Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: David Welch, Detroit bureau chief for Bloomberg News, and Jordan Fabian,
Speaker 1: white House reporter for Bloomberg News.
Speaker 3: They join us. We're going to round table this thing
Speaker 3: a little bit.
Speaker 1: So, David, I want to get the latest reporting out
Speaker 1: of Detroit.
Speaker 3: What's the expectation.
Speaker 1: Will there be a strike and if so, is there
Speaker 1: any expectation of how long it may last?
Speaker 4: I think there certainly will be. All of the the
Speaker 4: vibe coming out of the union right now is the
Speaker 4: president is itching destroyed. He says he's not, but he's
Speaker 4: making plans. The writer has still really strong against the
Speaker 4: car companies, against rich executives, all of that, so he's
Speaker 4: getting people riled up. He says they're far apart. Sound
Speaker 4: like they are if you look at the numbers. So
Speaker 4: I think they will and look, it could go on
Speaker 4: for a while. I don't think it'll be something like
Speaker 4: three months, but I could see strike going on for weeks,
Speaker 4: and it could vary by car company too. It doesn't
Speaker 4: necessarily two days at one and three weeks at another, right,
Speaker 4: I mean, if he gets the deal he wants from
Speaker 4: specific companies.
Speaker 3: So, David, how far apart are they?
Speaker 2: Because I've read now that the union has lowered its
Speaker 2: demand for pay increases slightly, and the last I saw
Speaker 2: from automakers was about double what I had seen a
Speaker 2: week ago. So how far apart are they right now?
Speaker 5: Yeah?
Speaker 4: So look, Forward is up to twenty percent and GM
Speaker 4: is at eighteen percent pay raises over four years, which
Speaker 4: is I think better than they've ever gotten, so, you know,
Speaker 4: I think, and it's not the thirty six percent they
Speaker 4: asked for, but I think that was sort of a
Speaker 4: high ball offer from the union to begin with.
Speaker 2: But they asked for that because the chief executives have
Speaker 2: gotten those kinds of pay increases over the past four
Speaker 2: years as well, haven't they.
Speaker 6: That's right?
Speaker 4: And look, you know, CEO's got to kind of be
Speaker 4: careful what they wish for it, right, because you know,
Speaker 4: suddenly they might have a union saying you got forty
Speaker 4: percent and why didn't I? And didn't get great raises
Speaker 4: over the last contract. And I'm sure some labor negotiators
Speaker 4: that the company's got bonuses for negotiating a pretty low
Speaker 4: cost contract last time. And they used to be careful
Speaker 4: what they wish for, because now they've got an extremely
Speaker 4: angry union. But they do, and they and with a
Speaker 4: president who wants to make a statement about labour's role
Speaker 4: in America. This isn't just about this contract with him,
Speaker 4: he wants to bring the labor movement back to prominence
Speaker 4: in America.
Speaker 3: All right, and all.
Speaker 4: Right, so that's where we are.
Speaker 1: Yep, Jordan Fabian, let's bring you in. You covered the
Speaker 1: White House for Bloomberg News in Washington, DC. The President Biden,
Speaker 1: he has said twice that there won't be a strike here.
Speaker 1: What are you hearing out of the White House.
Speaker 7: I think that's the President being his usual optimistic self.
Speaker 7: Other people I've talked to aren't so optimistic. And you know,
Speaker 7: they see what we're all seeing, which is a union
Speaker 7: and management still.
Speaker 5: A part on a contract.
Speaker 7: And you know, they have encouraged the side to stay
Speaker 7: at the table. But you know, some people I've talked
Speaker 7: to have said, look, we don't know how this is
Speaker 7: going to end. It's all we can do is kind
Speaker 7: of encourage them to keep talking. But there's really not
Speaker 7: much we can do to force them to get a contract.
Speaker 7: So they're crossing their fingers and hoping there's not a strike,
Speaker 7: and if there is, that's not a long one.
Speaker 2: You So, Jordan David points out that this president wants
Speaker 2: to bring unions back to prominence. At the same time
Speaker 2: he has backed up truckloads of subsidies and dumped them
Speaker 2: on the automaker's doorsteps to try and encourage them to
Speaker 2: build more electric vehicles for which, by the way, we
Speaker 2: don't even know how much demand there is that is
Speaker 2: going to require far fewer workers. So is he working
Speaker 2: at cross purposes?
Speaker 7: This is the central dilemma for Joe Biden is this
Speaker 7: clean energy transition is one of his biggest domestic priorities.
Speaker 7: But guess what, so it is empowering the US labor movement,
Speaker 7: and in this negotiation he's found himself caught in the
Speaker 7: middle of those two priorities and they're really.
Speaker 5: No easy answers.
Speaker 7: They've done the administration has done something recently, they've released
Speaker 7: this fifteen billion dollar tranch of money from the Energy
Speaker 7: Department to incentivize factory retooling, and they've, you know, they've
Speaker 7: put some strings attached there. They're encouraging car companies to
Speaker 7: use that money on unionized plants and make sure the
Speaker 7: benefits go to union workers, but they're not forced to.
Speaker 7: And this has been the bane for Sean Fain, which
Speaker 7: is he doesn't think the administration imposed enough conditions on
Speaker 7: all this money that's going to the car companies. And
Speaker 7: so in addition to the pay and benefits, this ev
Speaker 7: transition issue has been at the backdrop of this negotiation
Speaker 7: and it's really, you know, causing political problems for Joe
Speaker 7: Biden because he needs all the units support he get
Speaker 7: going too twenty twenty four, and here you have this
Speaker 7: major union on the side saying, not so.
Speaker 1: Fast, Hey, David, do we know how this union will strike?
Speaker 1: Will they strike one automaker all three? Do we know
Speaker 1: kind of their strategy?
Speaker 4: I think they'll they will strike all three. And what
Speaker 4: they're what they said they're going to do is they
Speaker 4: will strike individual plants. They're not going to walk out
Speaker 4: on the entire company. That's one way of minimizing the
Speaker 4: payouts from the strike fund, which pays workers some money
Speaker 4: while they're striking. And if they strike all three at
Speaker 4: every plant, they'd run out of money in about seven weeks.
Speaker 4: They don't want to do that, so they'll they'll strike
Speaker 4: individual plants. And what I think they'll do is they'll
Speaker 4: strike the plants that make the most profitable vehicles, which
Speaker 4: would be the large pickup truck and suv plants, because
Speaker 4: that you know, if you were to take down Ford
Speaker 4: and GM's large suv and pickup plants and it's something
Speaker 4: like seventy or eighty percent of their profits comes from
Speaker 4: those vehicles, you do a lot of damage and put
Speaker 4: a lot of pressure on the companies very quickly while
Speaker 4: paying minimally out to your strike fund. And then if
Speaker 4: they don't get a deal, they can kind of keep,
Speaker 4: you know, adding another plant here and there. They could
Speaker 4: strike parts plants that supply the dealers with replacement parts
Speaker 4: for customers. That could create a lot of chaos. There
Speaker 4: are a lot of ways they could with individual plant strikes.
Speaker 4: They could apply a lot of pressure.
Speaker 3: Hey, David, just person on the street in Detroit, which
Speaker 3: way are they leaning?
Speaker 4: I mean, like that kind of runs the gamut. But
Speaker 4: I think, you know, it's it's a union city, so
Speaker 4: there's going to be a lot of sympathy for them.
