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Speaker 3: We're just talking about Peloton.
Speaker 4: A lot of news there switching out to CEO and
Speaker 4: that's never good. It's checking with Mark German. He is
Speaker 4: a Bloomberg News reporter based in Los Angeles.
Speaker 3: Mark, I know you did the reporting on this story.
Speaker 3: What's up with the CEO?
Speaker 5: Yeah, Barry McCarthy two years he's out. I'm honestly surprised
Speaker 5: that he stayed this long. Nothing really to do with
Speaker 5: his age. He's in his seventies. He came out of
Speaker 5: retirement for this job. He used to be the CFO
Speaker 5: of Netflix and Spotify, but this was a tough turnaround job.
Speaker 5: His predecessor, John Foley, really left them in a hole.
Speaker 5: For those who don't remember, at the height of the pandemic,
Speaker 5: Peloton exploded. Everyone was buying bikes in order to work
Speaker 5: out at home when gyms were closed and fully and
Speaker 5: Peloton made this bet, which obviously in hindsight, we know
Speaker 5: was a terrible bet that gyms would continue to be closed,
Speaker 5: COVID would last forever, the pandemic would never end, nobody
Speaker 5: would leave their homes and apartments ever. Again, they built
Speaker 5: a bunch of bikes. That's the bet they made, because
Speaker 5: they built. They started building a facility in Ohio to
Speaker 5: build many more bikes. They invested and grew the company
Speaker 5: so quickly, right, and then when things started to reopen,
Speaker 5: Peloton fell flat on its face. They've had to lay
Speaker 5: off thousands of thousands of people. They had to restructure
Speaker 5: the whole company, and it was a hole that you
Speaker 5: couldn't really dig yourself out of. McCarthy was able to
Speaker 5: get Apple to sorry, Peloton to free cash flow. But
Speaker 5: at this point, their share price is about three dollars
Speaker 5: a share, sales are down, they continue to miss their estimates.
Speaker 5: They continued to miss their own forecasts. Time for him
Speaker 5: to move on, And I think he made the prudent
Speaker 5: decision for himself. And I'm surprised it took this long.
Speaker 6: So he was you mentioned CEO of Netflix and Spotify, right,
Speaker 6: So he is this subscription based guy, so right, see
Speaker 6: if I'm sorry, So he's a subscription guy. So are
Speaker 6: we learning anything about what Peloton will do and how
Speaker 6: their business model will evolve.
Speaker 5: Well, he's you know, he was the he's the outgoing
Speaker 5: CEO Peloton, of course, and he did implement lots of
Speaker 5: subscription based features into the company. One of the first
Speaker 5: things he did was a subscription model for Peloton hardware,
Speaker 5: so you could actually lease a Peloton versus paying one
Speaker 5: thousand and fifteen hundred dollars outright for it. So that
Speaker 5: was a big thing he did. The other thing is
Speaker 5: they've expanded their content offerings, They've expanded their digital app tremendously,
Speaker 5: and these are all subscription based products. So he's sort
Speaker 5: of turned it into a subscription. Now, you didn't ask
Speaker 5: me this, but I will make my projection of my own.
Speaker 5: I think that they're going to try to sell this
Speaker 5: thing now, right, laying off more people, doing a two
Speaker 5: hundred million dollars restructuring. They have no CEO in place now,
Speaker 5: two of their board members are you know, taking over
Speaker 5: a new board member or one of their old board
Speaker 5: members is becoming their new chairman. This would make a
Speaker 5: good fit for something like Amazon Prime or for Netflix,
Speaker 5: right your Netflix or prime description get a little bit
Speaker 5: more valuable because it comes with fitness content. Maybe one
Speaker 5: of these companies can pull in all that content for
Speaker 5: under a billion dollars. I think that's the smart move
Speaker 5: for Peloton's board at this point. Try to get rid
Speaker 5: of this thing.
Speaker 4: Wow, all right, Mark, great stuff, great reporting. Really appreciate
Speaker 4: you taking a few minutes of your time, Mark Herman, you're.
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Speaker 3: Break down a little bit more on Quacom.
Speaker 4: Angela Zino joins as vice president and senior equity analyst
Speaker 4: for c fr A Research in New York.
Speaker 3: Angela, what's your takeaway here? The market certainly likes what
Speaker 3: soft from Qualcom. What's your takeaways?
Speaker 6: Yeah?
Speaker 7: No, we we love it.
Speaker 4: You know.
Speaker 7: We we upgraded the stock to a buy actually on
Speaker 7: the news. I mean, typically we hate upgrading near near
Speaker 7: the highs for a stock like this, but it's warranted
Speaker 7: and I think kind of The biggest takeaway on our
Speaker 7: end is this is a company that is clearly going
Speaker 7: to see some significant different diversification away from smartphones over
Speaker 7: the next couple of years. I think a big concern
Speaker 7: of hours was eventually Qualcom would lose that Apple business,
Speaker 7: right as Apple kind of starts, you know, internally designing
Speaker 7: their motives at some point in time might be a
Speaker 7: twenty six, twenty seven to twenty eight things, but it
Speaker 7: would happen at some point in time. But that's that
Speaker 7: you kind of look at what they just did here.
