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Speaker 3: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 3: business stories impacting Wall Street and the global markets.
Speaker 4: Each and every week we provide in depth research and
Speaker 4: data on some of the two thousand companies and one
Speaker 4: hundred and thirty industries our analysts cover worldwide.
Speaker 3: Today we'll look at why Boeing is predicting a massive
Speaker 3: cash drain.
Speaker 4: Plus well discuss how high power costs are impacting the
Speaker 4: European economy.
Speaker 3: But first we dive into consumer products and ice cream.
Speaker 3: Oh yeah.
Speaker 4: Earlier in the week, Unilever set of plants to separate
Speaker 4: it's ice cream business and cut seventy five hundred jobs.
Speaker 4: This comes as the company seeks to boost profits and
Speaker 4: jumpstart sluggish growth in the UK.
Speaker 3: For more at guest host Molly Smith and I were
Speaker 3: joined by Bloomberg Intelligence analysts Deborah Aiken and Duncan Fox.
Speaker 4: Debra senior analyst for Global Luxury Goods and Duncan Fox
Speaker 4: is a consumer products analyst.
Speaker 3: I first asked Duncan for more context on what's going
Speaker 3: on with Unilever.
Speaker 5: I think if you go back two years, they thought
Speaker 5: about it then when they sort of pushed it into
Speaker 5: five divisions and it was thought that they may sell
Speaker 5: it off or ipo it. So it's really coming back
Speaker 5: to the table. I think it was impossible back in
Speaker 5: twenty two because you had food inflation going not for
Speaker 5: the charts, So I don't think anybody would do it dead,
Speaker 5: do anything with it. But it's a business thirty is
Speaker 5: very capital intensive. They've got an excellent market share twenty percent,
Speaker 5: so the globe leader by some way. But it's one
Speaker 5: that I suppose if you want to refocus, you leave
Speaker 5: as a whole. It's a low margin business. We look
Speaker 5: at it against the HBC business so I can see
Speaker 5: why they would consider either selling or ibo in the business.
Speaker 6: It does make sense in deep so you've been finding
Speaker 6: the retail space for a while. What do you make
Speaker 6: of all this?
Speaker 7: I think we can go back to the big offer
Speaker 7: that you never had and the way that since then,
Speaker 7: over the last few years, they've had a couple of
Speaker 7: CEOs that just haven't done what the market had hoped.
Speaker 7: It's always been a wonder over whether beauty and personal
Speaker 7: care actually fitted with food and refreshments. And I think
Speaker 7: the market probably expects. Duncle and I were just talking
Speaker 7: that nutrition would be the next to go, actually, but
Speaker 7: they can't both go at the same time. So it
Speaker 7: really does make sense because you're left with businesses which
Speaker 7: quickly they say end of twenty twenty five. So it's
Speaker 7: typical a little bit slow churn from Unilever in the
Speaker 7: way that they operate. But under the new CEO, Heinz Schumacher,
Speaker 7: combined with trans and Nelson Pelts on the board and
Speaker 7: the way that he turned around P and G, Mondalize
Speaker 7: and others, that we would expect to see this business
Speaker 7: returned to hopefully the top end of a three to
Speaker 7: five percent organic cells growth and two high teams. Digit
Speaker 7: are just at operate in margin, which is where they
Speaker 7: used to focus until a few years ago, until that
Speaker 7: inflation came in and until they just couldn't pass it
Speaker 7: through in developed markets. They do much better in developing.
Speaker 3: So duncan talk to us about the ice cream business.
Speaker 3: Is it a good business?
Speaker 5: Well, I think so. I mean you can't be to
Speaker 5: a magnumh and you're on the way home, but'll say
Speaker 5: it is a global leader pretty much in every geography.
Speaker 5: I think so only number two in Latin America they
Speaker 5: have leadership. And you said it's capital intensive because about
Speaker 5: half of that global I think it's about an eighty
Speaker 5: seven billion dollar business globally, and half of that is
Speaker 5: through food service or impulse buying. So that's why you've
Speaker 5: got to get everything right on the distribution. On my whole,
Speaker 5: it looks like a Unilever holding or gaining market share
Speaker 5: in most of the regions. So they're running it well.
Speaker 5: But it does come down to innovation and actually that distribution.
Speaker 5: We've just got to get it right making sure that
Speaker 5: we can buy particularly impulse that product when you wanted
Speaker 5: on the way home generally, so it can be a
Speaker 5: bit weather dependent, and that's what makes it tricky, I
Speaker 5: think to sell because if you're the leader, are there
Speaker 5: to be shot at, So they've got to make sure
Speaker 5: they keep investing. Current management team seems to be doing
Speaker 5: that so good business. So I think an IPO seems
Speaker 5: the most sensible way to go forward.
Speaker 6: To be fair, I mean personally, I would say ice
Speaker 6: cream is a twenty a year round to treat exactly.
Speaker 5: Maybe that's just why I agree with exightly. It tends
Speaker 5: to start at Easter, would you believe so for two
Speaker 5: weeks time is the start of the season, So.
Speaker 6: We're getting into high season for ice cream, I might say.
Speaker 6: I mean the flip side of all this, though, is
Speaker 6: the job cuts looking at about seventy five hundred, A
Speaker 6: lot of those in middle management. I mean, how many
Speaker 6: companies have we seen that that's really where so many
Speaker 6: of the job cuts are targeted at. Can you tell
Speaker 6: us a little bit about that deb and the productivity
Speaker 6: gains that Unilever's looking to get from these job cuts.
Speaker 8: Yeah.
