WEBVTT - The Chip Supply Chain Is Getting Harder to Trade 0:00:01.800 --> 0:00:04.400 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:04.440 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanivk. We're here every day bringing 0:00:07.280 --> 0:00:09.799 you the latest news from the world of business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all purtnising the power of Business 0:00:13.640 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.160 --> 0:00:20.000 analyst in more than one twenty countries. You can download 0:00:20.000 --> 0:00:23.479 Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You 0:00:23.480 --> 0:00:25.440 can also listen to our radio show at two pm 0:00:25.440 --> 0:00:28.360 Eastern Time on Bloomberg Radio or watch us on YouTube 0:00:28.400 --> 0:00:32.720 search Bloomberg Global News. Well, yes, the sector I stole 0:00:32.760 --> 0:00:34.840 for Tim for the top of our three pm simulcast, 0:00:34.920 --> 0:00:38.599 it is the semiconductor index. The socks rear seeing chip 0:00:38.600 --> 0:00:41.960 stocks jump today, Sam, some electronics coming out with better 0:00:41.960 --> 0:00:44.320 than anticipated jump in revenue, and that really just sent 0:00:44.400 --> 0:00:48.440 the whole sector booming in uh, the U S trade. 0:00:48.479 --> 0:00:49.960 I mean it also sent it booming over in the 0:00:50.000 --> 0:00:52.840 Agia trade. Overnight. You have a really interesting commentary coming 0:00:52.880 --> 0:00:55.800 from our own Ryan the Stellica and subrot Pat Nike, 0:00:56.400 --> 0:00:58.440 all about the chips supply chain. We've talked so much 0:00:58.480 --> 0:01:01.320 about it Carol and over the US two years, how 0:01:01.400 --> 0:01:04.800 it has been really challenged, not just for automakers but 0:01:04.920 --> 0:01:08.160 for anyone who wanted a chip. It's actually getting harder 0:01:08.200 --> 0:01:11.679 to trade because not all chips are created equal. Ryan 0:01:11.760 --> 0:01:14.400 the Stelica is equities reporter for Bloomberg News, and he 0:01:14.440 --> 0:01:17.000 joins us on the phone from Chicago. Ryan, great to 0:01:17.040 --> 0:01:18.240 have you with us. I want to go back to 0:01:18.280 --> 0:01:20.040 this idea that that not all chips are the same 0:01:20.080 --> 0:01:22.600 here because we are starting to see a glut in 0:01:22.760 --> 0:01:25.720 some types of chips, but others are still hard to 0:01:25.760 --> 0:01:29.640 come by. Please explain. Yeah, absolutely, Well, Obviously, different chips 0:01:29.640 --> 0:01:31.800 are used in different types of product categories, and we 0:01:31.840 --> 0:01:35.479 are seeing differences in demand and supply depending on what 0:01:35.600 --> 0:01:37.800 level you're looking at and what's part of the market 0:01:37.800 --> 0:01:40.120 and what their use case is. So last week we 0:01:40.160 --> 0:01:42.800 had a little bit of a warning sign out of Micron, 0:01:42.959 --> 0:01:47.240 which talked about flowing demand for issues like computers and smartphones, 0:01:47.280 --> 0:01:50.680 suggesting maybe a little bit of a weaker demand outlook 0:01:50.680 --> 0:01:53.680 for memory related chips in particular. Now you mentioned before, 0:01:53.720 --> 0:01:56.240 we just had sam some come out better than expect 0:01:56.240 --> 0:01:58.400 to jump in revenue. So that's a positive sign for 0:01:58.440 --> 0:02:00.680 this group. So again, some mix mills there, but this 0:02:00.720 --> 0:02:02.520 is an area where people are still trying to suck 0:02:02.560 --> 0:02:04.480 out what does demand look like and so on and 0:02:04.520 --> 0:02:06.920 so forth. Of course, there are other areas that we 0:02:06.960 --> 0:02:09.120 can get into this. Well. I feel like a story 0:02:09.160 --> 0:02:11.120 like yours, Ryan is one that really kind of educates 0:02:11.160 --> 0:02:12.960 us because it reminds us that not all chips are 0:02:13.000 --> 0:02:15.680 the same. And then it also reminds us that this 0:02:15.720 --> 0:02:18.399 is when it really turns out that if you're a 0:02:18.440 --> 0:02:21.959 big buyer of chips, thank you, Apple, you tend to 0:02:21.960 --> 0:02:23.560 be in a better