Speaker 7: Android ecosystem is definitely coming back, specifically in China, grew
Speaker 7: north of forty percent. More importantly, I think the numbers
Speaker 7: that they gave out for that automotive pipeline extremely impressive,
Speaker 7: kind of growing from thirty billion eighteen months ago to
Speaker 7: about forty five billion now. That provides some really nice
Speaker 7: visibility as you go. I went to twenty twenty sixth
Speaker 7: and beyond, and then you guys highlighted the ai PC opportunity,
Speaker 7: and I think that's a really undappreciated story. They didn't
Speaker 7: throw any numbers out as far as aipcs are concerned
Speaker 7: in their opportunity there this quarter, but they did say
Speaker 7: that they were going to start throwing those that type
Speaker 7: of numbers, those type of numbers out next quarter, So
Speaker 7: I think that also is a potential catalyst that we
Speaker 7: can kind of see as they kind of go into
Speaker 7: their June quarter results in July.
Speaker 6: All right, a lot to break through breakdown on that,
Speaker 6: And we'll get to Apple in this a second. But
Speaker 6: where do we learn from Qualcomm of where we are
Speaker 6: in the smartphone cycle?
Speaker 7: Yeah, I mean, as far as the smart phone cycle
Speaker 7: is concerned, Hey, listen, this is this is a market
Speaker 7: that we think is still you know, peaked out in
Speaker 7: twenty sixteen. We don't see it getting back to those
Speaker 7: levels anytime in the near future. But that said, I
Speaker 7: think what the real key takeaway here for Qualcom is
Speaker 7: concern is we were looking for low single digit growth
Speaker 7: as far as the smartphone market is concerned. But more importantly,
Speaker 7: the mix, especially on the Android side of things, will
Speaker 7: continue to kind of to shift towards more premium end devices.
Speaker 7: That's something that Apple has clearly benefited from over the
Speaker 7: years from a broader smartphone market, but as we kind
Speaker 7: of see that increasingly take place on the Android side,
Speaker 7: I think specifically from AI related smart smartphones. That provides
Speaker 7: greater content growth for Qualcom. So Qualcom will be able
Speaker 7: to outgrow the smartphone market here over the next couple
Speaker 7: of years. We think because of that, you know, the
Speaker 7: content games that they're seeing, unlike what you're seeing from
Speaker 7: the likes of you know, Corvo and Skyworks, which just
Speaker 7: you know, the last two nights, you know, reported results
Speaker 7: that were pretty abysmal.
Speaker 4: Hey, Angel, just a naive question for me. I just
Speaker 4: don't know the answer, but I do know there they
Speaker 4: sell a lot of chips into China.
Speaker 3: Is that a risk for them? And if so, how
Speaker 3: do they mitigate it?
Speaker 7: Yeah, I mean that's a great point. I mean, geopolitical
Speaker 7: risks are always out there, and you know, I think
Speaker 7: you know, it's been an issue that kind of Qualcom
Speaker 7: has had to contend with. I mean, they were more
Speaker 7: you know, relevant, and let's say, you know, Huawei is
Speaker 7: ecosystem here years ago and you kind of look at
Speaker 7: what they did last night, and they're sincely going to
Speaker 7: be completely gone from Huawei phones by the end of
Speaker 7: this calendar year. So I think in some respects they're
Speaker 7: going to be forced out, you know, in certain instances
Speaker 7: of you know, certain devices out there. But yeah, I
Speaker 7: think that's a great question. I don't know if there's
Speaker 7: a way of necessarily mitigating that risk out there. But
Speaker 7: you know, in the same respect, a lot of kind
Speaker 7: of the the the chips that they sell into China
Speaker 7: are also not necessarily getting sold into the China market.
Speaker 7: They're getting kind of pushed out in kind of getting
Speaker 7: sold across the rest of the world, even if they
Speaker 7: are China related phones. But it is a Listen, it's
Speaker 7: a it's a risk out there over time. Absolutely.
Speaker 6: You mentioned the AIPC cycle, which leads us to some
Speaker 6: sort of the AI smartphone cycle, which leads us to
Speaker 6: Apple trying to connect all those jobs for us. I'm
Speaker 6: trying I do if that work. But what kind of
Speaker 6: AI computer AI phone cycle do you think we could
Speaker 6: be under and when does that kind of hit.
Speaker 7: So, you know, as far as Apple is concerned, I
Speaker 7: think this is an absolutely massive opportunity for them. Hearing
Speaker 7: and Calendar twenty twenty four, and you know, the way
Speaker 7: we would look at it is, listen, the results here
Speaker 7: are going to be tonight are going to be what
Speaker 7: they are going to be. We don't expect anything good.
Speaker 7: But as as soon as next week, you're going to
Speaker 7: start going into a refresh cycle of iPad announcements. You're
Speaker 7: going to see Developers Conference in June, and then you're
Speaker 7: later this year. We do think you're going to get
Speaker 7: you know, on device AI smartphones on the you know,
Speaker 7: the iPhone side of things, as well as another upgrade
Speaker 7: cycle opportunity on the Mac side of things. So this
Speaker 7: is a really interesting opportunity because we expect them a
Speaker 7: refreshed essentially their entire hardware ecosystem here over the next
Speaker 7: kind of eight to nine months, and we do think
Speaker 7: that is underappreciated to an extent. Whether or not kind
Speaker 7: of consumers are going to go up you know, go
Speaker 7: out there and actually you know, upgrade their devices to
Speaker 7: these kind of AI enabled you know devices, remains to
Speaker 7: be seen. It all depends on what exactly Apple kind
Speaker 7: of rolls out, but we know they're going to put
Speaker 7: some crazy marketing power behind all of this, right, and
Speaker 7: we do think that there is potential for them to
Speaker 7: kind of at least increase pricing across certain aspects of
Speaker 7: their ecosystem. So that should also kind of help support
Speaker 7: you know, an improving revenue trajectory as we get at
Speaker 7: least into the iPhone sixteen cycle later this year.