Speaker 7: I think in October Unilever did highlight that they had
Speaker 7: a growth action plan and part of that was to
Speaker 7: drive top line and to really look at how they
Speaker 7: were implementing their productivity gains, so already ahead of this
Speaker 7: announcement on ice cream, there's been a new strategic group
Speaker 7: in place making not to change not just in ice
Speaker 7: cream but across the four of the businesses, but particular
Speaker 7: cularly ice cream and refreshments when they separated from three
Speaker 7: business units over to five in twenty twenty two, ice
Speaker 7: cream in terms of profitability, and also actually homecare, which
Speaker 7: they have there for now in which they need to
Speaker 7: do much with with two lowest margin areas. So in
Speaker 7: terms of what they're doing and the way forward, I
Speaker 7: think that we see that productivity savings. They had a
Speaker 7: one percent savings project one percent sales as a project
Speaker 7: cost savings project in place. They say that they will
Speaker 7: drive eight hundred million of savings for one point two
Speaker 7: percent productivity on the cost side of sales over three years.
Speaker 7: I worked that out on MODL to come in and
Speaker 7: around a zero point four billion net positive but over
Speaker 7: a three year period. And on the back of that,
Speaker 7: actually I think there'll be more savings to be had,
Speaker 7: but a deeper disposal plan across the four of the
Speaker 7: businesses too.
Speaker 3: Are Thanks to Bloomberg Intelligence analysts Deb Achon and Duncan Fox.
Speaker 4: We move now to weight loss drugs. It looks as
Speaker 4: if the drug makers Novo Nordisks and Eli Lilly have
Speaker 4: a powerful new allies. They conquered the eighty billion dollar
Speaker 4: obesity shot market, and that ally is former Weight Watchers
Speaker 4: spokeswoman Oprah Winfrey.
Speaker 3: Winfrey recently appeared on ABC special with executives from Novo
Speaker 3: Nordisk and Eli Lilly for more on what all of
Speaker 3: this means. Guest host Molly Smith and I were joined
Speaker 3: by Madison Muller, Bloomberg News health reporter. We first asked,
Speaker 3: what's Oprah's role here with these drugmakers.
Speaker 9: We're used to seeing Oprah as the face of weight
Speaker 9: Watchers obviously for the last almost a decade, and she
Speaker 9: said recently that she was exiting the board of Weight
Speaker 9: Watchers and then she said that it was to avoid
Speaker 9: potential perceptions of conflict of interest. And then she's doing
Speaker 9: this special now which was all about weight loss.
Speaker 3: She did special on ABC Television.
Speaker 9: Yeah, on ABC.
Speaker 3: Was it a paid promotion or it was not?
Speaker 9: Novo Nordisks said that they didn't have any you know,
Speaker 9: financial anything to do with Oprah really, and she's not
Speaker 9: you know, two, our knowledge doesn't have a partnership with
Speaker 9: either of the drug manufacturers. But you know, people that
Speaker 9: were watching the show and were on Twitter sort of
Speaker 9: reacting to it said that it watched and seemed sort
Speaker 9: of like an infomercial for the drugs.
Speaker 6: Yeah, tell us a little bit more about who was
Speaker 6: on it. You were telling us that there were some doctors,
Speaker 6: but maybe they kind of glanced over the side effects
Speaker 6: a bit and that this was really just a big,
Speaker 6: you know, hype up moment for these weight loss drugs.
Speaker 9: Yeah, so they heard from patients, There were doctors, There
Speaker 9: were executives from Nova Noordisk and Eli Lilly on the
Speaker 9: program as well. The majority of the program was sort
Speaker 9: of centered on patient experiences with these drugs, but it
Speaker 9: really didn't get into details about the side effects, sort
Speaker 9: of glossed over them, and the doctor that they had
Speaker 9: on talking about them said that the side effects were overhyped.
Speaker 3: Really, So again that kind of goes to the editorial
Speaker 3: integrity of it.
Speaker 9: I mean, I'm not a journalist, but really, yeah, I mean,
Speaker 9: are real journalist. Yes, there was definitely I think that
Speaker 9: it served and Oprah is on these drugs. She's had
Speaker 9: a great experience with them, so she says, and that's
Speaker 9: sort of what the program was centered around, and really
Speaker 9: spoke to that positive experience on the drugs.
Speaker 6: So what are Oprah's feelings toward weight Watchers right now?
Speaker 6: I mean, this is, like you said, she has been
Speaker 6: the face of that company for so many years and
Speaker 6: now just like really seems to be doing like, you know,
Speaker 6: a total one to eighty and that weight Watchers would
Speaker 6: probably be on the losing end of the success of
Speaker 6: these drugs.
Speaker 9: Yeah, yeah, and she asked, I mean, weight Watchers CEO
Speaker 9: was on this program, and she asked a very pointed question,
Speaker 9: you know, what is the role and what's the point
Speaker 9: of weight Watchers now that we have these medications, which
Speaker 9: I think is sort of the question that the whole
Speaker 9: industry has been asking, and the diet industry and analysts
Speaker 9: and everyone, and you know, weight Watchers CEO said that
Speaker 9: there is still a role for them to play in
Speaker 9: supporting the community of sporting people's weight loss journeys. But
Speaker 9: I guess that still sort of remains to be seen.
Speaker 3: I really I hesitate to ask this question, but since
Speaker 3: you reported on it, what is ozembic face.
Speaker 9: Yes, so Ozembic face is another sort of trend that
Speaker 9: we're seeing happen right now, especially here in New York.
