WEBVTT - EA Agrees to $55 Billion Sale in Largest Leveraged Buyout on Record 

0:00:02.720 --> 0:00:10.600
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. You're listening to the

0:00:10.640 --> 0:00:14.600
<v Speaker 1>Bloomberg Intelligence podcast. Catch us live weekdays at ten am

0:00:14.640 --> 0:00:17.920
<v Speaker 1>Eastern on Apple, Coarclay, and Android Auto with the Bloomberg

0:00:17.960 --> 0:00:21.080
<v Speaker 1>Business App. Listen on demand wherever you get your podcasts,

0:00:21.400 --> 0:00:23.120
<v Speaker 1>or watch us live on YouTube.

0:00:23.840 --> 0:00:24.079
<v Speaker 2>Again.

0:00:24.160 --> 0:00:27.480
<v Speaker 3>The big story on the MNA front Electronic Arts going

0:00:27.520 --> 0:00:31.560
<v Speaker 3>public via LBO. How about that kid's fifty five billion dollars.

0:00:31.640 --> 0:00:35.839
<v Speaker 3>JP Morgan advising Goldman Sachs. On the other side of

0:00:35.840 --> 0:00:37.720
<v Speaker 3>the deal, JP Morgan r in a twenty billion dollars

0:00:37.800 --> 0:00:39.000
<v Speaker 3>check to get this deal done.

0:00:39.200 --> 0:00:41.040
<v Speaker 2>What's the mean for the gaming business?

0:00:41.120 --> 0:00:44.479
<v Speaker 3>Nathan Nadu joins us here technology research channel for Bloomberg Intelligence.

0:00:44.520 --> 0:00:48.080
<v Speaker 3>He's based in London. Nathan, what's the how's this price

0:00:48.120 --> 0:00:49.919
<v Speaker 3>tag look for you? How's the evaluation here?

0:00:51.479 --> 0:00:54.440
<v Speaker 4>The valuation is at a twenty to thirty percent premium

0:00:54.520 --> 0:00:58.520
<v Speaker 4>versus the last recorded market CAB before this deal was announced.

0:00:58.880 --> 0:01:02.720
<v Speaker 4>And it seems like, you know, is a premium deal,

0:01:02.760 --> 0:01:06.120
<v Speaker 4>but actually, you know, EA has a lot going for it.

0:01:06.120 --> 0:01:10.520
<v Speaker 4>It is actually launching a new battlefield game and there's

0:01:10.600 --> 0:01:13.479
<v Speaker 4>a strong prospect for this game. And actually the game

0:01:13.520 --> 0:01:16.360
<v Speaker 4>is now in prely release, and even then he has

0:01:16.360 --> 0:01:19.679
<v Speaker 4>already smashed all prior records set by the biggest game

0:01:19.760 --> 0:01:22.480
<v Speaker 4>in that genre, and that genre is first person should

0:01:22.560 --> 0:01:25.680
<v Speaker 4>and that game that's dominated that genre is called Duty

0:01:25.720 --> 0:01:29.760
<v Speaker 4>from Microsoft. So Betterview six is looking to be a

0:01:29.800 --> 0:01:33.240
<v Speaker 4>successful launch. And next year we have FIFA, and obviously

0:01:33.319 --> 0:01:35.679
<v Speaker 4>we know that EA has the biggest soccer game in

0:01:35.720 --> 0:01:38.560
<v Speaker 4>the industry, and that's FIFA. What was called FIFA but

0:01:38.600 --> 0:01:41.520
<v Speaker 4>now it's called EA Sports FC. And next year FIFA

0:01:41.600 --> 0:01:43.520
<v Speaker 4>World Cup will be a special one because it will

0:01:43.600 --> 0:01:48.320
<v Speaker 4>be hosted across three cities, including the US, and if

0:01:48.360 --> 0:01:51.000
<v Speaker 4>people don't know, US is actually the biggest market in

0:01:51.080 --> 0:01:53.680
<v Speaker 4>terms of revenue for all kinds of sports game. So

0:01:53.720 --> 0:01:56.200
<v Speaker 4>that's the second thing going for EA that I think

0:01:56.400 --> 0:01:59.360
<v Speaker 4>it's going to lead to at least two rounds circumstensus

0:01:59.720 --> 0:02:03.280
<v Speaker 4>be on EPs er share. So I think for e A,

0:02:03.480 --> 0:02:06.440
<v Speaker 4>this is a this this this is actually a good deal,

0:02:06.880 --> 0:02:09.359
<v Speaker 4>and we can talk about the common struggles faced by

0:02:10.080 --> 0:02:12.520
<v Speaker 4>you know, game publishers and how these deals would make

0:02:12.560 --> 0:02:15.920
<v Speaker 4>sense for e A as well as the investors in

0:02:15.960 --> 0:02:16.920
<v Speaker 4>this context.

0:02:17.200 --> 0:02:18.080
<v Speaker 5>So yeah, let's do that.