Speaker 4: So in reality, though, Angel, what can the company say
Speaker 4: today about China?
Speaker 3: Can they say?
Speaker 4: I mean, because I think it's unclear whether their challenges
Speaker 4: in China are from competition from you know, changing consumer
Speaker 4: behaviors relates to buying Chinese products or anti American products.
Speaker 4: I don't know how to kind of phrase that out
Speaker 4: or parse that out.
Speaker 3: What can they say? What's the market hoping to hear?
Speaker 7: Well, I'll tell you what I'm hoping to hear. That
Speaker 7: would help me in terms of the China story. The
Speaker 7: China we think China revenue declines are probably going to
Speaker 7: be closer to fifteen to twenty percent, which is worse
Speaker 7: than expectations out there. But more importantly, I think is
Speaker 7: going to be exactly what they have to say about
Speaker 7: the China ecosystem out there, and kind of what they
Speaker 7: have to say about the installed base. If they can
Speaker 7: kind of come out and say, hey, listen, the you know,
Speaker 7: we're seeing significant declines out there, and you know, maybe
Speaker 7: part of it is because, hey listen, you've got some
Speaker 7: tough comps out there. Maybe part of it is they
Speaker 7: don't have an AI enabled device out there where. You know,
Speaker 7: other China you know, OEMs out there are kind of
Speaker 7: rolling out their AI enable devices out already, and then
Speaker 7: of course the Huawei Play but they can come out
Speaker 7: and say, hey, listen, the installed base continues to remain
Speaker 7: either the same or incrementally grow out in China. I
Speaker 7: think that would alleviate some of the concerns out there
Speaker 7: about the China ecosystem, at least for US, and would
Speaker 7: also support view that this might be more of a
Speaker 7: cyclical thing than a circular structural thing.
Speaker 6: Okay, here's my question. I have an AI smartphone. What
Speaker 6: is that going to do for me that my phone
Speaker 6: doesn't do?
Speaker 3: Now?
Speaker 6: Do we know the answer to that?
Speaker 8: Angela?
Speaker 3: Do we know that?
Speaker 7: I mean, listen, I think when you kind of look
Speaker 7: at the and you know, you look at what the
Speaker 7: S twenty I think, you know, the most notable kind
Speaker 7: of AI enabled phone that's out there right now, at
Speaker 7: least from minuder saying, is the S twenty four with Samsung.
Speaker 7: And they've got some kind of incremental you know, you know,
Speaker 7: changes out there in terms of you know, supporting multi
Speaker 7: modal capabilities, translation, all that kind of stuff. It's not
Speaker 7: necessarily anything groundbreaking in nature, right. I think what's going
Speaker 7: to be more important, at least from from Apple's perspective,
Speaker 7: is what they can kind of do in terms of
Speaker 7: things like you know, content creation, imaging, all that kind
Speaker 7: of stuff. Will it kind of get some of the
Speaker 7: gen Z population out there. I'm a little bit more
Speaker 7: interested in potentially upgrading towards these devices. But to your point,
Speaker 7: you know, is there anything kind of earth shattering right now,
Speaker 7: some kind of killer opportunity out there on the AI side?
Speaker 7: I thinks I think that remains to be seen. It
Speaker 7: all depends on what some of these OEMs kind of
Speaker 7: come out with and showcase that the consumers.
Speaker 6: Is it gonna like do my laundry for me?
Speaker 9: Like?
Speaker 6: I mean, there's you guys think about these things, right?
Speaker 8: Oh man? Do my taxes? All right?
Speaker 6: Angela, thanks a lot. Angela Zio, vice President, senior equity
Speaker 6: analyst at cfr A Research.
Speaker 1: Joining us there, you're listening to the Bloomberg Intelligence Podcast.
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Speaker 6: Lexd alongside Paul Seenia and John Tucker. This is Bloomberg
Speaker 6: Intelligence Radio. We're live from Interactive Broker Studio right here
Speaker 6: in midtown Manhattan.
Speaker 8: We're also live on YouTube, so.
Speaker 6: Go ahead and check us out. Okay, so the market's
Speaker 6: kind of rolling over a little bit here. We got
Speaker 6: through some earnings. We do have Apple after the bell,
Speaker 6: we get jobs tomorrow dot dot dot. Then what like,
Speaker 6: what's your big takeaway? What's going to be the next catalyst?
Speaker 6: Joining us in studio to discuss is carol'sh life.
Speaker 9: She is?
Speaker 6: Where's the thing there? We go cio at BEMO Family Office.
Speaker 6: I knew it was there, Carol. I don't think I've
Speaker 6: ever seen you in person.
Speaker 10: Hiding out in the Midwest a lot.
Speaker 8: No, this is very exciting.
Speaker 10: Yeah, it's very exciting for me. I love being in studio.
Speaker 6: Okay, great, well, Carol, it's great to see you in person.
Speaker 6: What is going to be your next catalyst that you're
Speaker 6: looking for within the market. We keep getting through these
Speaker 6: big events. It's a little or no fanfare. So what's next?
Speaker 10: Well, and I think the most interesting thing is is
Speaker 10: to take it up a level and instead of focusing
Speaker 10: on every piece of data, because the FED has kept
Speaker 10: us really data dependent for a very long time. Is
Speaker 10: to focus on the overarching trend and there's lots of
Speaker 10: really interesting things going on intermediate and longer term, especially this,
Speaker 10: even though it's talked about, it's largely underappreciated, the secular
Speaker 10: trends we've got going on in infrastructure built not just infrastructure,
Speaker 10: but also that implies that we have to build data centers,
Speaker 10: which means we have to hook them to the grid,
Speaker 10: which the grid, you know, is difficult getting them hooked.