Speaker 9: People who have rapid weight loss from the weight loss
Speaker 9: drugs are getting this hollowed out look in their cheeks,
Speaker 9: which I mean, it happens with weight loss. It's not
Speaker 9: just from the drugs, but it's the rapid weight loss
Speaker 9: that sort of makes it more noticeable. So then they're
Speaker 9: seeking out plastic surgery clinics, medspots to get botox or
Speaker 9: facelifts and sort of help offset those effects.
Speaker 6: Add that to the list of all the winners and
Speaker 6: losers off what comes out of ozempic. I mean we've
Speaker 6: I mean the original kind of knock on effect was like, oh,
Speaker 6: you know all the potato chip companies, right, maybe not
Speaker 6: so good for them, And now plastic surgery coming up.
Speaker 6: So it's just like the hollowing out of your face.
Speaker 6: You've got the saggy skin.
Speaker 9: There and yeah, yeah, like the extra loose skin. Ab View,
Speaker 9: which makes botox has said that this could be a potential,
Speaker 9: you know, boon for botox sales going forward, said that
Speaker 9: at earnings last quarter.
Speaker 6: So it's like I can't keep up.
Speaker 3: Yeah, So on these GLP drugs. Where are we in
Speaker 3: terms of, let I know someone who has a prescription,
Speaker 3: but this person cannot get it filled because there's not
Speaker 3: enough supply where and it is not me? Where are
Speaker 3: they not ensured?
Speaker 8: Right?
Speaker 3: Yeah, so that two questions, Yeah, where are we on
Speaker 3: ramping up supply to meet demand? And then secondarily who
Speaker 3: pays for this stuff? Yeah?
Speaker 9: I mean the supply problem has been a huge issue
Speaker 9: and Nova Noordas, Skinnela, Lily are investing billions of dollars
Speaker 9: to ramp up supply to try to meet demand. But
Speaker 9: you know, I've seen an analyst notes they're like the
Speaker 9: demand for these products just seems like it's insatiable. And
Speaker 9: at this point they're already coming from behind. So and
Speaker 9: all of these investments in production capacity like take a
Speaker 9: couple of years to come online, so we're sort of
Speaker 9: just still racing to keep up with it. It's you know,
Speaker 9: probably Lily said, is probably going to be you know,
Speaker 9: not this year that they're able to meet supply, maybe
Speaker 9: next year. So we're still still trying to ramp up
Speaker 9: the supply there and then and in terms of paying
Speaker 9: for it, we have like I think fifty percent of
Speaker 9: commercial plans cover the drugs for obesity. A third of
Speaker 9: state health plans through Medicaid cover the drugs. Medicare does
Speaker 9: not cover weight loss drugs, so it's very patchy still
Speaker 9: and a lot of people are paying out of pocket.
Speaker 3: Our thanks to Madison Muller, Bloomberg News Health reporter.
Speaker 4: All right, coming up, we're going to break down why
Speaker 4: Boeing is predicting a massive cash strain.
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Speaker 4: Move next to the aerospace industry and Boeing. This week,
Speaker 4: Boeing predicted a massive cash strain for the first quarter.
Speaker 3: Boeing Chief financial Officer Brian West said cash out flow
Speaker 3: will reached four billion to four and a half billion
Speaker 3: in the first quarter. Analyst had expected five billion.
Speaker 4: C Yelller reflects a shifting priorities over at Boeing, the
Speaker 4: company's grappling with the aftermath of a near catastrophic fuselage
Speaker 4: failure on a seven thirty seven Max nine aircraft earlier
Speaker 4: this year.
Speaker 3: For more in all of this, we were joined by
Speaker 3: George ferguson Bloomberg Intelligence, senior Aerospace, Defense and Airlines analysts.
Speaker 3: We first asked George for context on what's going on
Speaker 3: at Boeing.
Speaker 5: Well, I mean, I.
Speaker 10: Think we heard it from Brian West, you know. Besides,
Speaker 10: I think the cash flow guidance he provided he provided
Speaker 10: few details about anything else. And so he describes a
Speaker 10: lot of processes, you know, processes at the FAA to
Speaker 10: get airplanes certified, processes and refining, the manufacturing process, curing,
Speaker 10: you know, the excess outsourcing they've probably done over the
Speaker 10: last couple of decades. I think what you really get
Speaker 10: is a sense of a company that's in a state
Speaker 10: of a lot of flucks. The market likes the fact
Speaker 10: that he talked about casual being positive by the end
Speaker 10: of the year, so it sounds like they've got a
Speaker 10: pretty nice ramp up in you know, sort of resuming
Speaker 10: build rates at their factories across the year. That was
Speaker 10: better than what I expected. But again, the storyline inside
Speaker 10: the company is still one that's all about flux and
Speaker 10: not about details. So I just wonder, I think I
Speaker 10: got a sense there's some risk in that cashalow projection.
Speaker 3: So, George, you've covered Boeing for decades here, can you
Speaker 3: recall a time when maybe they're they've had these quality
Speaker 3: issues before? Is this how unprecedented is these you know,
Speaker 3: last couple of years, Really.
Speaker 10: I think thoroughly unprecedented. Right, So, even as I was
Speaker 10: leaving Blackrock, you know, the during the global financial crisis,
Speaker 10: I remember Boeing stock was down at thirty three dollars
Speaker 10: a share, pretty cheap than what it is today. That
Speaker 10: the discussion then was just about like a defense portfolio,
Speaker 10: who products really weren't that modern, and angst about the
Speaker 10: company's future, but not these kind of problems inside their
Speaker 10: manufacturing business, which is the core business of this company. Right,
Speaker 10: it's an engineering and manufacturing company. If you can't manufacture
Speaker 10: things well in aerospace, that's a bad sigen. So I
Speaker 10: don't think it's ever been this bad ever.