Speaker 4: It's also the Detroit city proper. There's a lot of
Speaker 4: poverty there, so you know, strikers trying to get what
Speaker 4: they think is their fair share would probably have a
Speaker 4: lot of sympathy. You move further out in the state
Speaker 4: and you start to see comments on social media like
Speaker 4: thirty to our work. You guys are on crack up bread,
Speaker 4: stuff like that. So Michigans, Michigans are a very biver
Speaker 4: hated place in that.
Speaker 2: I mean, forty seemed like a lot to me at first,
Speaker 2: also until I read that the chief executives were getting that.
Speaker 2: You know, and this is an industry that was bailed
Speaker 2: out by the US government. There you go during the
Speaker 2: Great Financial Crisis and a union that gave a lot
Speaker 2: of help frankly that that accepted a worse contract in
Speaker 2: order to help the automakers stay alive. Now, the automakers
Speaker 2: have made a ton of money over the past ten years,
Speaker 2: and Jordan, does you know from that perspective, doesn't the
Speaker 2: president from Scranton, Pennsylvania, who cares about the scrappy workers.
Speaker 2: Doesn't he go march with the with the union when
Speaker 2: they strike.
Speaker 7: That would be quite the image, wouldn't it, Joe Biden
Speaker 7: holding a picket sign.
Speaker 2: But that's what he wants us to think of him, right.
Speaker 5: No, he absolutely does.
Speaker 7: He's repeatedly called himself the most pro union president in
Speaker 7: US history. He did put out a statement about a
Speaker 7: month ago that did voice support generally for some of
Speaker 7: the union demands, like I better pay and betterfit's making
Speaker 7: sure if there's a factory tooling or closing down, that
Speaker 7: the members are taken care of and that they keep jobs.
Speaker 6: In union communities.
Speaker 7: But look, he also needs these corporations like he needs
Speaker 7: them for the clean energy transition, not to mention, he
Speaker 7: needs to Corporate America on side to give him campaign
Speaker 7: donations for his re election campaign. So that's why you're
Speaker 7: not going to see him wearing that red shirt that
Speaker 7: Sean Fame was wearing in that image.
Speaker 1: All right, fellows, thank you so much for joining both
Speaker 1: of you. Jordan Fabian he covers the White House for
Speaker 1: Bloomberg News, and David Welch, Detroit bureau chief, out there
Speaker 1: giving us kind of the feel for the two sides
Speaker 1: here again. Midnight tonight Eastern time is the deadline.
Speaker 8: You're listening to the Team Ken's Arline program Bloomberg Markets
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Speaker 1: We had the European Central Bank hike interest rates for
Speaker 1: the tenth time to quash inflation at the posit rate
Speaker 1: now four percent, up from three point seven three point
Speaker 1: seventy five percent.
Speaker 3: Where do we go from here? They've done?
Speaker 1: Let's check in with doctor Richard Portis, professor at the
Speaker 1: London Business School. Professor, thanks so much for joining us here. A.
Speaker 3: What do you make of the ECB move? ECB's move
Speaker 3: today and then B are they done?
Speaker 9: I'm disappointed. I don't think they should have hiked today.
Speaker 9: The pressures on the European economy are very great now
Speaker 9: and growth forecasts are just falling and falling. The latest
Speaker 9: European Commission forecast, independently of the ECB, has cut back
Speaker 9: their forecasts considerably so that I think they're pushing us
Speaker 9: into a recession, pushing the Eurozone into a recession, and
Speaker 9: that seems to be unwise. What they should have done
Speaker 9: is wait. In my view, the data are mixed. Otherwise,
Speaker 9: the inflation data are mixed, and it would have been
Speaker 9: better to hold on.
Speaker 2: They only have one mandate, though the European Central Bank,
Speaker 2: unlike the FED, doesn't worry or isn't supposed to be
Speaker 2: focused on the labor market and I guess economic growth altogether.
Speaker 2: Their only job is to keep inflation at a steady level.
Speaker 9: Excuse me, they're talking about their big into climate and
Speaker 9: all that. They're criticizing the Italian government for their windfall
Speaker 9: profit tanks on banks. Their single mandate has a very
Speaker 9: broad scope and actually, if you look at it, they
Speaker 9: are required to take account of their actions on the
Speaker 9: overall level of economic activity in the Eurozone.
Speaker 2: All right, So you're worried that they essentially push the
Speaker 2: Eurozone into a recession. We're already seeing, you know, we're
Speaker 2: already seeing that in some of the biggest economies in
Speaker 2: Germany for example. But they have said this is their
Speaker 2: final rate hike. Does that, well, they haven't said it. Actually,
Speaker 2: let me let me. In fact, in fact, Christine leguards
Speaker 2: that she can't say that, which she can't obviously, but
Speaker 2: we kind of you can read between the lines and
Speaker 2: see that this is their final rate hike. So does
Speaker 2: that kind of blunt the does that kind of reduce
Speaker 2: the damage effectively?
Speaker 9: Well, if it's if it ready is final, yes, that's
Speaker 9: that reduces the prospects of damage. But still I think
Speaker 9: they've gone too far and we'll just we'll see what happens.
Speaker 6: The inflation data are not.
Speaker 9: Particularly good, that's for sure, but you know it's turning around.
Speaker 9: It has been turning around for a while, and I
Speaker 9: think the wisest churus is to wait. But there are people,
Speaker 9: several people with strong views in the Council Governing Council
Speaker 9: of the ECB who think, no, we must stamp on
Speaker 9: inflation dramatically, and that's what they're doing.
Speaker 3: Professor.
Speaker 1: Here in the US, the talk has been about a
Speaker 1: soft landing. That is not the case in Europe. Can
Speaker 1: you give us your view of kind of where the
Speaker 1: European economy is, how we should think about it.
Speaker 3: Maybe on this side of the pond.
Speaker 9: It's certainly not a soft landing here in Europe, and
Speaker 9: I include the UK and that of course as well.
Speaker 9: But I think that's where we've got to the labor
Speaker 9: market is holding up fairly well as in the US
Speaker 9: for that matter, but economic activity is slowing down very considerably.
Speaker 9: And how long you can how they can take that? Uh,
Speaker 9: the politicians are coming European elections are coming up, not
Speaker 9: in just in individual countries, but also the European Parliament
Speaker 9: elections are coming up, and there's gonna be a lot
Speaker 9: of criticism of the ECB if indeed we find the
Speaker 9: Arizona going into a full scale recession.
Speaker 5: I wonder.
Speaker 2: You know how hesitant you are to include the UK
Speaker 2: when you talk about Europe, because aren't there very big differences?
Speaker 2: And to some extent, the UK has you know, kind
Speaker 2: of repeatedly shot itself in the foot.
Speaker 9: Well, I mean depends which which gun you're talking about.
Speaker 6: Was that the left foot or the right foot or
Speaker 6: both the same time?
Speaker 9: Yes, I'm afraid we have done, and right now there
Speaker 9: seems no prospect of that reversing. But but here too,
Speaker 9: I believe we should not be raising rates any further.
Speaker 9: The data are turning around. They're turning around for inflation.
Speaker 9: They're turning around slower than one would like, for sure,
Speaker 9: But the cost of the restrictive policies is high.
Speaker 6: And that I think is unwise.
Speaker 9: The the otherwise, you know, the banking sector is in
Speaker 9: pretty good shape, both in the Eurozone and in the UK.
Speaker 9: How long that will last we don't know. But the
Speaker 9: rise and interest rates as of course widened that interest
Speaker 9: margins for a while. They will they will come down
Speaker 9: as as banks have to pass on some of the
Speaker 9: interest rate rises to the depositors. But the financial sector
Speaker 9: is in pretty good shape in general, and it's just
Speaker 9: the main suffering is in manufacturing and to some extented services,
Speaker 9: and that's that's serious.