Speaker 10: So the energy play utilities. There's lots of different ways
Speaker 10: to play this, and you can make an argument that
Speaker 10: this is the biggest infrastructure spend or the biggest productivity
Speaker 10: potential boost we've had since we put the interstates in
Speaker 10: in the fifties and completely changed the complexion of the
Speaker 10: United States. And so there's lots of stuff going on there.
Speaker 10: It can be easy to get caught in the in
Speaker 10: the near term, we've got an election coming up, we've
Speaker 10: got more FED meetings, more data, but it's important to
Speaker 10: pull out of that and keep a longer term perspective.
Speaker 3: William Woods University, Ulton, Missouri Awesome.
Speaker 10: I was an equestrian science major. I thought I was
Speaker 10: going to horse trainer.
Speaker 3: Yep, running money.
Speaker 10: I did get a business degree while I.
Speaker 6: So was the science in relation to equestrian stuff or
Speaker 6: was it.
Speaker 8: Like it was?
Speaker 10: It was I wanted to run the bar, not just
Speaker 10: train the horses, and so there was. And then I
Speaker 10: found I loved my business classes and I loved being
Speaker 10: based in the Midwest, because I do know who SOE.
Speaker 10: Robinson is, and I know who a lot of those
Speaker 10: other companies are there. Are you based in the mid
Speaker 10: based in Minneapolis, based in Minneapolis?
Speaker 11: Yes?
Speaker 4: Nice, Okay, what do we Okay, let's say we want
Speaker 4: to play infrastructure. Let's say some of those great Midwestern industries.
Speaker 3: How are you guys playing it? How are you getting
Speaker 3: exposure here?
Speaker 10: We've got and we've had an important uh specifically called
Speaker 10: out in an ETF and actively managed ETF pave Yeah
Speaker 10: like that, which is and then we actually another iteration
Speaker 10: is another actively managed ETF. The ai Q and X
Speaker 10: is one of the ways we've been doing it. There's
Speaker 10: a lot you can own the ETF, you can own
Speaker 10: the individual securities. We do have a lot of clients
Speaker 10: that own it individual securities. Lots of ways to play it.
Speaker 10: There's also the structure around it. One of the other
Speaker 10: things we're focusing on from a global standpoint is trying
Speaker 10: to get to even a neutral weight in Japan when
Speaker 10: most of the world is underweight, because when you look
Speaker 10: at the Japanese indexes, they're much more technology heavy than
Speaker 10: the European the other developed markets which are more industrial
Speaker 10: or utility or old schools. So there's lots of different
Speaker 10: ways to play it, both individually as well as just
Speaker 10: leaning into those those sectors.
Speaker 8: And so paved.
Speaker 6: If you look on your Bloomberg terminal, it is Eaten,
Speaker 6: it is parkerhannafin Rentals Emerson. I love these guys.
Speaker 10: Well, and when we were looking for a way to
Speaker 10: play it, we specifically searched out who are the ones
Speaker 10: that are going to be based on that rebuilding in
Speaker 10: the United States, And it's interesting. One of the it
Speaker 10: was watching h Robinson's Earnings actually where I first learned
Speaker 10: that Mexico is our biggest trading partner before the news
Speaker 10: was announcing it, because they were putting five hundred million
Speaker 10: dollar facility on this side of the border in Texas
Speaker 10: to help move that stuff.
Speaker 6: Something we have heard though in a lot of these
Speaker 6: conference calls. Is that there's no doubt a structural shift
Speaker 6: underway for these industrial guys as they take advantage of
Speaker 6: the Chips Act and the Infrastructure Act and in etc.
Speaker 6: But it's still a cyclical industry and so a lot
Speaker 6: of these companies wind up having say a strong backlog,
Speaker 6: but they're not like booking the orders right away, like
Speaker 6: they're not making the kind of money now that we
Speaker 6: thought they necessarily would. How do you think about.
Speaker 10: That, Well, I think it's important to you get that
Speaker 10: same sort of push and pull in the artificial intelligence
Speaker 10: because on the one hand, three years from now, we're
Speaker 10: going to be really happy that these big, deep pocketed
Speaker 10: companies are spending on infrastructure. But in the last earnings
Speaker 10: round we nailed some of them because they're spending on infrastructure.
Speaker 10: To put that in, so it is the advantage we
Speaker 10: have is that we're investing very long term money, and
Speaker 10: so part of it is managing the expectations in the
Speaker 10: short run with clients that you know, here's what we're
Speaker 10: building for the long run. We know it might be
Speaker 10: ballatle on the short run, and so will dollar cost
Speaker 10: average into some of these positions take advantage if they
Speaker 10: blow up on an earnings report or something like that,
Speaker 10: But it really is you have to stay out of
Speaker 10: the day to day frenzy, if you will, and focus.
Speaker 4: So at BIMO Family Office for those who don't know,
Speaker 4: Bemo's Bank of Montreal. So I'm guessing by the name
Speaker 4: you have a lot of Canadian clients.
Speaker 10: We actually we're the US of the Family Office and
Speaker 10: it was BIMO in the US has had Harris Bank
Speaker 10: from Chicago, so there's a lot of team mentioned.
Speaker 4: Is there a difference between risk tolerance for a Canadian
Speaker 4: investor versus a US vestor?
Speaker 3: Do you look at them differently? Stock spawns, alternatives, that
Speaker 3: kind of thing.