Speaker 4: So just to recap at a Bank of America conference
Speaker 4: in London, the CFO, so the cash outflow is going
Speaker 4: to reach four to four and a half billion in
Speaker 4: the first quarter. Analysts we're looking for maybe five billion
Speaker 4: plus and like you said that maybe we'll get cash
Speaker 4: flow positive by the end of the year. That was
Speaker 4: the indication from Boeing, do we believe Okay, that's not
Speaker 4: the right question. How did they come up with this estimate?
Speaker 4: Like what are the factors that go into this kind
Speaker 4: of estimate.
Speaker 10: That's exactly we don't know, right, And so some of
Speaker 10: you it's all about deliveries. It's all about deliveries of
Speaker 10: commercial airplanes. I heard. What I thought was, we're going
Speaker 10: to be at rate thirty eight by the end of
Speaker 10: the year, which is the rate they should have probably
Speaker 10: built out all year long, and then we'll move to
Speaker 10: the next higher rate that's thirty eight a month, sorry
Speaker 10: on the seven thirty seven, and we'll move to the
Speaker 10: next higher rate when the FAA lets us. So our
Speaker 10: view at Bloomberg Intelligence of what we think build rates were,
Speaker 10: I can tell you we have factored in a fourth
Speaker 10: quarter at rate thirty eight. But it sounds like quarter
Speaker 10: one is going to be a really rough quarter, so
Speaker 10: they'll have to pull a lot of things back together
Speaker 10: to get rate back to thirty eight by the end
Speaker 10: of the year.
Speaker 4: I think it's feels like everything has to go right, yeah,
Speaker 4: for that to happen, Paul, And as we.
Speaker 3: Know, that never happened. Never happens. But George, you've told
Speaker 3: us in the past, in the airspace business, there is
Speaker 3: no hey, we did a pretty good job on this plane.
Speaker 3: It has to be perfect every single time, otherwise it's disastrous.
Speaker 3: And they from their customers perspective, Georgie, if I'm a
Speaker 3: big buyer, like a Southwest or United, what am I
Speaker 3: saying to these guys? I mean, I fly thousands of
Speaker 3: these planes every single day in my fleet. What am
Speaker 3: I telling the Boeing these days?
Speaker 10: Yeah, so you're watching very very closely. Of course you're
Speaker 10: telling Boeing the quality is job one. Safety quality is
Speaker 10: job one. But if you're especially if you're like a
Speaker 10: Southwest or a Ryanair where you're a pure fleet, right,
Speaker 10: you really can't afford your most important supplier to have
Speaker 10: problems like this. So I think you're quietly coaching them
Speaker 10: to improve things hoping for better. But you're probably biting
Speaker 10: your nails a little bit, right because if there's it
Speaker 10: continues to be serious problems. You're not switching to airbus,
Speaker 10: you know, overnight. And I don't know that those people
Speaker 10: are considering it. I'm not saying that they are, but
Speaker 10: you got to be concerned. You've got to be watching
Speaker 10: very closely.
Speaker 3: George. Let's talk about the other half of your research coverage,
Speaker 3: which is the airlines themselves. I just flew Newark to
Speaker 3: Salt Lake City seven thirty seven Max eight fully packed
Speaker 3: to the gills both ways. How are the airlines doing
Speaker 3: these days?
Speaker 10: Yeah, so in one queue, I think a bunch of
Speaker 10: them are going to show losses. They they're filling airplanes
Speaker 10: because I think the revenue managers never let airplanes go
Speaker 10: down the runway with almost, you know, being entirely full.
Speaker 10: But everything what counts, as you know, the most, is
Speaker 10: going to be the ticket prices. And you know, when
Speaker 10: we looked at four Q as we closed out of
Speaker 10: four Q, the biggest challenge to the higher revenue that
Speaker 10: they were bringing in was all about these higher pilot salaries.
Speaker 11: Right.
Speaker 10: They gave a bunch away to the pilots and so
Speaker 10: while we're all paying more for the ticket, the pilot's
Speaker 10: getting more in the front seat. They probably deserve it.
Speaker 10: They work pretty hardilot's so happy you do. Actually, So
Speaker 10: profitability is still challenged compared to what we saw last decade.
Speaker 10: I think fares would have to go even higher, and
Speaker 10: we've seen them softening a bit. This summer. Could be
Speaker 10: a little bit better for the airlines, if you know,
Speaker 10: if we have a bunch of Airbus A three twenties
Speaker 10: out of the market because of the gear turbo fan problems,
Speaker 10: if Boeing deliveries are slowing down capacity gains in the marketplace,
Speaker 10: it could be a little bit better. But we're not
Speaker 10: looking at an environment where we think they're going to
Speaker 10: see twenty nineteen levels of profitability, not twenty nineteen, you know,
Speaker 10: even last decade levels of profitability this summer. So I'd
Speaker 10: say profits still a little bit weak. As the airlines recover,
Speaker 10: I think there might be just too much capacity in
Speaker 10: the marketplace.
Speaker 3: Our Thanks to George ferguson Bloomberg Intelligence senior aerospace, defense
Speaker 3: and airlines analysts, we move next.
Speaker 4: To the chip space. This week, the US Commerce Department
Speaker 4: announced that it will award the tech company Intel eight
Speaker 4: and a half billion dollars in grants and as much
Speaker 4: as eleven billion dollars in loans. It's a preliminary agreement
Speaker 4: to help fund an expansion of Intel semiconductor factories.