Speaker 5: Yep.
Speaker 1: And Professor, when you talk about manufacturing, European manufacturing, I
Speaker 1: think most US investors think Germany. Can you tell us
Speaker 1: about how we should be thinking about the German economy here?
Speaker 3: And maybe the outlook it's not.
Speaker 6: A pretty picture.
Speaker 9: The problem is partly a slow down in external demand
Speaker 9: from China in particular, and that is very substantial and
Speaker 9: very severe and has a big impact across a wide
Speaker 9: range of German engineering firms.
Speaker 6: So that's a big deal.
Speaker 9: The unions have push wages up and German manufacturing is
Speaker 9: there's not a sector I can think of right now
Speaker 9: that is balancing this trend downwards and If you look
Speaker 9: at the data, they're pretty they're pretty depressing, so uh so, and.
Speaker 6: It's it's not it's not easy to see how that's
Speaker 6: going to turn around.
Speaker 9: Actually, the the finance minister is a very uh conservative
Speaker 9: shall we say, uh uh minister, and he certainly has
Speaker 9: no intention of any fiscal expansion. Indeed, just the other
Speaker 9: way around, the prospect for next year for Germany is
Speaker 9: fiscal contraction. Uh in the face of this uh, in
Speaker 9: the face of this gathering recession.
Speaker 6: That seems to me very foolish.
Speaker 2: What do you think the solution? The solution is to
Speaker 2: the problems that the European Union faces in terms of
Speaker 2: monetary policy. You have got this one uh you know,
Speaker 2: organization setting monetary policy for so many different and diverse economies.
Speaker 2: Does that you think work? Has it worked out so far?
Speaker 2: Does it need to change?
Speaker 9: It's always Look if you look at the United States,
Speaker 9: you have a single monetary authority setting policies for states
Speaker 9: as diverse as Mississippi and California, not to mention Illinois,
Speaker 9: where I grew up a long time ago. So it's
Speaker 9: this one size fits all problem is a problem you
Speaker 9: have in any large, single economy. And to the extent
Speaker 9: that the European Eurozone is a single economy, it is.
Speaker 6: Diverse, and you're going to have.
Speaker 9: Areas where even in the UK we've had this conflict
Speaker 9: in part with monetary policy having different impacts on London
Speaker 9: and say the Northeast, and there's nothing you can do
Speaker 9: about that. You have to have a single monetary policy.
Speaker 9: You can't have different interest rates for different zones. So
Speaker 9: the one size fits all problem is there. It's no
Speaker 9: more acute in my view, in the Eurozone than it
Speaker 9: is in any large, geographically diverse economy. But it's true
Speaker 9: that you have very different, for example, in the Eurozone,
Speaker 9: very different rates of inflation. In the Baltic countries it's
Speaker 9: been much higher.
Speaker 6: Than the rate in.
Speaker 9: France, say, or Spain and Spain where Spain has been
Speaker 9: very low.
Speaker 6: So you know, that's something they can't they can't do
Speaker 6: much about it.
Speaker 9: They can't do anything about But it's not it's not
Speaker 9: special to the Eurozone.
Speaker 1: Okay, doctor Richard Porters, thank you so much for your time.
Speaker 1: You really appreciate getting your thoughts and analysis, Doctor Richard Porters.
Speaker 3: He's a professor at the London Business School.
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Speaker 6: All right.
Speaker 1: When I first learned about this whole reek thing years
Speaker 1: and years ago, fun flows from operation. That's the profitability
Speaker 1: metric that these people focus on FFO.
Speaker 2: I thought this, you're talking about a real estate investment.
Speaker 3: Trust.
Speaker 1: I know, it's kind of the thing. I thought it
Speaker 1: at the time was a scam, but now I understand
Speaker 1: how it works.
Speaker 2: That's free cash flow.
Speaker 1: No, it's like their ebitda oh, I think, I don't know.
Speaker 1: Our next guest can help us out, Christine Mostandria.
Speaker 3: She is the COO of white.
Speaker 1: Stone Rate that trades on the New York Stock Exchange
Speaker 1: ws R. Christine Whitestone read tell us about your company.
Speaker 3: What kind of real estate do you guys own or
Speaker 3: do you guys focus on?
Speaker 10: So primarily we focus on neighborhood retail. So this would
Speaker 10: be your high visit great corners with traffic and pretty
Speaker 10: much based on convenience versus soft goods.
Speaker 1: So I think about the pandemic in my home, in
Speaker 1: my town in Jersey, lots of and we have a
Speaker 1: very vibrant downtown in New Jersey. Lots of businesses went
Speaker 1: out of UH one went out of business, so a
Speaker 1: lot of you know, for sale for rent signs. What
Speaker 1: is the short Hills Summit Summit and better town than
Speaker 1: Short Hills, Better train Station. So which is why I
Speaker 1: chose somewhat over Short Hills Better train Station. Some people
Speaker 1: choose the name.
Speaker 2: I just wanted to make it clear because I can
Speaker 2: imagine properties like that in Short Hills or Summit. I
Speaker 2: can imagine property in Scarsdale and Bronxville.
Speaker 4: You know this is where?
Speaker 3: So what happened to your properties then? And kind of
Speaker 3: where are you now?
Speaker 10: So we have the fortune of being into very strong markets.
Speaker 10: So we're in Texas and Arizona.
Speaker 3: Oh nice.
Speaker 10: So our rebound from COVID which was much much quicker,
Speaker 10: In fact it probably I think we're affected maybe for
Speaker 10: six months really, So yeah, we had very few tenants
Speaker 10: to fall.
Speaker 3: Because you guys didn't shut down do the mess. Things
Speaker 3: just partied right, well, I mean on the Ozar.
Speaker 10: Yeah, there was a little bit of that going on,
Speaker 10: I'd have to say, and our restaurants for a while,
Speaker 10: there was a little bit of spacing, but you know,
Speaker 10: they rebounded really quickly and then quickly after that same
Speaker 10: thing with Fitness and all of other operators.
Speaker 3: So what is this.
Speaker 2: You're not just the CEO of Whitestone, reed, you're also
Speaker 2: a professor of commercial real estate and strategic management at
Speaker 2: Rice Business School. What does this fun flow from operations?
Speaker 2: What's the significance of that for a rate?
Speaker 10: So it's a little bit different than even up right,
Speaker 10: I mean as far as profitability. So what you have
Speaker 10: to take into context is where an asset have you
Speaker 10: business and so that means you have to reinvest capital
Speaker 10: into the business, and so that takes that into account.
Speaker 10: So it's a little bit different as far as getting
Speaker 10: to a bottom line.
Speaker 2: I was thinking maybe it's somewhere in the middle.
Speaker 3: Maybe somewhere in the middle, but anyway, they buy off
Speaker 3: on it.
Speaker 1: All right, So at Whitestone Rerate, your Texas, your Arizona,
Speaker 1: what's the growth story for your company?
Speaker 6: Is it?
Speaker 1: Is it acquisition? Is it just increasing the the you know,
Speaker 1: the numbers, the vacancies and all that kind of stuff.
Speaker 3: I mean not to make it the occupancy.
Speaker 10: So I think there's a couple of different components of
Speaker 10: our business. So first of all, occupancy, and the big
Speaker 10: part about occupancy is is you don't just want to
Speaker 10: fill the space. You really want to serve successfully serve
Speaker 10: the neighborhood. So making sure that you are the right
Speaker 10: merchandise mix is very important to what we do. That's
Speaker 10: number one. Number two, we also take a number of centers.