Speaker 10: Interesting question. Canada tends to be very resource based, as
Speaker 10: you can, and so there's a lot of emphasis there.
Speaker 10: There is a difference to in the individual space somewhat,
Speaker 10: but you know, it's no different than any couple that
Speaker 10: sits down across from US. There might be different risk
Speaker 10: tolerance there where one wants to be a longer term
Speaker 10: investor and one wants to trade on the lightest. Would
Speaker 10: you like energy looking for a friend? Yeah, Energy is
Speaker 10: definitely an interesting play and there's some of the you know,
Speaker 10: we've got really good energy and commodity analysis, where we've
Speaker 10: been having a lot of conversation for copper for a
Speaker 10: very long time about overcapacity under capacity. And it's hard
Speaker 10: because to your point earlier, they are cyclical industries. There's
Speaker 10: going to be those cyclical flows. But having cyclical operations
Speaker 10: inside a secular trend is more positive if that secular
Speaker 10: trend is bringing everybody up. So the backlogs are building.
Speaker 10: Energy is tough because it's politically charged for a lot
Speaker 10: of Where do they invest, do they get back to shareholders?
Speaker 10: How do they participate in the transition of the grid.
Speaker 3: So how about healthcare?
Speaker 4: I see that in your notes here you kind of
Speaker 4: highlight biotechnology, and I always said, well, biotechnology, that's a
Speaker 4: tough place because it feels like it's binary. It either
Speaker 4: passes in the stock goes ripping, or it doesn't pass
Speaker 4: and it goes to zero.
Speaker 3: How do you guys get exposure there?
Speaker 10: Well, I think over arkingly, biotechnology is interesting as are
Speaker 10: for the artificial intelligence implications that you've got in drug
Speaker 10: delivery and drug discovery and med tech discovery and things
Speaker 10: like that. There are again, actively managed or passively managed
Speaker 10: ETFs or ways to play it. We don't necessarily call
Speaker 10: it out as a secular theme in our portfolios, but
Speaker 10: healthcare in general, especially when you start thinking about the
Speaker 10: long term implications and the second and third knock on
Speaker 10: effects of the GLP one drugs in terms of do
Speaker 10: we need less diabetes drugs? Do we need fewer knat
Speaker 10: and plant replacements and surgery there as we move forward?
Speaker 10: So it's really fun to think about those long term trends.
Speaker 6: Really, yeah, that's it's great. It's like that you get
Speaker 6: the opportunity to think of all the derivatives that are
Speaker 6: going to come after, which is really really.
Speaker 5: Great, most importantly English or Western saddle Western?
Speaker 8: Okay, what's the is there a dividing line.
Speaker 10: Between There actually is four seats. There's hunt seat, saddle
Speaker 10: seat Western, and then dressage.
Speaker 1: Okay, so is one of.
Speaker 6: Them running backwards? Katie, Katie Grifell. They could you a
Speaker 6: whole equestrian podcasts. I've been on the horse like a
Speaker 6: couple of times. All I got, Carol, it was so
Speaker 6: great to see you. Thank you so much to come back.
Speaker 6: Really wonderful talking to your life a chief investment officer
Speaker 6: over at BEMO Family Office.
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Speaker 6: some serious money into building a factory in Ohio. Joining
Speaker 6: us now is Max Chafkin. He's a senior reporter for
Speaker 6: Bloomberg BusinessWeek, and he co authored this piece with Ian
Speaker 6: King on Intel committing all of this money in Ohio.
Speaker 6: And you can read all of this at Bloomberg and
Speaker 6: on Bloomberg dot com slash Big Take. All Right, Max,
Speaker 6: what walk us through the piece, what it's about and
Speaker 6: what you learned.
Speaker 8: All right.
Speaker 11: So, Intel, you know, at one time was one of
Speaker 11: the world's largest companies. It is essentially the one of
Speaker 11: the founding parts of Silicon Valley.
Speaker 8: It's the reason it's called Silicon Valley in fact.
Speaker 11: But over the last decade, Intel has really suffered, you know,
Speaker 11: they've they've sort of fallen behind both the big chip
Speaker 11: makers in the US, Nvidia, a MD, and they've fallen
Speaker 11: way behind on manufacturing, behind TSMC and Samsung. And that's
Speaker 11: a big problem for Intel, this you know, large important
Speaker 11: American company, but of course it is also a problem
Speaker 11: for the United States because Intel at this point is
Speaker 11: the only company making state of the art ships or
Speaker 11: even trying to make state of the arch ships in
Speaker 11: the US. And over the last few years they've pursued
Speaker 11: basically a turnaround, and that turnaround is betting entirely on manufacturing.
Speaker 8: You mentioned the project in Ohio.
Speaker 11: President Bien has talked about that a fair number of times,
Speaker 11: including bringing it up in the State of the Union address.
Speaker 8: They're also major, you.
Speaker 11: Know, tens of billions of dollars projects in Arizona and Oregon.
Speaker 11: And this this these this work is being backed with
Speaker 11: a lot of money from Washington, uh nineteen point five
Speaker 11: billion in grants and loans from the Biden administration. So
Speaker 11: it's this big, ambitious attempt to turn around, you know,
Speaker 11: a really important company that's fallen on some hard times.
Speaker 11: It's also a big part of the White House's geopolitical strategy.
Speaker 4: They're gonna build a megafab. What is a megafab? And
Speaker 4: can they actually is there? Are they gonna get it
Speaker 4: done here? Because this is big numbers.
