 14: pollish this R is the rise of on device AI applications.
Speaker 14: So in other words, traditionally, if you want to have
Speaker 14: applications such you have to go through you know, Cloud
Speaker 14: or some such. But companies like Samsung and Google and
Speaker 14: trying to build you know, a on device basically you
Speaker 14: know applications that you don't have to go through a
Speaker 14: cloud that is going to be helpful to you know,
Speaker 14: for security reasons. So they are really betting the chips.
Speaker 14: You know, they are expecting stronger robust demand for chips
Speaker 14: that are going to be used on devices this year
Speaker 14: as more companies really move into this space.
Speaker 12: And VLADI in terms of monetizing AI for companies out
Speaker 12: there in the industry, are we about ready to switch
Speaker 12: or is it too early to start talking about the
Speaker 12: Microsoft's and Googles and companies that are either in the
Speaker 12: enterprise or in the consumer sector and seeing some real
Speaker 12: monetization there.
Speaker 15: Well, I won't answer the question. I will let the
Speaker 15: CIOs of a bunch of tech companies answering the question.
Speaker 15: And NOBO did a survey of the CIOs chief information
Speaker 15: officers of global firms, and the major takeaways were Number one,
Speaker 15: they also were the companies is unprepared to capitalize on AI.
Speaker 3: Number two.
Speaker 15: A good two percent of them said that they won't
Speaker 15: be able to show return and investment on AI for
Speaker 15: the next two years. So that really gives you a
Speaker 15: sense of the timeline that we're working on here. And
Speaker 15: then you also have to bear in mind AI has
Speaker 15: been around for a long time, but just kind of
Speaker 15: working behind the scenes. What are you talking about, like
Speaker 15: AI in small phone cameras or AI to detect and
Speaker 15: categorize the photos that you take with those cameras. It's
Speaker 15: been around, and what we're seeing is it's much more
Speaker 15: of a smooth transition than you might imagine. So AI
Speaker 15: today in monetization terms, it's happening, but it's subtle. You
Speaker 15: can't really tell. Tencent, for example, says AI is doing
Speaker 15: a helpful job in improving its ad targeting meta likewise
Speaker 15: Google likewise, But again that's kind of under the hood,
Speaker 15: behind the scenes. The impactful AI the stuff that people
Speaker 15: pay subscription fees for, that's years down the line.
Speaker 5: Honestly, I want to bring in the China chips story
Speaker 5: into the equation here. We know that the US export
Speaker 5: controls are in place, obviously limiting China's access to certain
Speaker 5: chip making technology. Earlier, Brian and I spoke with Robert Lee,
Speaker 5: the senior tech analyst over at Bloomberg Intelligence. He's based
Speaker 5: in Hong Kong, and the question was on China's chip
Speaker 5: industry and how it's developing, and whether or not a
Speaker 5: company like Samsung or even sk Heinez should be concerned.
Speaker 16: It's probably a little bit early days for Samson and
Speaker 16: others to worry about the threat from the Chinese. But
Speaker 16: at the end of the day, the weight of the
Speaker 16: state is backing Huawei and SMIC and SMIC being the
Speaker 16: Chinese equivalent of TEARSMC. So you've got you know, you've
Speaker 16: got a lot of national pride, a lot of strategic
Speaker 16: national long term objectives, and a lot of money flowing
Speaker 16: into that sector.
Speaker 5: That is rapidly of Bloomberg Intelligence. So if we can
Speaker 5: agree that there is some sort of race happening. Broadly
Speaker 5: speaking about what's going on in the semiconductor industry, you lim,
Speaker 5: I'm wondering when it comes to a company like Samsung,
Speaker 5: how much are they devoting to research and development to
Speaker 5: trying to find the next generation of memory chips.
Speaker 14: It's tremendous, that's all they're really betting on right now.
Speaker 14: When the smartphone came along, you know, the world changed.
Speaker 14: They see the same moment, so they want to capitalize.
Speaker 14: They want to secure the leadership.
Speaker 5: LA based in Hong Kong. But for the purposes of
Speaker 5: our visit today, you're in Tokyo and our studios there
Speaker 5: and give me a sense of what's happening right now
Speaker 5: in Japan with the semiconductor industry and how it's growing.
Speaker 15: Just like saith Korea, just like Taiwan, Japan has made
Speaker 15: semiconductors and national priority. And one very interesting example, we
Speaker 15: were talking to a chip making startup in the US
Speaker 15: and one thing that they said was Japan is making
Speaker 15: a push to bring Japanese semiconductor designers and engineers back
Speaker 15: to the country. They want to get their own national
Speaker 15: talent back to the country. They have a startup called
Speaker 15: Rapidus Corp. Which is aiming to do two nanometer highly
Speaker 15: advanced I mean it's not available today chip making by
Speaker 15: twenty twenty seven. It's a very aggressive thing to go
Speaker 15: from zero to super advanced chip making by twenty twenty seven.
Speaker 15: But that's back by many of the biggest companies in
Speaker 15: the country, Sony and many others. And when you bring
Speaker 15: in all that expertise that Japan already had, as it
Speaker 15: is already the source for many of the key materials, components,
Speaker 15: equipment for chip making, if you do all of that,
Speaker 15: if you bring in the expertise, and Japan is also
Speaker 15: investing and subsidizing TSMC setting up at least one factory
Speaker 15: to maybe even three or four, depending on how that
Speaker 15: negotiation goes. It wants to do just like the US.
Speaker 15: It wants to bring in the expertise that he lacks,
Speaker 15: and he wants to lean into the expertise that he
Speaker 15: already has.
Speaker 12: Vlad, thank you very much, and Eulam thank you as well.
Speaker 12: Bloomberg's Lad Savov, tech editor in Hong Kong, and ulm Lee,
Speaker 12: Bloomberg Senior Tech editor based in Seoul. I'm Brian Curtis
Speaker 12: in Hong Kong, along with Doug Krisner. You can catch
Speaker 12: us every weekday here for Bloomberg day Break Age the
Speaker 12: beginning at eight am in Hong Kong and eight pm
Speaker 12: on Wall Street.
Speaker 2: Tom our thanks to Brian and Doug. And that does
Speaker 2: it for this edition of Bloomberg day Break Weekend. Join
Speaker 2: us again Monday morning at five am Wall Street time
Speaker 2: for the latest on markets overseas and the news you
Speaker 2: need to start your day.
Speaker 3: I'm Tom Busby. Stay with us.
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