Speaker 10: We have a number of our centers in our portfolio
Speaker 10: that we redevelop so that's improved the look, the feel,
Speaker 10: the customer convenience for that center. It may also be
Speaker 10: taking out some parking because now you don't need as
Speaker 10: much parking, you don't need that same in building in
Speaker 10: some density as well. And then along with that we
Speaker 10: do acquire and so there's always that opportunity for our acquisition.
Speaker 10: It's been a little challenging right now because the pricing
Speaker 10: for product hasn't quite adjusted yet with cap rates. But
Speaker 10: we're starting to see that loosen out.
Speaker 2: You're the tiny house people of real estate of commercial
Speaker 2: real estate, right you're looking in smaller spaces, less parking
Speaker 2: and what and I guess or are closer to each other.
Speaker 2: What's the benefit of that over big?
Speaker 10: So I think small is beautiful And one of the
Speaker 10: reasons why is because if you look at so our
Speaker 10: our space size is about twenty five hundred to three
Speaker 10: thousand square feet and our centers are around fifty to
Speaker 10: one hundred and fifty thousand square feet in size, So
Speaker 10: that to you know, twenty five hundred and three thousand
Speaker 10: square feet has the widest range of uses out there,
Speaker 10: So it's the most flexible real estate. So when you
Speaker 10: think about them all, it's not really that flexible, right,
Speaker 10: it's large, it's big box, There's not a lot of
Speaker 10: users that can go in and out of some of
Speaker 10: those spaces, especially a power center. But in our case,
Speaker 10: we primarily are service based and necessity based, so this
Speaker 10: gives us the most flexibility to meet the neighborhood needs
Speaker 10: with that size space.
Speaker 1: So what are some of the typical tenants or maybe
Speaker 1: an anchor ten or what are some of the areas
Speaker 1: of growth in terms of tenants?
Speaker 10: Now we've sounded really so I found that what has
Speaker 10: transitioned the most going in twenty years in this business
Speaker 10: is that number one grocery anchored used to be where
Speaker 10: things are, but if you think about where the competition
Speaker 10: is for grocery, it's really restaurants and that has everything
Speaker 10: to do with convenience in the experience. So we've seen
Speaker 10: this real explosion in the restaurant uses in most of
Speaker 10: our centers, and so that's been the primary driver.
Speaker 1: Is that like a Chili's or something like that as
Speaker 1: an anchor or more local.
Speaker 10: More local in fact, so many people that that's part
Speaker 10: of the experiences that people are looking for right now,
Speaker 10: is the taste of food and chef inspired and so
Speaker 10: on and so forth. So especially in Texas, we have
Speaker 10: a very, very broad range of restaurant uses all the way.
Speaker 10: Houston in particular is very international.
Speaker 1: Texas is I mean, it's a country in and of itself.
Speaker 1: I mean, I know you guys like to think of
Speaker 1: yourself as not even part of the country, but in Texas,
Speaker 1: I mean, it's it's so big. Is there certain parts
Speaker 1: of Texas that you guys focus on more urban airs or.
Speaker 10: More world So Texas was its own country.
Speaker 3: The team proud of that.
Speaker 10: So primarily we stay in the fastest largest growing cities,
Speaker 10: So we're in Dallas, San Antonio, Austin, Houston, and then
Speaker 10: we're in Phoenix and you know the Phoenix East Valley
Speaker 10: as well, so which is also FASc.
Speaker 2: You want to have a neighborhoody neighborhood.
Speaker 3: Everybody's moving, I mean, what's the what's it like in
Speaker 3: your market? Everybody's moving there.
Speaker 10: That's it is very very exciting. So I think we
Speaker 10: jokingly call Phoenix Chicago West to California East so because
Speaker 10: that and that's really changed. So finally in Phoenix you
Speaker 10: have really good Italian food, thank you for Chaga. But
Speaker 10: on the other side of that, I think that in
Speaker 10: particular Dallas has had such such a gross strength because
Speaker 10: they've really focused on the job market and Fortune five
Speaker 10: hundred to one hundred companies, so they've gone after that
Speaker 10: group of that job market. Austin has done extremely well,
Speaker 10: and because of that, San Antonio is people are starting
Speaker 10: to move to San Antonio. So you have, of course
Speaker 10: the educational system that really pushes that. And you have
Speaker 10: high tech there. I mean with Michael Delhi has you know,
Speaker 10: created his own ecosystem.
Speaker 3: There of tech.
Speaker 1: Yeah.
Speaker 10: So, and then Houston has been you know viewed primarily
Speaker 10: as willing gas but it's really changed with Houston is
Speaker 10: that they've gotten heavily. It's the largest medical district in
Speaker 10: the world, so that shifted as well. So you know
Speaker 10: a lot of people are moving there because it's a
Speaker 10: business friendly state, but it also is the job drivers
Speaker 10: that just the job growth has been tremendous. And then
Speaker 10: we're seeing the same in Phoenix and especially there it's
Speaker 10: getting younger. Used to be a retirement community, but you
Speaker 10: have ASU which has been a huge, you know, proponent
Speaker 10: of change there as well.
Speaker 1: It's a little hot in your markets though, but it's
Speaker 1: a dry heat.
Speaker 3: Yeah, their entire summer was like one hundred and twenty degrees.
Speaker 10: It's been a little steamy in Houston and then Arizona
Speaker 10: it's just it's very hot.
Speaker 1: So wow, all right, but the great market's great growth markets.
Speaker 1: Christine messt Andre, thank you so much for joining us.
Speaker 1: Christine is the CEO of white Stone Reit the New
Speaker 1: York Sock Exchange. Take her to put into your Bloomberg
Speaker 1: terminals w s R.
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Speaker 1: Andrew Silverman, government analysts caring tax policy for Bloomberg Intelligence
Speaker 1: Joints is Andrew, how are you looking at this arm
Speaker 1: IPO in the context of just the IPO bus in general.
Speaker 11: Yeah, thanks, Paul. I actually I wanted to respond to
Speaker 11: your comment about companies going public at all. I think
Speaker 11: you're onto something. I mean, the number of companies that
Speaker 11: are public in the United States has is almost half
Speaker 11: of what it was in nineteen ninety six. It's dropped
Speaker 11: down to something like forty three hundred. And you know,
Speaker 11: companies can get cash in lots of lots of ways.
Speaker 11: They don't have to go public to get their cash.
Speaker 11: I mean, there's about what six point three trillion in
Speaker 11: assets that the private equity funds have. Compliance costs are
Speaker 11: really high right now, it's about an average of four
Speaker 11: percent of a company's market cap. There are more regulations
Speaker 11: than ever, not just the thirty three and thirty four Acts,
Speaker 11: but Sarbanes Oxley and DoD Frank and companies have to
Speaker 11: take a short term view in the sense that they
Speaker 11: have to put out quarterly filings and make distributions to
Speaker 11: their shareholders, and so they have to take the short
Speaker 11: term view over long term priorities. And a company like
Speaker 11: ARM really has to prioritize a long term view. It
Speaker 11: has to invest in R and D, so thinking short
Speaker 11: term not the greatest. And one other thing that I
Speaker 11: would bring up, there's going to be this new standard
Speaker 11: which comes out pretty soon from from fasby the Accounting
Speaker 11: Standards Board called Noklar, which experts believe will double or
Speaker 11: even triple the fees that companies have to pay to
Speaker 11: their auditors. And what it does is it essentially says
Speaker 11: to the auditors, if there's any regulation, law, anything around
Speaker 11: the world that's going to have a material impact on
Speaker 11: a company's filings, it has to be included. And so
Speaker 11: that means that others are responsible for checking everything everywhere
Speaker 11: in any country that the company operates in order to
Speaker 11: make sure that all material risks are covered. So it's
Speaker 11: not a great time to be a public company.