Speaker 11: Uh yeah, So the Intel's put twenty eight billion into
Speaker 11: this Ohio.
Speaker 8: Site so far.
Speaker 11: The site is it's about forty five minutes north of Columbus.
Speaker 8: You know, it's in a bunch of farmland. It's really muddy.
Speaker 11: You go there now and what you really see is
Speaker 11: just a ton of construction. What this The idea of
Speaker 11: a megafab would be to have multiple chip factories, each
Speaker 11: one of these things. You know, you're talking on the
Speaker 11: order of ten billion dollars. They're gonna build two to start,
Speaker 11: and it sounds like a crazy amount of money, but
Speaker 11: at this point, that is what you need if you
Speaker 11: want to be able to compete to make chips, say
Speaker 11: for the iPhone or for AI chips, you know, to
Speaker 11: try to compete with Nvidia, which Intel you know, really
Speaker 11: desperately would like to do, but it just isn't quite
Speaker 11: there yet.
Speaker 8: On the manufacturing side yet.
Speaker 6: We have heard though of a lot of companies announcing
Speaker 6: projects and manufacturing facilities that don't get done, or the
Speaker 6: timeline's pushed out, or it gets paired back.
Speaker 11: Where's inteling, Yeah, yeah, we saw this of course during
Speaker 11: the Trump administration. You know, there has been like a
Speaker 11: political shift over the last i'd say decade where there's
Speaker 11: a lot more enthusiasm both from Republicans and Democrats for
Speaker 11: sort of state backed industrial projects.
Speaker 8: Not all those have gone great.
Speaker 11: You know, I mentioned this story that one of the
Speaker 11: sites that Intel was looking at was this Wisconsin sight
Speaker 11: outside of Racine. People will remember that because Donald Trump
Speaker 11: called it the eighth Wonder of the World these eight
Speaker 11: or nine years ago talking about fox Con. You know,
Speaker 11: fox Hunt opened there, but it hasn't proven to be
Speaker 11: the job creator they on and there's there's a.
Speaker 8: Risk with this project as well.
Speaker 11: I will say these semiconductor factories, they are like some
Speaker 11: of the biggest and most ambitious kinds of factories you
Speaker 11: can build there are already. It's like I said, it's
Speaker 11: it's muddy. There's not a lot going on there right now,
Speaker 11: and there are already, you know, fourteen hundred construction workers
Speaker 11: working on that site today. Long run, they're saying it's
Speaker 11: going to employ something like seven thousand. And you hear that,
Speaker 11: you think, okay, seven thousand construction workers like that.
Speaker 8: That's not as a temporary job, not a full time job.
Speaker 11: But the thing is with these sites, construction could go
Speaker 11: on for decades.
Speaker 8: You know, it's conceivable if.
Speaker 11: They really built this thing out, that many of these
Speaker 11: construction workers could work like their entire career building these things.
Speaker 11: Because the nature of the business is you have to
Speaker 11: keep reinvesting and you have to keep building new fabs.
Speaker 11: And the way that you know, analysts and so on
Speaker 11: are looking at this industry, there's gonna be a lot
Speaker 11: more demand for chips, you know, in the coming decades.
Speaker 4: And avoid reading your story and in king story here,
Speaker 4: you know this is a great example or just certainly
Speaker 4: an expensive example of onshoing the money for Intel in Ohio.
Speaker 4: But then you guys also report twelve billion dollars for
Speaker 4: plant being built in Arizona by Taiwan. Semiconductor six billion
Speaker 4: dollars for one in Texas being built by South Korea
Speaker 4: Samsung Electronics. So the money and is coming into the
Speaker 4: US for to ensure this ship business.
Speaker 8: Yeah, I think this.
Speaker 11: May turn out to be, you know, a thing that
Speaker 11: people are talking about in the next few months as
Speaker 11: we get closer to November. You know, this has been
Speaker 11: a big part of the Biden administration's industrial policy. It
Speaker 11: has components of sort of a jobs program because like
Speaker 11: as I was saying, you know, these are construction sites,
Speaker 11: you know, potential good jobs for people. Even even in
Speaker 11: these plants which are run by robots, the people still
Speaker 11: work there. And the other thing you have is this
Speaker 11: kind of competition with China, and the Biden administration really seeing,
Speaker 11: you know, post COVID, post chips shortage that the United
Speaker 11: States needs to sort of be able to produce at
Speaker 11: least some of its own high end and chips because
Speaker 11: because right now that is not the case.
Speaker 8: Now.
Speaker 11: The interesting thing is that idea, the sort of China
Speaker 11: competition idea has devotees in both parties. You know, in Ohio,
Speaker 11: Ohio is a state dominated by Republicans. The Republicans have
Speaker 11: been touting this as well, however, you know, it's not
Speaker 11: clear if if Biden doesn't win, it's not totally clear
Speaker 11: like how things might change with Trump. But but right
Speaker 11: now it really seems like, you know, the US is
Speaker 11: all in on investing in chip factories. There's even talk
Speaker 11: of a second chip sack, you know, the idea that
Speaker 11: we might even appropriate more money for this stuff.
Speaker 6: Not to talk about energy, but let's talk about energy.
Speaker 6: How are they going to power these this kind of fab?
Speaker 11: Yeah, I mean that is a huge issue, and talking
Speaker 11: to Intel, that is like one of the main issues
Speaker 11: in terms of where where you're going to cite one
Speaker 11: of these things. So when you're talking about building a fab,
Speaker 11: you're talking about essentially you need a lot of space,
Speaker 11: you need energy, and you also need water. Semiconductors use
Speaker 11: tons and tons of water. Now, Intel, what they say
Speaker 11: is they are really mindful of their environmental stuff. They're
Speaker 11: you know, you know, all in on sustainability and so
Speaker 11: on a lot of the stuff that many companies say.
