WEBVTT - BI Weekend: Delta Earnings, Google-Apple Deal, Lululemon Outlook 0:00:00.240 --> 0:00:11.480 Bloomberg Audio, Studios, podcasts, radio news. This is Bloomberg Intelligence 0:00:11.560 --> 0:00:13.640 with Scarletfoo and Paul Sweeney. 0:00:13.720 --> 0:00:15.800 How do you think the FED is looking at tariffs? 0:00:15.960 --> 0:00:18.200 The uncertainty of terriffs. Let's take a look at the 0:00:18.320 --> 0:00:20.120 sectors and how they performed. 0:00:19.760 --> 0:00:22.239 A lot of investors getting whip saled every day by news. 0:00:22.120 --> 0:00:24.520 Events, breaking market headlines. 0:00:24.000 --> 0:00:26.160 And corporate news from across the globe. 0:00:26.280 --> 0:00:29.040 Could we see a market disruption of market events? So 0:00:29.120 --> 0:00:31.920 people just too exuberant out there? You see some so 0:00:32.000 --> 0:00:34.520 called low quality stocks driving this short term rally. 0:00:34.560 --> 0:00:39.360 Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio, 0:00:39.520 --> 0:00:41.440 YouTube and Bloomberg Originals. 0:00:42.000 --> 0:00:45.760 I'm Scarlettfoo and I'm Alexandra Semenova fill in for Paul Sweeney. 0:00:45.880 --> 0:00:48.600 On today's Bloomberg Intelligence Show. We dig inside the big 0:00:48.640 --> 0:00:51.320 business stories impacting Wall Street and the global markets. 0:00:51.479 --> 0:00:54.160 Each and every week, we provide in depth research and 0:00:54.240 --> 0:00:56.360 data on some of the two thousand companies and one 0:00:56.440 --> 0:00:59.280 hundred and thirty industries are analysts cover worldwide. 0:00:59.320 --> 0:01:02.280 Today, we'll look why the athletic apparel company Lulu Lemon 0:01:02.360 --> 0:01:04.560 sees signs of a rebound in the fourth quarter. 0:01:04.640 --> 0:01:07.120 Plus a look at why the tech giant Meta is 0:01:07.160 --> 0:01:10.040 beginning to cut more jobs at its reality Labs division. 0:01:10.360 --> 0:01:12.679 But first we begin with the aerospace industry. 0:01:13.080 --> 0:01:16.559 This week, Delta Airlines reported fourth quarter earnings that missed 0:01:16.600 --> 0:01:19.840 Wall Street's expectations. The company also said it will be 0:01:19.880 --> 0:01:22.399 taking a more cautious view for twenty twenty six. 0:01:22.640 --> 0:01:24.960 For more, Alex and I were joined by George ferguson 0:01:25.000 --> 0:01:28.360 Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst. 0:01:28.720 --> 0:01:31.960 We first asked George for his take on Delta's recent earnings. 0:01:32.440 --> 0:01:35.000 Really, what we saw here from Delta was a continuation 0:01:35.240 --> 0:01:39.880 of the you know, the premium and the loyalty revenue 0:01:39.959 --> 0:01:43.200 are rolling in strongly, rolling in I think sort of 0:01:43.200 --> 0:01:45.920 five to seven percent if I recall correctly, you know 0:01:46.280 --> 0:01:48.440 above sort of GDP growth rates. 0:01:48.880 --> 0:01:51.520 But the back of the airplane, you know. 0:01:51.560 --> 0:01:54.320 They call it the main cabin or bas the economy 0:01:54.800 --> 0:01:57.240 that's there was that revenue was down seven percent and 0:01:57.280 --> 0:02:00.320 a quarter where Delta was growing a couple percent. And 0:02:00.400 --> 0:02:04.120 so I think we still see this premium trend, and 0:02:04.200 --> 0:02:06.640 I think we're going to see a lot of growth in. 0:02:06.600 --> 0:02:07.800 Premium seats this year. 0:02:07.840 --> 0:02:11.200 We've got Southwest converting to some you know, to more 0:02:11.240 --> 0:02:14.600 of a full service carriers premium. Delta plans to go premium, 0:02:14.639 --> 0:02:18.360 United plans to go premium. Alaska Jet Blue, everyone wants 0:02:18.360 --> 0:02:21.560 to go premium. So I think there's probably some concern 0:02:22.320 --> 0:02:26.000 in the marketplace that maybe premium gets crowded and pushes 0:02:26.520 --> 0:02:30.360 closer to that main cabin kind of kind of fair 0:02:30.960 --> 