0:02:18.120 --> 0:02:20.560
<v Speaker 6>Because you mentioned a bunch of the titles and these

0:02:20.600 --> 0:02:23.720
<v Speaker 6>are you know, very valuable franchises. These this is a

0:02:23.880 --> 0:02:26.200
<v Speaker 6>top quality IP, whether it's E Sports, FC.

0:02:26.520 --> 0:02:28.799
<v Speaker 5>Madden, NFL, the SIMS battlefield.

0:02:29.320 --> 0:02:33.880
<v Speaker 6>What does ownership by private equity, by private investors allow

0:02:34.120 --> 0:02:36.360
<v Speaker 6>e A to do that it can't do as a

0:02:36.400 --> 0:02:37.640
<v Speaker 6>publicly traded company.

0:02:38.960 --> 0:02:43.200
<v Speaker 4>I think it's all down to funds. So publishers. Game

0:02:43.240 --> 0:02:46.519
<v Speaker 4>publishers in general have been have been facing two struggles.

0:02:46.720 --> 0:02:50.120
<v Speaker 4>First one is gamers attention spend and playtime are increasingly

0:02:50.160 --> 0:02:54.320
<v Speaker 4>getting limited. The reason is people are sticking to brands

0:02:54.520 --> 0:02:57.120
<v Speaker 4>or franchises that they have played for a long time.

0:02:57.440 --> 0:03:00.280
<v Speaker 4>And in fact, New Zoom published data saying that eighty

0:03:00.320 --> 0:03:03.640
<v Speaker 4>percent of playtime tend to go back to the sixty

0:03:03.720 --> 0:03:07.280
<v Speaker 4>or so titles, leaving only eight percent of playtime for

0:03:07.400 --> 0:03:10.200
<v Speaker 4>brand new IP. And this is actually in favor of

0:03:10.240 --> 0:03:13.760
<v Speaker 4>EA because we mentioned those valuable IP. In fact, if

0:03:13.760 --> 0:03:18.000
<v Speaker 4>we look at global unit sales, EA has topped twenty

0:03:18.680 --> 0:03:22.959
<v Speaker 4>has four of those top twenty selling IP globally, he

0:03:23.040 --> 0:03:25.760
<v Speaker 4>has four out of the twenty. So that is actually

0:03:25.960 --> 0:03:30.079
<v Speaker 4>a pretty enticing deal thing for companies like private equity

0:03:30.120 --> 0:03:33.080
<v Speaker 4>because you know, profit generation is key. And what this

0:03:33.320 --> 0:03:36.920
<v Speaker 4>means is that EA has franchises that can bring in

0:03:37.000 --> 0:03:40.280
<v Speaker 4>recurring revenue. We talked about EA Sports FC, we talk

0:03:40.280 --> 0:03:43.800
<v Speaker 4>about MET and MFL and they actually revived a new franchise,

0:03:43.880 --> 0:03:46.400
<v Speaker 4>College Football, and you know, it was one of the

0:03:46.400 --> 0:03:49.920
<v Speaker 4>best selling titles in the US last year. So recurring

0:03:49.960 --> 0:03:52.360
<v Speaker 4>revenue is key here. And the second struggle that I

0:03:52.400 --> 0:03:55.560
<v Speaker 4>was going to go into is development cost is really high,

0:03:55.720 --> 0:03:59.000
<v Speaker 4>especially in the US, so that means that we publishers

0:03:59.080 --> 0:04:02.920
<v Speaker 4>actually have a cost disadvantage when compared to Eastern developers.

0:04:02.920 --> 0:04:07.240
<v Speaker 4>For example, you know, salaries for game engineers in China

0:04:07.440 --> 0:04:12.240
<v Speaker 4>is more than half the level in California, and personnel

0:04:12.360 --> 0:04:16.200
<v Speaker 4>cost game engineers is a huge part of developing a game.

0:04:16.680 --> 0:04:19.200
<v Speaker 4>So you know, tens and actually launched a new game

0:04:19.600 --> 0:04:21.760
<v Speaker 4>in the same genre as Better Few six and that

0:04:21.920 --> 0:04:25.839
<v Speaker 4>scaltalk course is doing really well. And what that costs

0:04:25.960 --> 0:04:30.599
<v Speaker 4>disadvantage is stopping EA from is continuously to push out

0:04:30.839 --> 0:04:34.240
<v Speaker 4>a strong salence of content to essentially extending the shelf

0:04:34.240 --> 0:04:37.160
<v Speaker 4>life of any game, and Eastern developers can do that

0:04:37.200 --> 0:04:39.239
<v Speaker 4>better because of that cost edge.

0:04:40.520 --> 0:04:43.599
<v Speaker 2>Stay with us. More from Bloomberg Intelligence coming up after this.

0:04:47.279 --> 0:04:50.960
<v Speaker 1>You're listening to the Bloomberg Intelligence podcast Catch US Live

0:04:51.080 --> 0:04:54.440
<v Speaker 1>weekdays at ten am Eastern on Applecarplay and Android Auto

0:04:54.560 --> 0:04:57.599
<v Speaker 1>with the Bloomberg Business App. Listen on demand wherever you

0:04:57.640 --> 0:05:00.600
<v Speaker 1>get your podcasts, or watch US Live one.

