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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business app. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Man Deep sing joints this year because we want to

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Speaker 2: get some more details on this Broadcom deal, because again

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Speaker 2: moving the stock big time, help you propel the Nasdaq

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Speaker 2: to a nice move today. Man Deep sing is a

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Speaker 2: senior techalyst for Bloomberg Intelligence. He's been telling us about

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Speaker 2: AI for like a couple of years now. And folks,

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Speaker 2: if you don't really know what AI is, and you

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Speaker 2: have access to the Bloomberg terminal, just go type in

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Speaker 2: BI go that'll get you to Bloomberg Intelligence homepage the

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Speaker 2: search bar. Just type in AI and it'll bring up

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Speaker 2: send you to the Definitive report, really large report on AI.

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Speaker 2: What is it, how to play it, and what's the

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Speaker 2: future of AI. It is the definitive Research Report Lomall

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Speaker 2: Street on AI, and Man Deep Singh is the blame

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Speaker 2: for that. Mandy, talk to us about this Broadcom deal.

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Speaker 2: Here lay it out for us. What does it mean

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Speaker 2: for broadcommon for just kind of an open AI as well.

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Speaker 3: Yeah, I mean loc Open AI is going after heaving

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Speaker 3: as much compute capacity as they can, and they did

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Speaker 3: first ten gigawatts with Nvidia, six gigawatts with AMD, and

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Speaker 3: now ten gigawats with Broadcom. And the difference here is

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Speaker 3: with Broadcom they get to use their own chips, and

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Speaker 3: Vidia and AMD are what we call merchant silicon. They exactly,

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Speaker 3: I mean, that's basically generalized chips where you can deploy

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Speaker 3: the workload you want, whether it's from open AI or

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Speaker 3: Microsoft or any other vendor. In the case of custom silicon,

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Speaker 3: which is what Broadcom does, a company like open AI

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Speaker 3: or Google. Google makes up almost you know, fifty plus

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Speaker 3: of Broadcom's AI revenue. So Google has their chip called TPUs.

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Speaker 3: They use it for everything run on Google's platform, whether

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Speaker 3: it's YouTube, whether it's AI, whether it's cloud. Everything inside

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Speaker 3: Google's run on their TPU. So opening eyes strategy here

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Speaker 3: is to use an approach which is similar to Google

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Speaker 3: GPUs because it saves you a lot of money. I mean,

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Speaker 3: imagine an Nvidia AI chip costs you thirty grand. A

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Speaker 3: custom silicon that Broadcom is making for Google costs you

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Speaker 3: six grand. That's the cost differential we are talking about.

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Speaker 3: And it's not because Nvidia has to spend thirty grand

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Speaker 3: to make that chip. They have a seventy five percent

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Speaker 3: gross margin on the chip that they're selling to the customers.

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Speaker 3: So Nvidia's cost is also low, but they mark up

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Speaker 3: the price of their silicon. Same thing with AMD. In

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Speaker 3: the case of Google, they are going directly to Broadcom

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Speaker 3: to make that chip a far lower price and it's

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Speaker 3: for their own use, which is why they don't have

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Speaker 3: to pay the markup to Invidio or AMD. And that's

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Speaker 3: why having your custom silicon strategy is so good because

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Speaker 3: it really saves you. So one gigaw with Nvidia silicon

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Speaker 3: would cost you about forty to fifty billion. One gigawart

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Speaker 3: with a Broadcom open AI silicon would cost you twenty

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Speaker 3: five to thirty billion. So if you're talking about, you know,

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Speaker 3: thirty to forty percent cost differential, and it's huge. I

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Speaker 3: mean in the context of what these guys are trying

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Speaker 3: to do, you know, scaled the infrastructure.

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Speaker 4: In addition to that distinction, there's also no investment or

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Speaker 4: stock component to this open Ai Broadcom deal, which makes

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Speaker 4: it different from the deals that it struck with Nvidia

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Speaker 4: and AMD. So I guess my question is how would

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Speaker 4: open Ai finance the purchase or the chips in general?