0:02:32.600 rather than main cabin coming up. 0:02:33.040 --> 0:02:36.239 Delta said they're bracing for risk to their forecast, noting 0:02:36.360 --> 0:02:41.080 the geopolitical environment, whether it's international or domestic POLICI ge 0:02:41.160 --> 0:02:43.680 or is this unusual for them to issue this kind 0:02:43.720 --> 0:02:46.000 of morning Well, I mean. 0:02:45.880 --> 0:02:47.480 Again, I think we're at the beginning of the year, 0:02:47.720 --> 0:02:51.440 and management teams like the caveat things right, and so 0:02:51.760 --> 0:02:54.880 I guess what I would say is we had plenty 0:02:54.919 --> 0:02:58.680 of geopolitical challenges in twenty twenty five. You know, we 0:02:58.720 --> 0:03:03.400 were watching transit demand closely because you've got a war 0:03:03.480 --> 0:03:05.560 raging in Ukraine's been doing that for a bunch of 0:03:05.600 --> 0:03:09.920 years now. Didn't seem to slow down that demand. That 0:03:09.960 --> 0:03:12.880 demand seemed to do okay some days. I wonder if 0:03:12.880 --> 0:03:15.679 there maybe there's more risk domestically, right. One of the 0:03:15.720 --> 0:03:18.760 other things we're watching is the President wants to cap 0:03:18.840 --> 0:03:21.080 interest rates for the credit card companies at ten percent. 0:03:21.600 --> 0:03:24.320 Loyalty through the MX program brings a lot of money 0:03:24.360 --> 0:03:29.880 in for Delta, definitely a source of their competitive advantage. 0:03:30.040 --> 0:03:32.239 And I think if you're capping interest rates, I think 0:03:32.600 --> 0:03:34.760 some of those credit card programs have to change and 0:03:34.800 --> 0:03:37.360 that would hurt some of those loyalty programs. So there's 0:03:37.480 --> 0:03:39.600 I mean, there's risk all over the place all the time. Again, 0:03:39.640 --> 0:03:42.800 the geopolitical didn't seem to hurt demand as much as 0:03:42.800 --> 0:03:44.480 we would expect it in twenty twenty five. 0:03:44.680 --> 0:03:46.480 Right, It kind of always threatens to hurt demand, but 0:03:46.480 --> 0:03:50.720 in the end, people still prioritize traveling and paying for traveling. 0:03:51.040 --> 0:03:53.280 One of the comments from Delta was that the airline 0:03:53.320 --> 0:03:58.720 industry could see consolidation in twenty twenty six. Which players 0:03:58.760 --> 0:04:00.400 would that most likely involved. 0:04:01.160 --> 0:04:03.240 Yeah, so we're already starting to see some of that, right. 0:04:03.320 --> 0:04:07.320 We had an announcement the other day that Allegiance and 0:04:07.520 --> 0:04:10.520 Sun Country are going to put themselves together. They're two 0:04:10.600 --> 0:04:15.000 smaller low cost airlines, some of them pretty quickly growing there, 0:04:15.080 --> 0:04:19.040 quickly growing, so they'll consolidate. Uh, you know, we've heard 0:04:19.080 --> 0:04:24.720 discussion about Frontier potentially buying Spirit Airlines. We still have 0:04:24.760 --> 0:04:26.760 to see, you know, the ultimate outcome for Spirit yuring 0:04:27.560 --> 0:04:29.640 Chapter eleven. We're trying to figure out what their structuring 0:04:29.720 --> 0:04:31.400 looks like the second time they've been there. 0:04:31.920 --> 0:04:34.360 So you can see on the edges. 0:04:34.800 --> 0:04:40.360 Especially where in that low cost marketplace, you can see 0:04:40.960 --> 0:04:42.360 consolidation beginning. 0:04:42.440 --> 0:04:43.680 It takes a long. 0:04:43.520 --> 0:04:47.120 Time and that's the challenge, but you can see some 0:04:47.160 --> 0:04:49.640 of that consolidation already begin. We don't see the big 0:04:49.680 --> 0:04:52.120 players getting consolidated, but you're not You're not going to 0:04:52.200 --> 0:04:54.840 put together. I think you're not going to see sort 0:04:54.880 --> 0:04:58.040 of a united to Delta and America and the Southwest. 