0:05:01.960 --> 0:05:05.039
<v Speaker 3>Carnival Cruise Line raised its full year earnings forecast for

0:05:05.120 --> 0:05:08.799
<v Speaker 3>the third straight quarter, citing a record pace for forward

0:05:08.800 --> 0:05:10.520
<v Speaker 3>bookings and improving net yields.

0:05:10.520 --> 0:05:12.400
<v Speaker 2>So what's the stock do it? Trades off three and

0:05:12.440 --> 0:05:12.960
<v Speaker 2>a half percent?

0:05:13.000 --> 0:05:13.440
<v Speaker 7>Go figure?

0:05:13.960 --> 0:05:16.200
<v Speaker 2>Maybe our next guest can help us out here. Brian Egger.

0:05:16.640 --> 0:05:19.599
<v Speaker 3>He covers his gaming stuff, the lodging stuff, the crew stuff,

0:05:19.600 --> 0:05:22.000
<v Speaker 3>all the fun industries outter He's been doing on Wall

0:05:22.000 --> 0:05:24.000
<v Speaker 3>Street for a very long time. One of the top

0:05:24.320 --> 0:05:25.680
<v Speaker 3>folks in the street in his industry.

0:05:25.680 --> 0:05:28.000
<v Speaker 2>He's Bloomberg Intelligence. Joining us live here in our Bloomberg

0:05:28.000 --> 0:05:30.760
<v Speaker 2>and Interactive broker studio. Brian Carnival. It seems like I

0:05:30.800 --> 0:05:33.720
<v Speaker 2>do know, pretty good quarter for them, what you hear?

0:05:33.839 --> 0:05:36.200
<v Speaker 8>Yeah, very strong third quarter. You know the fifty percent

0:05:36.240 --> 0:05:38.160
<v Speaker 8>book for next year or so. On the surface, these

0:05:38.200 --> 0:05:40.000
<v Speaker 8>results are really good, and it was initially a bit

0:05:40.040 --> 0:05:42.240
<v Speaker 8>of a head scratcher to see the sell off. I

0:05:42.240 --> 0:05:45.160
<v Speaker 8>think there are two ways in which maybe they're being

0:05:45.200 --> 0:05:48.719
<v Speaker 8>perceived as conservative. The one is that their yield growth

0:05:48.760 --> 0:05:51.760
<v Speaker 8>guidance for the fourth quarter, while it's certainly very solid

0:05:51.880 --> 0:05:54.080
<v Speaker 8>in there in the mid fords, you know, with a

0:05:54.080 --> 0:05:57.200
<v Speaker 8>little bit below consensus, maybe the street got a little

0:05:57.200 --> 0:05:59.360
<v Speaker 8>bit heav itself. The second thing is for all of

0:05:59.400 --> 0:06:03.560
<v Speaker 8>their optimists about bookings and direction of yields, they are

0:06:03.640 --> 0:06:06.040
<v Speaker 8>very conservative and how they're deploying capital. They've only got

0:06:06.080 --> 0:06:09.000
<v Speaker 8>about one percent annual yield growth for this year in

0:06:09.040 --> 0:06:12.400
<v Speaker 8>the next two years, so they're growing very effectively, but

0:06:12.440 --> 0:06:15.200
<v Speaker 8>they are also very measured in how they deploy capacity.

0:06:16.080 --> 0:06:18.360
<v Speaker 8>So all this is really good, but they do mention that,

0:06:18.400 --> 0:06:20.479
<v Speaker 8>you know, they can afford to they can really be

0:06:20.800 --> 0:06:23.680
<v Speaker 8>judicious on expense growth because they're only growing capacity at

0:06:23.720 --> 0:06:24.839
<v Speaker 8>a very modest pace.

0:06:25.600 --> 0:06:27.680
<v Speaker 6>Is that a bad thing to be conservative? How does

0:06:27.720 --> 0:06:30.599
<v Speaker 6>Carnival compare with Norwegian or Royal Caribbean.

0:06:30.720 --> 0:06:33.080
<v Speaker 8>Yeah, so if you look at Norwegian Wild Caribbean, they're

0:06:33.080 --> 0:06:36.960
<v Speaker 8>anticipating or actually scheduling about a mid single digit, call

0:06:37.000 --> 0:06:40.240
<v Speaker 8>it five percent ish level of annual capacity growth for

0:06:41.000 --> 0:06:43.680
<v Speaker 8>twenty twenty six, twenty seven to twenty eight. You know,

0:06:43.680 --> 0:06:46.240
<v Speaker 8>it's closer to one percent for Carnival, maybe two percent

0:06:46.279 --> 0:06:48.760
<v Speaker 8>in twenty twenty eight. So they're just taking a more

0:06:48.800 --> 0:06:53.640
<v Speaker 8>conservative tack. And I think they're equally long term optimistic

0:06:53.680 --> 0:06:56.360
<v Speaker 8>about their ability to penetrate the vacation market, but they're

0:06:56.400 --> 0:06:58.200
<v Speaker 8>going about it in a much more measured way.