Speaker 8: Although I have to say, they.
Speaker 11: Are already recycling a huge amount of water at these plants,
Speaker 11: and and you know, for this industry to have a future,
Speaker 11: it does have to you know, continue you know improving
Speaker 11: on sustainability.
Speaker 3: Let me just put a plug in for this story.
Speaker 3: I'm reading it right now.
Speaker 4: First of all, great reporting, as always some Max and
Speaker 4: Ian Kig, but great like audio and graphics and stuff
Speaker 4: like that.
Speaker 3: It shows you. The audio shows I feel like a
Speaker 3: shop by a drone or something.
Speaker 4: It shows you how big this facility in Ohio.
Speaker 3: Is going to be. So it's great stuff.
Speaker 4: Check it out on Bloomberg dot com slash Big Take,
Speaker 4: or you can find it on the Bloomberg terminal. Max Chafkin,
Speaker 4: Senior Reporter Bloomberg BusinessWeek, joining us here in a Bloomberg
Speaker 4: Interactive Brooker Studio.
Speaker 3: Great great story.
Speaker 4: He and Ian King wrote on Intel that's twenty eight
Speaker 4: billion to make Ohio or, as Matt Miller would say,
Speaker 4: the great state of Ohio a global chips hub.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 4: In our C Suite segment Today, a really unique story
Speaker 4: the company His name is Zoetis Health Animal Healthcare, and
Speaker 4: we talked about animal healthcare and therapeutics. We're talking in
Speaker 4: companion animals like dogs, cats, and horses, but also livestock, cattle, hogs,
Speaker 4: all that kind of good stuff. You got to get
Speaker 4: medicine to these animals.
Speaker 3: And Zoetis does it.
Speaker 4: Joining us today is Wetney Joseph, chief financial officer of
Speaker 4: Zoetis z ts is the ticker similar to load into
Speaker 4: your Bloomberg terminal. The good news is they're up seven
Speaker 4: percent today on some good earnings. Company's got a market
Speaker 4: kappas seventy seven point five billion dollars, so a significant
Speaker 4: global player in the world of healthcare for animals.
Speaker 3: Ny, thanks so much for joining us here.
Speaker 4: Just give us a little bit greater flavor about what
Speaker 4: you guys do a Zoetis. What's the story and what's
Speaker 4: kind of the growth outlook for you guys.
Speaker 9: Thanks for having me, Paul, great to be with you today. Yes,
Speaker 9: Zoetis is the leading animal health company in the world,
Speaker 9: and we lead our industry and innovation. Have demonstrate and
Speaker 9: ability through our diverse and durable portfolio of products as
Speaker 9: well as our market leading innovation to actually grow faster
Speaker 9: than the market. And as you described, we have a
Speaker 9: part of our business, which is about two thirds of
Speaker 9: our businesses really advancing care for pets, so cats and
Speaker 9: dogs and horses also are comparing animals. And then our
Speaker 9: livestock business is really production animals around the world. And
Speaker 9: we just delivered an outstanding quarter. We grew our top
Speaker 9: line twelve percent operationally and grew justin then income fifteen
Speaker 9: percent operation only on the back of this really resilient
Speaker 9: industry that we operate in and the innovation that we
Speaker 9: lead with.
Speaker 6: Typically people tend to say, hey, you know what, anything
Speaker 6: to do with pets is recession proof, right, because like
Speaker 6: I won't eat, but my pet will. Is that the
Speaker 6: same in your business?
Speaker 10: You laugh?
Speaker 3: But true, I know.
Speaker 9: You know ped owners would agree with you. Actually, we
Speaker 9: actually have survey after survey, and we see it in
Speaker 9: our numbers, in our results as well, but we have
Speaker 9: survey after survey that proves this, and about eighty six
Speaker 9: percent of pet owners in a very broad survey, indicated
Speaker 9: that they would spend whatever it takes if their pet
Speaker 9: needed extensive veterinary care. And we did a market study
Speaker 9: also where we gave a hypothetical to pet owners and
Speaker 9: we said, look, if you had a twenty percent reduction
Speaker 9: in your budget, what would that do to how much
Speaker 9: you spend on your pet health? And the answer is nothing,
Speaker 9: They would not reduce it. So ped owners at large
Speaker 9: see this. And you know, I've been in the industry
Speaker 9: now for about three years and what's been really interesting
Speaker 9: is this is not just a phenomenon in the US
Speaker 9: or in European markets. We see it across emerging markets
Speaker 9: as well, So it's really phenomenal.
Speaker 4: So I'm looking at Wall Street forecasts on the Bloomberg
Speaker 4: terminal here for your company. Look, that's six to seven
Speaker 4: percent revenue growth in each of the next three four years.
Speaker 4: What are the components of the top line revenue growth
Speaker 4: for your company?
Speaker 9: Yeah, Look, we have really multiple sources of growth. We
Speaker 9: have our companion animal portfolio he continues to grow, which
Speaker 9: are innovative products like we do in dermatology. So our
Speaker 9: key DRM franchise is actually one point four billion dollars
Speaker 9: and we essentially really shaped that market over the last decade.
Speaker 9: We have parasiticized which is the biggest segment of the market.