0:04:58.520 --> 0:05:00.120 They're not going to We're not gonna put an any 0:05:00.200 --> 0:05:03.320 of those together. I think that's too much, but I 0:05:03.320 --> 0:05:05.120 think a lot of other stuff is potentially in play. 0:05:05.640 --> 0:05:05.919 George. 0:05:05.960 --> 0:05:08.960 We also got news that Delta is ordering thirty Boeing 0:05:09.400 --> 0:05:13.800 seven eighty seven Dreamliner jets, aiming to boost the company. 0:05:14.120 --> 0:05:17.440 How much do you expect this purchase to impact its 0:05:17.440 --> 0:05:18.120 bottom line? 0:05:19.279 --> 0:05:22.440 Yeah, so they're not going to see these airplanes until 0:05:22.480 --> 0:05:25.400 twenty thirty, so it's a bit of a ways away. 0:05:25.680 --> 0:05:30.320 They're replacing seven six sevens, which are old airplanes. We 0:05:30.360 --> 0:05:32.720 have an average age of them about twenty seven years 0:05:32.800 --> 0:05:35.600 right now, you know the seven eight is going to 0:05:35.640 --> 0:05:38.640 be a lot more efficient. Delta gave some numbers they 0:05:38.880 --> 0:05:42.520 fifteen ish plus percent more efficient, so I think that 0:05:43.120 --> 0:05:46.240 really helps the bottom line. Also very interesting to us 0:05:46.360 --> 0:05:50.080 is that Delta is traditionally more of an air bus shop. 0:05:50.400 --> 0:05:53.719 They buy a lot of Airbus product. The recent wide 0:05:53.720 --> 0:05:56.560 bodies they've bought. Our airbus is a three fifty and 0:05:56.640 --> 0:05:59.839 air buses a three thirty. Again, the Boeing wide bodies 0:06:00.160 --> 0:06:03.960 told you twenty eight ish years old. Interesting to see 0:06:04.000 --> 0:06:07.159 them come in for the seven eighty seven. That's really, 0:06:07.160 --> 0:06:10.560 I think, been a category leader in that small narrow 0:06:10.600 --> 0:06:14.560 body world. Boeing has over one thousand orders for that airplane. 0:06:14.600 --> 0:06:18.600 We see rates continued to rise, which to improve profitability at. 0:06:18.520 --> 0:06:20.920 Boeing as they put more through put in that seven eight. 0:06:21.279 --> 0:06:23.279 I thought it was a bit of an endorsement for 0:06:23.360 --> 0:06:25.640 seven eight, even though Delta is not going to say that. 0:06:25.680 --> 0:06:29.200 Probably our thanks to George Ferguson, our senior Aerospace, Defense 0:06:29.240 --> 0:06:30.440 and Airlines analyst. 0:06:30.839 --> 0:06:33.680 This week we focused on a Bloomberg Big Take story 0:06:33.720 --> 0:06:37.360 titled the CEO Playbook to Navigating Trump. You can find 0:06:37.400 --> 0:06:39.560 it on Bloomberg dot Com and the Terminal. 0:06:39.680 --> 0:06:42.320 So the story looks at how public feuds and protectionist 0:06:42.360 --> 0:06:45.360 threats have turned CEO's dealings with the White House into 0:06:45.360 --> 0:06:48.039 a high stakes game of loyalty and leverage. 0:06:48.200 --> 0:06:51.440 And for the story, Bloomberg News recently spoke to experts 0:06:51.480 --> 0:06:55.120 and business leaders on how CEOs should navigate Trump's second term. 0:06:55.400 --> 0:06:57.120 For more on all of this, we were joined by 0:06:57.160 --> 0:06:59.960 one of the Big Takes authors, Matthew Boyle, Bloomberg Senior 0:07:00.120 --> 0:07:00.960 Management reporter. 0:07:01.360 --> 0:07:03.440 We first asked Matt to break down some of the 0:07:03.520 --> 0:07:06.279 challenges faced while interviewing CEOs for the story. 0:07:06.720 --> 0:07:10.280 I mean the usual sort of voices of Corporate America, 0:07:10.360 --> 0:07:13.360 the Chamber of Commerce, the Business Roundtable. We're just like, 0:07:13.520 --> 0:07:16.040 you know, we're going to take a pass on this one, 0:07:16.400 --> 0:07:18.920 and just about every CEO under the sun, you know, 0:07:19.080 --> 0:07:20.840 just they just don't want to go there. It's like 0:07:20.880 --> 0:07:23.840 the third rail. So it was challenging to report, but 0:07:23.880 --> 0:07:26.600 we had a lot of great conversations, let's say, on background, 0:07:26.920 --> 0:07:29.840 with those who are advising CEOs, and that led to 0:07:30.040 --> 0:07:32.520 our playbook. Here the five rules for dealing with the 0:07:33.120 --> 0:07:33.920 Trump Madness. 