position. So talk to us a 0:02:23.560 --> 0:02:26.320 little bit about kind of the specifics the nuances of 0:02:26.320 --> 0:02:29.840 the semi trade. Yeah, well sure, I mean you mentioned 0:02:29.840 --> 0:02:33.120 that Apple is a huge buyer of chips, especially from 0:02:33.200 --> 0:02:35.480 Micron and from Qualcom and from other names like that. 0:02:36.200 --> 0:02:38.320 Because of, you know, the weight it throws around, it 0:02:38.320 --> 0:02:40.240 has been able to navigate some of these supply chain 0:02:40.280 --> 0:02:42.840 issues a little bit better than a smaller players, although 0:02:42.840 --> 0:02:44.880 and it's most recent quarterly reported did kind of come 0:02:44.919 --> 0:02:47.079 out and suggested it was seeing a certain amount of 0:02:47.120 --> 0:02:50.040 headwind from this. Of course, now there's questions about demand 0:02:50.040 --> 0:02:52.440 and in its ability to continue getting supply, so again 0:02:52.680 --> 0:02:57.120 very complicated picture in the chip sector. UM, different areas 0:02:57.160 --> 0:02:59.840 are seeing perhaps some stronger tail winds than others right now. 0:03:00.080 --> 0:03:02.880 It depends on what the use cases. Okay, Ryan, let's 0:03:02.880 --> 0:03:05.560 talk autos here. Help us get an understanding for what's 0:03:05.600 --> 0:03:07.919 going on in the car industry, specifically here in the 0:03:08.040 --> 0:03:10.120 United States, because it's still pretty tough to get a 0:03:10.120 --> 0:03:13.400 new car. Yeah. Absolutely. We just saw a GM come 0:03:13.440 --> 0:03:15.560 out last week talking about chip shortages and being sort 0:03:15.560 --> 0:03:17.240 of an issue that if spacing. So that is an 0:03:17.280 --> 0:03:20.320 area where they're continue to be extremely strong demand for chips, 0:03:20.360 --> 0:03:22.640 and there's more and more chips are being put into cars, 0:03:22.720 --> 0:03:25.919 especially electric vehicles, to unitor all the different kinds of 0:03:25.919 --> 0:03:29.760 computers and UM you know, you know, everything that goes 0:03:29.760 --> 0:03:31.639 on to those cousins to make sure that they're operating 0:03:31.639 --> 0:03:34.400 and finding all the necessary data they need. So that 0:03:34.480 --> 0:03:36.680 is an area that continues to see very strong demands. 0:03:37.000 --> 0:03:40.640 UM and TATA companies, UM, you know, like Texas Instruments 0:03:40.680 --> 0:03:44.400 STM UM finding on NXB UM food companies like that 0:03:44.400 --> 0:03:47.040 are heavily involved in this particular area. All right, So 0:03:47.120 --> 0:03:50.000 you've got you know, you talk about the different ships 0:03:50.000 --> 0:03:52.760 in your story. You know, smartphones tablets, computers. We just 0:03:52.760 --> 0:03:55.440 talked about auto Tim brought that up. There's data centers, 0:03:55.480 --> 0:03:59.640 there's um AI artificial intelligence, and then you've also got 0:03:59.640 --> 0:04:01.640 the chip eqipment makers. I almost think about when I'm 0:04:01.640 --> 0:04:04.400 reading this story. I think about the energy sector. Right, 0:04:04.400 --> 0:04:06.720 You've got integrated oil companies, You've got the e m P, 0:04:06.960 --> 0:04:10.320 the exploration production companies, You've get utilities. Like there's different 0:04:10.320 --> 0:04:12.720 ways of playing with it. Talk to us about like 0:04:12.760 --> 0:04:15.320 the data center and AI guys or the chip equipment makers. 0:04:15.680 --> 0:04:20.159 Is that opportunity for investors potentially well? Data center is 0:04:20.160 --> 0:04:22.520 an area that so far seems to be holding up 0:04:22.520 --> 0:04:24.880 pretty well. Data centers of course us in cloud computing 0:04:24.880 --> 0:04:29.039 and so forth. So what has really major enterprise spending 0:04:29.080 --> 0:04:33.040 behind it, especially named like Amazon and Microsoft and Alphabet 0:04:33.120 --> 0:04:35.320 or of course the biggest players within the cloud space. 