Speaker 2: Those are all the reasons you wouldn't want to go public.
Speaker 2: And I mean clearly, if you're a billionaire and you
Speaker 2: don't have a fantastic valuation, you take your company private.
Speaker 2: That's the smart move. Andrew Silverman, hang tight for a second,
Speaker 2: because I want to bring Kunjon Sabani leads semiconductor analysts
Speaker 2: for Bloomberg Intelligence cou John. Having said all that, and
Speaker 2: I'm sure you know all the reasons why you wouldn't
Speaker 2: necessarily want to go public. Why is massa son? Why
Speaker 2: is SoftBank taking arm public right now rather than any
Speaker 2: other exit exit strategy?
Speaker 12: Yeah, I mean, simple reason is they just need liquidity
Speaker 12: right now given what's happening in their parent business, Softmak.
Speaker 12: So they're just in need of some cash and this
Speaker 12: is one of their biggest assets, which might not be
Speaker 12: the perfect time, but still relatively in the pass, it's
Speaker 12: a better time today to go public with this. The
Speaker 12: other thing to keep in account, they're limiting their flow
Speaker 12: to really like only five billion dollars, less than ten percent,
Speaker 12: so they are holding on to get a higher price
Speaker 12: later in the future.
Speaker 1: Hey, Kun John, you know, as I looked at this perspectives,
Speaker 1: it looks like this is a company that designs chips
Speaker 1: for telephones. Great, but they are pitching this company now
Speaker 1: as hey, we're going to be an AI company going forward.
Speaker 3: So they're asking me.
Speaker 1: To pay an AI ish type multiple for a phone
Speaker 1: chip manufacturer. Is that kind of what they're asking the
Speaker 1: market to buy off on.
Speaker 12: Yes, that's exactly right. I mean, look, they're pitching, they're
Speaker 12: asking the market to underwrite the future, sort of the
Speaker 12: next in media moment, and their current business is primarily,
Speaker 12: like you said, smartphones and consumer electronics and to some
Speaker 12: degree IoT, but the AI server and the automotive market
Speaker 12: is where they've had recent designments which they expect to
Speaker 12: or they share there, and that is what they're selling
Speaker 12: to the investors, like, hey, you can bet on us
Speaker 12: for this coming in the future, so you don't miss out.
Speaker 1: Hey, Andrew, back in today, you know, I could take
Speaker 1: a company public with not much more than a business plan,
Speaker 1: But today it seems like the market once not only
Speaker 1: revenues but profits. I mean that also maybe thins out
Speaker 1: the herd for potential IPO candidates.
Speaker 11: Yeah, that's exactly right. And in this case, I mean, well, so,
Speaker 11: I mean why to invest in a company. I mean,
Speaker 11: on the one hand, you want to get your returns.
Speaker 11: On the other hand, you have an expectation you're going
Speaker 11: to have some sort of control over over the company
Speaker 11: that you're investing in, and this is not one of
Speaker 11: those cases because soft Bank is going to keep controlling
Speaker 11: it after the IPO, and it's going to be what's
Speaker 11: called a foreign private issuer, and so the shareholders won't
Speaker 11: even know as much about it as a typical US company,
Speaker 11: won't have to make quarterly filings, won't have to have
Speaker 11: quarterly shareholder calls, and not subject to reg AfD, so
Speaker 11: it can share material non public information selectively, not just
Speaker 11: to a select group of shareholders, not all shareholders. So yeah,
Speaker 11: I mean, if the only thing that people are investing
Speaker 11: in ARMED for is a shareholders distribution, I think they're
Speaker 11: also going to be disappointed in the fact that this
Speaker 11: company has to invest so much and it's R and D,
Speaker 11: and it also has such high operating expenses.
Speaker 2: So and it's a good point that this is all
Speaker 2: about soft Bank, Kunjohn. ARM isn't reaping any of the
Speaker 2: proceeds from this IPO, right, It's not like they're going
Speaker 2: to be able to reinvest and build their business. This
Speaker 2: is just cashing out from Masa Sun.
Speaker 4: That's exactly right.
Speaker 12: None of the proceeds are going to ARM to be
Speaker 12: invested in the business.
Speaker 1: Kunjun, Just real quick thirty seconds of the chip makers
Speaker 1: out there which ones do you think are best positioned
Speaker 1: for this AI move?
Speaker 12: I mean in Nvidia, of course we all are aware
Speaker 12: of this second closes as AMD, they are also betting
Speaker 12: big on AI, and I would go broad common Intell
Speaker 12: also have significant air exposure.
Speaker 1: And do you expect can a company like arm make
Speaker 1: that pivot?
Speaker 3: Do you think? How do you view that opportunity?
Speaker 6: They could?
Speaker 12: I mean, look, they currently they have low single digit share,
Speaker 12: but they have had recent massive wins Amazon, Google, startups
Speaker 12: like mpere adopting ARMED technology Apple, so there's room to
Speaker 12: leverage and build on those wins, and they can. I mean, look,
Speaker 12: they don't need to beat the dominant player even if
Speaker 12: they grow their market share. But another five percent, that's
Speaker 12: talking about billions of dollars adding to a company which
Speaker 12: is a low three billion in revenue, So significant growth
Speaker 12: from just a little bit of an increment share games.
Speaker 3: All right, thanks so much for joining us.
Speaker 1: Conjoen Sapani he is the technology analys for Bloomberg Intelligence
Speaker 1: based in San Francisco. And Andrew Silverman government analys covering
Speaker 1: a tax policy, looking at the IPO market in general.
Speaker 1: He does all that stuff for Bloomberg Intelligence based down
Speaker 1: in Washington, DC. We've got bi analysts basically everywhere.
Speaker 3: They need to be.
Speaker 1: If you need tech, we got folks in San Francisco.
Speaker 1: If you need the policy stuff, we got folks down
Speaker 1: in DC, right where it all happens. So this bifolks
Speaker 1: know what they're doing down there.
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Speaker 3: It's called gaming.
Speaker 1: My favorite sectors to cover the casinos. But we're not
Speaker 1: gonna be talking craps or blackjack.
Speaker 3: Or any of that kind of stuff. We're talking hacking.
Speaker 1: I think some of these casino companies have been hacked
Speaker 1: over the past couple of days. I'm talking to big
Speaker 1: ones like MGM and Caesars. Let's break this down, see
Speaker 1: what the risk is here to these companies. Brian Egger,
Speaker 1: Senior Gaming Analysts and Lodging Animals, Bloomberg Intelligence, joins Us
Speaker 1: and Jody Lori credit analysts with Bloomberg Intelligence. She joins
Speaker 1: us on via zoom both via Zoom here and in
Speaker 1: our Princeton office. Brian, let's just start with you what's
Speaker 1: going on with these big casino companies and some hacking.
Speaker 13: So it came about we found out a couple of
Speaker 13: days ago that MGM has been the target of an
Speaker 13: ongoing cyber attack TEMP that has resulted in systems shutdowns
Speaker 13: across a wide range of services. That's casino, hotel, other
Speaker 13: systems that have had to revert to manual operations. Obviously,
Speaker 13: it's been significantly disruptive, so there's an ongoing effort to
Speaker 13: remediate this, but it has certainly been an ongoing topic
Speaker 13: of interest to anyone following the industry.