0:07:34.440 --> 0:07:37.160 Matt We've seen a growing number of business leaders recently 0:07:37.280 --> 0:07:39.400 kind of push back more than usual on some of 0:07:39.480 --> 0:07:43.160 President Trump's policy proposals. We had City CFO this morning 0:07:43.200 --> 0:07:45.760 pushing back on the credit card cap. X On Mobile 0:07:45.840 --> 0:07:49.280 CEO calling Venezuela an investable. Is this unusual in what 0:07:49.400 --> 0:07:51.480 might be the consequences for them? 0:07:51.680 --> 0:07:53.960 Yeah, it takes a certain CEO to push back. It 0:07:54.000 --> 0:07:56.720 takes a Jamie Diamond or the CEO of ex On Mobile, 0:07:56.720 --> 0:07:59.280 who have the clout and the authority and the industry 0:07:59.320 --> 0:08:02.360 backing to say no, you know, this is actually not 0:08:02.600 --> 0:08:05.000 perhaps a good idea. But most of the time, as 0:08:05.040 --> 0:08:08.040 we saw with tariffs, it was happening behind the scenes. 0:08:08.400 --> 0:08:11.440 You remember, this is going back aways. But when Trump 0:08:11.520 --> 0:08:15.000 told the Walmart CEO, Doug McMillan to eat the tariffs, 0:08:15.800 --> 0:08:18.440 Walmart said nothing, and that was probably pretty wise. There 0:08:18.480 --> 0:08:20.400 was no reason to get into a public spat on 0:08:20.400 --> 0:08:24.480 true social with Trump. So but now maybe it's because 0:08:24.520 --> 0:08:27.200 Trump is in a different position twelve months later, or 0:08:27.240 --> 0:08:30.440 it's the issues involved. You know, banking CEOs are very 0:08:30.440 --> 0:08:33.880 happy to go out against interest ratecaps, but we are 0:08:33.960 --> 0:08:36.640 seeing in certain cases some CEOs pushed back. 0:08:36.520 --> 0:08:39.760 Yes, and direct engagement does seem to pay off if 0:08:39.760 --> 0:08:43.080 you can find your way to the President's mobile phone, 0:08:43.080 --> 0:08:46.040 which apparently he pans out the number pretty willingly to 0:08:46.320 --> 0:08:50.360 certain top CEOs. You talk about in videos Jensen Huang 0:08:50.720 --> 0:08:54.839 having a direct line to the president. Also Lipboon tam 0:08:54.960 --> 0:08:56.920 of Intel being able to do that as well. 0:08:57.040 --> 0:08:57.400 Exactly. 0:08:57.480 --> 0:09:00.679 I mean Jensen in video ceo one on Joe in 0:09:00.760 --> 0:09:04.280 December and said, you know, Trump is extraordinarily accessible. The 0:09:04.360 --> 0:09:07.120 United Airline ceo said the same thing to us. I mean, 0:09:07.120 --> 0:09:09.840 you can call this man up. He does answer his 0:09:09.880 --> 0:09:12.000 cell phone, as we've seen sometimes at four thirty in 0:09:12.040 --> 0:09:14.200 the morning he will pick up his cell phone. But 0:09:14.240 --> 0:09:17.760 not everybody has Trump on speed dials. So a point 0:09:17.800 --> 0:09:19.560 of our story was that you have to find a 0:09:19.600 --> 0:09:22.200 way in, whether that's Susie Wiles, a chief of staff, 0:09:22.640 --> 0:09:26.240 whether it's Scott Besson, Treasury or Commerce, Howard Lutnick, or 0:09:26.280 --> 0:09:28.720 one of the sort of lower level aids. Also, I 0:09:28.720 --> 0:09:31.040 mean we found that, you know, the director of the 0:09:31.040 --> 0:09:34.360 White House Office of Public Liaison is somebody you can 0:09:34.520 --> 0:09:36.640 you can go to also, So the point is to 0:09:36.679 --> 0:09:38.600 find a way in, no matter how you do it. 0:09:39.040 --> 0:09:41.320 Matt, what are some of the differences in how President 0:09:41.360 --> 0:09:44.040 and Trump deals with business leaders in his second term 0:09:44.080 --> 0:09:45.120 from his first term. 0:09:45.360 --> 0:09:48.760 Well, the second term, he's a little bit more unshackled. 