0:06:58.279 --> 0:07:01.279
<v Speaker 7>And then that sense it could strike people's conservative.

0:07:01.240 --> 0:07:02.279
<v Speaker 2>Talk to us about capacity.

0:07:02.320 --> 0:07:03.960
<v Speaker 3>I mean, if they added a couple of ships, would

0:07:03.960 --> 0:07:04.640
<v Speaker 3>they sell them out?

0:07:05.360 --> 0:07:05.520
<v Speaker 4>Yeah?

0:07:05.560 --> 0:07:06.159
<v Speaker 7>I mean certainly.

0:07:06.160 --> 0:07:10.320
<v Speaker 8>Their their auquancy is back to pre pandemic levels. Their

0:07:10.360 --> 0:07:13.120
<v Speaker 8>yield growth against that capacity increase is positive, and we

0:07:13.200 --> 0:07:17.320
<v Speaker 8>were looking at we've seen steadily increasing yield expectations throughout

0:07:17.320 --> 0:07:20.200
<v Speaker 8>twenty twenty five, and they've got the free cash let.

0:07:20.240 --> 0:07:22.520
<v Speaker 8>But I think they just want to build this out slowly,

0:07:22.640 --> 0:07:24.800
<v Speaker 8>you know, and maybe strike people some people as being

0:07:24.840 --> 0:07:25.400
<v Speaker 8>too slowly.

0:07:25.520 --> 0:07:28.200
<v Speaker 3>Hey, not for nothing. You get paid a lot of

0:07:28.200 --> 0:07:32.360
<v Speaker 3>money here, Josh Weinstein. Fourteen million in cash compensation for county.

0:07:32.360 --> 0:07:35.240
<v Speaker 3>You're twenty four fourteen million in stock twenty eight million

0:07:35.240 --> 0:07:36.520
<v Speaker 3>to drive a cruise ship round.

0:07:36.520 --> 0:07:37.120
<v Speaker 7>That's not too bad.

0:07:37.960 --> 0:07:39.200
<v Speaker 5>Nice job if you can get it right.

0:07:39.960 --> 0:07:42.800
<v Speaker 6>So here's my question to you, Brian, how do roil

0:07:42.880 --> 0:07:45.960
<v Speaker 6>Caribbean Norwegian Cruise and Carnival. How do they grow their

0:07:46.000 --> 0:07:48.480
<v Speaker 6>market are they stealing from each other or is there

0:07:48.520 --> 0:07:50.160
<v Speaker 6>still a big base from which to grow.

0:07:50.320 --> 0:07:52.680
<v Speaker 8>There's definitely a penetration opportunity. Just back up for a

0:07:52.680 --> 0:07:55.600
<v Speaker 8>second on Carnival. Their goal is to become investment grade,

0:07:55.760 --> 0:07:58.160
<v Speaker 8>So part of the conservativism I think you're seeing, which

0:07:58.200 --> 0:07:59.680
<v Speaker 8>may be a head scratch. They want to get to

0:07:59.720 --> 0:08:04.120
<v Speaker 8>invest grade and I think that's probably priority one, shifting

0:08:04.160 --> 0:08:07.239
<v Speaker 8>some of the enterprise value from bondholders.

0:08:06.600 --> 0:08:07.600
<v Speaker 7>To equity holders.

0:08:08.040 --> 0:08:10.880
<v Speaker 8>That being said, yes, they see opportunity to grow a

0:08:11.040 --> 0:08:16.080
<v Speaker 8>relatively underpenetrated overall vacation market, but they're going about it

0:08:16.120 --> 0:08:18.280
<v Speaker 8>with kind of balance sheet being front center if that

0:08:18.360 --> 0:08:20.120
<v Speaker 8>helps it all.

0:08:20.400 --> 0:08:21.960
<v Speaker 3>The only thing I know about the cruise business is

0:08:22.000 --> 0:08:24.000
<v Speaker 3>what I learned from Disney, who got into the business

0:08:24.400 --> 0:08:27.440
<v Speaker 3>fifteen twenty years ago and it's been a great business

0:08:27.440 --> 0:08:27.720
<v Speaker 3>for them.

0:08:27.760 --> 0:08:30.440
<v Speaker 2>How do you stratify the cruise market?

0:08:30.480 --> 0:08:32.600
<v Speaker 3>Now, I'm going to be the very very top mind you,

0:08:32.920 --> 0:08:35.560
<v Speaker 3>but how does the cruise industry kind of stratify itself?

0:08:35.920 --> 0:08:36.079
<v Speaker 4>Yeah?