Speaker 1: Hey, Jody, from the balance sheet perspective, from the talk
Speaker 1: to us about these two companies or the industry in general,
Speaker 1: about kind of where we are in terms of the
Speaker 1: capital structure and the debt loads and the leverage. Are
Speaker 1: these balance sheets in decent shape?
Speaker 14: Yeah, so, I think I think that's definitely a great question.
Speaker 14: These companies have been very much improving their balance sheets
Speaker 14: since the pandemic. But it's a little bit more complic
Speaker 14: that and a little bit more nuanced. If you take
Speaker 14: someone like Caesar's, they've been directly deleveraging proactively MGM. It's
Speaker 14: a little bit touch and go because they opted to
Speaker 14: sell out of their assets through a sale lease back,
Speaker 14: and so a substantial portion of their of their quote
Speaker 14: unquote debt or if you consider adjusted lease back debt
Speaker 14: is leasebacks. I mean, that's about half of their debt
Speaker 14: load outstanding. So from a debt perspective, you say, all right, look,
Speaker 14: these companies are actually pretty good shape. But if you
Speaker 14: add leases, it makes MGM look less favorable than Caesar's.
Speaker 3: But there's no issue here.
Speaker 1: Jody just kind of like, if there's gonna be a
Speaker 1: material hit to their profitability or the cash loads for
Speaker 1: either of these companies, do you think yeah?
Speaker 14: So, I think that's the key is that you know,
Speaker 14: and Brian and I have been talking about it all week,
Speaker 14: is at least for now, the expected effects for their
Speaker 14: cashlows from a long term perspective might not be so grand.
Speaker 14: It's really a question of what is the sort of
Speaker 14: echo effects for these companies over time that could impact
Speaker 14: March and therefore cash flows. And I think you know,
Speaker 14: the issue is you know, if if insurance is going
Speaker 14: to cover a good portion of it, what sort of
Speaker 14: knock on effects to things like reservations might might be affected.
Speaker 14: You know, if MGM site is down all week and
Speaker 14: it's right during their peak season of bookings, because we
Speaker 14: have a lot of events going on that Brian has
Speaker 14: talked dead nauseum about, does this mean that MGM is
Speaker 14: going to lose out to competitors when people are starting
Speaker 14: to book for things like Formula one and things going
Speaker 14: on in the in the fourth quarter.
Speaker 2: Brian, Jody is sick of hearing you talk about the events.
Speaker 2: Come on, man, thats absolutely so. But in terms of
Speaker 2: I just just to wrap up the the hacking side
Speaker 2: of this, are MGM or any of the other casinos
Speaker 2: more at risk of hacking than other you know, I
Speaker 2: guess financial companies.
Speaker 13: I mean, we've begun to view this as at very
Speaker 13: least an industry wide risk. Caesars had an AK report
Speaker 13: out this morning indicating that they were the target of
Speaker 13: another effort to hack into their systems. Along with that
Speaker 13: some of their loyalty program members information was tapped. So
Speaker 13: this is an ongoing where Caesars managed to whether that
Speaker 13: particular or incident without the very visible systems wide outage
Speaker 13: that MGM.
Speaker 6: Is still undergoing.
Speaker 13: But I think it's fair to assume this is going
Speaker 13: to be an industry wide risk required and really coordinating
Speaker 13: remediation and containment efforts, and you will get some offset
Speaker 13: presumably from MGM, from cyber insurance. We just do not
Speaker 13: know the degree to which we'll get those offsetting streams.
Speaker 1: All right, let's step back and look at this just
Speaker 1: this industry in general, Jody. When you talk to creditors
Speaker 1: out there, credit investors, how did they view the gaming business?
Speaker 1: Is this something that is a really solid credit out
Speaker 1: there for a lot of investors? Do they buy the industry?
Speaker 1: Do they buy individual names? How do they approach it?
Speaker 14: I think if you like gaming, you're in gaming. You're
Speaker 14: full fledged in gaming, and then you're just picking names.
Speaker 14: I think there's a lot of creditors who say, I
Speaker 14: don't even want to touch the space because it's too cyclical.
Speaker 14: I mean, let's remember that back in two thousand and eight,
Speaker 14: MGM got a little bit over over levered with City Center.
Speaker 14: They were able to get themselves out of it. But
Speaker 14: comparison to that, Caesar's and we're not talking to Caesars
Speaker 14: of today, because the Caesars of today is El Dorado,
Speaker 14: But historically Caesar's was lbo'ed taken private and then they
Speaker 14: ended up going through restructuring. So it's definitely an industry
Speaker 14: that if you like it, you really like it and
Speaker 14: you're involved in it. If you don't like it, you
Speaker 14: don't really go near it.
Speaker 2: But to be clear, I mean Paul was talking about
Speaker 2: craps and blackjack, and I mean that's not is that
Speaker 2: still the lion's share of their revenue or is their
Speaker 2: revenue more like you know, Banker's booking conferences.
Speaker 3: At the resort.
Speaker 14: They're definitely shifting, shifting their mix, and we're seeing that
Speaker 14: with with Sands over in Macau. I mean, they're focusing
Speaker 14: so much on their non gaming portion of their business,
Speaker 14: and I think you're seeing that in Vegas as well.
Speaker 14: And they would hope for the regional casinos that obviously
Speaker 14: gaming is the bread and butter of the business, but
Speaker 14: they want to give people the other element. They want
Speaker 14: to give people the shows and the shopping and the
Speaker 14: experiences because that's what's going to keep people. That's also
Speaker 14: going to bring other types of individuals than just your
Speaker 14: dedicated slot users or craps tables players.
Speaker 1: Vegas of course, But Brian, I understand and reading your
Speaker 1: research and talking to you, that the regional gaming business
Speaker 1: is a big, big part of it. Talk to us
Speaker 1: about some of those kind of like non Vegas aspect
Speaker 1: to the US gaming business. How's that performing? Because gas
Speaker 1: is expensive, It's going to cost me a lot to
Speaker 1: get to my Mississippi River kind of casino.
Speaker 13: Yeah, the regional gaming trends that performed well, we've probably
Speaker 13: webbled off certainly above prevend netic levels, but compared to
Speaker 13: last year, things that become or perhaps flatten. I think
Speaker 13: the bigger challenge, not only for Vegas but for regional
Speaker 13: properties is on the cost side. As the companies are
Speaker 13: reinstated full pre pandemic service levels, they may find it
Speaker 13: trperts to sustain the very significant margin gains to get
Speaker 13: relative through pre pandemic experience. I will point out that
Speaker 13: this cyber incident is affecting MGM's regional properties as well
Speaker 13: as its Vegas properties. So this is really kind of
Speaker 13: a national issue for MGM.
Speaker 2: In terms of, you know, where they're getting their revenue.
Speaker 2: You mentioned Jody mcau is Las Vegas dwindling as a
Speaker 2: you know, revenue source. Are they getting more revenue overseas
Speaker 2: now the bigger companies.
Speaker 14: So if you look at it from more than revenue,
Speaker 14: we care more on Ebadah, especially from a debt perspective,
Speaker 14: and from an Ebadah perspective, MACAW is still coming back.