0:04:35.640 --> 0:04:37.840 So companies like the media tend to see a lot 0:04:37.839 --> 0:04:39.680 of demands for these types of products. A and B 0:04:39.920 --> 0:04:42.920 is another one. Even Micron does have a data center division, 0:04:42.960 --> 0:04:45.320 which it said was holding up pretty well in contrast 0:04:45.320 --> 0:04:48.160 to the consumer side of things. So this is an area, um, 0:04:48.279 --> 0:04:50.320 you know so far as holding well. People I've spoken 0:04:50.360 --> 0:04:53.640 to said, um, they're really waiting to see whether this 0:04:53.760 --> 0:04:56.080 continues to hold up. If it doesn't, then that does 0:04:56.160 --> 0:05:01.159 have some pretty negative implications for what broader economic looks like. Yeah, 0:05:01.200 --> 0:05:02.760 I feel like Tim, these are things like the hedge 0:05:02.760 --> 0:05:04.840 fund guys right there watching like all these different kind 0:05:04.880 --> 0:05:08.440 of indicators to give an idea of what comes next exactly. 0:05:08.480 --> 0:05:10.200 And it's interesting to see. Two, we didn't even get 0:05:10.200 --> 0:05:12.440 a chance to talk about crypto and the declining interest 0:05:12.480 --> 0:05:15.240 around crypto, the decline price around crypto. That has an 0:05:15.240 --> 0:05:17.400 effect on the chip industry as well, because that decreases 0:05:17.440 --> 0:05:19.080 demand too. Do you know the sucks is up within 0:05:19.160 --> 0:05:22.039 six percent since last Friday. I didn't know that I 0:05:22.080 --> 0:05:23.680 was gonna I'll find that out at three o'clock at 0:05:23.720 --> 0:05:30.000 that maybe maybe maybe a good one might pay a 0:05:30.000 --> 0:05:33.479 good sector for the top of that three pm. Simcast Um, Ryan, 0:05:33.480 --> 0:05:36.080 thank you so much, Ryan Pastelica. He's equities reporter at 0:05:36.120 --> 0:05:39.400 Bloomberg News. Joining us on the phone from Chicago. You're 0:05:39.440 --> 0:05:43.440 listening to Bloomberg Business Week with Carol Masser and Bloomberg 0:05:43.480 --> 0:05:48.440 Quick Takes Tim Stinovic on Bloomberg Radio Demand Destruction anyone, 0:05:48.560 --> 0:05:51.480 Because this story is definitely a sign of the times, 0:05:51.480 --> 0:05:54.279 as searching power bills are forcing the U. S. Industrial 0:05:54.320 --> 0:05:56.680 complex to slow down. Tim This is a story you 0:05:56.720 --> 0:05:59.440 will find on the Bloomberg Terminal online at Bloomberg dot 0:05:59.480 --> 0:06:02.640 com slash business Week. It really just speaks to so 0:06:02.720 --> 0:06:04.040 much of what's going on, and I feel like what 0:06:04.080 --> 0:06:06.320 we just talked about for some of our audience, high 0:06:06.440 --> 0:06:10.719 energy prices the bane of industrial production. Joe Do writes 0:06:10.760 --> 0:06:13.200 all about it, along with Narraine Mallet Carroll. As you mentioned, 0:06:13.600 --> 0:06:15.560 you can find this story at Bloomberg dot com slash 0:06:15.560 --> 0:06:19.600 business Week. Joe Do is Medals and Agriculture Agriculture America's 0:06:19.600 --> 0:06:23.000 deputy team leader for Bloomberg News. He joins us this afternoon, 0:06:23.000 --> 0:06:25.200 also with us as Joel Webber, the editor of Bloomberg 0:06:25.240 --> 0:06:28.200 Business Week. He's with us in the Bloomberg Interactive Brokers studio. 0:06:28.560 --> 0:06:31.640 This is remarkable, remarkable, Joel. At one plant here in 0:06:31.640 --> 0:06:35.640 the US, the electricity bills have tripled in recent months 0:06:35.680 --> 0:06:37.880 and as a result, they've had to idle the plant 0:06:38.680 --> 0:06:42.040 and more than one plant. Um. This is gonna have 0:06:42.320 --> 0:06:43.840 um and this is gonna be a story that I 0:06:43.880 --> 0:06:45.360 think we're going to continue to talk about. I mean, 0:06:45.400 --> 0:06:48.080 look like the world is obsessed with the energy story 0:06:48.240 --> 0:06:53.040 right now, we've seen it um just kind of devastate Europe. 