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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: Purring Season, let's talk about a Micron Technologies came out

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Speaker 2: some numbers last night. Stocks up twelve percent year today,

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Speaker 2: But that's not the good number. The good number is

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Speaker 2: year to date up three hundred percent, over the trailing

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Speaker 2: twelve months, up eight hundred percent. So and this is

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Speaker 2: a one point three trillion dollar market cap company, people,

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Speaker 2: So there's some real money being made by investors here.

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Speaker 2: This is not a pink sheet, which my next guest

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Speaker 2: doesn't know what a pink sheet is, but it's not

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Speaker 2: a pink sheet stock. Jake Silverman, Semiconductor Analyts or Bloomberg

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Speaker 2: Intelligence Joints is here what you hear from Micron last.

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Speaker 3: Night, Jake?

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Speaker 2: That that's got the market pretty positi here.

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Speaker 4: Yeah, I mean it's continued upward pricing momentum. All that

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Speaker 4: is for the most part AI driven, you know. I mean, look,

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Speaker 4: we've seen healthy PC smartphone demand, but that's not the

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Speaker 4: real story. Right, We're seeing hyperscale CAPEX continue to grow

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Speaker 4: at an incredibly high rate, and memory is becoming an

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Speaker 4: increasingly large portion of that, But it's really on pricing.

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Speaker 4: Demand is strong because of AI buildouts, Right, We're shifting

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Speaker 4: from an AI training or environment to AI inferencing, and

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Speaker 4: that's just increasing the amount of memory that you need

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Speaker 4: in these data centers. The memory intensity is going higher.

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Speaker 4: But then we're also seeing longer term contracts being signed

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Speaker 4: by customers. They talked to Micron talked about sixteen last night,

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Speaker 4: one hundred billion dollars of revenue contract going all the

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Speaker 4: way out in some cases to twenty thirty.

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Speaker 5: Wow. So of course now the bar continually gets raised

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Speaker 5: for a company like Micron. Was there anything sort of

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Speaker 5: the minutia of this report that I don't know is

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Speaker 5: maybe a mini red flag for Micron or for the

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Speaker 5: greater in industry.

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Speaker 4: Yeah, So it's the interesting thing is, yeah, you really

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Speaker 4: is truly minute show because I think Mark the CFO

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Speaker 4: mentioned ASC six oh six last night, not something you

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Speaker 4: typically hear on memory calls. But but the interesting thing

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Speaker 4: about this is they talk about floor pricing and some

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Speaker 4: of these agreements I think they have twenty five percent

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Speaker 4: of their revenue or bits contracted out, but they're talking

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Speaker 4: about getting up to fifty percent or so of that

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Speaker 4: demand getting contracted. Now, that leaves another fifty percent that

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Speaker 4: isn't potentially going to get contracted. So when we start

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Speaker 4: to see a downturn, you know, the floor pricing on

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Speaker 4: those contract agreements, you know, they're talking about healthier margins

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Speaker 4: than even the last cyclical peak, which would put it

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Speaker 4: at you know, north of sixty percent probably, which is pretty.

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Speaker 5: So still an enviable position.

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Speaker 4: It's still enviable, but it's also a question mark is

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Speaker 4: when does the downturn occur and what happens to the

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Speaker 4: rest of the business that isn't contracted out, and you know,

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Speaker 4: what are the margins on the floor pricing for some

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Speaker 4: of those tracks. Anyway, it's all just there's a lot

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Speaker 4: of question marks and a lot of unknowns, and unfortunately

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Speaker 4: we're just not going to really know near term what's

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Speaker 4: going to happen. It's too far out because capacity in

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Speaker 4: the industry just can't keep pace with demand.

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Speaker 6: All right.

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Speaker 2: Mike trailing twelve month stocks up, Micron trailing twelve month

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Speaker 2: stocks up eight hundred and twenty five percent, sk Heinex

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Speaker 2: up nine hundred and twenty five percent, Western Digital up

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Speaker 2: nine hundred and eighty percent, Cegate Technology up six hundred

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Speaker 2: and forty percent. Is there anyone differentiate between these companies

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Speaker 2: or do you just shut up and buy them?

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Speaker 7: Buy them?

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Speaker 4: Well, so the thing is sk Heinex, they have the capacity,

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Speaker 4: they have HB, they have a stronger HBM demand base

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Speaker 4: because of the capacity and because of their historyuth Nvidia

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Speaker 4: than Micron. Micron has about twenty to twenty five percent

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Speaker 4: DM market share, a little bit lower on land. Sk

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Speaker 4: Henix has that capacity base, Samsung has that capacity base.