Speaker 14: So MCAW was roughly twenty two percent of mgmbadar which
Speaker 14: includes rent in before the pandemic, So twenty nineteen they're
Speaker 14: not quite there yet. They have seen a significant uptick,
Speaker 14: but Vegas and regionals are still certainly the lion's share
Speaker 14: of what's going on in their business. No pun intended
Speaker 14: on the line because that's MGM's logo. But I think
Speaker 14: that's the key, is that MCAW is this source of
Speaker 14: momentum that's happening, but it's not quite two pre pandemic levels,
Speaker 14: and that's a function of the fact that it's only
Speaker 14: been open since the beginning of the year. I think
Speaker 14: that that provides some nice tailwes for MGM to make
Speaker 14: up for the fact that the US business is having
Speaker 14: this little blip of an issue. And even if things
Speaker 14: start to slow down in the US and people aren't
Speaker 14: doing this revenge spending that we saw over the past
Speaker 14: year and a half, two years, we might see mcau
Speaker 14: helped to sort of offset that.
Speaker 15: A little bit.
Speaker 1: Hey Brian, is there any new property coming online in Vegas?
Speaker 13: There's a public things that are underway for future developments,
Speaker 13: nothing like really.
Speaker 3: Imminence the right.
Speaker 2: There's that very cool orb where like you two apparently
Speaker 2: the Spears.
Speaker 13: The Sphere is interesting a non gaming attraction, but it's
Speaker 13: highly significant. A lot of the recent additions to Vegas
Speaker 13: have been not to diminish the importance of large term
Speaker 13: resort development, but a lot of the additions to Vegas
Speaker 13: have been in the form of non gaming entertainment. So
Speaker 13: you've got the Sphere entertainment venue. Jody earlier mentioned the
Speaker 13: Formula one Grand Prix, which I'll mention again. But also
Speaker 13: you've got sports teams significantly, you have the the Golden
Speaker 13: Knights playing at the T Mobile Center. You've got a
Speaker 13: Legion stadium hosting the Raiders, and of course you have
Speaker 13: the A's moving to Vegas at a site that will
Speaker 13: be on the stadium, uh buddying the current Tropicano. So
Speaker 13: not to diminish the importance of potential long term resort developments.
Speaker 13: But these non gaming developments related to entertainment sports conferences,
Speaker 13: those are all rather significant additions to draw tourism that
Speaker 13: don't necessarily a room capacity.
Speaker 3: All right, great stuff as always, Brian Nagger, Jody Lori.
Speaker 1: There. You're analyst at Bloomberg Intelligence covering the gaming biz
Speaker 1: from the equity side and the credit side. It does
Speaker 1: not get any better than that. We got full equity
Speaker 1: and credit coverage.
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Speaker 16: Eleven thirty high school friends I have not talked to
Speaker 16: in a long time, who are saying you never told me?
Speaker 16: I think as we're watching this on TV. But most
Speaker 16: of all, I'm so thrilled for the employees of ARM
Speaker 16: thirty three year old company. Great heritage, but watching all
Speaker 16: the employees in Cambridge celebrate simultaneously, that was magical.
Speaker 17: And they might continue to celebrate as we see what
Speaker 17: seventeen eighteen percent increase. How has that journey of going
Speaker 17: out to investors the road show, the story that you've
Speaker 17: been able seemingly to successfully sell the fact that you're
Speaker 17: trading well on this day.
Speaker 15: What was the vision? They wanted to hear revenue growth?
Speaker 17: I hear of eleven percent up to twenty five percent
Speaker 17: in the next couple of years.
Speaker 15: What drives you?
Speaker 16: I think it was a great process. Investors really wanted
Speaker 16: to understand the opportunity we had in front of us,
Speaker 16: and of course AI, which you can't really talk about
Speaker 16: our industry without talking about AI. And I think helping
Speaker 16: them understand that you can't really run AI without ARM,
Speaker 16: without a CPU, and just pointing out to them that
Speaker 16: it's in everywhere, in every device that people touch was
Speaker 16: a big part of the process for.
Speaker 17: Us because everyone has made the equivalent of you're a smartphone,
Speaker 17: it's completely absorbed more than ninety percent of phones is
Speaker 17: where your CPUs are. But the design, the fact that
Speaker 17: you now want to be integral to data centers, and
Speaker 17: they're like, how certain are you on the revenue vision,
Speaker 17: on the profitability vision, even though we see concerns about
Speaker 17: our environment still and whether or not we're in an
Speaker 17: AI hype cycle.
Speaker 16: Yeah, so AI is everywhere, and if it's your edge
Speaker 16: device like the Assistant or the Alexa, or your autonomous vehicle,
Speaker 16: that's all AI. And now we're seeing it in the
Speaker 16: cloud in the data center with all the growth of
Speaker 16: d in Vidia announcing one of their newest products, grace Hopper,
Speaker 16: that is based on ARM. So ARM is everywhere relative
Speaker 16: to AI, we also have a very unique business model
Speaker 16: that gives us the ability to have a very very
Speaker 16: good vision in the future in terms of when people
Speaker 16: use our products. So relative to our confidence in the outlook,
Speaker 16: we have a very very high confidence that the growth
Speaker 16: rate that we have talked about will be sustained.
Speaker 17: How word were invested about China and your exposure.
Speaker 16: I think there were a lot of questions, as you
Speaker 16: can imagine about China in general, given all the geopolitics,
Speaker 16: Our business there looks a lot like the rest of
Speaker 16: the world. We have great growth in the data center,
Speaker 16: we have great growth and automotive China's huge on electric vehicles,
Speaker 16: so it's been terrific there for us. I have the
Speaker 16: same kind of headaches that every other tech CEO has
Speaker 16: regarding how to navigate through this, but no different.
Speaker 17: Do you think there will be more pressure now that
Speaker 17: you're public again?
Speaker 15: Ultimately?
Speaker 17: I mean you came to ARM in twenty thirteen, you
Speaker 17: were listed at that point, but it's not been since
Speaker 17: twenty sixteen that you have been How does the game
Speaker 17: change as a leader of that business now?
Speaker 16: Yeah, I think there's some things that we were able
Speaker 16: to do as a private company that will just be different. Right,
Speaker 16: quarterly earnings, making sure that we hit all our commitments.
Speaker 16: But ARM is not a business you measure from quarter
Speaker 16: to quarter. You measure us over years and decades, and
Speaker 16: the long term vision is something that I am very,
Speaker 16: very passionate about and will continue to drive the company
Speaker 16: the same way, private or public.
Speaker 17: You have a lot of key vested interests, whether they
Speaker 17: be your clients, APPLETSMC and TEIL taking big stakes in
Speaker 17: the company today. How important are those voices? Visa v Masses,
Speaker 17: the head of soft Bank. I'm sure you're on the
Speaker 17: phone too daily.
Speaker 4: Yeah.
Speaker 16: So one of the challenges of our industry, and prely
Speaker 16: with ARM, is that the fact that we're everywhere, none
Speaker 16: of this works unless we play nice with others. So
Speaker 16: we have to have a lot of engagements with strategic
Speaker 16: partners and making sure that we're managing that balance, including Masa,
Speaker 16: our chief shareholder.
Speaker 17: Do you think he lets more of ARM become public?
Speaker 17: Is that something you'd like to see?
Speaker 5: Now?
Speaker 16: Massa and I talk quite frequently, but it's really not
Speaker 16: about the day to day. It's about the long term vision,
Speaker 16: the passion that he and I have about the future,
Speaker 16: and really about what this company can be long term.
Speaker 16: So I don't expect that to change being a public company.
Speaker 15: Do you think you go public in the UK?
Speaker 17: I'm sure it's been a bitter sweet for the London
Speaker 17: Stock Exchange today.