Speaker 3: Intel is the first company to land a funding deal
Speaker 3: from the twenty twenty two Chips and Science Act for
Speaker 3: Advanced chip making facilities. The Chips Act set aside billions
Speaker 3: in grants to persuade chip companies to build factories on
Speaker 3: American soil.
Speaker 4: For more on this, we were joined by Mackenzie Hawkins,
Speaker 4: a Bloomberg News US industrial reporter, and we first asked
Speaker 4: for some context here on the Intel story.
Speaker 11: Biden signed the Chips Act into law in August twenty
Speaker 11: twenty two. Companies have been waiting for you know, well
Speaker 11: owned for a year to see those fund start flowing
Speaker 11: out the door. They haven't actually flowed out the door yet.
Speaker 11: Intel's awards just a preliminary agreement, and it will be
Speaker 11: likely until the end of this year that they start
Speaker 11: to actually see money doled out in tranches. But this
Speaker 11: is a huge investment in you know, the real leading
Speaker 11: American ship maker, and I mean these chips will power
Speaker 11: you know, the AI frenzy. There are the types of
Speaker 11: chips that go into nuclear missiles and hypersonics, and this
Speaker 11: is a really significant investment for the company and for
Speaker 11: the States for their building, including Arizona, Ohio, organ and
Speaker 11: New Mexico.
Speaker 4: So, okay, I love covering energy, so I'm really into
Speaker 4: the IRA And like what you've seen a lot in
Speaker 4: the IRA is everyone got super excited, but then actually
Speaker 4: sort of putting shovels in the ground was a lot
Speaker 4: more difficult. So there's like, yeah, yeah, we're gonna get
Speaker 4: the money, It's gonna happen, but it's not happening quite yet.
Speaker 4: How do we think this plays out from the chips act?
Speaker 4: Like when does Intel put a shovel in the ground.
Speaker 4: What other companies are trying to put their shovels in
Speaker 4: the ground and get the funding and will it actually,
Speaker 4: you know, happen.
Speaker 11: So Intel's already building these facilities. They've had a twenty
Speaker 11: billion dollar Arizona expansion underway for some time. They're building
Speaker 11: multiple fabrication facilities there. They're making some progress in Ohio,
Speaker 11: although there's been reporting that that's slightly delayed. We expect
Speaker 11: that construction to finish in twenty twenty six. Intel's rivals
Speaker 11: Taiwan Semi Conductor Manufacturing Company and Samsung out of South
Speaker 11: Korea are also building plants in the US. Both of
Speaker 11: their sites have seen some delays that the companies and
Speaker 11: the Biden administration insists are in line with typical projections,
Speaker 11: but time will tell on this one. It will be
Speaker 11: years before these facilities are stood up. The Commerce Department
Speaker 11: has set a goal that the US will produce twenty
Speaker 11: percent of the world's advance logic shows by the end
Speaker 11: of the decade. Currently we're at about zero, so that's
Speaker 11: a lot of progress to.
Speaker 5: Catch up on.
Speaker 11: Most of that production's happening in East Asia. The companies
Speaker 11: announced their projects before they got the funding from the
Speaker 11: federal government, but it is certainly their expectation that they
Speaker 11: will receive that funding, and they would like it to happen,
Speaker 11: probably a little bit faster than it did.
Speaker 3: Hem m Caasie. How secure is this funding over time,
Speaker 3: thinking that we may have a new administration in twenty
Speaker 3: twenty five, how secure is this funding and particularly you
Speaker 3: know in the out years.
Speaker 11: It's a great question. So there's a due diligence stage
Speaker 11: and then a final term cheat between Intel and the
Speaker 11: Commerce Department. That will likely come closer to the time
Speaker 11: of the presidential election, and the Commerce Department is setting
Speaker 11: all types of benchmarks that Intel must need for the
Speaker 11: money to be doled out over time. So it's not
Speaker 11: that they get the final agreement and then they get
Speaker 11: eight and a half billion dollars in grants and eleven
Speaker 11: billion dollars worth of loan guarantees. They have to meet
Speaker 11: benchmarks related to production, related to workforce development, and there
Speaker 11: are all types of requirements that Biden's Commerce Department might
Speaker 11: set that a potential from Commerce Department might not be
Speaker 11: as interested in. You've seen saying like child care facilities,
Speaker 11: which Intel and other companies have committed to community development
Speaker 11: agreements all those types of things. It's entirely possible that
Speaker 11: that could shift over time. But the reality is once
Speaker 11: they've got the equipment in the building, these are, you know,
Speaker 11: machines that cost hundreds of millions of dollars. They're committed
Speaker 11: to these facilities, but Intel's CEO Podcastingers said, we might
Speaker 11: need a ship back to two point zero. These companies
Speaker 11: are buying for a lot more money than they currently have.
Speaker 11: The events chipmakers together asked for more than double what
Speaker 11: the Commerce Department has available. So this isn't really something
Speaker 11: to watch over the next couple of years and decades.
Speaker 4: I mean, is President Trump really going to go to
Speaker 4: Ohio and Arizona and Oregon, New Mexico and be like,
Speaker 4: just kidding, I'm going to take this development back. I mean,
Speaker 4: I think that's going to be a tricky proposition, since
Speaker 4: hearing it is so much money. So I just came
Speaker 4: back mackenzie from energy conference basically, and I was just
Speaker 4: telling Paul that all the talk there was that tech
Speaker 4: companies are finally getting wise to the fact that they're
Speaker 4: going to build all this stuff they need power and
Speaker 4: the power isn't as easy to come by as they
Speaker 4: might have thought. Do you hear that at all on
Speaker 4: your industrial side, Like, hey, this is great build all
Speaker 4: these data centers Intel, but like, are you going to
Speaker 4: get that power? What do you plug it in?