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Speaker 4: But also if you look at Samsung, they have tons

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Speaker 4: of other businesses. It's just that no one needs to

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Speaker 4: care as much about them right now because memory is

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Speaker 4: doing so well. But they have foundry business, they have smartphone,

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Speaker 4: all sorts of TV. I mean they're all and then

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Speaker 4: you look at it Western Digital and Cgate and they're

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Speaker 4: they're not even memory their storage, and you know, it's

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Speaker 4: hard to differentiate. But they have their own duopoly scenario

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Speaker 4: going where they're the main players in that industry and

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Speaker 4: they're not increasing capacity either, And so you have several

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Speaker 4: different dynamics all going around, But how do you really

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Speaker 4: differentiate between Heinez and Micron and sand Disk. It's really difficult.

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Speaker 5: Did this report from Micron appease investors' worries about the

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Speaker 5: AI trade or is this just is this going to

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Speaker 5: be like a short lived situation? I think it.

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Speaker 4: What it really did is the reason I mentioned the

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Speaker 4: floor pricing is because I think that was what investors

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Speaker 4: wanted to know, is will these contracts get renegotiated and

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Speaker 4: take step down pricing when the cycle starts to turn.

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Speaker 4: Assuming you still think these stocks are cyclical, which in

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Speaker 4: my point of view, I still think that memory is cyclical.

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Speaker 4: It's just that we might see some structural changes in

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Speaker 4: the way that those price, the price volatility changes. It

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Speaker 4: might just be less volatile and maybe even actually elongated.

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Speaker 4: But it also might mean that instead of having tens

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Speaker 4: of billions of dollars of cash burn, you might not

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Speaker 4: see any cash burn at all in the industry. It

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Speaker 4: could be razor thin in terms of free cash flow.

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Speaker 4: But yeah, investors, I think are looking at this and

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Speaker 4: they're trying to figure out is this short lived? Is

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Speaker 4: this long term? Are we going to actually see a

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Speaker 4: real cycle play out? What's the length of that cycle.

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Speaker 4: And I think the floor pricing and the more talk

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Speaker 4: about contracts how many customers, I think that starts to

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Speaker 4: impease some of the anxiety.

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Speaker 1: Stay with us.

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Speaker 5: 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, Cocklay 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: Well, we get some earnings from dartin Red Restaurants here today.

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Speaker 8: Weak outlook.

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Speaker 3: Apparently the Olive Garden sales outlook disappoints.

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Speaker 2: Let's break it down with Michael Halen, senior restaurant and

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Speaker 2: food services analyst for Bloomberg Intelligence.

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Speaker 3: Mike, what do you see from Darden with their earnings report?

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Speaker 7: Yeah, you know, it was a pretty solid report.

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Speaker 9: You know, cut they were able to drive pretty strong

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Speaker 9: seam store sales, especially at Longhorn. You know, they had

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Speaker 9: a social media post go viral about the return of

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Speaker 9: their Palmsjean crusted lamb chops.

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Speaker 7: So all in all, it was it was a pretty

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Speaker 7: good quarter.

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Speaker 9: The issue would really be, you know, twofold Number one

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Speaker 9: is their fiscal twenty seven guidance came in light on

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Speaker 9: the EPs line.

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Speaker 7: Right.

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Speaker 9: This company is known to guide pretty conservatively, so that

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Speaker 9: that could be what's.

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Speaker 7: Going on there.

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Speaker 9: And the other thing is, you know, sales are going

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Speaker 9: to slow sequentially, So sales are going to slow sequentially

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Speaker 9: for everyone because the restaurant industry had a very good

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Speaker 9: summer last year. So now we have to lap those

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Speaker 9: tough pomps. We have tough base effects, and especially so

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Speaker 9: for Darden's brand. So Darden's brands had a nice boost

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Speaker 9: last year from rolling out third party delivery with Uber Eats,

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Speaker 9: and now that they're going to lap it, especially Olive Garden,

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Speaker 9: sales are going to slow.

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Speaker 5: So, Michael, they also own Ruth's Chris Steakhouse. You mentioned Longhorn,

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Speaker 5: But what is happening at Olive Garden. We know that

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Speaker 5: they've been trying to get things back on track, and

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Speaker 5: they even were doing smaller portions. I think they're still

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Speaker 5: doing that. That doesn't seem to be taken. What what's

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Speaker 5: going on? Why can't they seem to gain traction with

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Speaker 5: the consumer?