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Speaker 3: That's a great question because right now they have to

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Speaker 3: do a lot of financing. It's one thing that's a

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Speaker 3: common thread in the Invidia transaction where even though in

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Speaker 3: Vidia is putting ten billion dollars in open Ai, they

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Speaker 3: still have to find the remainder of the money. So

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Speaker 3: if you imagine, you know, forty to fifty billion dollars

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Speaker 3: per gigawatt ten gigawatts costume around five hundred billion, Nvidia

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Speaker 3: is already investing up two hundred billions, so they still

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Speaker 3: have to figure out the remainder of four hundred billion.

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Speaker 3: In the case of AMD, I mean, yes, they are

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Speaker 3: getting some stock, but you still have to figure out

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Speaker 3: the financing for that, you know, three hundred billion or so.

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Speaker 3: Here it's the same thing. You need the money and

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Speaker 3: Opening eyes bed is if we keep ramping up our revenue,

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Speaker 3: that is obviously a big source of the funding. We'll

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Speaker 3: do a lot of private deals because we already have

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Speaker 3: the buy in from these big player whether it's Nvidia

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Speaker 3: or Microsoft and other sovereign providers, and I think it's

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Speaker 3: a lot of scale game right now, because once we

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Speaker 3: keep hitting our milestones, we'll keep raising more money. And

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Speaker 3: that's the hope.

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Speaker 2: When it comes to one name I hadn't heard during

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Speaker 2: all this dance between all these tech companies is Apple. Yeah,

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Speaker 2: what's going on there? Glaring absence exactly.

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Speaker 3: I think that's the right way to frame it. And look,

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Speaker 3: at some point, I think they are going to go

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Speaker 3: the Broadcom route. Out of the three partnerships that Openei

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Speaker 3: has had, a company like Apple will never go for

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Speaker 3: merchant silicon. I mean, look at what they have done

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Speaker 3: in their own devices. It's all custom silicon. And that's

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Speaker 3: where if I had to pick a strategy for Apple,

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Speaker 3: it will likely be custom silicon using Broadcom or Marvel

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Speaker 3: or one of these asay providers. But the hard thing

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Speaker 3: for them is because they have missed out all the

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Speaker 3: action in the past three years, it's so hard to

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Speaker 3: catch up. Even if you throw money and you know

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Speaker 3: your CAPEX dollars, the time is off the essence, and

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Speaker 3: the longer they delay this, I feel either is Broadcom

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Speaker 3: or a partnership with Google. Now that antitrust is behind,

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Speaker 3: so they may very adopt Google's LM across their the

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Speaker 3: huge That will be huge. But I think you know,

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Speaker 3: with the regulatory overhand going away, that could be a

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Speaker 3: very likely strategy.

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Speaker 4: Apple has a ton of cash. It can't buy its

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Speaker 4: way to a solution here.

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Speaker 3: Who do you buy? I mean these are all scale

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Speaker 3: players and Broadcom. Maybe you could say Marvel is a

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Speaker 3: smaller player. But you need the best and chips. That's

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Speaker 3: why everyone is buying Nvidia because they have the highest

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Speaker 3: performance per what. So you can't really get a second

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Speaker 3: or a third player because then you compromise on the

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Speaker 3: performance per what when the biggest constraint out out there

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Speaker 3: is power, So you know you need the leading player

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Speaker 3: when it comes to the chip side of the equation.

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Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Let's get back to what's happening in the markets. One

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Speaker 2: of the concerns, and Scarlett mentioned a couple of times

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Speaker 2: here today is credit markets. Do we have some concerns

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Speaker 2: out there. First Brands, for example, their challenges there have

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Speaker 2: really spooked some parts of the credit market. We want

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Speaker 2: to get the latest on what's going on there. Were

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Speaker 2: checking with Steve Man Bloomberg Intelligence Global Autos and Industrials

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Speaker 2: research analysts. Steve from your perspective, just tell us for

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Speaker 2: the people out there that don't know who First Brands is,

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Speaker 2: who are they and what happened? Yeah.