Speaker 16: Yeah, so today obviously we're in New York, but we're
Speaker 16: incredibly proud of our UK heritage and we are opening
Speaker 16: to considering that down the road.
Speaker 15: Okay, any sort of timeframe for that.
Speaker 16: None that we can talk about today. I'm trying to
Speaker 16: get through.
Speaker 17: Today a little bit well before you get through today.
Speaker 17: In that respect, Investors do love all things regarding artificial intelligence.
Speaker 17: But how have you managed to land that your story
Speaker 17: is different? People have been so exuberant about in Nvidia,
Speaker 17: where you used to work, but they're really exuberant about GPUs.
Speaker 17: How have you said that you are able to claim
Speaker 17: a larger rule share of how AI continues to be said.
Speaker 16: Yeah, So one of the benefits of the roadshow was
Speaker 16: spending a lot of time with the investors talking about
Speaker 16: AI and where we fit. And I think one of
Speaker 16: the misconceptions is that a GPU can run without a CPU,
Speaker 16: which is just not the case. The CPU is central
Speaker 16: to every electronics device and there are devices that ship
Speaker 16: with a CPU and a GPU. So once investors kind
Speaker 16: of got that, then explaining where the puck was going
Speaker 16: relative to gosh, and Vidia's next generation host advanced product,
Speaker 16: Grace Hopper, is using ARM CPUs instead of the competition,
Speaker 16: the light bulb went on that, oh my gosh, you
Speaker 16: need the CPU. And at the same time, in Vidia
Speaker 16: has made a big bet on ARM in their most
Speaker 16: sophisticated product, And once that message kind of sunk through,
Speaker 16: the light bulb went on as, oh my gosh, I
Speaker 16: get it.
Speaker 17: There has been this moment though, at which we're trying
Speaker 17: to understand how the landscape works with global demand and
Speaker 17: that translating into revenue. When you think of Oracle's numbers
Speaker 17: that came in and look, they delivered thirty percent increase,
Speaker 17: and it comes to their cloud provision and their AI bet,
Speaker 17: but it doesn't always immediately turn into revenue in the
Speaker 17: here and the now. How convinced are you that it
Speaker 17: is going to be in the bottom line evident in
Speaker 17: the next coming quarters.
Speaker 16: As far as AI, oh, I think it's a questionable
Speaker 16: that AI, which has already been here right for a
Speaker 16: number of years. The chat cheap D moment taught us that,
Speaker 16: oh my gosh, the capability of what this can do
Speaker 16: going forward has gone up a level. And I think
Speaker 16: we've seen that over and over in our industry. There
Speaker 16: tends to be lightning bolt moments that greatly accelerate the
Speaker 16: adoption of technology. And I think with AI, as you
Speaker 16: move towards AGI computers that can think, I think we
Speaker 16: now have seen an accelerant for that. Ultimately down the
Speaker 16: road how people make money off that. It'll get figured out.
Speaker 16: But AI is here to stay. That's unquestionable.
Speaker 17: And it seems as though you're integral to soft banks
Speaker 17: vision of AI and Massa's vision of AI. How can
Speaker 17: you announce it a little bit? You say, he's talking
Speaker 17: to him daily, what his vision of ARM within ecosystem
Speaker 17: going forward really is?
Speaker 16: He and I share a very same view that ARM
Speaker 16: is one of the most important technology companies in our industry.
Speaker 16: Foundational if you will, and I would like to see
Speaker 16: us over the next five to ten years really be
Speaker 16: recognized that way, and he and I are very aligned
Speaker 16: on that. As you can imagine when you think about
Speaker 16: five to ten years out, there's a lot of things
Speaker 16: to talk about in terms of the art of the possible,
Speaker 16: but that's really where he's focused on when his conversations
Speaker 16: with me.
Speaker 17: Long term thinking but then near term action. We understand
Speaker 17: he was pretty integral to calling the shots on price
Speaker 17: points for today's listing. How was that as just an
Speaker 17: IPO experience? Did he end up being like, no, we
Speaker 17: need to leave a little bit of money on the table.
Speaker 17: This needs to be a successful trade.
Speaker 16: But all I can say is this is my first
Speaker 16: road show, so everything was a leterning experience. We wanted
Speaker 16: to be at the high end of the range that
Speaker 16: we set forty seven to fifty one, and that's where
Speaker 16: it ended up. So we're happy.
Speaker 5: We're very thrilled with today.
Speaker 15: You said that school friends are going to in touch.
Speaker 15: Can why have you been hiding this from them?
Speaker 17: How do you feel differently now as a CEO of
Speaker 17: a publicly traded company.
Speaker 15: Do you feel differently today?
Speaker 16: I feel a little bit differently, and looking ahead at
Speaker 16: this number than what the share price is, that wasn't
Speaker 16: something we looked at before. But you know again when
Speaker 16: and I told this to employees. While the IPO is
Speaker 16: amazing and I could not be more proud of it,
Speaker 16: I am far more excited about the next five to
Speaker 16: ten years. And that's where my head is focused. Obviously
Speaker 16: we needed things as a public company CEO, but I
Speaker 16: don't feel too much different.
Speaker 17: And sometimes these are marketing exercises. Arm is B to B,
Speaker 17: but do you think you've become more relevant? B to
Speaker 17: see Now you're saying how people had no idea all this,
Speaker 17: because largely people don't realize that every day they are
Speaker 17: interacting with your designs, with your blueprints.
Speaker 16: The people who need to know what we do do know. Obviously,
Speaker 16: just giving the fact that all the global partners that
Speaker 16: we work with going forward, how to market ourselves as
Speaker 16: a public company. That's one of the things as a
Speaker 16: public company CEO, I'll spend some time thinking about. But
Speaker 16: right now we're just kind of focused on today and
Speaker 16: what that means.
Speaker 17: And meanwhile, within there's exuberance of today. Yesterday we saw
Speaker 17: basically every key chief executive of an AI company, AI
Speaker 17: related company, indoors and a closed hearing with Senate Majority
Speaker 17: Leader Chuck Tchuma. Can you tell us about regulation? How
Speaker 17: do you see the landscape evolving to ensure that you
Speaker 17: can harness that AI moment.
Speaker 16: I think it is one of those areas that is
Speaker 16: an unknown moment. And I remember talking to an executive
Speaker 16: about the analogy or metaphor we used was when cars
Speaker 16: were invented, you didn't have driver's licenses, you didn't have lanes,
Speaker 16: you didn't have rules of the road. There was a
Speaker 16: lot of things that people had to figure out in
Speaker 16: terms of taking a device that was going to be
Speaker 16: very very productive but could be very dangerous in terms
Speaker 16: of automobile accidents. AI is a little bit of the
Speaker 16: same in the sense that we're now in a new paradigm.
Speaker 16: Were some rules and regulations and need to be figured out.
Speaker 16: And that's why I think you're seeing all this activity
Speaker 16: around that area.
Speaker 17: Is the US leading the charge and regulation is Europe?
Speaker 17: Is the UK was getting it right?
Speaker 16: From your perspective, I think all the governments are trying
Speaker 16: to figure it out. I know the EU has spent
Speaker 16: a lot of energy on this, as said the UK,
Speaker 16: so in terms of who's getting it right, I think
Speaker 16: it's still early days and everyone's really just trying to
Speaker 16: learn how technology and this new powerful algorithm will work together.
Speaker 15: Keep teaching us. Great to have some time with you.
Speaker 6: Thank you so much.
Speaker 17: Cool's the CEO of ARM the day they're listening.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 3: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
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