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Speaker 9: Yeah, you know, I don't I don't necessarily feel that

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Speaker 9: that's the case. I mean, they had same sort of

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Speaker 9: sales that were pretty strong, you know last year, right, Like.

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Speaker 7: It's basically part of the issue is their own success.

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Speaker 9: So last year, Olive Garden had a pretty good year,

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Speaker 9: and now they have to lap those strong results. You know,

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Speaker 9: we we still think that Darden is gonna outpace most

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Speaker 9: of their casual dining peers, Olive Garden included. You know,

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Speaker 9: but we see that this industry as a whole slowing

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Speaker 9: this summer. You know, low income consumers are still strapped, right,

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Speaker 9: They've they spent their higher tax refunds, you know, at

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Speaker 9: the pump. And you know, we expect restaurant you know,

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Speaker 9: uh sales here to start to to decelerate here over

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Speaker 9: the next quarter. And you know, Olive Garden and Darden

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Speaker 9: is not I mute.

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Speaker 3: So what what do you see, Michael?

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Speaker 2: Just cross the board, you cover all these restaurants, you

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Speaker 2: see from the quick service restaurants all the way up

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Speaker 2: to some of the higher end stuff. Is the K

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Speaker 2: shaped economy apparent in the restaurant business as well?

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Speaker 7: For sure?

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Speaker 9: That's probably We've been writing about it for several years now.

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Speaker 9: We were probably the first industry to feel it. And yeah,

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Speaker 9: i'd say, going back two plus years, we saw it.

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Speaker 9: I think I forget maybe it was Chipotle who was

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Speaker 9: one of the first to admit it because they didn't

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Speaker 9: have that many low income consumers, so it wasn't going

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Speaker 9: to impact them as much as some of their peers.

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Speaker 9: But you know, yes, this is inflation really impacts the

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Speaker 9: restaurant industry.

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Speaker 7: Number one.

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Speaker 9: It impacts low income and middle income consumer spending.

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Speaker 10: Right.

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Speaker 7: People have been spending way.

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Speaker 9: More at the pump over the last couple of months

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Speaker 9: than they had been. That takes money, you know, out

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Speaker 9: of the out of their wallet that could be used

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Speaker 9: for restaurant visits. Restaurants are very, very sensitive. It really

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Speaker 9: is a canary for canary and the coalmi for the

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Speaker 9: economy in the United States, and low income consumers remain strapped.

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Speaker 9: Low and middle income got a boost with these refund

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Speaker 9: shack checks. You know, we expect that to be short

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Speaker 9: lived and now we just have to, you know, face

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Speaker 9: some tough comps. You know, I think it's it's a

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Speaker 9: tough time for restaurants. You know, low income consumers not

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Speaker 9: getting better and it's not going to until we see

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Speaker 9: inflation get back down to that two percent or below.

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Speaker 5: Yeah, the margins are just so razor thin for so

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Speaker 5: many of these restaurants. But did they say on the

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Speaker 5: earnings call anything about beef prices, These high beef prices

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Speaker 5: and the fact that consumers are still going to steakhouses.

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Speaker 5: It seems like in droves, including.

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Speaker 9: Tonight, steakhouses do pretty well in times of beef inflation.

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Speaker 9: And part of that is, you know, the gap between

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Speaker 9: what they pay at the grocery store and at the

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Speaker 9: restaurants tends to close. Restaurants can sell different cuts of meat, right,

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Speaker 9: so they can be more particular and take advantage of

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Speaker 9: movements of different cuts of meat, and so the gap actually.

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Speaker 7: Shrinks when we see beef inflation, and so.

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Speaker 9: People will opt to get their steaks out at a restaurant.

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Speaker 9: This year, we're looking for more inflation. It's not going

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Speaker 9: to be what we saw last year. So Darden was

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Speaker 9: talking about some low single digit beef inflation. It's going

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Speaker 9: to be higher in the first quarter, but then it's

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Speaker 9: going to start to lap some really strong inflation in

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Speaker 9: the back half of last year. And so for that reason,

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Speaker 9: the chain's going to see less beef inflation, and the

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Speaker 9: entire industry is going to see less beef inflation as

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Speaker 9: the year goes on.

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Speaker 3: I'm getting my New York strip tonight a Keen steakhouse.

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Speaker 5: I passed keys the other day and I thought, of you,

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Speaker 5: that's your favorite steakhouse in the city.

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Speaker 2: Right now, some boys are coming in from out of town. Nice,

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Speaker 2: that's where they want to go. So we'll do that, Hey, Mike.

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Speaker 2: One of the industries singled out is potentially at risk

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Speaker 2: from tighter immigration was the restaurant industry.