0:06:53.200 --> 0:06:56.560 And what really got us interested in this story by 0:06:56.720 --> 0:06:59.239 by Joe and Noreen was that some of these early 0:06:59.320 --> 0:07:02.080 signs are starting to show up here, that the surging 0:07:02.160 --> 0:07:07.520 costs of electricity are gonna kind of break America's industrial 0:07:07.920 --> 0:07:13.200 complex and that that factory might that makes America hum um. So, so, Joe, 0:07:13.200 --> 0:07:15.280 what are we wrestling with here and what are those 0:07:15.800 --> 0:07:20.640 factories and manufacturers looking at. Yeah, I think it's the 0:07:20.680 --> 0:07:25.920 first time the United States is seeing a power crunch itself, right. Uh. 0:07:26.040 --> 0:07:30.440 Europe obviously hit very early on with Russia's invasion of 0:07:30.520 --> 0:07:33.640 Ukraine and then this spread into Asia. And for months now, 0:07:33.840 --> 0:07:37.640 our European colleagues have been calling us on the commodities 0:07:37.680 --> 0:07:40.160 desk here in the United States saying, aren't you guys 0:07:40.160 --> 0:07:43.240 seeing similar problems for your steel mills and for your 0:07:43.280 --> 0:07:46.800 aluminum mills and all the other manufacturing facilities, And kept saying, no, 0:07:46.920 --> 0:07:50.960 it's just not happening. Well, when Century Aluminum, which is 0:07:51.000 --> 0:07:54.040 the second largest US aluminum producer in the United States, 0:07:54.080 --> 0:07:55.920 just a few weeks ago, announced that they were closing 0:07:55.920 --> 0:08:00.040 down their largest facility due to power costs nor In 0:08:00.120 --> 0:08:01.920 and I got on a call and said, what what 0:08:02.000 --> 0:08:04.080 are we missing here? And and so this this is 0:08:04.160 --> 0:08:07.680 ultimately what became this story. And she had been learning 0:08:08.000 --> 0:08:10.880 already previously that a lot of manufacturers across the Midwest 0:08:10.920 --> 0:08:14.560 were complaining about their power costs. They weren't shutting down necessarily, 0:08:14.760 --> 0:08:16.200 but they were worried they were going to have to 0:08:16.400 --> 0:08:18.920 throttle things back in the summer. And of course what 0:08:19.000 --> 0:08:21.760 our story goes into is that not only are their 0:08:21.760 --> 0:08:24.480 feeling these but they are actually you are starting to 0:08:24.480 --> 0:08:29.560 see some some shuttering of of manufacturing production across the US, 0:08:29.600 --> 0:08:34.640 including one source telling me that two finishing facilities UH 0:08:34.720 --> 0:08:38.440 for steelmakers have already had to cut back on production 0:08:38.520 --> 0:08:41.960 because they need to cut in some places so they 0:08:42.000 --> 0:08:45.640 can continue to do, you know, their their main work. Joe. 0:08:45.640 --> 0:08:48.960 What I love about your story is I learn about 0:08:49.040 --> 0:08:51.480 within the industrial complex here in the United States kind 0:08:51.480 --> 0:08:53.720 of how it all, how it all works, and especially 0:08:53.720 --> 0:08:57.640 when you're you know, tapping into utilities and power, I 0:08:57.679 --> 0:09:01.080 mean facilities, how have to pay for something as you 0:09:01.200 --> 0:09:03.880 lay out something known as capacity. So in other words, 0:09:03.920 --> 0:09:06.640 they kind of need to keep things functioning even if 0:09:06.720 --> 0:09:10.679 they don't need to use it. Yeah, it's it's the 0:09:10.720 --> 0:09:13.280 way we describe it is an insurance policy. So if 0:09:13.280 --> 0:09:16.960 you're a big factory, or let's say you're you know, 0:09:17.000 --> 0:09:19.600 you're a utility, right, and you need to make sure 0:09:19.600 --> 0:09:21.600 that in the middle of August, the entire city of 0:09:21.760 --> 0:09:24.560 New York has enough power to turn on all of 0:09:24.559 --> 0:09:29.160 their air conditionings on a hundred degree humid day. Uh. Well, 0:09:29.840 --> 0:09:32.280 you have to pay ahead of time to make sure 0:09:32.360 --> 0:09:36.280 that capacity will be there if you need it. And 0:09:36.320 --> 0:09:39.720 what we're finding because the grid ist aging, because we've 0:09:39.720 --> 0:09:43.679 been phasing out old fossil fuel plants, you know, because 0:09:43.760 --> 0:09:46.880 of the war between Russia and Ukraine, all of things, 0:09:47.080 --> 0:09:49.760 things are converging in pushing up the cost even of 0:09:49.800 --> 0:09:53.040 the capacity. So you combine the capacity, which is an 0:09:53.040 --> 0:09:56.000 insurance that you sometimes need but sometimes you don't need, 0:09:56.360 --> 0:09:59.079 and you add that with what you're actually paying uh 0:09:59.160 --> 0:10:03.280 per kilowatta or and it's really just stressing these companies. 