Speaker 9: It's north of six billion dollars in terms of market
Speaker 9: and that segment is really growing for US, and we
Speaker 9: are the market leader in terms of triple combination products
Speaker 9: that tackle flee sticks and heartworm, and we posted growth
Speaker 9: in that segment today, really outstanding growth, including our Trio
Speaker 9: product which was sixty one percent. And so those two
Speaker 9: areas are two billion dollar franchises that we have and
Speaker 9: the third billion dollars for franchise that we are launching.
Speaker 9: We launched actually three years ago in Europe and just
Speaker 9: recently launched in the US is Austria. Threat Is Pain,
Speaker 9: which we believe is a market that is poised for
Speaker 9: our innovation that we've launched, and we believe those products,
Speaker 9: both for cats and dogs, will be north of a
Speaker 9: billion dollars in peak sales for US, which is essentially
Speaker 9: within the first three to five years after launch. And
Speaker 9: in that segment also we saw tremendous growth in this quarter.
Speaker 6: What's competition like, who are your main competitors?
Speaker 9: So our main competitors are other animal health companies. So
Speaker 9: for example, borringeror Engelheim is a private company that has
Speaker 9: human health as well as animal health business. Mirk Animal
Speaker 9: Health is another one that I'm sure all of you
Speaker 9: a very familiar with they have an animal health business
Speaker 9: as well, and then in Lanco is also a publicly
Speaker 9: traded company that has animal health offerings. We are the
Speaker 9: largest among our competitors, and we also lead with innovation
Speaker 9: in terms of the products that we come out with.
Speaker 9: I mentioned dermatology for example. I just mentioned au seria,
Speaker 9: thrise pain. These are areas of significant unmet need that
Speaker 9: we really take our purpose driven colleagues and our capabilities
Speaker 9: around innovation to really look for meaningful innovation that changes
Speaker 9: the standard of care for animals, and we tend to
Speaker 9: lead and be first in market and that tends to
Speaker 9: drive the rest of our industry as well. So those
Speaker 9: are the main competitors that we have, but we're by far,
Speaker 9: you know, the leader in terms of innovation in our space.
Speaker 4: And Alex you'll be happy to know that this is
Speaker 4: another New Jersey success story.
Speaker 3: Parsipony, New Jersey. How about that, Wetney.
Speaker 4: I look at your business, Well, you guys are truly global.
Speaker 4: Forty five about fifty three percent of your revenue comes
Speaker 4: the US and about you know, I don't know, forty
Speaker 4: five forty six percent comes international. Talk to us about
Speaker 4: the growth outlook for the US versus non US.
Speaker 9: So we actually see really great balance growth across our business.
Speaker 9: We are in one hundred countries. So if you look
Speaker 9: at our international segment, for example, it grew eight percent
Speaker 9: operationally in the quarter, while the US led the way,
Speaker 9: particularly with Companion Animal growing globally twenty percent. The US
Speaker 9: grew about sixteen percent on the quarter, but we saw
Speaker 9: eight percent growth in our international segment as well. So
Speaker 9: as we look out, if you look at the market globally,
Speaker 9: we are in Brazil, We're in Australia, We're in China,
Speaker 9: We're of course across Europe, and so very very global
Speaker 9: in nature, and we are introducing our innovation across all
Speaker 9: of those markets, so that tends to drive it. And
Speaker 9: really the US is our largest as you mentioned, fifty
Speaker 9: three percent, tends to be a little bit more Companion
Speaker 9: Animal heavy. So the US is about seventy five percent
Speaker 9: Companion Animal, give or take, whereas Companion Animal globally is
Speaker 9: about two thirds of the company with the other third
Speaker 9: being production animals. Outside the US, it tends to be
Speaker 9: almost balanced. So a little bit, I would say, Companion
Speaker 9: Animal is just slightly over fifty percent, with the recing
Speaker 9: being live stock and we do see growth across our
Speaker 9: emerging markets as well. And we're also in a lot
Speaker 9: of different species, so I talk about companion animal across
Speaker 9: live stock. We are of course in cattle, we're in poultry,
Speaker 9: we're in swine. When aqua also fish, particularly in markets
Speaker 9: like Chile and Norway, et cetera.
Speaker 4: I didn't even think about it. I mean, yeah, great stuff,
Speaker 4: Wetney Joseph, great story. Thanks for taking the time to
Speaker 4: joining us, Wetney Joseph. He's a chief and anfangel officer.
Speaker 4: Zoatist is the name of the company located in Parsippany,
Speaker 4: New Jersey.
Speaker 3: Fascinating story. Seventy five billion dollar market cap.
Speaker 4: I mean it's a huge company, you know, about eight
Speaker 4: and a half billion dollars in revenue. It's one of
Speaker 4: those companies you never heard of until you're like, oh, yeah,
Speaker 4: I mean there's got to be somebody doing this stuff. Yeah,
Speaker 4: you know, and sure enough there is. And it's a
Speaker 4: totally truly a global business.
Speaker 6: Well, especially as we need more protein to feed the
Speaker 6: rest of the world, as the world keeps growing, right,
Speaker 6: and it won't all be like in poss Burgers. You
Speaker 6: actually need the fish, you need the cows. You need
Speaker 6: the pigs, like, how do you keep them healthy? How
Speaker 6: do you advance that? So we're not running on any
Speaker 6: kind of shortage. I thought it was very interesting.
Speaker 3: Also, total ecosystem play there pet.
Speaker 6: Do you have a pet?
Speaker 3: No, never had a pet?
Speaker 6: I can see that about that.
Speaker 3: Yeah, I know, I can.
Speaker 6: I tell you you get four kids though, so there's
Speaker 6: off set of down.
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