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Speaker 5: First Brand is a big, huge aftermarket parts supplier. They

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Speaker 5: you know, some of the brands are really well known

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Speaker 5: in the markets. Parts include like break pads, engine oil filters,

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Speaker 5: windshow wipers. So a lot of these are just very

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Speaker 5: fast where parts that everyday consumers by.

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Speaker 4: Yes, okay, so it's something that's quantifiable, it's knowable to consumers.

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Speaker 4: And it kind of shocked everyone when it ran into

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Speaker 4: financial problems. And I know that everyone's still trying to

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Speaker 4: uncover how much of this is perhaps corporate malfeasance or

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Speaker 4: there might be some fraud going on. But it happened

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Speaker 4: at the same time that another company named Tree Color

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Speaker 4: was also falling apart, and both of these are tied

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Speaker 4: to the auto sector. They're not making cars and selling

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Speaker 4: cars directly, but you know they are tied to the

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Speaker 4: business of selling cars or the business of taking care

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Speaker 4: of car consumers afterwards. What does that say about the

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Speaker 4: car industry?

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Speaker 2: Steve, Yeah, I.

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Speaker 5: Think those two insidances really freaked out the market. Based

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Speaker 5: on our research, I think those are really contained situation

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Speaker 5: to those companies and don't feel there's a broader end pack.

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Speaker 5: But you never know. You know, the markets based on

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Speaker 5: investors sentiment. But we did some research on the impact

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Speaker 5: on the after after market, the parts market. You know,

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Speaker 5: companies like O'Reilly, AutoZone and Advanced Autoparts are unlikely to

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Speaker 5: see impact on their supply chain. Like I said earlier,

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Speaker 5: these are high commodity parts. Uh, there's a lot of

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Speaker 5: producer that actually produce wipers and brake pads, not just

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Speaker 5: first brands. So it's not going to impact the consumer.

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Speaker 5: It's not going to impact companies like O'Reilly AutoZone.

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Speaker 3: It actually may be.

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Speaker 5: Beneficial to the aftermarket retailers and in terms of higher prices.

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Speaker 2: How important are these after market retailers. I mean, it

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Speaker 2: seems I keep hearing reading your research that people are

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Speaker 2: holding onto their cars longer and longer and longer, and

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Speaker 2: therefore this after parts it's a pretty good business, and

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Speaker 2: it's a.

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Speaker 5: Very good business. It's a relatively high margin business, great

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Speaker 5: for cash flow. So in this instance with First Brand,

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Speaker 5: you know, companies like O'Reilly AutoZone doesn't really on a

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Speaker 5: financial perspective, doesn't really deal with First Brands. You know,

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Speaker 5: they buy parts from First Brands. Uh, these these they

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Speaker 5: but they pay the financial institutions. And this financial institution

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Speaker 5: actually pays First Brand through these what we call supplier

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Speaker 5: agreements finance agreements. So there, you know, these auto parts

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Speaker 5: retailers are actually shielded from what's happening with First Brands.

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Speaker 4: The news, of course today is that First Brands is

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Speaker 4: founder and CEO Patrick James, someone that a lot of

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Speaker 4: people don't know and haven't heard of. He is resigning

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Speaker 4: because of course the company is facing an investigation over

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Speaker 4: its finances, and he will be replaced by Charles Moore

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Speaker 4: as an interim CEO. This is very inside baseball, Steve,

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Speaker 4: But what I wanted to get to is this idea

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Speaker 4: that a lot of people are not overly concerned that

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Speaker 4: this spells broader problems. At what point might you get

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Speaker 4: a little bit more concerned.