0:09:48.920 --> 0:09:51.080 Let's say, in the first term, you had a few 0:09:51.120 --> 0:09:54.839 more traditional Republican voices. You know, you had Rex Tillerson 0:09:55.200 --> 0:09:58.360 in there and other folks who you know, were able 0:09:58.440 --> 0:10:00.720 to maybe play a little defense. They were able to 0:10:00.840 --> 0:10:05.920 slow walk some of Trump's more outrageous policy proposals. Now 0:10:05.920 --> 0:10:09.240 it's just all true believers. So he's sort of unfettered. 0:10:09.840 --> 0:10:13.360 He's unshackled, and there's really not many checks. So what 0:10:13.400 --> 0:10:15.720 this means for CEOs is, yeah, they really can't hide. 0:10:15.760 --> 0:10:18.319 They can't just say well, we'll let our industry association 0:10:18.440 --> 0:10:20.559 take care of this or don't worry. I mean, look 0:10:20.600 --> 0:10:23.680 at just the past week, what's been going on. CEOs 0:10:23.720 --> 0:10:24.880 really need to be on watch. 0:10:25.040 --> 0:10:28.480 Yeah, shackles is a fantastic word, a free range Trump right, 0:10:28.559 --> 0:10:29.640 here we go, There we go. 0:10:30.040 --> 0:10:31.960 The other thing that you could do, if you're trying 0:10:32.000 --> 0:10:34.200 to get his attention or curry favor, is to give 0:10:34.280 --> 0:10:35.440 him a made up award. 0:10:35.880 --> 0:10:40.920 Yes, he does respond to these types of trinkets and trophies, 0:10:41.200 --> 0:10:44.040 as we've seen with the Apple CEO, Tim Cook was 0:10:44.080 --> 0:10:46.319 able to give him this sort of glass you know, 0:10:46.840 --> 0:10:49.520 trophy with a twenty four carrot gold base or something, 0:10:49.520 --> 0:10:51.920 you know, with the Apple logo on it. And you know, 0:10:51.960 --> 0:10:54.600 guess what, you know, it was over tariffs and Cook 0:10:54.800 --> 0:10:58.800 Apple we're looking for some relief on foreign microchip tariffs. 0:10:58.840 --> 0:11:01.280 So and you know that helped. It also helped though 0:11:01.320 --> 0:11:03.480 that Cook had really put in the work though, talking 0:11:03.480 --> 0:11:06.199 to Trump for years now, going back to the first administration, 0:11:06.559 --> 0:11:08.120 so you can't just you know, sort of throw a 0:11:08.160 --> 0:11:11.120 trophy at him. But it does take some groundwork as well. 0:11:11.280 --> 0:11:13.800 But look at the Swiss business executives also giving him 0:11:13.800 --> 0:11:16.040 a you know, a gold rolex and you know, so 0:11:16.800 --> 0:11:19.439 these things do tend to have an impact. As we say, 0:11:19.480 --> 0:11:21.920 everything is a transaction with this president. 0:11:22.200 --> 0:11:25.199 Matt, you mentioned it's been difficult getting people to speak 0:11:25.240 --> 0:11:27.400 to you for this story. Did any of the business 0:11:27.480 --> 0:11:30.120 leaders you spoke to give you reasoning for why they 0:11:30.240 --> 0:11:32.080 might be afraid to talk or did they kind of 0:11:32.080 --> 0:11:32.959 just brush you off? 0:11:33.200 --> 0:11:35.840 It's I mean, many brush us off through their gatekeepers. 0:11:35.880 --> 0:11:38.280 They just the thing is, they just don't see much upside. 0:11:38.320 --> 0:11:40.920 They don't want to be the one CEO talking to 0:11:41.080 --> 0:11:43.959 any reporter on the record. But as we've seen now, 0:11:44.000 --> 0:11:45.640 maybe we might see some more come out of the 0:11:45.640 --> 0:11:49.080 woodwork now that Diamond and others are talking about, you know, 0:11:49.200 --> 0:11:53.120 the interest rates. The defense companies also might have something 0:11:53.120 --> 0:11:55.520 to say about Trump pressuring them to, you know, to 0:11:55.640 --> 0:11:56.400 up their game. 0:11:57.120 --> 0:11:58.040 So we'll see. 0:11:58.040 --> 0:12:00.240 But it's that you know, CEO is a yea, and 0:12:00.440 --> 0:12:02.360 that they might be speaking out on certain issues, but 0:12:02.400 --> 0:12:05.680 when it comes to Trump again, they just fail to 0:12:05.720 --> 0:12:08.480 see the upside. But at this point, as we say, 0:12:08.600 --> 0:12:11.680 or it was a Yale School of Management person wrote 0:12:11.720 --> 0:12:14.920 in Bloomberg Opinion, the chaos is not just no longer 0:12:14.920 --> 0:12:17.320 in the background. The chaos is baked in. It's in 0:12:17.360 --> 0:12:19.920 the system. It's coming for them. So they might want 0:12:20.000 --> 0:12:20.320 us talk. 0:12:20.760 --> 0:12:22.720 Yeah, it's front and center, and it feels in many 0:12:22.760 --> 0:12:25.520 ways like those who know how to navigate governments and 0:12:25.559 --> 0:12:27.480 emerging markets might be better positioned. 