0:10:04.520 --> 0:10:08.120 Um and And I'm curious here, Joe, like, well, when 0:10:08.160 --> 0:10:10.559 where we gonna know how bad this gets? Like right, 0:10:10.679 --> 0:10:13.920 we're early right now, right, Like how bad could this get? 0:10:15.559 --> 0:10:18.319 So the forecast that we had pointed out which was 0:10:18.360 --> 0:10:21.520 a government forecast, said the worst is yet to come, 0:10:21.520 --> 0:10:24.240 and it's probably gonna come here in the third quarter, 0:10:24.960 --> 0:10:27.760 towards the end of the summer, as obviously power use 0:10:27.800 --> 0:10:30.520 goes up UM to its highs and it's going to 0:10:30.600 --> 0:10:33.400 hit a high of all time. Um. You know. This 0:10:33.480 --> 0:10:36.320 is something I was just discussing earlier with Limberg Television, 0:10:36.320 --> 0:10:38.559 which is, well, what does that mean? Right? And I 0:10:38.600 --> 0:10:40.720 think we're going to be paying very close attention to 0:10:40.800 --> 0:10:44.880 earnings in the next coming weeks for the big manufacturing companies, 0:10:45.080 --> 0:10:48.240 in which they'll tell us. You know, all they've said 0:10:48.240 --> 0:10:50.240 all year is that demand is good in order books 0:10:50.440 --> 0:10:54.520 remain healthy. Um. But we're actually starting to see economic 0:10:54.600 --> 0:10:56.640 data show a bit of a slowdown in the economy. 0:10:56.640 --> 0:11:01.400 Obviously GDP was negative um. And it's going to start 0:11:02.160 --> 0:11:04.600 the question will come up from analysts, well what about 0:11:04.600 --> 0:11:07.480 your power contracts? Are those starting to be a problem 0:11:07.520 --> 0:11:09.400 for you? Does that mean you're gonna have to shut down? 0:11:09.800 --> 0:11:11.280 And are you getting it on the other end, which 0:11:11.360 --> 0:11:14.360 is demand? Uh. You know, listen, I'm not saying that 0:11:14.400 --> 0:11:17.560 we're we're it's for sure, right, things could could turn 0:11:17.600 --> 0:11:21.240 and maybe suddenly things improve, um, But right now, it's 0:11:21.280 --> 0:11:24.320 like Noreene wrote in our story, Um, there's just not 0:11:24.440 --> 0:11:29.079 enough renewables out there to offset what's going on right now, 0:11:29.120 --> 0:11:31.400 and people are going to start feeling the pain. Well, 0:11:31.440 --> 0:11:33.880 let's talk about some of those renewables here, because I 0:11:33.920 --> 0:11:35.960 do like how the two of you wrote about a 0:11:35.960 --> 0:11:40.480 potential silver lining here, the idea of investment perhaps in renewables, 0:11:40.600 --> 0:11:44.640 barges full of batteries, startups getting investment as a result 0:11:44.679 --> 0:11:47.880 of this. Help us find the silver lining here, Joe, Yeah, 0:11:47.960 --> 0:11:51.640 I mean the silver lining is is that comes online. Um. 0:11:52.080 --> 0:11:53.920 The bad part of the silver lining is it comes 0:11:53.920 --> 0:11:57.320 in line over a number of years, and it's not 0:11:57.400 --> 0:11:59.760 something that can just happen now. And I know we've 0:11:59.800 --> 0:12:03.080 all and having this conversation this year, especially in Europe, right, 0:12:03.160 --> 0:12:08.880 which is the short term pain. Suddenly everybody's looking back, Uh, 0:12:08.920 --> 0:12:12.440 Suddenly everybody is looking back at uh fossil fuels. Right. 0:12:12.640 --> 0:12:16.640 We need power now and um, and and that's the struggle. 