Speaker 11: Absolutely, infrastructure is a top concern for these you know,
Speaker 11: a big part of their ability to apply for chips
Speaker 11: X funding is to demonstrate commercial viability and that they
Speaker 11: have buy in from state and local officials to marshal
Speaker 11: the resources necessary to stand up factories that cost tens
Speaker 11: of billions of dollars to build sometimes require entire new
Speaker 11: water pipelines or energy resources. You know, take Arizona, which
Speaker 11: has not just this massive intel expansion but also a
Speaker 11: huge factory to factories under construction from PSMC. Arizona does
Speaker 11: one hundred year water planning. This is a desert and
Speaker 11: so they've had to very carefully plan their water development,
Speaker 11: ensure residents that their water supply is not going to
Speaker 11: be impacted, and I mean down to the land parcels
Speaker 11: in Arizona, they've planned these industrial parks. You see similar
Speaker 11: things happening in Indiana, which is expected to get a
Speaker 11: roughly fifteen billion dollar investment from Spehinex, which is one
Speaker 11: of the main advanced packaging companies out of South Korea.
Speaker 11: That announcement hasn't been formally announced yet on Boo Bloomberg
Speaker 11: has reported on it. So I mean, this is a
Speaker 11: massive infrastructure effort which, as you know, is coming alongside
Speaker 11: a lot of other investments in other sectors coming from
Speaker 11: the Inflation Production Acts, things like UV's batteries, hydrogen wind,
Speaker 11: solar and sort of more traditional heart infratructure from the
Speaker 11: Bipartisan Infrodructor Law.
Speaker 3: Our thanks to Mackenzie Hawkins, Bloomberg News US Industrial Reporter.
Speaker 4: Coming up on the program a conversation with Jim Fiitterling,
Speaker 4: CEO of the Dow Chemical Company, on consumer demand and
Speaker 4: power prices.
Speaker 3: Over in Europe, you're listening to Bloomberg Intelligence on Bloomberg Radio,
Speaker 3: providing in depth research and data on two thousand companies
Speaker 3: in one hundred and thirty industries. You can access Bloomberg
Speaker 3: Intelligence via b I go on the terminal. I'm Paul
Speaker 3: Sweeney and.
Speaker 4: A Malex Steele, and this is Bloomberg.
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Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 4: We move next to social media and TikTok, and many
Speaker 4: US citizens are questioning whether they'll be able to use
Speaker 4: the app going forward.
Speaker 3: A swift passage of a house built last week would
Speaker 3: force a sale of TikTok or ban the app in
Speaker 3: the US. The bill would next have to pass through
Speaker 3: the US Senate.
Speaker 4: And this comes as US officials have argued that the
Speaker 4: Chinese government's relationship with TikTok's parent company, by Dance raises
Speaker 4: national security risks.
Speaker 3: Earlier in the week, guest host John Tucker and I
Speaker 3: were joined by Matthew Shuttenhelm Bloomberg intelligence media litigation analyst.
Speaker 3: We first asked him, what's the hold up with the
Speaker 3: bill in the US Senate.
Speaker 1: It's amazing to see the bipartisan support this has. You
Speaker 1: don't see legislation move three hundred and fifty two to
Speaker 1: sixty five like we saw last week in the House.
Speaker 1: You've seen senators on both sides say they want this.
Speaker 1: You've seen Chuck Schumer in the past, the Senate majority leader,
Speaker 1: say he likes the idea of requiring a change in
Speaker 1: ownership of TikTok, So exactly the question now. I think
Speaker 1: the hold up though, is, look, this is an election year,
Speaker 1: and even though you've seen President Biden say, look, get it,
Speaker 1: you know, if it comes to my desk, I'll sign it.
Speaker 1: He also has one hundred and fifty million Americans using
Speaker 1: this app, many of them young people. At a time
Speaker 1: when you have an election coming in November, when every
Speaker 1: vote matters, in particular young people to President Biden. So
Speaker 1: I think this legislation has a chance. I only give
Speaker 1: it a thirty percent chance though this year, And that's
Speaker 1: exactly because of the political risks of November, at a
Speaker 1: time when President Biden doesn't want to risk a potential
Speaker 1: backlash from those young voters. The Senate is controlled by Democrats.
Speaker 1: Senator Chuck Schumer is the majority leader. He decides how
Speaker 1: quickly this moves, and I think the looming election is
Speaker 1: a reason to move slowly. But after that, after this
Speaker 1: election is out of the way, I'd be a little
Speaker 1: more nervous if I were taking.
Speaker 3: So do we have any clear sense of what TikTok
Speaker 3: and byteedance how they're approaching this at this point, like
Speaker 3: what would they presumably do?
Speaker 1: Yeah, so that's a great question. I think we've seen
Speaker 1: indications from China that it would not be willing to
Speaker 1: support a divestiture. Now that could be posturing on that end,
Speaker 1: but I think there's the possibility that if the US
Speaker 1: passes this legislation that requires a divestiture or else there's
Speaker 1: an effective ban, there's a real possibility that China wouldn't
Speaker 1: allow any sort of divestiture like that To happen, so
Speaker 1: you're inevitably in the result of a band. Of course,
Speaker 1: you're also in courts as soon as Congress passes this.
Speaker 1: And you saw Montana pass the TikTok ban last year.
Speaker 1: It got tripped up in court. You saw President Trump
Speaker 1: before he was against this, he actually signed a ban
Speaker 1: of TikTok that was tripped up in the court. So
Speaker 1: once this passes, you still have a tough court challenge coming.