0:08:36.120 --> 0:08:39.480
<v Speaker 8>I mean I think they, I think convincingly argue that

0:08:39.520 --> 0:08:42.760
<v Speaker 8>they are relatively affordable form of vacation. The package product,

0:08:43.320 --> 0:08:46.160
<v Speaker 8>the value is very good for the consumer, but it

0:08:46.320 --> 0:08:50.920
<v Speaker 8>runs across different tiers from luxury side you know, Seaborn,

0:08:51.040 --> 0:08:54.880
<v Speaker 8>Windstar Oceania Region seventies to the more mass market like

0:08:54.920 --> 0:08:58.120
<v Speaker 8>Carnival cruise line. So they run the gamup, but the

0:08:58.160 --> 0:09:02.880
<v Speaker 8>overall spectrum tends to be generally, you know, relatively affordable

0:09:02.920 --> 0:09:06.559
<v Speaker 8>and part of that package vacation product people buying cruises beforehand,

0:09:06.920 --> 0:09:08.760
<v Speaker 8>buying stuff on the cruise with a good share of

0:09:08.760 --> 0:09:09.600
<v Speaker 8>wallet left over.

0:09:10.120 --> 0:09:11.120
<v Speaker 7>That works to their favor.

0:09:11.679 --> 0:09:14.439
<v Speaker 5>How brand loyal are cruising fans?

0:09:14.600 --> 0:09:16.440
<v Speaker 6>I mean, if you are a carnival person, are you

0:09:16.559 --> 0:09:17.839
<v Speaker 6>a Carnival person for life?

0:09:17.920 --> 0:09:21.440
<v Speaker 8>Yeah, there's certainly some brand loyalty. And remember they've they've

0:09:21.480 --> 0:09:24.400
<v Speaker 8>got kind of as an industry, they've companies got two goals.

0:09:24.400 --> 0:09:27.920
<v Speaker 8>One is to drive bookings for their particular brand, and

0:09:27.960 --> 0:09:30.400
<v Speaker 8>they do that through new hardware with all the bells

0:09:30.440 --> 0:09:33.400
<v Speaker 8>and whistles. The other is to drive the overall awareness

0:09:33.400 --> 0:09:36.199
<v Speaker 8>of the value of cruising relative to other forms of vacationing.

0:09:36.679 --> 0:09:38.959
<v Speaker 8>And so you know, they've kind of got that dual mandate.

0:09:40.440 --> 0:09:44.160
<v Speaker 2>So you're sitting on the Jersey Shore Sunday after in around.

0:09:43.880 --> 0:09:47.600
<v Speaker 6>Five sweety's sitting on there. Okay, go ahead, all this.

0:09:47.840 --> 0:09:50.559
<v Speaker 3>Every Sunday during the summer, you'd see this massive cruise

0:09:50.559 --> 0:09:53.120
<v Speaker 3>ship coming out of New York Harbor. I think it's

0:09:53.160 --> 0:09:54.120
<v Speaker 3>the Star of the Seas.

0:09:54.520 --> 0:09:56.160
<v Speaker 7>Yeah, that's a new one. Yeah, I mean.

0:09:56.160 --> 0:09:58.440
<v Speaker 2>Things massive, and they filled that thing up.

0:09:59.000 --> 0:10:01.840
<v Speaker 8>Oh just and that's a that's a Royal Caribbean ship.

0:10:01.880 --> 0:10:03.560
<v Speaker 8>But I will point out that one of the things

0:10:03.600 --> 0:10:05.920
<v Speaker 8>Carnivals pointing to is, you know, they've reached the thirteen

0:10:05.920 --> 0:10:08.600
<v Speaker 8>percent return on invested capital this year, so they're kind

0:10:08.640 --> 0:10:11.240
<v Speaker 8>of getting to that double digit return pace that they targeted.

0:10:11.320 --> 0:10:14.520
<v Speaker 8>So there are their argument would be that they fill

0:10:14.559 --> 0:10:17.079
<v Speaker 8>it up, they get good pricing and relative that their

0:10:17.120 --> 0:10:20.680
<v Speaker 8>investments are getting, you know, solid low teens returns on

0:10:21.000 --> 0:10:24.560
<v Speaker 8>incremental invested capital with an opportunity to take that higher.

0:10:24.720 --> 0:10:26.400
<v Speaker 8>So as long as they can get that return, I

0:10:26.440 --> 0:10:29.560
<v Speaker 8>think they can convincingly say we're getting there. But obviously,

0:10:29.559 --> 0:10:33.000
<v Speaker 8>in the case of Carnival, through relatively conservative capital to

0:10:33.080 --> 0:10:33.440
<v Speaker 8>point I.

0:10:33.400 --> 0:10:36.680
<v Speaker 3>Mean Star of the Sea, Icon of the Seas, they

0:10:36.720 --> 0:10:39.560
<v Speaker 3>have a massive passenger capacity with the ability to hold

0:10:39.600 --> 0:10:43.400
<v Speaker 3>over seventy six hundred passengers and a large group and

0:10:43.480 --> 0:10:46.080
<v Speaker 3>for somebody who doesn't like people like me, that would

0:10:46.120 --> 0:10:46.880
<v Speaker 3>be that's a tough.

0:10:46.920 --> 0:10:47.360
<v Speaker 2>No, it's not.