0:12:16.720 --> 0:12:20.680 So eventually we are going to get important solar coming online, 0:12:20.679 --> 0:12:23.160 and we're gonna have important wind coming online, and these things, 0:12:24.160 --> 0:12:27.640 included with the ability to store all of that power, 0:12:27.760 --> 0:12:30.080 are really going to change the dynamics of the grid. 0:12:30.440 --> 0:12:32.720 But at this moment, it's just not there. And and 0:12:32.720 --> 0:12:35.080 that's why you're feeling this squeeze, right, and we're like 0:12:35.160 --> 0:12:37.760 far from that. So look, if if this is going 0:12:37.800 --> 0:12:40.840 to hit industry, Joe, like, what do we expect. Is 0:12:40.880 --> 0:12:43.920 this is something that consumers are going to feel the 0:12:44.720 --> 0:12:47.600 energy prices or are they gonna have the knock on 0:12:47.640 --> 0:12:50.760 effects of suddenly like this becoming yet another thing that 0:12:50.840 --> 0:12:55.800 plays into inflation and inflationary concerns? Yeah, I mean I'll 0:12:55.800 --> 0:12:58.080 put it this way. They could feel it. Uh, you know, 0:12:58.200 --> 0:13:00.920 you could see a pass through of cost, but that 0:13:00.960 --> 0:13:05.719 won't happen if demand, uh suddenly dissipates even before then, right, 0:13:06.080 --> 0:13:08.959 if you have real concerns of an already problematic issue 0:13:08.960 --> 0:13:14.360 of inflation, you have the already problematic slowdown in the economy. Um, suddenly, 0:13:14.360 --> 0:13:18.640 if that demand disappears, uh, you know, than than you know, 0:13:18.679 --> 0:13:22.720 passing through those costs, maybe maybe isn't entirely possible and 0:13:22.720 --> 0:13:25.360 and and maybe suddenly you're looking at cutting back on 0:13:26.320 --> 0:13:29.240 a lot of manufacturing capacity. I mean, listen, this is 0:13:29.360 --> 0:13:32.199 pure speculation, but I am kind of playing out the 0:13:32.200 --> 0:13:35.280 potential possibilities here well, and it certainly seems to start, 0:13:35.400 --> 0:13:37.240 you know, fitting in with some of the other economic 0:13:37.320 --> 0:13:39.760 data points that we're starting to get about the global economy, 0:13:39.800 --> 0:13:42.400 certainly in the US economy. Um, Joe do, Thank you 0:13:42.440 --> 0:13:45.480 so much. Medals and Agriculture America's deputy team leader at 0:13:45.520 --> 0:13:48.600 Bloomberg News, along with Joel Webber, the editor of Bloomberg 0:13:48.640 --> 0:13:51.320 Business Week. This story you can find on the Bloomberg 0:13:51.400 --> 0:13:55.960 and at Bloomberg dot com slash business Week. This is 0:13:56.000 --> 0:13:59.920 Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. 0:14:00.080 --> 0:14:04.280 Tim Stinovic on Bloomberg Radio. Alright, full disclosure, I didn't 0:14:04.280 --> 0:14:05.719 do a lot of reading while I was sick out 0:14:05.760 --> 0:14:08.959 with COVID. To be quite honest, I did periodically say, Hey, Google, 0:14:09.000 --> 0:14:12.040 give me a news update. And when I did yesterday, 0:14:12.120 --> 0:14:14.400 that's when I heard about Amazon and Grubhub teaming up. 0:14:14.920 --> 0:14:16.400 I kind of say that, Tim, We're still trying to 0:14:16.400 --> 0:14:19.200 figure out, you know, what this relationship does and means, 0:14:19.320 --> 0:14:22.200 and can New Yorkers actually get it. Grubhub and seamless 0:14:22.200 --> 0:14:25.040 are the same company, but it can't get it on seamless. 0:14:25.120 --> 0:14:27.480 You know, We're we're trying to figure out what's going on. Fortunately, 0:14:27.520 --> 0:14:29.120 We've got a great person to help us do that. 0:14:29.200 --> 0:14:32.560 Jackie Devlos, this technology reporter for Bloomberg News. She's with 0:14:32.640 --> 0:14:35.200 us right now in the Bloomberg Interactive Broker studio. So 0:14:35.280 --> 0:14:37.160 this is a great Day two story, Jackie, because I 0:14:37.160 --> 0:14:38.880 think a lot of people who are paying attention yesterday 0:14:39.000 --> 0:14:43.520 understand the news, uh that grub Hub and Amazon half 0:14:43.520 --> 0:14:46.480 teamed up for Amazon Prime customers to get what free 0:14:46.520 --> 0:14:50.440 Grubhub delivery. Absolutely, at the end of the day for customers, 0:14:50.560 --> 0:14:55.280 this is a much better deal. Prime has a really impressive, 0:14:55.360 --> 0:14:58.840 very loyal membership base of Prime subscribers. I mean you 0:14:58.840 --> 0:15:01.960 can get your shampo toilet paper, and now you can 0:15:02.000 --> 0:15:05.480 get your dinner delivered. So um. At a time where 0:15:05.600 --> 0:15:08.520 people are really pinching pennies, you don't want to have 0:15:08.600 --> 0:15:12.040 to be paying you know, fee after fee tips, and 0:15:12.080 --> 0:15:13.720 so this is just a good way to clean it 0:15:13.840 --> 0:15:16.200 up and provide a deal to their customers. Okay, So 0:15:16.280 --> 0:15:19.520 what's in it for Grubhub and for Amazon, Well, this 0:15:19.640 --> 0:15:22.120 is an especially good deal for grub Hub. They have 0:15:22.160 --> 0:15:26.240 been needing a lifeline of sorts. Um. If you remember, 0:15:26.240 --> 0:15:28.440 at the beginning of the pandemic, they lost a ton 0:15:28.520 --> 0:15:31.160 of market share to door Dash and Uber eats, and 0:15:31.600 --> 0:15:34.040 especially in their top markets like New York and Chicago. 