Speaker 1: And so TikTok's first line of defense is going to
Speaker 1: be to see you over this, all.
Speaker 12: Right, So if this ultimately goes to the courts, you've
Speaker 12: got to explain to me, what's the legitimate national security
Speaker 12: threat of me going posting pictures of myself or video
Speaker 12: of myself, you know, redoing my bathroom or Lisa putting
Speaker 12: on her mas scare.
Speaker 1: That's exactly the question the courts are going to be asking.
Speaker 1: And the House went into closed session in committee when
Speaker 1: it talked about this, so so they kind of they
Speaker 1: were secret on the concerns that motivated this. But then
Speaker 1: after they had that closed session, all of a sudden
Speaker 1: it was fifty to zero voting in support. So we
Speaker 1: don't exactly know. I think the concern is that if
Speaker 1: this data is you know, not just you looking at
Speaker 1: at your you know, cat videos or whatever it is,
Speaker 1: but you know, one hundred and fifty million Americans everything
Speaker 1: that they are looking at all of this flow of
Speaker 1: data going to China. Let's China take a look at it.
Speaker 1: There's also a concern on the propaganda side that if
Speaker 1: China can impact sort of the flow of videos, can
Speaker 1: they start to shape thinking and in particular in young people.
Speaker 1: There's two sides of the concern here looking at the
Speaker 1: data about how we're using it and also influencing thought
Speaker 1: potentially by framing messages, by using an algorithm to promote
Speaker 1: certain ideas.
Speaker 3: Our thanks to Matt Sheltenhelm, Bloomberg Intelligence Media Litigation analysts,
Speaker 3: So Paul.
Speaker 4: Earlier this week, I was in Houston and I was
Speaker 4: joined by Jim Fitterling, CEO of the Dow Chemical Company,
Speaker 4: and he talked about consumer demand in US and Europe.
Speaker 4: And he told me that the high price of electricity
Speaker 4: in Europe is hurting customers, consumers, and the European economy.
Speaker 4: In the US though very different story. And I began
Speaker 4: this portion of our conversation by asking Jim if the
Speaker 4: US economy actually needs the FED to cut interest rates
Speaker 4: this year.
Speaker 8: You know, it's starting to feel like the economy is
Speaker 8: gaining a little bit of strength the beginning of the year.
Speaker 8: It's not.
Speaker 7: It's not robust.
Speaker 8: Maybe a little bit early to tell if this is
Speaker 8: a a long term trend, but it's been a decent
Speaker 8: start to the year. Electronics has been a bit stronger
Speaker 8: than last year. Last year was a kind of a
Speaker 8: weak spot, so our outlook is good. Automotive had a
Speaker 8: good year last year, and I think despite the discussion
Speaker 8: around electric vehicles and some of the flat to negative
Speaker 8: sentiment that's in the news, the reality is I think
Speaker 8: it's going to be another good year in the automotive sector.
Speaker 8: Housing has been the slowest start, but there's been an
Speaker 8: uptick in single family home starts, which is good. That
Speaker 8: usually has a ripple effect through a lot of other
Speaker 8: durable goods manufacturing. We haven't seen that yet. So a
Speaker 8: modest good start to the year, and we just see
Speaker 8: how things develop.
Speaker 3: So we're getting there.
Speaker 4: So that begs the question that if we do, say
Speaker 4: get two to three cuts this year, for example, from
Speaker 4: the FED, is your expectation that we see accelerated growth,
Speaker 4: higher infleation, does that actually start more growth?
Speaker 8: Well, I think in the commodity space and in our
Speaker 8: industry in particular, we tend to lead into a slowdown,
Speaker 8: and so we started to lead into this eighteen months
Speaker 8: middle of this year will be twenty four months ago,
Speaker 8: and we typically tend to lead out, and so it's
Speaker 8: too early to say we're coming out, but you can
Speaker 8: start to see shoots that are like when we see
Speaker 8: a recovery, and of course that demand. You know, what's
Speaker 8: missing from the economy right now is a durable goods
Speaker 8: demand and when that and construction demand, and when that
Speaker 8: comes back, those are high volume applications and that demand
Speaker 8: pool is going to mean that prices are going to
Speaker 8: move up a bit. I don't know if I would
Speaker 8: call that necessarily inflationary, but that's just the cycle.
Speaker 4: What do you think it's waiting for.
Speaker 8: I think it's waiting for rate reductions, for the mortgage
Speaker 8: rates to come down. I think that's the next big
Speaker 8: thing that typically triggers a kind of a shoot up
Speaker 8: in the housing market, and then that triggers a lot
Speaker 8: of other services and durable goods demand that comes behind it.
Speaker 4: So we may see a second half recovery. I'm hopeful
Speaker 4: sort of what I'm hearing from it, then hopeful? Is
Speaker 4: it a similar picture over in Europe? So the chemical
Speaker 4: sector in Europe is under a lot of pressure. I mean, INPO,
Speaker 4: costs are high. The economy there is weaker in many
Speaker 4: sense compared to the US.
Speaker 3: What's your take?
Speaker 8: European consumer demand is not nearly as strong as it
Speaker 8: is here in the States, And of course the weight
Speaker 8: of higher energy costs has hit the consumer a lot
Speaker 8: of different ways. Now we're seeing an improvement year over year.
Speaker 8: Obviously energy has come down, but an electricity, you know
Speaker 8: which most consumers purchase electricity costs are double, maybe a
Speaker 8: little bit more than what they are here in the US.