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Speaker 3: Have you seen that as that come to fruition.

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Speaker 9: Yeah, we have seen it, and you know, we are

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Speaker 9: just you know, we've been writing our mid year outlook,

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Speaker 9: and what we've been talking about is that casual dining

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Speaker 9: in the first half of the year outperformed quick service

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Speaker 9: restaurants in terms of their sales, in terms of valuation.

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Speaker 7: They really have for the last year and a half.

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Speaker 9: So a big part of that is a better supply

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Speaker 9: and demand balance. So since the pandemic, like right after

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Speaker 9: the pandemic, and for a while, casual dining chains, full

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Speaker 9: service sitdown chains have been shutting stores. In fact, they've

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Speaker 9: been shutting them for fifteen plus years since the Great Recession,

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Speaker 9: and so but at the same time, quick service and

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Speaker 9: fast casual names. You know, for some reason, this narrative

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Speaker 9: came out that quick service was recession proof, as ridiculous

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Speaker 9: as that is. And you know, people were building quick

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Speaker 9: service and fast casual chains as fast as they could

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Speaker 9: for the last five.

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Speaker 7: Or six years.

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Speaker 9: And now that part of the business is overbuilt, whereas

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Speaker 9: casual dining has a better supply and demand imbalance balance.

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Speaker 9: And so now that you know immigration has declined, you know,

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Speaker 9: these full service chains are just in a much better spot.

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Speaker 1: Stay with us.

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Speaker 5: More from Bloomerick 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, Cocklay 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: Ford Motor Company took an unusually human approach to fixing

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Speaker 2: its stubborn quality problems. It brought back what it caused

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Speaker 2: gray beard engineers to help train younger staff and to

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Speaker 2: reprogram the artificial intelligence tools that weren't getting the job

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Speaker 2: done Earlier. Bloomberg Television anchor Matt Miller spoke with Ford

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Speaker 2: CEO Jim Farley on bringing back human inspectors.

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Speaker 10: That human motivation to pay attention to everyone everything is amazing. Look,

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Speaker 10: we make eighty five percent of our vehicles in the US. Man.

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Speaker 10: That means these are US factory workers versus even our

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Speaker 10: domestic competitors. They're some of the biggest importers in the US.

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Speaker 10: We're not building these vehicles in South Korea or Japan.

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Speaker 10: These are American workers beating Toyota and Hyundai, and are

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Speaker 10: domestics who import their vehicles.

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Speaker 3: We beat them all, all right. That was Ford CEO

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Speaker 3: Jim of Farley.

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Speaker 2: Looking at Ford stocks up two point eight percent today

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Speaker 2: of about eight point four percent year to date. Matt

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Speaker 2: Miller joins, this year, Matt, you had that interview with

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Speaker 2: mister Frawley. I was not expecting that story, what.

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Speaker 8: That they were going to do?

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Speaker 5: Great, Beard, Ederis I like it?

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Speaker 8: Yeah, No, I think my demo, but I think.

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Speaker 6: I mean, that's the most interesting part of this story, actually,

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Speaker 6: the comeback. I told him, you're like Tiger Woods winning

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Speaker 6: the Masters in twenty nineteen.

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Speaker 8: You're like, you're like Jordan winning.

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Speaker 6: A championship, you know, in twenty twenty six, because they

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Speaker 6: were so far down they were fifteenth ranked fifteenth in

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Speaker 6: JD Power's survey in twenty twenty three, and they're number

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Speaker 6: one today among the major automakers. And this isn't somebody said, hey,

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Speaker 6: don't you just buy those rankings. No, it's based on

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Speaker 6: how many problems customers report per hundred vehicles, So you

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Speaker 6: can't influence them other than doing a better job building cars.

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Speaker 8: Or a worse job obviously if you want to go down.

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Speaker 6: So it's not only an amazing comeback, but it's going

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Speaker 6: to be a huge contribution also to the bottom line

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Speaker 6: because what happens when you build crapp equality cars, They

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Speaker 6: keep coming back for warranty work, you keep getting safety recalls,

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Speaker 6: and you have to spend a lot of money. And

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Speaker 6: that was really a significant hit to Ford's bottom line

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Speaker 6: over the last couple of years. They were losing a

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Speaker 6: lot of money. Farley now says they're going to save

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Speaker 6: hundreds of millions of dollars, and they're forecasting between eight

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Speaker 6: and a half and ten and a half billion dollars

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Speaker 6: in pre tax earnings this year. I could imagine that

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Speaker 6: forecast getting upgraded at their next earning is because of

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Speaker 6: this improvement in quality.