0:12:27.559 --> 0:12:27.679 Yea. 0:12:27.760 --> 0:12:29.959 So you have that experience exactly, you know, of that 0:12:30.080 --> 0:12:33.679 sort of slightly more chaotic, slightly more free wheeling environments, 0:12:33.920 --> 0:12:36.480 and many of these big multinationals, of course, do operate 0:12:36.520 --> 0:12:37.200 in those areas. 0:12:37.520 --> 0:12:41.000 Our thanks to Matthew Boyle Bloomberg senior management reporter, coming 0:12:41.080 --> 0:12:43.400 up a look at why the tech giant Nvidia and 0:12:43.520 --> 0:12:46.880 the pharmaceutical company Eli Lilly are partnering up. You're listening 0:12:46.920 --> 0:12:50.080 to Bloomberg Intelligence on Bloomberg Radio, providing in depth research 0:12:50.120 --> 0:12:53.040 and data on two thousand companies and one hundred thirty industries. 0:12:53.360 --> 0:12:57.280 You can access Bloomberg Intelligence via Big on the terminal. 0:12:57.320 --> 0:12:59.120 I'm Alexandra Semenova. 0:12:58.720 --> 0:13:00.800 And I'm Scarlett Foo is Bloomberg. 0:13:05.000 --> 0:13:09.520 This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney 0:13:09.840 --> 0:13:11.120 on Bloomberg Radio. 0:13:12.080 --> 0:13:15.840 I'm Scarlettfou and I'm Alexandra Semenova filling in for Paul Sweeney. 0:13:15.880 --> 0:13:18.280 We moved to some news in big tech this week. 0:13:18.360 --> 0:13:21.240 Alphabet's Google confirmed that it has entered a multi year 0:13:21.280 --> 0:13:22.000 deal with Apple. 0:13:22.440 --> 0:13:25.319 This will allow Alphabet to power the iPhone maker's artificial 0:13:25.320 --> 0:13:28.560 intelligence technology, including the Serie voice assistant. 0:13:28.720 --> 0:13:31.400 We reported late last year that the two companies were 0:13:31.440 --> 0:13:34.160 finalizing such a deal, with Apple planning to pay about 0:13:34.160 --> 0:13:35.320 one billion dollars a year. 0:13:35.440 --> 0:13:37.880 For more on this, we're joined by Ano Agrana, Bloomberg 0:13:37.880 --> 0:13:39.360 Intelligence technology analyst. 0:13:39.720 --> 0:13:43.000 We first asked Ana rog about the specific advantages Google 0:13:43.040 --> 0:13:45.080 brings to Apple with its Gemini models. 0:13:45.640 --> 0:13:49.720 Now we go back in history. Apple doesn't have that 0:13:49.880 --> 0:13:53.680 big of their own foundational model on which it's running 0:13:53.840 --> 0:13:56.559 or it's supposed to run some of these technologies. But 0:13:56.679 --> 0:13:58.880 Apple and Google go back long way. They have a 0:13:59.120 --> 0:14:04.080 very very good agreement on search, which pays Apple billions 0:14:04.080 --> 0:14:07.000 of dollars. So you know, there was some legal issue 0:14:07.040 --> 0:14:10.240 around it. So we always knew that once that legal 0:14:10.240 --> 0:14:13.360 issue goes away, Apple may be working closely with Google 0:14:13.440 --> 0:14:17.520 to basically outsource a lot of their foundational models into 0:14:17.559 --> 0:14:18.640 the technology that they have. 0:14:18.960 --> 0:14:19.240 They have. 0:14:19.640 --> 0:14:22.720 Now it's possible that the next CD upgrade, which is 0:14:22.760 --> 0:14:26.120 most likely going to be in the March April timeframe, 0:14:26.400 --> 0:14:28.600 could be that one big moment that we are all 0:14:28.640 --> 0:14:31.360 looking for Apple to finally come out and say that, okay, 0:14:31.360 --> 0:14:33.480 you know