0:10:47.400 --> 0:10:50.600
<v Speaker 8>It's not the misanthropes favorite vacation activity. But you know

0:10:50.679 --> 0:10:53.800
<v Speaker 8>they do get good economies by they were those field

0:10:53.800 --> 0:10:54.400
<v Speaker 8>peoples and.

0:10:54.400 --> 0:10:55.480
<v Speaker 2>You know how big those things.

0:10:55.600 --> 0:10:57.480
<v Speaker 6>Well, I'm always talking with my friend who suggests that

0:10:57.559 --> 0:11:00.680
<v Speaker 6>instead of retiring to a nursing home or tournament community,

0:11:00.840 --> 0:11:01.160
<v Speaker 6>just go on.

0:11:01.080 --> 0:11:01.600
<v Speaker 5>A cruise trip.

0:11:01.679 --> 0:11:02.760
<v Speaker 2>I've heard that's heard that too.

0:11:03.120 --> 0:11:05.120
<v Speaker 3>You know, you know it's a big cruisers Charlie Pellett,

0:11:05.240 --> 0:11:07.280
<v Speaker 3>and he doesn't like cruise the Caribbean.

0:11:07.720 --> 0:11:09.920
<v Speaker 5>He was cruises like adventurous places.

0:11:10.040 --> 0:11:12.559
<v Speaker 3>Yeah, like I'm going to I'm cruising to Turkey and

0:11:13.280 --> 0:11:16.160
<v Speaker 3>I don't know Antarctica, ger Yes, that's what Charlie.

0:11:16.160 --> 0:11:17.200
<v Speaker 7>People pair a premium for those.

0:11:17.320 --> 0:11:19.280
<v Speaker 5>Yeah, so's he's that kind of cruiser.

0:11:19.440 --> 0:11:22.800
<v Speaker 8>Well, I'm just saying on average, the customer pays the premium.

0:11:22.840 --> 0:11:26.280
<v Speaker 3>We talk about going investment grade again, day one or

0:11:26.360 --> 0:11:28.720
<v Speaker 3>day two of the pandemic. Who are the first companies

0:11:28.760 --> 0:11:31.920
<v Speaker 3>going to the bond market the cruise industry because those companies.

0:11:31.559 --> 0:11:35.160
<v Speaker 2>Knew, oh boy, this is not gonna be good for its.

0:11:34.320 --> 0:11:36.760
<v Speaker 8>Back from their break and therefore trying to run the

0:11:36.760 --> 0:11:38.280
<v Speaker 8>business in a measured way.

0:11:38.920 --> 0:11:42.040
<v Speaker 2>Stay with us more from Bloomberg Intelligence coming up after this.

0:11:45.960 --> 0:11:49.640
<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

0:11:49.720 --> 0:11:52.840
<v Speaker 1>weekdays at ten am Eastern on Apple, Cocklay and Android

0:11:52.840 --> 0:11:56.160
<v Speaker 1>Auto with the Bloomberg Business app. Listen on demand wherever

0:11:56.200 --> 0:11:59.320
<v Speaker 1>you get your podcasts, or watch us live on YouTube.

0:12:00.400 --> 0:12:03.319
<v Speaker 3>AI and we're talking to technology. You're talking AI, and

0:12:03.760 --> 0:12:05.120
<v Speaker 3>you know, people trying to figure out how do you

0:12:05.120 --> 0:12:07.600
<v Speaker 3>get exposure to it beyond you know, the chip manufacturers.

0:12:07.640 --> 0:12:09.600
<v Speaker 2>I get Nvidia, maybe beyond some of.

0:12:09.520 --> 0:12:13.120
<v Speaker 3>The software players like Microsoft, What how about computer hardware

0:12:13.280 --> 0:12:14.200
<v Speaker 3>and storage?

0:12:14.320 --> 0:12:16.120
<v Speaker 2>Go figure, well, we get somebody here that can help

0:12:16.160 --> 0:12:16.880
<v Speaker 2>us out on this stuff.

0:12:16.920 --> 0:12:21.040
<v Speaker 3>Wujino, Bloomberg Intelligence, Senior Technology Analysts. Which let's talk about

0:12:21.040 --> 0:12:24.120
<v Speaker 3>some of this hardware and storage companies that that you cover.

0:12:25.559 --> 0:12:29.600
<v Speaker 3>Super Micro is one of those companies that stock has

0:12:29.600 --> 0:12:32.000
<v Speaker 3>done really really well this year.

0:12:32.559 --> 0:12:34.959
<v Speaker 2>Talk to us about that company. How do you approach

0:12:35.200 --> 0:12:36.680
<v Speaker 2>this company, super Micro Computer.

0:12:37.440 --> 0:12:40.719
<v Speaker 9>Yeah, hey, Paul, So super Micro's actually been a very

0:12:40.720 --> 0:12:43.319
<v Speaker 9>controversial name throughout the year, but at the end of

0:12:43.360 --> 0:12:47.000
<v Speaker 9>the day, they're highly exposed to the three into twelve

0:12:47.080 --> 0:12:50.960
<v Speaker 9>billion dollar AI market. And you know the fact of

0:12:50.960 --> 0:12:56.040
<v Speaker 9>the matter is, even though they've had choppy execution. They

0:12:56.040 --> 0:12:58.160
<v Speaker 9>are one of the market leaders there and as these

0:12:58.160 --> 0:13:01.960
<v Speaker 9>deals come through, expect super Micro to continue to be

0:13:02.000 --> 0:13:04.959
<v Speaker 9>involved in those deals and possibly win their fair share.