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Speaker 5: Are they doing it with more AI or less AI?

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Speaker 5: Guess when I hear about the human touch, I'm thinking, Oh,

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Speaker 5: I don't Maybe they're doing this with like actual humans

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Speaker 5: and not so much the technology.

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Speaker 8: Yeah, I think.

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Speaker 6: I mean, I asked him, is it technology factory processes?

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Speaker 6: Are you more close monitoring your suppliers are using AI?

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Speaker 6: And he said, we're using AI, but this is really

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Speaker 6: a human labor solution to the problem. We've We've brought

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Speaker 6: back people who have real experience. They're teaching our younger workers.

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Speaker 6: They're also better able to train the AI, because you know,

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Speaker 6: you've got to tell the AI what to do, and

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Speaker 6: if you don't know to start with, that's a real problem.

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Speaker 6: So I think at this point, when we're worried about

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Speaker 6: AI taking human jobs is refreshing. It's a really refreshing

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Speaker 6: thing to hear. And it's really interesting as well that

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Speaker 6: they need some of those skilled workers back on the

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Speaker 6: factory floor at the Rouge and other plants around around

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Speaker 6: the country.

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Speaker 2: What's the company saying these days? What's mister Farley saying

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Speaker 2: about electric vehicles? Because this is an industry here in

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Speaker 2: the US that kind of went aggressively at some point

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Speaker 2: time when it seemed like that's really where the world

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Speaker 2: was going. They cost a lot of money, they've lost

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Speaker 2: a lot of money. Now they've kind of pulled back

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Speaker 2: a little bit.

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Speaker 7: Well, yeah, where's Ford.

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Speaker 6: I mean, they lost almost five billion dollars last year

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Speaker 6: on ev and they're fixing to lose another four billion

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Speaker 6: this year.

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Speaker 8: About they've really pulled back from evs.

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Speaker 6: And as an example, they built a battery factory in Marshall,

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Speaker 6: Michigan with c at L with a Chinese battery manufacturer,

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Speaker 6: and they're they're going to produce about twenty gigawatts of

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Speaker 6: power a year there, but not aiming it as much

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Speaker 6: at car batteries anymore as they are at giant data

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Speaker 6: storage batteries. So these are gonna be like the size

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Speaker 6: of a shipping container. And if you're putting up like

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Speaker 6: a gigawat data center, you're gonna need to buy like

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Speaker 6: forty or fifty of these things to hold power in

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Speaker 6: case your original power source has a glitch or needs

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Speaker 6: to get change changed over or whatever. They've already got

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Speaker 6: a big deal with EDF of the US and I

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Speaker 6: asked him, you know, are you making deals with hyperscalers

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Speaker 6: like Meta, like Google, like Amazon? And he said that's

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Speaker 6: you know, the direction that they're headed, and they're really

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Speaker 6: excited about it. That's an unexpected tailwind for this company

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Speaker 6: and one of the reasons that their stock has outperformed

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Speaker 6: every single competitor in terms of the major company all

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Speaker 6: the way around.

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Speaker 5: An incredible comeback story. Is the F one fifty still

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Speaker 5: the best selling truck in the US?

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Speaker 8: Well, the F series.

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Speaker 6: It's important to say the F series because that encompasses

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Speaker 6: the F one, fifty two, fifty three, fifty four, fifty six,

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Speaker 6: fifty seven to fifty all.

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Speaker 3: All over it.

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Speaker 5: They have an ev as well, don't they, The Lightning?

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Speaker 9: Yeah, the Lightning.

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Speaker 8: Paul and I both have driven it. Paul, do you

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Speaker 8: think that, which is crazy.

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Speaker 5: Can also be a backup generator for your home?

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Speaker 3: Can do anything?

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Speaker 8: Exam thing it can?

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Speaker 6: In fact, you can switch it over your home over

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Speaker 6: the average home I think can run fully for like

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Speaker 6: three days on that. But that's another project from which

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Speaker 6: they really pulled back substantially. I mean, it was a

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Speaker 6: it was a fun car to drive, but it was

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Speaker 6: a It was a money loser for them, and the

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Speaker 6: depreciation hit is horrible for anyone who.

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Speaker 8: Actually bought one for full price.

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Speaker 6: The point is they are the biggest seller of American

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Speaker 6: trucks in terms of the F series nameplate. It sells

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Speaker 6: more than Sierra. It sells more than Silverado, although if

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Speaker 6: you were to combine GM and Silverado, Chevy Silverado and

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Speaker 6: GMC Sierra, then they actually outsell the app series.

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