we are not a laggard in AI, that 0:14:33.560 --> 0:14:35.280 they also have a product that's pretty good. 0:14:35.720 --> 0:14:38.920 Ana rag I saw a tweet actually from the official 0:14:38.960 --> 0:14:42.520 Google account announcing this deal, and Elon Musk replied. He 0:14:42.640 --> 0:14:46.480 said that this seems like an unreasonable concentration of power 0:14:46.640 --> 0:14:51.000 for Google obviously has a vested interest here, given you know, 0:14:51.080 --> 0:14:54.440 his participation in XAI, but does he have a point, 0:14:54.480 --> 0:14:56.760 what are the regulatory risks around this deal? 0:14:57.920 --> 0:14:59.520 Yeah, I mean he won't have a point if his 0:14:59.560 --> 0:15:02.280 model been used at that point. So I mean everybody 0:15:02.320 --> 0:15:05.400 is trying to pitch Apple to use that model. But 0:15:05.800 --> 0:15:07.800 you know, at the end of the day, Apple actually, 0:15:07.800 --> 0:15:10.080 for the first time, if you go back a year 0:15:10.080 --> 0:15:12.160 and a half ago, they used open ai. I mean 0:15:12.200 --> 0:15:14.040 you can still use open ai when you go to 0:15:14.080 --> 0:15:16.480 Syria and ask a question and it can take you 0:15:16.560 --> 0:15:19.000 out of there. But for Apple, it has to be 0:15:19.080 --> 0:15:24.040 integrated within the iOS, within the software, but they won't 0:15:24.080 --> 0:15:27.360 do it to an outside vendor where they don't control 0:15:27.600 --> 0:15:30.440 the data. So what Apple's going to do here, They're 0:15:30.440 --> 0:15:32.920 going to use the foundational models from Google, but they're 0:15:32.920 --> 0:15:34.600 going to run a lot of that either on the 0:15:34.680 --> 0:15:37.960 device or their own private, private cloud data centers, which 0:15:38.000 --> 0:15:41.320 means they will still protect the privacy of that question 0:15:42.000 --> 0:15:44.200 and not let it have you know, access to other 0:15:44.480 --> 0:15:45.320 players as well. 0:15:45.640 --> 0:15:47.760 Yeah, the privacy angle is really big for Apple. It's 0:15:47.840 --> 0:15:50.320 kind of its mark of distinction here among the big 0:15:50.360 --> 0:15:51.080 tech players. 0:15:51.400 --> 0:15:51.840 An rag. 0:15:52.160 --> 0:15:56.240 Apple has seen this exodus of talent AI talent going 0:15:56.280 --> 0:15:59.480 to other big tech companies in recent months. Does this 0:15:59.680 --> 0:16:04.160 small year deal with alphabet, with Google change any of that. 0:16:04.200 --> 0:16:06.040 Does that stanch the bleeding at all? 0:16:07.000 --> 0:16:07.200 Yeah? 0:16:07.240 --> 0:16:10.400 For me, it does only because I am now buying 0:16:10.440 --> 0:16:13.560 the model outright from somebody who's doing all the hard work. 0:16:13.840 --> 0:16:16.640 So I'm not in the business of model development. If 0:16:16.640 --> 0:16:18.760 I can use the best model that's out there into 0:16:18.800 --> 0:16:21.000 my product and I pay them some money, and the 0:16:21.600 --> 0:16:24.840 humor amount is about a billion dollars a year, which is, 0:16:24.880 --> 0:16:27.760 to be honest, nothing compared to how many billions these 0:16:27.760 --> 0:16:30.480 companies are spending to come up with their own large 0:16:30.520 --> 0:16:33.240 language model. And that's what actually Apple said in the 0:16:33.280 --> 0:16:35.920 search case and says, I'm not in the search business. 0:16:36.000 --> 0:16:38.200 If Google has the best search, I will outsource that 0:16:38.320 --> 0:16:40.640 technology into my products from them. 0:16:40.560 --> 0:16:43.520 Are thanks to Honor Agrana, bi's technology analyst. 0:16:43.960 --> 0:16:46.720 We move next to news from the athletic apparel company 0:16:46.840 --> 0:16:48.320 Lululemon Athletica. 0:16:48.360 --> 0:16:51.040 This week, Lululemon said it's fourth quarter sales would land 0:16:51.040 --> 0:16:53.400 at the higher end of its twenty twenty five guidance. 