Speaker 8: So I think, you know, there's a big question when
Speaker 8: I look at my downstream customers in Europe, I'm always
Speaker 8: questioning how long will they be there? And if you
Speaker 8: don't have a domestic market to service in Europe, you
Speaker 8: really can't afford to export from Europe. So if you
Speaker 8: don't have a domestic market to service, you have to say,
Speaker 8: you know, what does my footprint need to be? How
Speaker 8: long can I be there in order to be part
Speaker 8: of that economy?
Speaker 4: That's a big deal. I mean that you're talking about
Speaker 4: the automotive industry, construction industry, like, is that going to move?
Speaker 4: What's your best sense?
Speaker 8: A lot of technology comes out of there too, I
Speaker 8: mean beyond just the industry. A lot of the technology
Speaker 8: that we use around the world starts in Europe. And
Speaker 8: so you know, exporting technology obviously is a little bit
Speaker 8: easier than exporting product. But we're already starting to see
Speaker 8: imports of electric vehicles from China into Europe. We're seeing
Speaker 8: China has become a lower cost competitor than Europe in petrochemical,
Speaker 8: so you're starting to see product move into Europe. The
Speaker 8: Middle East obviously has been a big supplier because of
Speaker 8: their cost position into Europe. Europe's getting a bit of
Speaker 8: a reprieve right now because of the Suez Canal situation,
Speaker 8: so operating rates are up a little bit, but I
Speaker 8: think that'll once that Israel Gaza conflict has resolved, then
Speaker 8: we'll see things go back to normal.
Speaker 4: Is it fair to say that you wouldn't build a
Speaker 4: new chemical plant in Europe right now?
Speaker 7: Be very tough.
Speaker 8: You'd have to be in a very specialized downstream market
Speaker 8: that you knew could handle the higher input costs, but
Speaker 8: I would say, in general, be very tough.
Speaker 4: So for you, then let's take a look at inmpleation
Speaker 4: for a second. Where are cost still rising and where
Speaker 4: are they falling.
Speaker 8: You're starting to see some costs, I mean, cost and
Speaker 8: commodities came off pretty dramatically. I think one of the
Speaker 8: reasons we announced our final investment decision on our project
Speaker 8: in Canada at the end of last year was because
Speaker 8: we were able to lock in a lot of bulk
Speaker 8: material costs like steel, concrete, cement, all the things we
Speaker 8: need to build a plan. So I think that's been
Speaker 8: good now. Obviously, as some of this construction demand and
Speaker 8: things come back, that'll tend to rise with the cycle.
Speaker 8: But I think if you looked at the commodity portion,
Speaker 8: a lot of inflation came out of there. If you
Speaker 8: look at the concerns like going to the grocery store,
Speaker 8: some of that hasn't come out yet, and so I
Speaker 8: think we're starting to see that. With the de stalking
Speaker 8: that happened last year, no signs of really restocking in
Speaker 8: the value chain, I think you're going to start to
Speaker 8: see some of that consumer inflation come out to and
Speaker 8: I think that's a little bit what the Fed's looking at.
Speaker 4: Are you worried about tariffs come I don't know November
Speaker 4: January from either president.
Speaker 8: As a global company and as a company that's been
Speaker 8: part of global trade for many, many years, teriffs don't
Speaker 8: stimulate demand anywhere, So I think what would happen under
Speaker 8: a terraff regime is we might not be happy with
Speaker 8: the demand result. Global free trade has been a better
Speaker 8: platform for growth. It's been better for growth, not just
Speaker 8: for the US, and we're advantaged, of course because of
Speaker 8: energy among other things, but it's been great for other countries.
Speaker 8: It's lifted so many people out of poverty, created a
Speaker 8: middle class. It's allowed technology to transfer around the world.
Speaker 4: So it also just mean that you would have to
Speaker 4: produce and use the products in country.
Speaker 3: Right.
Speaker 4: You have to produce and do a crunchry be totally
Speaker 4: separate from each other.
Speaker 8: Right when we have a supply chain today that is
Speaker 8: not US centric and hasn't had time to reshore, so
Speaker 8: that would become inflationary in and of itself. So I think,
Speaker 8: you know, the thing we're trying to fight and the
Speaker 8: tool we're using, they both could end up being inflationary.
Speaker 8: I don't know the tariffs is the answer.
Speaker 4: Let's turn to if you're building a new plant today,
Speaker 4: what are you going to power it with in the
Speaker 4: next ten to fifteen years, Like, what's going to be
Speaker 4: that thing?
Speaker 8: Well, we're all building a new plant in Canada and
Speaker 8: the purpose for going up there was to build the
Speaker 8: world's first zero scope on and two emissions ethylene complex.
Speaker 8: We will power it with hydrogen. It's a pretty elegant
Speaker 8: solution because we actually take ethane and natural gas liquid,
Speaker 8: we crack it to make ethylene and we make two
Speaker 8: byproducts methane and hydrogen. Lindy will come in and build
Speaker 8: an autothermal reformer that'll convert that to pure hydrogen, and
Speaker 8: that pure hydrogen will fire the furnace. So it's a
Speaker 8: very closed loop system that will allow us to capture
Speaker 8: all the CO two off the autothermal reformer and sequester
Speaker 8: that and maybe zero scope one and two ethylene and
Speaker 8: plastics there. It'll be the biggest hydrogen carbon capture project
Speaker 8: of its kind in the world, and it'll be the
Speaker 8: first one. First phase will be up in twenty twenty.
Speaker 7: Seven, all right.
Speaker 4: Thanks to Jim Fitterling, CEO of a Dow Chemical company.
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