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Speaker 5: I think if there's a contagion in fact, which I

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Speaker 5: think is a low real probability. The other issue is

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Speaker 5: a supply chain. Is it gonna if first brand does

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Speaker 5: stop operations and stop producing parts, Does it impact the

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Speaker 5: supply chain of like o'rally and AutoZone. I think temporary

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Speaker 5: it does. But what really could happen is that o'rally

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Speaker 5: and AutoZone will probably raise prices and it actually will

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Speaker 5: help juice up their margins.

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Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple Coarclay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: M and A media likely to be some type of

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Speaker 2: media activity M and A activity in the media spaces.

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Speaker 2: Some of these companies need to consolidate even more to

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Speaker 2: get even more scale to compete against the Netflix of

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Speaker 2: the world, not to mention the Amazons and the Apples and

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Speaker 2: so on and so forth. So one of the deals

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Speaker 2: that's out there potentially is sky Dance, Powermount maybe doing

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Speaker 2: a deal with Warner Brothers Discovery. Let's see where we

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Speaker 2: are right now. There's been a lot of rumors and

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Speaker 2: a lot of news reporting about a potential hookup in

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Speaker 2: between these two companies. KEITHA, wrong and nothing. She looks

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Speaker 2: at this stuff. She's the US media analyst for Bloomberg

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Speaker 2: Intelligence located in our Princeton, New Jersey office. Githa. I mean,

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Speaker 2: the scuttle butt is, you know, Paramount is interested in

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Speaker 2: buying Warner Brothers Discovery, but I don't. We haven't seen

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Speaker 2: Warner Brothers really open to a deal, at least not

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Speaker 2: at the prices that have been bandied about. What's the latest?

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Speaker 3: Yeah, the latest, Paul is?

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Speaker 6: I mean, as you just said, there have been rumors

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Speaker 6: now ongoing about this, these possible sale dogs for over

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Speaker 6: a month. Over the weekend, you know, Lucas Shaw and

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Speaker 6: Bloomberg News basically broke the story that Warner Brothers did

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Speaker 6: receive an offer for twenty dollars a share, but David Zaslav,

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Speaker 6: the CEO of Warner has basically rejected that offer as

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Speaker 6: being too low. Now we know from some prior reporting

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Speaker 6: that he had been looking for something like about forty

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Speaker 6: dollars a share. So obviously that's a huge, huge gap

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Speaker 6: right there.

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Speaker 2: And I'm just looking at the size of these companies.

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Speaker 2: I mean, Warner Brothers has a Warner Brothers Discovery has

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Speaker 2: an enterprise value of more than twice that of Paramount.

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Speaker 2: How's that math going to work?

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Speaker 6: Yeah, So this is what we've been kind of, you know,

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Speaker 6: scratching our heads about. So initially, when we had, you know,

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Speaker 6: the news come in, one of the big pieces that

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Speaker 6: was mentioned was that this was going to be a

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Speaker 6: majority cash deal and a lot of the funding was

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Speaker 6: going to come from the Ellison family. Now, things seem

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Speaker 6: to have changed a little bit last week because we

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Speaker 6: heard that private equity players were getting involved. So Apollo

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Speaker 6: was one of the names that was mentioned. It looks

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Speaker 6: like Paramount had approached Blackstone, but maybe they were not

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Speaker 6: really that interested. Legendary was also thrown into the mix.

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Speaker 6: So we're not completely sure just yet whether you know,

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Speaker 6: Paramount is going to proceed with a higher offer with

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Speaker 6: some of these external sources of financing, or whether really

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Speaker 6: the Ellison family is kind of going to you know,

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Speaker 6: step in and you know, basically fund majority of the acquisition.

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Speaker 2: Well, it's not like you can't afford it. I just

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Speaker 2: typed in Rich, go Rich. That's the list of the

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Speaker 2: top most wealthy people in the world. According to Bloomberg,

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Speaker 2: mister Ellison is number two, with a networth of three

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Speaker 2: hundred and fifty billion dollars. So there's certainly some capital

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Speaker 2: there to be deployed either. What's the sense of timing here?