0:16:53.760 --> 0:16:56.320 It's a sign that the yoga war company is regaining 0:16:56.360 --> 0:16:59.360 some momentum following a series of disappointing results. 0:16:59.480 --> 0:17:01.720 For more, Alex and I were joined by Punam Goyel, 0:17:01.920 --> 0:17:03.960 senior US e Commerce and retail analyst. 0:17:04.359 --> 0:17:06.880 We first asked Poonam to break down how the company's 0:17:06.920 --> 0:17:07.840 turnaround is going. 0:17:08.440 --> 0:17:11.760 So, the loyalty program is not something that Lulu Lemon 0:17:11.800 --> 0:17:15.280 has had for a long long time, but it does help, 0:17:15.400 --> 0:17:18.159 just like with any other loyalty program. You know, it 0:17:18.200 --> 0:17:22.000 gives you perks. You have access to Lulu Lemon merchandise, 0:17:22.040 --> 0:17:25.479 who have access to Lulu Lemon events, etc. And it 0:17:25.560 --> 0:17:29.600 does bring the member who enjoys the lul Lemon experience 0:17:29.680 --> 0:17:33.359 to keep coming back. It's an added reward for those 0:17:33.400 --> 0:17:37.520 who have been loyal to the company. But make no mistakes, 0:17:37.560 --> 0:17:40.240 that is not what's going to drive the turnaround. Their 0:17:40.240 --> 0:17:42.280 turnaround needs a lot more than that. 0:17:42.800 --> 0:17:46.120 Yeah, I mean, loyalty programs are something that most brands 0:17:46.160 --> 0:17:49.240 have and Lula Lemon has some more structural issues when 0:17:49.240 --> 0:17:52.760 it comes to Lululemon. Separate from the loyalty program, Lulu 0:17:52.800 --> 0:17:55.479 has pre announced fourth quarter sales and it comes in 0:17:55.520 --> 0:17:57.600 at the higher end of its guidance. This is kind 0:17:57.600 --> 0:18:00.600 of surprising because Lulua Lemon has struggled to connect with 0:18:00.680 --> 0:18:02.520 choppers the last couple of quarters. 0:18:03.359 --> 0:18:05.800 Yes, you can say that it's surprising, but at the 0:18:05.880 --> 0:18:08.000 end of the day, the sales are still down. The 0:18:08.119 --> 0:18:10.320 estimate was for sales to be down negative one to 0:18:10.520 --> 0:18:13.880 three percent, so maybe you're close to minus one. That's 0:18:13.920 --> 0:18:17.200 still not where we expect Lemon to be. This doesn't 0:18:17.240 --> 0:18:21.200 tell me that the turnaround is you know, has started 0:18:21.240 --> 0:18:24.200 and is underway and things will begin to improve quarter 0:18:24.240 --> 0:18:27.560 after quarter. I think it's good, but I need a 0:18:27.600 --> 0:18:30.320 lot more to be confident that the turnaround will begin 0:18:30.400 --> 0:18:31.080 to take place. 0:18:32.160 --> 0:18:35.600 What are some of the macroeconomic trends that are driving 0:18:35.720 --> 0:18:39.080 Lululemon's customer base. Is it inflation? Is it just an 0:18:39.119 --> 0:18:42.240 overall change in discretionary spending patterns? 0:18:42.280 --> 0:18:42.760 What is it? 0:18:43.680 --> 0:18:46.560 Yeah, so the macro economy has been you know, good 0:18:46.600 --> 0:18:50.119 and bad. The luxury consumer has been doing well Lemon. 0:18:50.160 --> 0:18:53.879 You could argue SIT's in the affluent space of active wear. 0:18:54.320 --> 0:18:57.360 But that said, it's not that the customer is frushured 0:18:57.400 --> 0:19:00.199 and that's why their sales have fallen. It is that 0:19:00.240 --> 0:19:03.920 they have lacked innovation and execution has been weak. So 0:19:04.359 --> 0:19:08.120 the key here is a company specific issue that they 0:19:08.160 --> 0:19:11.280 need to resolve, and they are working towards it. We 0:19:11.359 --> 0:19:13.880 will be getting a new CEO hopefully at some point 0:19:13.920 --> 0:19:17.000 in twenty twenty six, and it'll really be then where 0:19:17.000 --> 0:19:20.159 we can see who comes in, what's the strategy, and 0:19:20.200 --> 0:19:24.080 how does lul Lemon re engage. It's for a customer 0:19:24.280 --> 0:19:27.600 that probably still loves the brand but just hasn't found 0:19:27.840 --> 0:19:29.960