0:15:34.360 --> 0:15:36.480 So they've really been looking for ways to kind of 0:15:36.520 --> 0:15:38.960 get some of those customers back and keep them on. 0:15:39.520 --> 0:15:42.440 And they've still been struggling. Their pairing company has been 0:15:42.440 --> 0:15:45.040 looking to sell them, and no one, no one's really 0:15:45.240 --> 0:15:48.320 up for the buy right now. And so this is 0:15:48.360 --> 0:15:50.960 not only a good way to kind of really boost 0:15:51.000 --> 0:15:54.200 that user base again, but also make them a more 0:15:54.240 --> 0:15:58.840 attractive acquisition target for other companies. Scrubhub is like I 0:15:58.920 --> 0:16:02.440 finally got a day, Thank God for the big dance. Um, 0:16:02.520 --> 0:16:03.880 So there's a little bit of that going on. But 0:16:03.920 --> 0:16:06.400 I also feel like for Amazon, man, they are thinking 0:16:06.640 --> 0:16:09.200 so much about how to hold onto all of us 0:16:09.480 --> 0:16:12.280 who are part of the Amazon Prime deal. Absolutely, and 0:16:12.560 --> 0:16:15.160 you know a lot of us forget that they actually 0:16:15.280 --> 0:16:18.720 did wait into the food delivery industry a while as 0:16:19.400 --> 0:16:23.120 it didn't unfortunately it was back in and you know 0:16:23.160 --> 0:16:26.560 it's called Amazon Restaurants, and you know, Jeff Bezos himself 0:16:26.840 --> 0:16:29.720 was really reticent to get into the space because if 0:16:29.760 --> 0:16:32.240 you think about it, the moment hot meal gets to 0:16:32.280 --> 0:16:34.720 your door, it's a toss up. It could be perfect 0:16:34.880 --> 0:16:37.400 or you know, if you order sushi on the wrong day, 0:16:37.800 --> 0:16:42.760 it could really just ruin that Prime experience for Prime subscribers. 0:16:42.800 --> 0:16:45.600 And so he didn't invest a lot into it, and um, 0:16:45.600 --> 0:16:47.200 it kind of folded. And so this is kind of 0:16:47.200 --> 0:16:49.280 a way of inching back into the space for sure. 0:16:49.360 --> 0:16:51.200 So for Amazon it's kind of like, yeah, I'm gonna 0:16:51.280 --> 0:16:52.640 date you a little bit, but I've got to back 0:16:52.720 --> 0:16:55.240 up or I can back at it anymore. I mean, 0:16:55.280 --> 0:16:57.880 it just feels like, because having been homesick, I did 0:16:57.880 --> 0:17:00.000 a lot of ordering of food, and man, so many 0:17:00.080 --> 0:17:02.600 times things are messed up. Oh yeah, And you know, 0:17:03.080 --> 0:17:07.760 it's pretty interesting how they structured this partnership. They didn't 0:17:07.800 --> 0:17:11.719 exactly take a stake out right. It's an initial option 0:17:11.760 --> 0:17:14.840 to do so through warrants um and then they can 0:17:15.240 --> 0:17:18.840 increase that up for up to fifteen percent if things 0:17:18.880 --> 0:17:22.000 go well. So it's you know, a lot of protection 0:17:22.000 --> 0:17:24.880 and it's a cautious move in. But absolutely for us 0:17:24.880 --> 0:17:26.680 that you know, are so used to going on door dash, 0:17:26.840 --> 0:17:29.760 Uber Eats and rapid delivery, now it's just going to 0:17:29.800 --> 0:17:33.919 bring that you know, fee notch down a notch a bit. Okay, 0:17:33.960 --> 0:17:36.800 So what does this mean for Amazon Prime customers who 0:17:36.840 --> 0:17:39.719 are getting a price hyke up to a hundred dollars 0:17:39.720 --> 0:17:41.680 a year at a time when, in your own words, 0:17:41.760 --> 0:17:45.240 Jackie customers are pinching pennies because everything is more expensive 0:17:45.359 --> 0:17:48.639 right now? Does this make that Amazon Prime subscription