0:13:05.480 --> 0:13:07.560
<v Speaker 3>Just looking at your research, which you can do folks

0:13:07.800 --> 0:13:10.600
<v Speaker 3>going B I go on the Bloomberg terminal nets, reaccess

0:13:10.600 --> 0:13:14.400
<v Speaker 3>all the Bloomerg intelligence investment research, you write super Micro's

0:13:14.480 --> 0:13:17.760
<v Speaker 3>AI rack system expertise, and at short delivery times position

0:13:17.840 --> 0:13:22.560
<v Speaker 3>a company to boot sales seventy four twenty twenty six.

0:13:23.000 --> 0:13:25.000
<v Speaker 2>That is extraordinary.

0:13:25.360 --> 0:13:25.680
<v Speaker 7>Yeah.

0:13:25.800 --> 0:13:28.720
<v Speaker 9>So look, if you think about some of these hyperscale

0:13:28.800 --> 0:13:31.000
<v Speaker 9>cloud providers as well as as neo clouds and the

0:13:31.120 --> 0:13:37.040
<v Speaker 9>neo clouds I define as these newer AI infrastructures and

0:13:37.080 --> 0:13:41.400
<v Speaker 9>service vendors like a core Weave or a LAMB, time

0:13:41.440 --> 0:13:44.240
<v Speaker 9>to market means a lot, right, and if you can't

0:13:44.240 --> 0:13:47.760
<v Speaker 9>deliver the equipment to their to their specs in a

0:13:47.840 --> 0:13:50.440
<v Speaker 9>timely manner, you're not going to win those deals. There

0:13:50.440 --> 0:13:53.880
<v Speaker 9>are actually two companies that have done that, super Micro

0:13:54.040 --> 0:13:57.000
<v Speaker 9>is one and Dell. So if you can ship the

0:13:57.000 --> 0:14:00.400
<v Speaker 9>AI servers, get the GPUs as quickly as possible, the

0:14:00.559 --> 0:14:03.080
<v Speaker 9>likelihood is you're going to win the deals. Now, keep

0:14:03.120 --> 0:14:05.760
<v Speaker 9>in mind these these guys were only generating roughly three

0:14:05.760 --> 0:14:08.760
<v Speaker 9>billion dollars in revenue about five years back, and now

0:14:08.760 --> 0:14:11.520
<v Speaker 9>we're talking about revenues closer to forty billion dollars in

0:14:11.520 --> 0:14:15.079
<v Speaker 9>fiscal twenty seven and thirty three billion dollars in fiscal

0:14:15.080 --> 0:14:15.680
<v Speaker 9>twenty six.

0:14:15.960 --> 0:14:19.760
<v Speaker 3>Extraordinary and just super micro stock is a fifty five

0:14:19.840 --> 0:14:20.760
<v Speaker 3>to fifty two.

0:14:20.680 --> 0:14:23.320
<v Speaker 2>Percent year to date, So it's just extraordinary, all right.

0:14:23.320 --> 0:14:25.280
<v Speaker 3>When I think hard dis drive, I think the little

0:14:25.320 --> 0:14:28.720
<v Speaker 3>thing in my PC under my desk. But when we're

0:14:28.720 --> 0:14:31.360
<v Speaker 3>talking about the cloud, we're talking about something totally different.

0:14:31.360 --> 0:14:33.800
<v Speaker 3>Talk to us about kind of that the hard drive.

0:14:34.600 --> 0:14:37.880
<v Speaker 3>A company like Western Digital provides the stack.

0:14:38.880 --> 0:14:42.400
<v Speaker 9>I will tell you know, we've been very bullish on

0:14:42.440 --> 0:14:45.280
<v Speaker 9>the hard disk drive market for a couple of years now,

0:14:45.320 --> 0:14:48.600
<v Speaker 9>and it's really starting to materialize, not only Western Digital

0:14:48.680 --> 0:14:51.440
<v Speaker 9>but also Seagate. If you think about the hard disk

0:14:51.480 --> 0:14:56.160
<v Speaker 9>drive market, we're talking about a forty billion dollar in revenues,

0:14:56.440 --> 0:14:59.960
<v Speaker 9>splitting roughly forty percent of it going to Western Digital,

0:15:00.000 --> 0:15:03.520
<v Speaker 9>forty percent going to Seagate. And at the end of

0:15:03.560 --> 0:15:06.880
<v Speaker 9>the day, a lot of the data that's generated by

0:15:06.920 --> 0:15:11.080
<v Speaker 9>AI needs to be stored somewhere, right, and it's going

0:15:11.080 --> 0:15:13.600
<v Speaker 9>into the Western Digital drives as well as the Seagate drives.