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Speaker 2: I know, Warner Brothers Discovery, they're actually pursuing kind of

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Speaker 2: a parallel path, which is there separating their businesses a

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Speaker 2: little bit. Tell us about that.

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Speaker 6: Yeah, So, you know, I really think here the odds

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Speaker 6: are in Warner Brothers Discoveries favor. And I say that because,

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Speaker 6: as you just pointed out, they are on this path

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Speaker 6: to separating the two companies. They're separating out the TV networks,

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Speaker 6: which really doesn't have a great growth outlook, from their

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Speaker 6: streaming and studio assets, which by the way, is just

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Speaker 6: doing extremely well. The studio has had an absolutely fantastic

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Speaker 6: run this year. They're making up almost thirty percent of

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Speaker 6: the box office. They've had hit after hit, so they

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Speaker 6: really are on a winning streak. And this is what

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Speaker 6: I think gives David Zaslav a lot of confidence that

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Speaker 6: he can get top dollar for at least the streaming

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Speaker 6: and studio part of the business. The real problem, Paul,

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Speaker 6: and you know this very well, is what the outlook

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Speaker 6: is going to be for the TV networks. And that's

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Speaker 6: where I think it's a little bit of a double

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Speaker 6: ed sword, because the paramount offer right now is for

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Speaker 6: the entire company, which means he gets to offload, you know,

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Speaker 6: the TV networks doesn't really have to worry or think

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Speaker 6: about it. The thing is, if he waits and you know,

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Speaker 6: pursues the split, of course streaming and studios is going

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Speaker 6: to do really well. But then again we're we're stuck

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Speaker 6: with the you know, the TV network business without you know,

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Speaker 6: much of really a future, a proper future, good outlook

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Speaker 6: for it. So so that's really where the dilemma is

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Speaker 6: for the Warner Brothers Discovery management team.

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Speaker 2: Well, what's interesting here, I think, particularly if you're a

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Speaker 2: banker or a lawyer trying to put a deal together,

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Speaker 2: is we have a willing seller here. Mister Zazov has

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Speaker 2: stated he's willing to sell and stated that it probably

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Speaker 2: makes sense for this industry to consolidate. Even more so,

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Speaker 2: it sounds like it's just going to come down the price.

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Speaker 6: It is going to come down absolutely to price. I mean,

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Speaker 6: he's already kind of said on multiple occasions that you know,

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Speaker 6: there are people who are interested, especially in the streaming

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Speaker 6: and studio part of the business. He is going to

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Speaker 6: push hard, very hard for you know, on the on

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Speaker 6: the price front. We know he's a really tough negotiator,

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Speaker 6: but I'm not really sure how much amount is going

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Speaker 6: to be willing to pay up for this.

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Speaker 2: So broadly speaking, for these networks, the good to zero

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Speaker 2: with code cutting, cord cutting, they.

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Speaker 6: Won't go to zero, Paul, but they're definitely I mean,

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Speaker 6: the floor has been going lower and lower, so you

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Speaker 6: very well know that. You know, at its peak, PayTV

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Speaker 6: households were somewhere at about one hundred and four million

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Speaker 6: in the country. Today they're at about sixty five million.

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Speaker 6: The idea, or at least the thinking on the street,

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Speaker 6: is that this is probably going to go to somewhere

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Speaker 6: like about forty million, maybe in the next three to

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Speaker 6: four years, but who knows. I mean, the rate of

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Speaker 6: decline has been pretty dramatic. I mean, even when Warner

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Speaker 6: Brothers and Discovery came together a few years ago, remember

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Speaker 6: they had projected fourteen billion dollars in ebitdah. That number.

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Speaker 6: We never got anywhere close to that number. This year,

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Speaker 6: we're looking at something like about eight and a half

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Speaker 6: billion or nine billion in ibadah. So there's it's just

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Speaker 6: such a big gap, and that's just because of the

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Speaker 6: dramatic decline in the TV network business.

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