that 0:17:48.720 --> 0:17:53.600 much more valuable and somebody less likely to cut their 0:17:53.600 --> 0:17:56.720 Prime sub I think overwhelming yes, because when you think 0:17:57.240 --> 0:18:01.119 about how much that grubhub last membership is worth, you 0:18:01.160 --> 0:18:04.320 don't just get free delivery, you get um a slew 0:18:04.320 --> 0:18:08.320 of other perks and deals, and um that's worth a 0:18:08.359 --> 0:18:11.199 month that pays for itself if you order, you know, 0:18:11.240 --> 0:18:13.800 at least three to four times a week, which many 0:18:13.800 --> 0:18:17.760 people do. And so for Prime subscribers that have already 0:18:17.760 --> 0:18:20.520 dealt with this Prime increase, this is just an added 0:18:20.560 --> 0:18:23.520 bonus and you know, just a free perk for a 0:18:23.560 --> 0:18:26.000 service that many of us use. So doesn't mean for 0:18:26.000 --> 0:18:28.600 the other food services. Have you been thinking about, you know, 0:18:28.640 --> 0:18:30.760 what does this mean for other players, either in big 0:18:30.760 --> 0:18:33.480 tech or or other world. I don't know that Amazon 0:18:33.560 --> 0:18:36.560 competes with or just the other food delivery services or 0:18:36.600 --> 0:18:39.080 they kind of need to be thinking about maybe hooking 0:18:39.119 --> 0:18:41.600 up with someone. I have to it up to the 0:18:41.640 --> 0:18:45.960 anti a bit, because I think many had thought that 0:18:46.040 --> 0:18:48.639 grub hub was just kind of a dead asset at 0:18:48.680 --> 0:18:52.240 this point, and given they've lost so much market share, 0:18:52.480 --> 0:18:54.159 this kind of puts them back in the game in 0:18:54.160 --> 0:18:56.800 a way. And you know, you saw it indoor Dash 0:18:56.800 --> 0:19:00.040 and Uber stock price yesterday. They were under pressure a 0:19:00.040 --> 0:19:02.560 bit because you know, if you're going to have a partner, 0:19:02.600 --> 0:19:07.440 you wanted to be a logistics giant like Amazon. Interesting, 0:19:07.440 --> 0:19:09.240 and I wonder about the logistics part of this, because 0:19:09.280 --> 0:19:12.000 Amazon does have that part figured out, But delivering food 0:19:12.080 --> 0:19:14.720 is tough. Margins are really tight, and there is a 0:19:14.760 --> 0:19:17.240 lot of competition. Jackie, just in the last thirty seconds, 0:19:17.240 --> 0:19:20.040 does this tell us anything about what Amazon's ambitions are 0:19:20.040 --> 0:19:23.040 not for food delivery, but for last mile area that 0:19:23.080 --> 0:19:25.920 it really has covered. I think it means that they're 0:19:25.960 --> 0:19:30.760 looking to um get into a space that has had 0:19:31.320 --> 0:19:34.160 a tough time figuring out how to make the economics work. 0:19:34.200 --> 0:19:36.840 And they already have a really big network of drivers, 0:19:36.880 --> 0:19:39.920 and so expanding into something like this um can only help, 0:19:40.000 --> 0:19:42.320 especially as they're looking to tap other areas of growth. 0:19:43.200 --> 0:19:45.000 So I'm going to order like my paper towels and 0:19:45.000 --> 0:19:47.800 I'm going to get like a salad al with it. 0:19:49.520 --> 0:19:53.000 Oh my god, it's just Amazon taking over the world. Anyway, 0:19:53.000 --> 0:19:55.199 It's really kind of cool to see how this is 0:19:55.200 --> 0:19:58.919 all evolving. Jackie Devola's technology reporter at Bloomberg News back 0:19:58.920 --> 0:20:01.600 in our interactive Brokers studio. I don't know, Tim, what 0:20:01.640 --> 0:20:03.960 do you think? Look it makes sense. A question that 0:20:04.040 --> 0:20:05.679 I have just over and over again is what this 0:20:05.720 --> 0:20:09.080 means for Seamless, which is a grubhub company. Yeah, because 0:20:09.080 --> 0:20:11.199 that's what we use here in New York. So is 0:20:11.200 --> 0:20:13.199 it couldn't work here? I'll have to try it out 0:20:13.200 --> 0:20:17.000 because I'm a Surprime sub driver exactly. All right, you're 0:20:17.040 --> 0:20:26.719 listening to Bloomberg I'm bro journal. Yeah, but you let 0:20:26.720 --> 0:20:31.639 me drive? Oh no, no, no no, no, please, I'll do 0:20:33.880 --> 0:20:42.199