0:15:14.040 --> 0:15:17.400
<v Speaker 9>And if you see the last month, the AI story

0:15:17.480 --> 0:15:21.160
<v Speaker 9>has really started to materialize. Western Digital stock is up

0:15:21.160 --> 0:15:25.640
<v Speaker 9>about forty over over the past month and because of

0:15:25.680 --> 0:15:30.600
<v Speaker 9>the strong demand by the hyperscale cloud providers, these guys

0:15:30.640 --> 0:15:35.760
<v Speaker 9>have lead times of over eight weeks visibility going into

0:15:36.040 --> 0:15:39.800
<v Speaker 9>six quarters, and this is leading to price hikes. This

0:15:39.840 --> 0:15:42.240
<v Speaker 9>is a commodity market that tends to have five percent

0:15:42.360 --> 0:15:47.200
<v Speaker 9>annual pricing declines. Pricing stay stable. Not only stay stable,

0:15:47.760 --> 0:15:49.840
<v Speaker 9>it's probably gonna rise over the next six weeks.

0:15:50.120 --> 0:15:51.960
<v Speaker 2>I mean, you've been bullish on Western Digital for a

0:15:52.040 --> 0:15:55.200
<v Speaker 2>couple of years. I missed that. Too bad for me.

0:15:55.440 --> 0:15:58.080
<v Speaker 3>A year to date, Western Digital stock is up one

0:15:58.400 --> 0:16:00.880
<v Speaker 3>and fifty five percent. This isn't any stock, folks. This

0:16:00.920 --> 0:16:04.520
<v Speaker 3>is a company with a market cap of forty billion dollars.

0:16:04.840 --> 0:16:08.440
<v Speaker 3>So woods from your perspective on the hardware networking side

0:16:08.440 --> 0:16:11.240
<v Speaker 3>of the business, kind of where are we in this

0:16:11.360 --> 0:16:12.440
<v Speaker 3>AI play?

0:16:12.480 --> 0:16:14.040
<v Speaker 2>What are your companies kind of telling you?

0:16:14.800 --> 0:16:16.960
<v Speaker 9>Yeah, A lot of my companies are telling me it's

0:16:16.960 --> 0:16:19.800
<v Speaker 9>still in the early early days, right, but it's also

0:16:20.040 --> 0:16:23.360
<v Speaker 9>going through a lot of disruptions as well, and some

0:16:23.440 --> 0:16:30.680
<v Speaker 9>of the I guess legacy companies like Cisco, like an HPE,

0:16:31.040 --> 0:16:34.480
<v Speaker 9>it still considers a smaller fraction of the business to

0:16:34.560 --> 0:16:37.280
<v Speaker 9>really make any impact, but they're going to be involved

0:16:37.280 --> 0:16:38.280
<v Speaker 9>in some way or another.

0:16:38.880 --> 0:16:39.120
<v Speaker 3>Now.

0:16:39.360 --> 0:16:42.680
<v Speaker 9>In terms of the hyperscale cloud providers, there are a

0:16:42.920 --> 0:16:46.600
<v Speaker 9>small sub segment outside of the GPUs that are going

0:16:46.640 --> 0:16:51.040
<v Speaker 9>to benefit the optical names in particular because there is

0:16:51.080 --> 0:16:54.680
<v Speaker 9>this need for speed to traverse the data, to have

0:16:54.760 --> 0:16:58.120
<v Speaker 9>the data traverse through the networks. You know, my colleague

0:16:58.160 --> 0:17:03.640
<v Speaker 9>Jake Silverman, he covers those names. Companies like Coherent, companies

0:17:03.680 --> 0:17:08.639
<v Speaker 9>like Lumentum. They've actually benefited quite a bit from a

0:17:08.680 --> 0:17:13.320
<v Speaker 9>hardware perspective. Arista Networks. They have strong exposure to companies

0:17:13.359 --> 0:17:18.040
<v Speaker 9>like Meta and they have a very They've actually seen

0:17:18.080 --> 0:17:20.159
<v Speaker 9>their stock double over the past year or so. And

0:17:20.200 --> 0:17:24.080
<v Speaker 9>also another small company called Celestica based out of Canada.

0:17:24.440 --> 0:17:27.000
<v Speaker 9>They've been beneficiarias from from this AI span.

0:17:27.600 --> 0:17:32.320
<v Speaker 1>This is the Bloomberg Intelligence podcast, available on Apple, Spotify,

0:17:32.480 --> 0:17:35.960
<v Speaker 1>and anywhere else you get your podcasts. Listen live each

0:17:36.000 --> 0:17:39.760
<v Speaker 1>weekday ten am to noon Eastern on Bloomberg dot com,

0:17:39.880 --> 0:17:43.399
<v Speaker 1>the iHeartRadio app tune In, and the Bloomberg Business app.

0:17:43.840 --> 0:17:46.760
<v Speaker 1>You can also watch US live every weekday on YouTube

0:17:47.160 --> 0:17:50.200
<v Speaker 1>and always on the Bloomberg terminal